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EX-32 - EXHIBIT 32.2 - Xiamen Lutong International Travel Agency Co., Ltd.ex322.htm

 

 

UNITED STATES

  SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

  

For the Quarterly Period Ended September 30, 2013

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

Commission File No. 333-153575

 

Highlight Networks,  Inc.
(Exact name of registrant as specified in its charter)

 

Nevada   26-1507527
(State of incorporation)   (IRS Employer Identification Number)

 

 7325 Oswego Road, Liverpool, NY   13090
(Address of principal executive offices)   (Zip Code)

 

P.O. Box 3143, Liverpool, NY   13089
(Mailing address)   (Zip Code)

 

(315) 451-4722

(Registrant’s telephone number, including area code)

 

(Former name or former address, if changed since last report)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes     [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  [X ] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an  accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and" smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

[ ] Large accelerated filer Accelerated filer 

[ ]  Non-accelerated filer 

[X]  Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

[ ] Yes  [X] No

 

There are 2,942,600 shares of Highlight Networks, Inc. $0.001 par value common stock outstanding as of the report date of September 30, 2013 and 2,942,600 $0.001 par value common stock outstanding as of the filing date of November 8, 2013.

 

1
 

 

HIGHLIGHT NETWORKS, INC.
SEPTEMBER 30, 2013

  PART I – FINANCIAL INFORMATION Page
Item 1. Financial Statements  
 

Unaudited Consolidated Balance Sheets

As of September 30, 2013

As of June 30, 2012

4
 

Unaudited Consolidated Statements of Operations

For the three months ended September 30, 2013 and September 30, 2012

5
 

Unaudited Consolidated Statements of Stockholders’ Deficit

For the three months ended September 30, 2013

6
 

Unaudited Consolidated Statements of Cash Flows

For the three months ended September 30, 2013 and September 30, 2012

7
  Unaudited Notes to Consolidated Financial Statements                                                                                                                                     8
Item 2. Management’s Discussion and Analysis or Plan of Operation 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
     
  PART II – OTHER INFORMATION  
Item 1. Legal Proceedings    15
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Mining Safety Disclosure 15
Item 5. Other Information 15
Item 6. Exhibits 16
     
  SIGNATURES 17

 

 

  

 

 

2
 

Forward-Looking Statements

 

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.   These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result, "and similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor   provisions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

3
 

 

PART I.   FINANCIAL INFORMATION

Item 1. Financial Statements

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
     September 30,      June 30,  
    2013    2013 
ASSETS          
  Current Assets:          
    Cash  $5,629   $50,010 
    Accounts receivable   7,242    1,182 
    Prepaid expenses   2,055    2,055 
    Inventory   10,899    13,069 
          Total Current Assets   25,825    66,316 
           
          Total Assets  $25,825   $66,316 
           
LIABILITIES & STOCKHOLDERS' DEFICIT          
  Current Liabilities:          
    Accounts payable  $69,824   $40,855 
    Accrued expenses   8,169    7,683 
    Advances from related party   100    100 
    Convertible notes to related parties, net of unamortized discounts          
      of $112,516 and $0, respectively   73,216    —   
    Notes payable to related parties   —      161,230 
          Total Current Liabilities   151,309    209,868 
           
  Stockholders' Deficit:          
    Preferred Stock- $.001 par value; 20,000,000 shares authorized;          
      no shares outstanding as of September 30, 2013 and June 30, 2013   —      —   
    Common Stock- $.001 par value; 150,000,000 shares authorized;          
      2,942,600 shares outstanding as of September 30, 2013 and          
      2,894,600 shares outstanding as of June 30, 2013   2,943    2,895 
    Additional paid-in capital   936,197    685,373 
    Accumulated deficit   (1,064,624)   (831,820)
          Total Stockholders' Deficit   (125,484)   (143,552)
           
          Total Liabilities and Stockholders' Deficit  $25,825   $66,316 
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.  

