Xiamen Lutong International Travel Agency Co., Ltd. - Quarter Report: 2012 December (Form 10-Q)

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, 2012

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

Commission File No. 333-153575

(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.

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

[ ] Yes  [X] No

The number of shares outstanding of the issuer's common stock, was 2,419,600 common shares as of the report date of December 31, 2012 and filing date of February 13, 2013.

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.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1—Organization and summary of significant accounting policies

The accompanying financial statements have been prepared by the Company without audit.  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 as of and for the period ended December 31, 2012 and 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 six month period ended December 31, 2012 are not necessarily indicative of the operating results for the full year ended June 30, 2013.

This summary of accounting policies for Highlight Networks, Inc. (a development stage company) is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

Organization and Basis of Presentation

The Company was formed on June 21, 2007 as a Nevada corporation. As of June 30, 2012 and December 31, 2012, 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.

HIGHLIGHT NETWORKS, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1—Organization and summary of significant accounting policies (continued)

Nature of Business

The Company is a development stage, wireless broadband networking company in the business of planning, development and operation of both private and public access wireless broadband networking using WiFi (IEEE 802.11) and WiMAX (IEEE 802.16) wireless technologies to provide business and residential customers “last mile” connectivity. 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. Our telephone number is (315) 451-4722.

Loss per Common Share

The Company has adopted the provisions of FASB ASC Topic 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.

On August 22, 2011 we enacted a split of the common stock in the amount of 20:1. The stock split was effective April 22, 2011 for holders of record as of that date. Except as otherwise noted, all share, option and warrant numbers have been restated to give retroactive effect to this reverse split. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred from inception.

Reclassification

Certain reclassifications have been made to the 2011/2012 financial statements to conform to the December 31, 2012 presentation.

HIGHLIGHT NETWORKS, INC.

A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1—Organization and summary of significant accounting policies (continued)

Recently Adopted Accounting Pronouncements

On June 16, 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income (Topic 220),” which requires companies to report total net income, each component of comprehensive income, and total comprehensive income on the face of the income statement, or as two consecutive statements. The components of comprehensive income will not be changed, nor does the ASU affect how earnings per share is calculated or reported. These amendments will be reported retrospectively upon adoption. The adoption of the ASU was required for the Company’s March 31, 2012 Form 10-Q filing, and is not expected to have a material impact on the Company.

In May 2011, the FASB issued an accounting standard update which works to achieve common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. The update both clarifies the FASB’s intent about the application of existing fair value guidance, and also changes certain principles regarding measurement and disclosure.  The update is effective prospectively and is effective for annual periods beginning after December 15, 2011. Early application is permitted for interim periods beginning after December 15, 2011. The Company is currently evaluating the effect the update will have on its financial statements.

In January 2010, the FASB issued an accounting standard update on fair value measurements and disclosures. The update requires more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009; except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this update did not have an effect on the Company’s financial statements.

HIGHLIGHT NETWORKS, INC.

A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 $155,480 for the period from June 21, 2007 (inception) to December 31, 2012, 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—Development stage company

The Company has not begun principal operations and as is common with a development stage company, the Company will have recurring losses during its development stage. The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses.

Note 4—Commitments

As of December 31, 2012, all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities.

HIGHLIGHT NETWORKS, INC.

A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 5—Related party transactions

During the years ended June 30, 2008 and 2009, Mr. West, the Company's former principal stockholder, advanced a total $24,180 to the Company.  In March 2009, these advances were forgiven by Mr. West and reclassified as additional paid-in capital.

Also during the years ended June 30, 2008 and 2009, Mr. West provided services, valued at $2,000 per month and office space valued at $200 per month, for a total of $13,200, which was reflected as an operating expense in fiscal year ended June 30, 2009.  The Company issued 7,329 shares of its $.001 par value common stock to Mr. West as payment for his services and use of office space; however, during the year ended June 30, 2010, the original common stock agreement was rescinded. Under the terms of a new agreement, the 7,329 shares originally issued to Mr. West were cancelled and replaced with marketable securities valued at $4,010. Mr. West forgave the balance due to him of approximately $3,255.

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%. 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.

Note 6—Common stock transactions

The Company is authorized to issue 150,000,000 shares of common stock, with par value of $0.001 per share. As of December 31, 2012, 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.

As of December 31, 2012, there were 2,419,600 shares of the Company’s $.001 par value common stock outstanding.

As of December 31, 2012, the Company is authorized to issue 150,000,000 shares of its $.001 par value common stock, of which 2,419,600 shares are issued and outstanding.

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, wireless broadband networking company in the business of planning, development and operation of both private and public access wireless broadband networks using WiFi (IEEE 802.11) and WiMAX (IEEE 802.16) wireless technologies to provide business and residential customers "last mile" connectivity. As of the date of this report, the Company has had limited ongoing operations consisting of product and technology review, analysis and system design and negotiations for system placement and third party contract services.

Results of Operations for three months ended December 31, 2012 compared to the three months ended December 31, 2011.

Revenues for the six months ended December 31, 2012 and for the six months ended December 31, 2011 were $-0- respectively for both periods.

