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 December 31, 2014

 

   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 preceding12 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 3,167,600 shares of Highlight Networks, Inc. $0.001 par value common stock outstanding as of December 31, 2014 and 3,167,600 shares of $0.001 par value common stock outstanding as of the date of this filing January 30, 2015.

 

 

 

 

 

HIGHLIGHT NETWORKS, INC.
DECEMBER 31, 2014
	PART I – FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets As of December 31, 2014 As of June 30, 2014	5
	Unaudited Consolidated Statements of Operations For the three months ended December 31, 2014 and December 31, 2013 For the six months ended December 31, 2014 and December 31, 2013	6
	Unaudited Consolidated Statement of Stockholders’ Deficit For the six months ended December 31, 2014	7
	Unaudited Consolidated Statements of Cash Flows For the six months ended December 31, 2014 and December 31, 2013	8
	Unaudited Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis or Plan of Operation	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mining Safety Disclosure	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
	SIGNATURES	19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

 

 

PART I.   FINANCIAL INFORMATION

Item 1. Financial Statements

 

 

 

 

 

 

 

 

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
			December 31,				June 30,
			2014				2014
ASSETS
Current Assets:
Cash		$	999			$	6,081
Prepaid expenses			1,427				1,427
Inventory			4,864				10,948
Total Current Assets			7,290				18,456
Total Assets		$	7,290			$	18,456
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable		$	59,666			$	69,939
Accrued expenses			41,644				27,176
Accounts payable to related parties			236,235				170,165
Advances from related party			100				100
Notes payable to related parties			391,277				323,027
Total Current Liabilities			728,922				590,407
Stockholders' Deficit:
Preferred stock, $.001 par value; 20,000,000 shares authorized;
no shares outstanding as of December 31, 2014 and June 30, 2014			—				—
Common stock; $.001 par value; 150,000,000 shares authorized;
3,167,600 shares outstanding as of December 31, 2014 and
14,167,600 shares outstanding as of June 30, 2014			3,168				14,168
Additional paid-in capital			8,036,694				8,698,757
Accumulated deficit			(8,761,494	)			(9,284,876	)
Total Stockholders' Deficit			(721,632	)			(571,951	)
Total Liabilities and Stockholders' Deficit		$	7,290			$	18,456
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2014				2013				2014				2013
Revenues:
Income		$	—			$	—			$	—			$	7,302
Cost of goods sold			—				(63	)			(6,084	)			(2,903	)
Gross (loss) profit			—				(63	)			(6,084	)			4,399
Operating Expenses:
Consulting expense			—				7,363,971				—				7,437,191
General and administrative			34,176				115,959				(595,436	)			240,279
Rent expense			24,000				24,000				48,000				48,000
Total Operating Expenses			58,176				7,503,930				(547,436	)			7,725,470
Income(Loss) from Operations			(58,176	)			(7,503,993	)			541,352				(7,721,071	)
Other Income (Expense):
Interest expense			(9,519	)			(47,857	)			(17,970	)			(63,583	)
Net Income (Loss)		$	(67,695	)		$	(7,551,850	)		$	523,382			$	(7,784,654	)
Net income (loss) per share - basic and diluted		$	(0.01	)		$	(0.84	)		$	0.05			$	(1.31	)
Weighted average shares outstanding - basic and diluted			8,482,817				9,029,557				11,325,209				5,965,209
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

 

 

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED DECEMBER 31, 2014
(Unaudited)
						Additional				Total
		Common Stock				Paid-in		Accumulated		Stockholders'
		Shares		Par Value		Capital		Deficit		Deficit
Balance at June 30, 2014		14,167,600		$    14,168		$8,698,757		$    (9,284,876)		$     (571,951)
Cancelation of unvested stock compensation		-		-		(673,063)		-		(673,063)
Cancelation of common stock issued		(11,000,000)		(11,000)		11,000		-		-
Net income		-		-		-		523,382		523,382
Balance at December 31, 2014		3,167,600		$      3,168		$8,036,694		$    (8,761,494)		$     (721,632)
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