 

 

 

4
 

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
       
   Three Months Ended
   September 30,
   2013  2012
       
Revenue  $7,302   $—   
Cost of goods sold   (2,840)   —   
Gross profit   4,462    —   
           
Operating Expenses:          
  Consulting expense   73,220    —   
  General and administrative   124,350    3,783 
  Rent expense   24,000    —   
      Total Operating Expenses   221,570    3,783 
           
Loss from Operations   (217,108)   (3,783)
           
Other Expenses:          
   Interest expense   (15,696)   —   
           
Net Loss  $(232,804)  $(3,783)
           
Net loss per share - basic and diluted  $(0.08)  $(0.00)
           
Weighted average shares outstanding - basic and diluted   2,900,861    2,419,600 
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.  

 

5
 

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 2013
(UNAUDITED)
                
   Common     Additional     Total
     Stock    Paid-in    Accumulated    Stockholders' 
    Shares    Par Value    Capital    Deficit     Deficit 
                          
Balances at June 30, 2013   2,894,600   $2,895   $685,373   $(831,820)  $(143,552)
                          
Stock issued for services   48,000    48    72,672    —      72,720 
                          
Debt discount due to beneficial
conversion feature
   —      —      123,821    —      123,821 
                          
  Stock-based compensation   —      —      54,331    —      54,331 
                          
  Net loss   —      —      —      (232,804)   (232,804)
                          
Balances at September 30, 2013   2,942,600   $2,943   $936,197   $(1,064,624)  $(125,484)
                          
The accompanying notes are an integral part of these unaudited consolidated financial statements.  

 

 

6
 

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
       
   Three Months Ended
   September 30,
   2013  2012
       
Cash flows from operating activities          
Net Loss  $(232,804)  $(3,783)
  Adjustments required to reconcile net loss          
    to net cash used in operating activities:          
    Amortization of debt discounts   11,305    —   
    Stock-based compensation   127,051    —   
    Changes in operating assets and liabilities:          
       Accounts receivable   (6,060)   —   
       Inventory   2,170    —   
       Prepaid expenses   —      —   
       Accounts payable and accrued expenses   29,455    —   
Net cash used in operating activities   (68,883)   (3,783)
           
Cash flows from financing activities          
  Proceeds from notes payable to related parties   50,000    —   
  Proceeds from convertible notes to related parties   15,000      
  Payments on notes payable to related parties   (40,498)   —   
Net cash provided by financing activities   24,502    —   
           
Net decrease in cash   (44,381)   (3,783)
Cash at beginning of period   50,010    15,708 
Cash at end of period  $5,629   $11,925 
           
Supplemental disclosures of cash flow information:          
  Cash paid during the period for:          
    Interest  $—     $—   
    Income taxes   —      —   
           
Noncash investing and financing activities:          
  Debt discount due to beneficial conversion feature  $123,821   $—   
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.  

 

 

7
 

HIGHLIGHT NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1—Organization and Basis of Presentation

 

Organization and Basis of Presentation

 

The accompanying consolidated financial statements are unaudited.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2013 audited financial statements as reported in Form 10K.  The results of operations for the three month period ended September 30, 2013 are not necessarily indicative of the operating results for the full year ended June 30, 2014.

 

The Company was formed on June 21, 2007 as a Nevada corporation. In 2013 the Company has commenced operations and is no longer considered a development stage company. The Company has a June 30 year end.

 

On March 11, 2013, EZ Recycling, Inc was formed and incorporated to serve as a wholly owned subsidiary of Highlight Networks, Inc. EZ Recycling is incorporated in the State of Nevada. All inter-company balances and transactions are eliminated in consolidation.

 

Nature of Business

 

In 2013 the Company announced a new business venture in recycling, refining, metals trading and assisting in metal recovery, with a focus on precious metals refining from electronic waste. During 2013, the Company began its new business venture in recycling, refining, metals trading and assisting in metal recovery, with a focus on precious metals refining from electronic waste.

 

The Company’s principal executive offices are located at 7325 Oswego Road Liverpool, NY 13090. As of February 19, 2013 the Company also has a rental agreement for a warehouse property located at 6 Alder East Syracuse, NY 13057. Our telephone number is (315) 451-4722.

