UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF1934
For the Quarterly Period Ended March 31, 2013
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934
| 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)
215 South Riverside Drive, Suite 12, Cocoa, Florida 32922
(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 2,419,600 shares of Highlight Networks, Inc. $0.001 par value common stock outstanding as of the report date of March 31, 2013 and 2,594,600 $0.001 par value common stock outstanding as of the filing date of May 9, 2013.
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| HIGHLIGHT NETWORKS, INC. | ||||
| MARCH 31, 2013 | ||||
| PART I – FINANCIAL INFORMATION | Page | |||
| Item 1. | Financial Statements | |||
Balance Sheets As of March 31, 2013 As of June 30, 2012 | 4 | |||
Unaudited Statements of Operations For the three months ended March 31, 2013 and March 31, 2012 For the nine months ended March 31, 2013 March 31, 2012 For the cumulative period from June 21, 2007 (Date of Inception) to March 31, 2013 | 5 | |||
Unaudited Statements of Cash Flows For the nine months ended March 31, 2013 and March 31, 2012 For the cumulative period from June 21, 2007 (Date of Inception) to March 31, 2013 | 6 | |||
| Unaudited Notes to Financial Statements | 7-9 | |||
| Item 2. | Management’s Discussion and Analysis or Plan of Operation | 10 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 | ||
| Item 4. | Controls and Procedures | 13 | ||
| PART II – OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 14 | ||
| Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds | 14 | ||
| Item 3. | Defaults Upon Senior Securities | 14 | ||
| Item 4. | Mining Safety Disclosure | 14 | ||
| Item 5. | Other Information | 14 | ||
| Item 6. | Exhibits | 15 | ||
| SIGNATURES | 16 | |||
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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.
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Item 1. Financial Statements
| HIGHLIGHT NETWORKS, INC. | ||||||||
| (A Development Stage Company) | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (Unaudited) | ||||||||
| March 31, | June 30, | |||||||
| 2013 | 2012 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 4,977 | $ | 15,708 | ||||
| Inventory - used circuit boards | 8,044 | - | ||||||
| Total current assets | 13,021 | 15,708 | ||||||
| Total Assets | $ | 13,021 | $ | 15,708 | ||||
| LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 16,879 | $ | - | ||||
| Accrued expenses | 2,256 | 7,000 | ||||||
| Due to related parties | 27,970 | - | ||||||
| Total current liabilities | 47,105 | 7,000 | ||||||
| Stockholders' equity (deficit): | ||||||||
| Common Stock; $.001 par value; 150,000,000 shares | ||||||||
| authorized; 2,419,600 shares issued and outstanding | 2,420 | 2,420 | ||||||
| Additional paid-in capital | 485,966 | 153,466 | ||||||
| Deficit accumulated during the development stage | (522,470 | ) | (147,178 | ) | ||||
| Total stockholders' equity (deficit) | (34,084 | ) | 8,708 | |||||
| Total Liabilities and Stockholder's Equity (Deficit) | $ | 13,021 | $ | 15,708 | ||||
| The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||||
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| HIGHLIGHT NETWORKS, INC. | ||||||||||||||||||||
| (A Development Stage Company) | ||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Inception | ||||||||||||||||||||
| Three Months Ended | Nine Months Ended | (June 21, 2007) | ||||||||||||||||||
| March 31, | March 31, | to | ||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | March 31, 2013 | ||||||||||||||||
Operating Expenses: | ||||||||||||||||||||
| General & administrative | 358,734 | 1,755 | 367,036 | 24,858 | 508,538 | |||||||||||||||
| Rent expense | 8,000 | - | 8,000 | - | 8,000 | |||||||||||||||
| Valuation impairment on marketable securities | - | - | - | - | 2,000 | |||||||||||||||
| Total operating expenses | 366,734 | 1,755 | 375,036 | 24,858 | 518,538 | |||||||||||||||
| Loss from operations | (366,734 | ) | (1,755 | ) | (375,036 | ) | (24,858 | ) | (518,538 | ) | ||||||||||
| Other Expenses: | ||||||||||||||||||||
| Interest expense | (256 | ) | (595 | ) | (256 | ) | (1,775 | ) | (3,932 | ) | ||||||||||
| Net loss | $ | (366,990 | ) | $ | (2,350 | ) | $ | (375,292 | ) | $ | (26,633 | ) | $ | (522,470 | ) | |||||
| Net loss per share, basic and diluted | $ | (0.15 | ) | $ | (0.00 | ) | $ | (0.16 | ) | $ | (0.01 | ) | ||||||||
Weighted average number of common shares outstanding, basic and diluted | 2,419,600 | 2,419,600 | 2,419,600 | 2,419,600 | ||||||||||||||||
| The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||||||||||||||||
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| HIGHLIGHT NETWORKS, INC. | ||||||||||||
| (A Development Stage Company) | ||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
| (Unaudited) | ||||||||||||
| Inception | ||||||||||||
| Nine Months Ended | (June 21, 2007) | |||||||||||
| March 31, | to | |||||||||||
| 2013 | 2012 | March 31, 2013 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | (375,292 | ) | $ | (26,633 | ) | $ | (522,470 | ) | |||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Valuation impairment on marketable securities | - | - | 2,000 | |||||||||
| Fair value of services provided by related parties | - | - | 55,760 | |||||||||
| Accrued stock-based compensation | 332,500 | - | 332,500 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Inventory | (8,044 | ) | - | (8,044 | ) | |||||||
| Accounts payable and accrued expenses | 12,135 | 1,525 | 19,135 | |||||||||