HIGHLIGHT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		Six Months Ended
		December 31,
		2014				2013
Cash flows from operating activities
Net income (loss)		$	523,382			$	(7,784,654	)
Adjustments to reconcile net loss to net cash
used in operating expenses:
Amortization of debt discounts			—				53,846
Stock-based compensation			(673,063	)			7,544,868
Loss on inventory impairment			6,084				—
Changes in operating assets and liabilities:
Accounts receivable			—				752
Inventory			—				2,121
Accounts payable and accrued expenses			4,195				24,078
Accounts payable to related parties			66,070				48,000
Net cash used in operating activities			(73,332	)			(110,989	)
Cash flows from financing activities
Proceeds from notes payable to related parties			68,250				102,450
Payments on related party debt borrowings			—				(40,498	)
Net cash provided by financing activities			68,250				61,952
Net (decrease) increase in cash			(5,082	)			(49,037	)
Cash at beginning of period			6,081				50,010
Cash at end of period		$	999			$	973
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest		$	—			$	—
Income taxes			—				—
Non-cash investing and financing activities:
Debt discount due to beneficial conversion feature		$	—			$	145,990
Cancelation of common stock issued			11,000				—
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

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, 2014 audited financial statements as reported in Form 10K.  The results of operations for the six month period ended December 31, 2014 are not necessarily indicative of the operating results for the full year ended June 30, 2015.

 

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) 451-4889.

 

Inventory

 

For the six months ended December 31, 2014, the company had ending inventory of 6,475 lbs. of scrap metal and used circuit boards and recognized $0 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 December 31, 2014, there was no reserve for obsolescence. Inventories are valued at the lower of cost (using average cost) or market.

 

During the six months ended December 31, 2014, management determined that the remaining EBAY inventory was impaired and an impairment loss of $6,084 was recognized. The impairment loss is classified as cost of goods sold in the consolidated statements of operations. As of December 31, 2014, there was no remaining EBAY inventory.

 

Inventory consisted of the following finished goods as of December 31, 2014 and June 30, 2014:

 

		December 31,				June 30,
		2014				2014
EBAY merchandise		$	—			$	6,084
Scrap metal			4,864				4,864
Total inventory		$	4,864			$	10,948

 

 

 

 

 

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 raise substantial doubt as to the Company’s ability to continue as a “going concern.” The Company has incurred net losses of approximately $8,761,494 for the period from June 21, 2007 (inception) to December 31, 2014, has a working capital deficit and an accumulated deficit, has recurring losses, has limited 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 issued 175,000 common shares to the consultant upon execution of the agreement 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 with a related party (see Note 4) 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 property taxes, 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 December 31, 2014 and June 30, 2014, the Company owes $176,000 and $128,000, respectively in rent and $60,235 and $42,165, respectively in property tax to Remix Ventures LLC, under this lease.

 

Note 4—Related Party Transactions

 

As of December 31, 2014 and June 30, 2014, the Company has outstanding debt of $391,277 and $323,027, respectively, with accrued interest of $40,144 and $22,176, respectively, owed to related parties Friction & Heat LLC and Joseph C. Passalaqua. Joseph C. Passalaqua is a managing member of Friction & Heat. $68,250 was borrowed during the six months ended December 31, 2014. The outstanding related party debt is held in unsecured promissory notes, bears interest at 10% per annum and matures between on demand and December 31, 2014.

In 2013 and 2014, the Company incurred liabilities for unpaid rent at $8,000 monthly to Remix Ventures, LLC, according to a signed rental agreement. Joseph C. Passalaqua the sole managing member of Remix Ventures, LLC and an officer of Highlight Networks, Inc. As of December 31, 2014 and June 30, 2014, the amount due for rent was $176,000 and $128,000, respectively.

In 2013 and 2014, the Company incurred liabilities for the reimbursement of property taxes that were paid by Remix Ventures, LLC, according to a signed rental agreement. Joseph C. Passalaqua is the sole managing member of Remix Ventures, LLC and an officer of Highlight Networks, Inc. As of December 31, 2014 and June 30, 2014, the amount due in property tax reimbursement to Remix Ventures LLC was $60,235 and $42,165, respectively.

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 December 31, 2014 and June 30, 2014, the unpaid amount on the advance was $100.