General and administrative, accounting, legal, interest and valuation impairment expenses decreased by $4,919, from $9,438 in the three months ended December 31, 2011 to $4,519 in the three months ended December 31, 2012.

The loss per share was $(0.00) for the three months ended December 31, 2011 and $(0.00) for the three months ended December 31, 2012.   The weighted average shares were 2,419,600 in the three months ended December 31, 2011 and December 31, 2012.

As of December 31, 2012, 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.

Results of Operations for six months ended December 31, 2012 compared to the six months ended December 31, 2011.

Revenues for the six months ended December 31, 2012 and for the six months ended December 31, 2011 were $-0- respectively for both periods.

General and administrative, accounting, legal, interest, and valuation impairment expenses decreased by $15,981, from $24,283 in the six months ended December 31, 2011 to $8,302 in the six months ended December 31, 2012.

The loss per share was $(0.01) for the six months ended December 31, 2011 and $(0.00) for the six months ended December 31, 2012.   The weighted average shares were 2,419,600 in the six months ended December 31, 2011 and December 31, 2012.

As of December 31, 2012, 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.

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%. 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 December 31, 2012 the Company owes $0.

Net cash used in operating activities was $12,302 during the six-month period ended December 31, 2012.

Net cash provided by investing activities was $0 during the six-month period ended December 31, 2012.

Net cash provided by financing activities was $0 during the six-month period ended December 31, 2012.

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.

Derivatives

At December 31, 2012, the Company had issued no derivative securities nor had it reserved any shares for issuance under grants of options and warrants were in excess of authorized shares on a fully diluted basis there by precluding equity treatment under FASB ASC 815, Accounting for Derivative Financial Instruments requires every derivative instrument to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in the derivative's fair value recognized currently in earnings unless specific hedge accounting criteria are met. We value these derivative securities at fair value at the end of each reporting period (quarterly or annually), and their value is marked to market at the end of each reporting period with the gain or loss recognition recorded against earnings. We continue to revalue these instruments each reporting period to reflect their current value in light of the current market price of our common stock.

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.

Accounting For Obligations And Instruments Potentially To Be Settled In The Company s Own Stock

We account for obligations and instruments potentially to be settled in the Company s stock in accordance with FASB ASC 815,

Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company s Own Stock . This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company's own stock.

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

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

As of December 31, 2012 Highlight Networks, Inc. has 150,000,000 shares of common stock authorized at $0.001 par value per share and 2,419,600 shares of common stock issued and 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 

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 December 31, 2012, 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 December 31, 2012 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 December 31, 2012 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 December 31, 2012.

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 first fiscal quarter ended December 31, 2012 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, 2012

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: February 13, 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)

CONSULTING AGREEMENT

This AGREEMENT shall be effective on this January 1^st , 2013 and is made between Highlight Networks Inc, a Nevada corporation having offices at 7325 Oswego Rd, Liverpool NY 13090, U.S.A. [“HNET”], and Thomas R. Smith, of 1154 Lake Dr. WestChester, PA 19382 [“Consultant”].

In this Agreement, the party who is contracting to receive services shall be referred to as "HNET", and the party who will be providing the services shall be referred to as "Consultant".

Consultant has a background in Marketing and Sales and is willing to provide services to HNET based on this background.

HNET desires to have services provided by Consultant.

Therefore, the parties agree as follows:

1. DESCRIPTION OF SERVICES. Beginning on January 1^st , 2013 Consultant will provide the following services (collectively, the "Services"): Marketing of HNET electronics and metals recycling services to federal, state, and local government units and private sector entities not assigned to other representatives or reserved by HNET. Specifically Consultant will secure scrap metal and ewaste recycling contracts with certain telecom companies and construction firms that initially have access to approximately 25 scrapped cell towers in the Chicago area. HNET reserves the right to employ other representatives to solicit within such territories as may be defined by HNET. In case of any bona fide dispute between representatives in connection with any sale, commission or the division of sale or commission, the decision of HNET shall be final.

2. PERFORMANCE OF SERVICES. Consultant shall determine the manner in which the Services are to be performed and the specific hours to be worked by Consultant. HNET will rely on Consultant to work as many hours as may be reasonably necessary to fulfill Consultant's obligations under this Agreement.

3. ACCEPTANCE OF ORDERS. All orders are to be forwarded to HNET for acceptance. No order shall constitute a binding obligation upon HNET until HNET shall accept it. Consultant shall have no authority to accept any order on behalf of HNET. HNET reserves the right to reject any order for whatever reason it may deem appropriate without obligation to consultant for commission.

4. FEES & COMMISSION PAYMENTS. HNET will pay Consultant a one time fee of 175,000 S8 shares of HNET payable upon signing of first commercial scrap contract arranged by Consultant. HNET will make commission payments to Consultant based on Eight Percent (8%) of the gross selling price of all merchandise and scrap products of HNET shipped and billed on orders received and accepted by HNET under the terms of this agreement. For the purposes of this Agreement, “merchandise and products” means any ewaste or scrap metal sold by or through the efforts of Consultant during the term of this contract. Commission to be paid within 15 days of receipt of payment for scrap material sold.