| Net cash used in operating activities | (38,701 | ) | (25,108 | ) | (121,119 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from related party debt borrowings | 27,970 | 2,900 | 45,919 | |||||||||
| Payments on related party debt borrowings | - | - | (13,464 | ) | ||||||||
| Proceeds from the issuance of common stock | - | - | 93,641 | |||||||||
| Net cash provided by financing activities | 27,970 | 2,900 | 126,096 | |||||||||
| Net (decrease) increase in cash | (10,731 | ) | (25,108 | ) | 4,977 | |||||||
| Cash, beginning of period | 15,708 | 66,569 | - | |||||||||
| Cash, end of period | $ | 4,977 | $ | 41,461 | $ | 4,977 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid during the period for: | ||||||||||||
| Interest on related party notes payable | $ | - | $ | - | $ | 3,676 | ||||||
| The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||||||||
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HIGHLIGHT NETWORKS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1—Organization and summary of significant accounting policies
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, 2012 audited financial statements as reported in Form 10K. The results of operations for the nine month period ended March 31, 2013 are not necessarily indicative of the operating results for the full year ended June 30, 2013.
The Company was formed on June 21, 2007 as a Nevada corporation. As of June 30, 2012 and March 31, 2013, the Company has not commenced significant operations, and in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Codificaiton (“ASC”) Topic 915, “Development Stage Entity,” the Company is 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
The Company is a development stage company. 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.
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.
In 2013 the company purchased 8,492 lbs. of scrap metal and used circuit boards that are in inventory for $8,044, to be sent out for recycling, refining and processing. As of March 31, 2013, the company has not yet recognized any revenue, COGS or accounts receivable 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 March 31, 2013, there was no reserve for obsolescence. Inventories are valued at the lower of cost (using average cost) or market.
Reclassifications
Certain reclassifications have been made to the 2012 financial statements to conform to the March 31, 2013 presentation.
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.
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(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2—Going Concern (continued)
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 $522,470 for the period from June 21, 2007 (inception) to March 31, 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.
Note 4—Related Party Transactions
During 2010 through 2012, Infanto Holdings LLC, whose principal stockholder Joseph C. Passalaqua is also an officer and principal stockholder of Highlight Networks, Inc., loaned the Company an aggregate of $13,464. These notes accrued simple interest annually at 18%. On April 27, 2012, the Company repaid the total principal due of $13,464 plus accrued interest of $3,676, for a total payment of $17,140. As of March 31, 2013 the Company owes $0 under these loans.
In 2013, the Company borrowed an aggregate of $27,970 under promissory notes with related parties, Friction & Heat LLC and Joseph Passalaqua. The promissory notes and unsecured, bear simple interest at 10% per annum and are due on demand. As of March 31, 2013, the aggregate unpaid principal on these notes was $27,970, with interest accrued of $256.
Note 5—Stockholders’ 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 March 31, 2013, a total of 2,914,600 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 January 1, 2013 the company committed to issue 175,000 common shares under a consulting agreement (see Note 4). 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 January 1, 2013. The full fair value of these shares of $332,500 was recognized as expense during the three months ended March 31, 2013. The common shares were issued by the Company during April 2013.
Intercompany equity is not presented or disclosed. It is eliminated in consolidation.
8
HIGHLIGHT NETWORKS, INC.
A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 6—Subsequent Events
On April 17, 2013 the Company issued the 175,000 common shares that the Company committed to issue under the consulting agreement on January 1, 2013 (see Note 5).
In April 2013, the Company entered into two promissory note agreements with a related party, Friction & Heat LLC, for a total of $74,935. The notes are unsecured, bear interest at 10% per annum and are due on demand.
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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 ended March 31, 2013 compared to the three months ended March 31, 2012.
Revenues for the three months ended March 31, 2013 and for the three months ended March 31, 2012 were $-0- respectively for both periods.
Operating expenses which includes accounting and legal expenses, administrative expenses and rent increased by $364,979, from $1,755 in the three months ended March 31, 2012 to $366,734 in the three months ended March 31, 2013.
Interest expense decreased by $339, from $595 in the three months ended March 31, 2012 to $256 in the three months ended March 31, 2013.
Net loss per share was $0.00 for the three months ended March 31, 2012 and $0.15 for the three months ended March 31, 2013. The weighted average shares were 2,419,600 in the three months ended March 31, 2012 and March 31, 2013.
Results of Operations for nine months ended March 31, 2013 compared to the nine months ended March 31, 2012.