Note 5— Equity

The Company is authorized to issue 150,000,000 shares of common stock, with par value of $0.001 per share.

 

On November 1, 2013, the Company committed to issue 4,000,000 common shares in an agreement to a structuring agent. Of these shares, 1,000,000 were issued and fully earned upon execution of the agreement as compensation and the remaining 3,000,000 are due when certain performance objectives are met. The Company recognized the full fair value of the 1,000,000 shares issued and earned of $627,000 during the year ended June 30, 2014. The fair value of the remaining 3,000,000 shares was determined to be $930,000 was being recognized over the expected successful completion date of the performance conditions of September 30, 2014. During the year ended June 30, 2014, $673,063 was recognized as expense for the 3,000,000 shares.

 

On October 14, 2014, the parties mutually agreed to cancel the agreement, dated November 1, 2013 and the commitment to issue the 3,000,000 unearned shares, along with the 1,000,000 shares previously issued, were cancelled. The 1,000,000 shares of common stock that had vested were returned to the Company and cancelled. The previously recognized stock compensation on the unvested shares of $673,063 was reversed during the six months ended December 31, 2014.

 

On November 17, 2014, 10,000,000 shares of common stock previously issued to an officer and Director were returned to the Company and cancelled.

 

There were no new shares issued during the six months ended December 31, 2014. As of December 31, 2014, there were 3,167,600 shares of common stock issued and outstanding, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 the three months December 31, 2014 compared to the three months ended December 31, 2013

Revenues

 

Our total revenue was $0 in the three months ended December 31, 2013 and $0 in the three months ended December 31, 2014. As of December 31, 2014, the principal revenue to date, 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 was $63 in the three months ended December 31, 2013 and $0 in the three months ended December 31, 2014. As of December 31, 2014, 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 included accounting and legal expenses, administrative expenses and rent were $7,503,930 in the three months ended December 31, 2013 and $58,176 in the three months ended December 31, 2014. In the three months ended December 31, 2013, the primary expense was for consulting services and stock-based compensation.

 

Interest expense decreased by $38,338, from $47,857 in the three months ended December 31, 2013 to $9,519 in the three months ended December 31, 2014 due mainly to the amortization of a debt discount in 2013.

 

Net loss per share was $(0.84) for the three months ended December 31, 2013 and $(0.01) for the three months ended December 31, 2014. The weighted average shares outstanding were 9,029,557 for the three months ended December 31, 2013 and 8,482,817 for the three months ended December 31, 2014.

 

As of December 31, 2014, 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 on our financial statements for the years ended June 30, 2014 and 2013. 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.

 

 

 

 

Results of Operations for the six months December 31, 2014 compared to the six months ended December 31, 2013

Revenues

 

Our total revenue was $7,302 in the six months ended December 31, 2013 and $0 in the six months ended December 31, 2014. As of December 31, 2014, the principal revenue to date, 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 was $2,903 in the six months ended December 31, 2013 and $6,084 in the six months ended December 31, 2014. As of December 31, 2014, the principal costs of goods sold related to the ongoing operations are treatment, refining and assay fees from the metal recycling process. In the six months ended December 31, 2014, the amount of cost of goods sold is due to a loss on the impairment of inventory.

 

Operation and Administrative Expenses

Operating expenses which included accounting and legal expenses, administrative expenses and rent were $7,725,470 in the six months ended December 31, 2013 and $(547,436) in the six months ended December 31, 2014. In the six months ended December 31, 2013, the primary expense was for consulting services. In the six months ended December 31, 2014, there was a negative amount in the operating expenses due to a reversal of stock compensation expense related to unvested shares.

 

Interest expense decreased by $45,613, from $63,583 in the six months ended December 31, 2013 to $17,970 in the six months ended December 31, 2014 due mainly to the amortization of a debt discount in 2013.

 

Net loss per share was $(1.31) for the six months ended December 31, 2013. Net income per share was $0.05 for the six months ended December 31, 2014. The weighted average shares outstanding were 5,965,209 for the six months ended December 31, 2013 and 11,325,209 for the six months ended December 31, 2014.