 

Inventory

 

In the three months ended September 30, 2013, the company had ending inventory of 5,820 lbs. of scrap metal and used circuit boards and recognized $7,242 in revenue from the processing, recycling, refining or sale of inventory. Inventories are periodically monitored to ensure that the reserve for obsolescence covers any obsolete items. As of September 30, 2013, there was no reserve for obsolescence. Inventories are valued at the lower of cost (using average cost) or market.

 

In the three months ended September 30, 2013, the company had ending inventory of 444 items of EBAY merchandise and recognized $60 in revenue from the sale of merchandise in inventory. Inventories are periodically monitored to ensure that the reserve for obsolescence covers any obsolete items. As of September 30, 2013, there was no reserve for obsolescence. Inventories are valued at the lower of cost (using average cost) or market.

 

Inventory consisted of the following finished goods as of September 30, 2013 and June 30, 2013:

 

   September 30,    June 30,
  2013   2013
EBAY merchandise  $        6,084    $         6,186   
Scrap metal            4,815   6,883   
Total inventory  $      10,899    $      13,069   

 

 

 

8
 

Note 2—Going Concern

 

The accompanying financial statements have been prepared on the basis of accounting principles applicable to a “going concern,” which assume that Highlight Networks, Inc. (hereto referred to as the “Company”) will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.

 

Several conditions and events cast doubt about the Company’s ability to continue as a “going concern.” The Company has incurred net losses of approximately $1,064,624 for the period from June 21, 2007 (inception) to September 30, 2013, has an accumulated deficit, has recurring losses, has no revenues, and requires additional financing in order to finance its business activities on an ongoing basis. The Company’s future capital requirements will depend on numerous factors including, but not limited to, continued progress in the pursuit of business opportunities. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses. Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide them with the opportunity to continue as a “going concern.”

 

These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a “going concern.” While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the “going concern” assumption used in preparing these financial statements, there can be no assurance that these actions will be successful. If the Company were unable to continue as a “going concern,” then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses, and the balance sheet classifications used. 

 

Note 3—Commitments

 

On January 1, 2013, the Company entered into a 3 year consulting agreement. Pursuant to the terms of the agreement, the Company committed to issue 175,000 common shares to the consultant upon execution of the agreement (see Note 5) and the Company committed to paying a cash commission equal to 8% of the gross sales of all merchandise and scrap products shipped and sold under any contract arranged by the consultant over the term of the agreement.

 

On February 19, 2013, the Company entered into a lease agreement beginning March 1, 2013 to rent the property at 6 Alder Drive East Syracuse, New York 13057. The monthly rent under the agreement is $8,000, along with utilities and waste management incurred by the Company in the use of the facility. The initial term of the lease agreement is 5 years. As of September 30, 2013 the Company owes $56,000 under this lease.

 

Note 4—Related Party Transactions

During September 2013, the Company modified its outstanding note agreements, with an aggregate principal amount of $170,732, with related parties, Friction & Heat LLC and Joseph Passalaqua whereby a conversion option was added. The promissory notes were originally unsecured, bore simple interest at 10% per annum and were due on demand. The Company also borrowed $50,000 from these related parties under notes with the same terms during the three months ended September 3013. In September 2013, these loans were modified into convertible notes that are unsecured, mature 1 year from the date of the note and bear simple interest at 10% per annum. The notes are convertible into common stock at 60% of the average of the lowest 3 trading prices during the 10 days preceding the date of conversion. The note holders have agreed to not convert into more common shares than the Company has available and authorized at any time. The Company also borrowed $15,000 under convertible notes with these same terms during the three months ended September 30, 2013. As of September 30, 2013, the aggregate unpaid principal under these convertible notes was $185,732.

The Company evaluated the modification and determined it qualified as an extinguishment of debt due to a substantive conversion option being added. The Company then evaluated the convertible notes under ASC 815 and determined the notes do not qualify as derivative liabilities. The Company then evaluated the notes for a beneficial conversion feature under ASC 470-20 as of the date of the notes and determined that beneficial conversion features existed. The aggregate intrinsic value of the beneficial conversion features was determined to be $123,821 and was recognized as a discount to the debt that is being amortized using the effective interest method over the life of the notes. During the three months ended September 30, 2013, amortization of $11,305 was recorded against the discounts. As of September 30, 2013, the aggregate unamortized discount on the notes was $112,516.