Revenues for the nine months ended March 31, 2013 and for the nine months ended March 31, 2012 were $-0- respectively for both periods.
Operating expenses which includes accounting and legal expenses, administrative expenses and rent increased by $350,178, from $24,858 in the nine months ended March 31, 2012 to $375,036 in the nine months ended March 31, 2013.
Interest expense decreased by $1,519, from $1,775 in the three months ended March 31, 2012 to $256 in the three months ended March 31, 2013.
Net loss per share was $0.01 for the nine months ended March 31, 2012 and $0.16 for the nine months ended March 31, 2013. The weighted average shares were 2,419,600 in the nine months ended March 31, 2012 and March 31, 2013.
As of March 31, 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 auditor has 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.
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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.
Infanto Holdings LLC, whose principal stockholder Joseph C. Passalaqua is also an officer and principal stockholder of Highlight Networks, Inc., loaned the Company approximately $6,879, $3,684, and $2,900, during years ended June 30, 2012, 2011, and 2010, respectively, which totaled $13,464. These notes accrued simple interest annually at 18%, were unsecured and due on demand. On April 27, 2012, the Company repaid the total principal due of $13,464 plus accrued interest of 3,676, for a total payment of $17,140. As of March 31, 2013 the Company owes $0.
In 2013, the Company entered into promissory note agreements with related parties, Friction & Heat LLC and Joseph Passalaqua. The promissory notes are unsecured, bear simple interest at 10% per annum and are due on demand. As of March 31, 2013 the Company currently owes $27,970 in principal on these notes, with interest accrued of $256.
Net cash used in operating activities was $38,701 during the nine-month period ended March 31, 2013.
Net cash provided by investing activities was $0 during the nine-month period ended March 31, 2013.
Net cash provided by financing activities was $27,970 during the nine-month period ended March 31, 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, 2012. Our financial statements contain an additional note disclosures describing the circumstances that lead to this disclosure by our independent auditor.
Commitments and 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.
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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 March 31, 2012, 2,419,600 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.
In 2008-2009, Perry West, a previous officer of the Company, provided services valued at $2,000 per month and office space valued at $200 per month. The total value of $13,200 was reflected as an operating expense in 2009. The Company accounted for this as a capital transaction and was obligated to issue 7,329 shares. In 2009 the Company had determined a decline in fair value below the cost basis is other than temporary. Therefore the cost basis of the individual security was written down to fair value. The impairment of $2,000 was recorded in 2009. In 2010, the common stock agreement was rescinded. The common shares were cancelled. Under the terms of the agreement Mr. West accepted the marketable securities valued at $4,010 and forgave approximately $3,255 in amounts due him in exchange for returning the 7,329 shares of common stock.
On February 24, 2010 the Company issued 940 shares of common stock, of which 260 shares were previously purchased and listed as issued in November, 2008.
On September 7, 2010 the Company issued 100 shares of common stock at $5.10 per share.
On September 24, 2010 the Company issued 160 shares of common stock at $5.10 per share.
On October 27, 2010 the Company issued 3,600 shares of common stock at $5.10 per share.
On November 2, 2010 the Company issued 700 shares of common stock at $5.10 per share.
On March 8, 2011 the Company issued 5,880 shares of common stock at $5.10 per share.
On March 8, 2011 the Company issued 3,600 shares of common stock at $2.55 per share to the President and Secretary of the Company for services.
On April 22, 2011, Highlight Networks had a resolution and amended the Articles of Incorporation to include a 20/1 forward stock split, with all fractional shares being dropped with the effect being retroactive back to inception. Except as otherwise noted, all share, option and warrant numbers have been restated to give retroactive effect to this reverse split.
On May 19, 2011, the majority shareholder retired 28,000,000 shares of common stock previously issued back to the Company.
On January 1, 2013 the company committed to issue 175,000 shares of common stock under a consulting agreement valued at $332,500, based upon the closing price of our common stock of $1.90 on January 1, 2013.
As of March 31, 2013, there were 2,419,600 shares of Highlight Networks, Inc. $0.001 par value common stock outstanding and 150,000,000 share of common stock authorized
12
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
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
For purposes of this Item 4, the term disclosure controls and procedures means controls and other procedures of the Company (i) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (15 U.S.C. 78a et seq. and hereinafter the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “Commission”), and (ii) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures do not yet comply with the requirements in (i) and (ii) above.
On March 31, 2013, Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) as of the end of the period covered by this report and have concluded that (i) the Company’s disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Commission due to a material weakness identified, and that (ii) the Company’s controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The material weakness identified by the Chief Executive Officer and Chief Financial Officer in their evaluation as of March 31, 2013 relates to the lack of proper segregation of duties and lack of audit committee oversight. The Company believes that the lack of proper segregation of duties lack of audit committee oversight is due to the Company’s limited resources. Upon the acquisition of adequate capital the Company intends to remediate the deficiencies through the deployment of additional personnel and implementation of an audit committee.
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 March 31, 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 March 31, 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.
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 March 31, 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 Saftely 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 March 31, 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: May 9, 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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