 

As of December 31, 2014, 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 on our financial statements for the years ended June 30, 2014 and 2013. 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.

 

Net Loss

 

The Company had a net loss of $(7,784,654) for the six months ended December 31, 2013 as compared to a net income of $523,382 for the six months ended December 31, 2014.

 

Cash Flow

 

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

 

Working Capital 

 

As of June 30, 2014, the Company had total current assets of $18,456 and total current liabilities of $590,407, resulting in working capital deficit of $(571,951). As of December 31, 2014, the Company had total current assets of $7,290 and total current liabilities of $728,922, resulting in a working capital deficit of $(721,632).

 

 

 

 

 

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 and 2014, the Company borrowed an aggregate of $431,775 respectively from related parties Friction & Heat LLC and Joseph C. Passalaqua. Joseph C. Passalaqua is a managing member of Friction & Heat. The Company also repaid an aggregate of $40,498 on the related party debt. The outstanding related party debt is held in unsecured promissory notes, bears interest at 10% per annum and matures between on demand and June 30, 2015. As of December 31, 2014, the aggregate unpaid principal on these related party notes was $391,277, with interest accrued of $40,144.

In 2013 and 2014, the Company incurred liabilities for unpaid rent at $8,000 monthly to Remix Ventures, LLC, according to a signed rental agreement. Joseph C. Passalaqua the sole managing member of Remix Ventures, LLC and an officer of Highlight Networks, Inc. As of December 31, 2014, the amount due for rent was $176,000.

In 2013 and 2014, the Company incurred liabilities for the reimbursement of property taxes that were paid by Remix Ventures, LLC, according to a signed rental agreement. Joseph C. Passalaqua is the sole managing member of Remix Ventures, LLC and an officer of Highlight Networks, Inc. As of December 31, 2014, the amount due in property tax reimbursement to Remix Ventures LLC was $60,235.

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 December 31, 2014 the unpaid amount on the advance was $100.
 

Net cash used in operating activities was $73,332 during the six-month period ended December 31, 2014.

 

Net cash provided by investing activities was $0 during the six-month period ended December 31, 2014.

 

Net cash provided by financing activities was $68,250 during the six-month period ended December 31, 2014.

 

Due to the substantial doubt of our ability to meet our working capital needs, history of losses, and current shareholders' deficit, our independent registered public accounting firm included an explanatory paragraph regarding concerns about out ability to continue as a going concern in their report on our annual financial statements for the years ended June 30, 2014 and 2013.  Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure.

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.

 

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 December 31, 2014, a total of 3,167,600 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 November 1, 2013, the Company committed to issue 4,000,000 common shares in an agreement to a structuring agent. Of these shares, 1,000,000 were issued and fully earned upon execution of the agreement as compensation and the remaining 3,000,000 are due when certain performance objectives are met. The Company recognized the full fair value of the 1,000,000 shares issued and earned of $627,000 during the year ended June 30, 2014. The fair value of the remaining 3,000,000 shares was determined to be $930,000 was being recognized over the expected successful completion date of the performance conditions of September 30, 2014. During the year ended June 30, 2014, $673,063 was recognized as expense for the 3,000,000 shares.

On October 14, 2014, the parties mutually agreed to cancel the agreement, dated November 1, 2013 and the commitment to issue the 3,000,000 unearned shares, along with the 1,000,000 shares previously issued, were cancelled. The 1,000,000 shares of common stock that had vested were returned to the Company and cancelled. The previously recognized stock compensation on the unvested shares of $673,063 was reversed during the six months ended December 31, 2014.

 

On November 17, 2014, 10,000,000 shares of common stock previously issued to an officer and Director were returned to the Company and cancelled.

 

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 December 31, 2014, there were 0 shares of Highlight Networks, Inc. $0.001 par value preferred stock outstanding.

 

 

 

 

 

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 December 31, 2014 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 not effective as of December 31, 2014.

 

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. On December 31, 2014, 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 not effective at the reasonable assurance level as of December 31, 2014

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 December 31, 2014 as covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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.

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 December 31, 2014

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.

 

 

 

 

 

 

 

 

 

 

 

 

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: January 30, 2015

 
 

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)