9
 

In 2013, EZ Recycling, Inc., the wholly owned subsidiary of Highlight Networks, Inc. borrowed $100 from a related party, Joseph C. Passalaqua. The amount is non-interest bearing advance. As of September 30, 2013 the unpaid amount on the advance was $100.

 

Note 5— Equity


Highlight Networks, Inc. is authorized to issue 150,000,000 shares of common stock, with par value of $0.001 per share. As of September 30, 2013, a total of 2,942,600 shares of common stock were issued and outstanding. Holders of common stock are entitled to receive dividends, when and if declared by the board of directors, subject to prior rights of holders of any preferred stock then outstanding and to share ratably in the net assets of the company upon liquidation. Holders of common stock do not have preemptive or other rights to subscribe for additional shares. The articles of incorporation do not provide for cumulative voting. Shares of common stock have equal voting, dividend, liquidation and other rights, and have no preference, exchange or appraisal rights.

 

On April 15, 2013, the Company granted an aggregate of 300,000 common shares to officers of the Company for services to be rendered. 150,000 shares vested immediately on April 15, 2013 and 150,000 shares vest on May 1, 2014. The shares were valued at $450,000 of which $269,882 was recognized during the year ended June 30, 2013. During the three month period ended September 30, 2013, an additional $54,331 was recognized and $125,787 will be recognized over the remaining vesting period.

 

On September 18, 2013, the company committed to issue 48,000 common shares under a consulting agreement. The shares were fully earned upon execution of the agreement and were valued using the closing stock price of the Company’s common stock at September 18, 2013. The Company recognized the full fair value of these shares of $72,720 as an expense during the three months ended September 30, 2013.

 

 

Note 6—Subsequent Events

 

On November 1, 2013, the Company entered into an agreement with a structuring agent wherein compensation will be 4,000,000 common shares. Of these shares, 1,000,000 are due upon execution and the remaining 3,000,000 are due when certain performance objectives are met.

 

10
 

Item 2.  Management's Discussion and Analysis of financial Condition and Results of Operations

  

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this Form 10-Q.


 

Overview


Highlight Networks, Inc. is a development stage company in the business of planning, development and operation. In 2013 the Company announced a new business venture in recycling, refining, metals trading and assisting in metal recovery, with a focus on precious metals refining from electronic waste. The Company's activities to date have consisted primarily of organizational and equity fund-raising activities. The Company has not yet commenced its principal revenue producing activities. As of the date of this report, the Company has had limited ongoing operations and third party contract services.

 

Results of Operations for three months September 30, 2013 compared to the three months ended September 30, 2012


Revenues

 

Our total revenue increased by $7,302, from $0 in the three months ended September 30, 2012 to $7,302 in the three months ended September 30, 2013. The Company generated no sales revenue in 2012. As of September 30, 2013, the principal revenue was from recycling, refining, metals trading and assisting in metal recovery, with a focus on precious metals refining from electronic waste.

 

Cost of Goods Sold

 

Our overall cost of goods sold increased by $2,840, from $0 in the three months ended September 30, 2012 to $2,840 in the three months ended September 30, 2013. The Company had no costs of goods sold related to sales revenue in 2012. As of September 30, 2013, the principal costs of goods sold related to the ongoing operations are treatment, refining and assay fees from the metal recycling process.

 

Operation and Administrative Expenses


Operating expenses which includes accounting and legal expenses, administrative expenses and rent increased by $120,567, from $3,783 in the three months ended September 30, 2012 to $124,350 in the three months ended September 30, 2013.

 

Interest expense increased by $15,696, from $0 in the three months ended September 30, 2012 to $15,696 in the three months ended September 30, 2013.

 

Net loss per share was $0.00 for the three months ended September 30, 2012 and $0.06 for the three months ended September 30, 2013. The weighted average shares outstanding were 2,419,600 for the three months ended September 30, 2012 and 2,900,861 for the three months ended September 30, 2013.

 

As of September 30, 2013, the Company had no agreements with sub-distributors relating to distribution commitments or guarantees that had not been recognized in the statement of operations.


Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated material revenues and sufficient revenues may not be forthcoming. Accordingly, we must raise cash from sources other than operations.

 

11
 

Net Loss

 

The Company had a net loss of $3,783 for the three months ended September 30, 2012 as compared to a net loss of $232,804 for the three months ended September 30, 2013.

 

Cash Flow

 

Our primary source of liquidity has been cash from shareholder loans.

 

Working Capital 

 

As of the year ended June 30, 2013, the Company had total current assets of $66,316 and total current liabilities of $209,868, resulting in working capital deficit of $143,552. As of September 30, 2013, the Company had total current assets of $25,825 and total current liabilities of $151,309, resulting in a working capital deficit of $125,484.

 

Liquidity and Capital Resources


The Company filed a registration statement with the Securities and Exchange Commission which became effective on October 6, 2008 for a self underwritten offering in the amount of $510,000 consisting of 100,000 shares of common stock at a share price of $5.10.  The Company has had limited participation in the offering.  The Company is attempting to secure private funding to complete its first network installation however, there is not commitment for these funds and there is no assurance that the amount will be raised or that the Company will otherwise secure sufficient funds to achieve its business plan.

In 2013, the Company entered into Promissory note agreements with related parties, Friction & Heat LLC and Joseph Passalaqua. The promissory notes were unsecured, bear simple interest at 10% per annum and are due on demand. In September 2013, these loans were reclassified and are now held in multiple Convertible Promissory notes that are unsecured, payable a year from the signed note and bear simple interest at 10% per annum. As of September 30, 2013, the aggregate unpaid principal on these notes was $185,832, with interest accrued of $3,975. Highlight Networks evaluated the notes for a beneficial conversion feature under ASC 470-20 as of the date of the notes and determined that a beneficial conversion feature existed. The intrinsic value of the beneficial conversion feature was determined to be $123,821 and was recognized as a discount to the debt that is being amortized using the effective interest method over the life of the notes. During the three months ended September 30, 2013, amortization of $11,305 was recorded against this discount.

In 2013, EZ Recycling, Inc., the wholly owned subsidiary of Highlight Networks, Inc. borrowed $100 from a related party, Joseph C. Passalaqua. The amount is non-interest bearing advance. As of September 30, 2013 the unpaid amount on the advance was $100.

 

Net cash used in operating activities was $68,883 during the three-month period ended September 30, 2013.

 

Net cash provided by investing activities was $0 during the three-month period ended September 30, 2013.

 

Net cash provided by financing activities was $24,502 during the three-month period ended September 30, 2013.

 

Due to the substantial doubt of our ability to meet our working capital needs, history of losses, and current shareholders' deficit, our independent auditor included an explanatory paragraph regarding concerns about out ability to continue as a going concern in his report on our annual financial statements for the year ended June 30, 2013.  Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditor.


Commitments and Capital Expenditures


The Company had no material commitments for capital expenditures.  

 

Critical Accounting Policies Involving Management Estimates and Assumptions


Our discussion and analysis of our financial condition and results of operations is based on our financial statements. In preparing our financial statements in conformity with accounting principles generally accepted in the United States of America, we must make a variety of estimates that affect the reported amounts and related disclosures.

12
 

 

Stock Based Compensation

 

We will account for employee stock-based compensation costs in accordance with ASC 718, Share-Based Payments, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in our statements of operations based on their fair values. We will utilize the Black-Scholes option pricing model to estimate the fair value of employee stock based compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our stock-based compensation.


Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Deferred Tax Valuation Allowance

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax expense is the total of tax payable for the period and the change during the period in deferred tax assets and liabilities.

 

Off-Balance Sheet Arrangements


Highlight Networks, Inc. does not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements.

 

Common Stock

 

Highlight Networks, Inc. is authorized to issue 150,000,000 shares of common stock, with par value of $0.001 per share. As of September 30, 2013, 2,942,600 shares of common stock are outstanding. Holders of common stock are entitled to receive dividends, when and if declared by the board of directors, subject to prior rights of holders of any preferred stock then outstanding and to share ratably in the net assets of the company upon liquidation. Holders of common stock do not have preemptive or other rights to subscribe for additional shares. The articles of incorporation do not provide for cumulative voting. Shares of common stock have equal voting, dividend, liquidation and other rights, and have no preference, exchange or appraisal rights.