Statement of Shipments. If requested, HNET shall furnish Consultant a periodic statement showing shipments made to customers and all payments and other items credited to sales representative’s account during such period.

5. EXPENSE REIMBURSEMENT. Consultant shall pay all "out-of-pocket" expenses, and shall not be entitled to reimbursement from HNET.

6. USE OF AUTOMOBILE. Consultant shall provide and pay for all expenses related to any automobile or other transportation used in the performance of his duties under this contract.

7. TERM/TERMINATION. This agreement shall become effective on the date stated above and shall remain in effect for a period of three (3) years unless terminated for breach or as provided in this agreement.

This agreement may be terminated by either mutual agreement of Consultant and HNET or by written notice of either of the parties to the other party of an intention to terminate the agreement. This contract may also be terminated, with just cause, solely by HNET if consultant engages in any public action that is detrimental to the image of HNET. Any such written notice shall serve automatically to terminate the agreement thirty (30) days after the date such notice is sent to the other party via certified or registered mail.

8. RELATIONSHIP OF PARTIES. It is understood by the parties that Consultant is an independent contractor with respect to HNET, and not an employee of HNET. HNET will not provide fringe benefits, including health insurance benefits, paid vacation, or any other employee benefit, for the benefit of Consultant.

9. DISCLOSURE. Consultant is required to disclose any outside activities or interests, including ownership or participation in the development of prior inventions, that conflict or may conflict with the best interests of HNET. Prompt disclosure is required under this paragraph if the activity or interest is related, directly or indirectly, to:

- a product or service line of HNET

- any activity that Consultant may be involved with on behalf of HNET

10. EMPLOYEES. Consultant's employees, if any, who perform services for HNET under this Agreement shall also be bound by the provisions of this Agreement.

11. INDEMNIFICATION. Consultant agrees to indemnify and hold HNET harmless from all claims, losses, expenses, fees including attorney fees, costs, and judgments that may be asserted against HNET that result from the acts or omissions of Consultant, Consultant's employees, if any, and Consultant's agents.

12. ASSIGNMENT. Consultant's obligations under this Agreement may be assigned or transferred to any other person, firm, or corporation with the prior written consent of HNET.

13. CONFIDENTIALITY. HNET recognizes that Consultant may have access to trade secrets and other proprietary information (collectively, "Information"), which are valuable, special and unique assets of HNET Incorporated and need to be protected from improper disclosure. In consideration for the disclosure of the Information, Consultant agrees that Consultant will not at any time or in any manner, either directly or indirectly, use any Information for Consultant's own benefit, or divulge, disclose, or communicate in any manner any Information to any third party without the prior written consent of HNET. Consultant will protect the Information and treat it as strictly confidential. A violation of this paragraph shall be a material violation of this Agreement.

14. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that Consultant has disclosed (or has threatened to disclose) Information in violation of this Agreement, HNET shall be entitled to an injunction to restrain Consultant from disclosing, in whole or in part, such Information, or from providing any services to any party to whom such Information has been disclosed or may be disclosed. HNET shall not be prohibited by this provision from pursuing other remedies, including a claim for losses and damages.

15. CONFIDENTIALITY AFTER TERMINATION. The confidentiality provisions of this Agreement shall remain in full force and effect after the termination of this Agreement.

16. NON-COMPETE AGREEMENT. Recognizing that the various items of information are special and unique assets of HNET that need to be protected from disclosure, and in consideration of the disclosure of the Information, Consultant agrees and covenants that for a period of 18 months following the termination of this Agreement, whether such termination is voluntary or involuntary, Consultant will not directly or indirectly engage in any business competitive with HNET. This covenant shall apply to the geographical area that includes United States of America and Canada. Directly or indirectly engaging in any competitive business includes, but is not limited to, (i) engaging in a business as owner, partner, or agent, (ii) becoming an employee of any third party that is engaged in such business, or (iii) becoming interested directly or indirectly in any such business, or (iv) soliciting any customer of HNET for the benefit of a third party that is engaged in such business. Consultant and HNET agrees that this non-compete provision will not adversely affect the livelihood of Consultant.

17. NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed delivered when delivered in person or deposited in the United States mail, postage prepaid, addressed as follows:

IF for HNET:

Highlight Networks Inc.

Joseph Pasalaqua

7325 Oswego Rd.

Liverpool, NY 13090

IF for Consultant:

Thomas R. Smith

1154 Lake Dr.

WestChester, PA 19382

SS# ###-##-####

Either party may change such address from time to time by providing written notice to the other in the manner set forth above.

18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties and there are no other promises or conditions in any other agreement whether oral or written. This Agreement supersedes any prior written or oral agreements between the parties.

19. AMENDMENT. This Agreement may be modified or amended if the amendment is made in writing and is signed by both parties.

20. SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.

21. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement.

22. APPLICABLE LAW. The laws of the State of New York shall govern this Agreement.

Party receiving services:

Highlight Networks Inc.

By: /s/ Alfonso Knoll

Alfonso Knoll

CEO

Party providing services:

By: /s/Thomas R. Smith

Thomas R. Smith