 

On April 15, 2013, the Company granted an aggregate of 300,000 common shares to officers of the Company for services to be rendered. 150,000 shares vested immediately on April 15, 2013 and 150,000 shares vest on May 1, 2014. The shares were valued at $450,000 of which $269,882 was recognized during the year ended June 30, 2013 and $180,118 will be recognized over the remaining vesting period.

 

On April 17, 2013, the Company issued 175,000 shares of common stock to a nonemployee for consulting services valued at $262,500.

 

On September 18, 2013, the company committed to issue 48,000 shares of common stock under a consulting agreement valued at $72,720, based upon the closing price of our common stock of $1.515 on September 18, 2013.

 

Preferred Stock

 

On July 16, 2013, the Company Amended the Articles of Incorporation to state that the Company is authorized to issue 20,000,000 shares of Preferred Stock. The Amendment was effective when the Certificate of Amendment was filed with the Secretary of the State of Nevada on July 18, 2013. As of September 30, 2013, there were 0 shares of Highlight Networks, Inc. $0.001 par value preferred stock outstanding.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

The Registrant is a smaller reporting company as defined by Item 10(f)(1) and is not required to provide the information required by this Item.  

 

Item 4.     Controls and Procedures 

 

MANAGEMENT’S QUARTERLY REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f). Management conducted an assessment as of September 30, 2013 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management concluded that our internal control over financial reporting was ineffective as of September 30, 2013.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the control procedure may deteriorate.

 

This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report. As required by SEC Rule 13a-15(b), our company carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer, of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, management concluded that our disclosure controls and procedures were ineffective at the reasonable assurance level.

The material weaknesses identified relates to the following:

-Lack of proper segregation of duties
-Lack of a formal control process that provides for multiple levels of supervision and review

 

The Company believes that the material weaknesses are due to the Company’s limited resources.

 

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

There were no changes in our internal control over financial reporting identified in connection with our evaluation of these controls as of the third fiscal quarter ended September 30, 2013 as covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

 

Item 1. Legal Proceedings.

 

The Company is not a party to any pending legal proceeding and we are not aware of any pending legal proceeding in which any of our officers or directors or any beneficial holders of 5% or more of our voting securities are adverse to or have a material interest adverse to the Company.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no unregistered sales of equity securities during the reported interim period.  

 

Item 3. Defaults on Senior Securities 

 

The Company has no outstanding Senior Securities.

 

Item 4. Mining Safety Disclosure

 

Not Applicable.

 

Item 5.  Other Information 

 

None.

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Item 6.  Exhibits 

 

 

EXHIBIT 31.1 Highlight Networks, Inc. Certification of Chief Executive Officer Pursuant to Section 302.
EXHIBIT 31.2 Highlight Networks, Inc. Certification of Chief Financial Officer Pursuant to Section 302.
EXHIBIT 32.1 Highlight Networks, Inc. Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EXHIBIT 32.2 Highlight Networks, Inc. Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101* Interactive Data Files for Highlight Networks, Inc. 10Q for the Period Ended September 30, 2013
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

 

*Pursuant to Rule 406T of Regulation S-T, these interactive date files are deemed not filed or part of the registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

 

 

 

 

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SIGNATURES

 
 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 

HIGHLIGHT NETWORKS, INC.

 
 

Dated: November 8, 2013 

 
 

by: /s/ Alfonso Knoll        

Alfonso Knoll       

President; Director and Chief Executive Officer

 

by: /s/ Joseph C. Passalaqua        

Joseph C. Passalaqua

Secretary; Director and Chief Financial Officer

 
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this report below.

 
by: /s/ Alfonso Knoll        

Alfonso Knoll       

President; Director and Chief Executive Officer

(Principal Executive Officer)

 

by: /s/ Joseph C. Passalaqua        

Joseph C. Passalaqua

Secretary; Director; Chief Financial Officer

(Principal Financial Officer)

 

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