Xiamen Lutong International Travel Agency Co., Ltd. - Quarter Report: 2013 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, 2013

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

Commission File No. 333-153575

(315) 451-4722

(Registrant’s telephone number, including area code)

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

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

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

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

[ ] Large accelerated filer Accelerated filer 

[ ]  Non-accelerated filer 

[X]  Smaller reporting company

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

[ ] Yes  [X] No

There are 13,942,600 shares of Highlight Networks, Inc. $0.001 par value common stock outstanding as of the report date of December 31, 2013 and 13,942,600 $0.001 par value common stock outstanding as of the filing date of February 14, 2014.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1—Organization and Basis of Presentation

Organization and Basis of Presentation

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2013 audited financial statements as reported in Form 10K.  The results of operations for the six month period ended December 31, 2013 are not necessarily indicative of the operating results for the full year ended June 30, 2014.

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

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

Nature of Business

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

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

Inventory

In the six months ended December 31, 2013, the company had ending inventory of 6,475 lbs. of scrap metal and used circuit boards and recognized $7,242 in revenue from the processing, recycling, refining or sale of inventory. Inventories are periodically monitored to ensure that the reserve for obsolescence covers any obsolete items. As of December 31, 2013, there was no reserve for obsolescence. Inventories are valued at the lower of cost (using average cost) or market.

In the six months ended December 31, 2013, the company had ending inventory of 444 items of EBAY merchandise and recognized $60 in revenue from the sale of merchandise in inventory. Inventories are periodically monitored to ensure that the reserve for obsolescence covers any obsolete items. As of December 31, 2013, there was no reserve for obsolescence. Inventories are valued at the lower of cost (using average cost) or market.

Inventory consisted of the following finished goods as of December 31, 2013 and June 30, 2013:

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 $8,616,474 for the period from June 21, 2007 (inception) to December 31, 2013, has 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 beginning March 1, 2013 to rent the property at 6 Alder Drive East Syracuse, New York 13057. The monthly rent under the agreement is $8,000, along with utilities and waste management incurred by the Company in the use of the facility. The initial term of the lease agreement is 5 years. As of December 31, 2013 the Company owes $80,000 under this lease.

On November 1, 2013, the Company entered into an agreement with a structuring agent wherein compensation will be 4,000,000 common shares. Of these shares, 1,000,000 are earned upon execution of the agreement and the remaining 3,000,000 are earned in 1,000,000 share tranches when certain performance objectives are met (see Note 5).

Note 4—Related Party Transactions

During September 2013, the Company modified its outstanding note agreements, with an aggregate principal amount of $170,732, with related parties, Friction & Heat LLC and Joseph Passalaqua whereby a conversion option was added. The promissory notes were originally unsecured, bore simple interest at 10% per annum and were due on demand. The Company also borrowed $50,000 from these related parties under notes with the same terms during the six months ended September 3013. In September 2013, these loans were modified into convertible notes that are unsecured, mature 1 year from the date of the note and bear simple interest at 10% per annum. The notes are convertible into common stock at 60% of the average of the lowest 3 trading prices during the 10 days preceding the date of conversion. The note holders have agreed to not convert into more common shares than the Company has available and authorized at any time. The Company also borrowed $52,450 under convertible notes with these same terms during the six months ended December 31, 2013. As of December 31, 2013, the aggregate unpaid principal under these convertible notes was $223,182.

The Company evaluated the modification and determined it qualified as an extinguishment of debt due to a substantive conversion option being added. The Company then evaluated the convertible notes under ASC 815 and determined the notes do not qualify as derivative liabilities. The Company then evaluated the notes for a beneficial conversion feature under ASC 470-20 as of the date of the notes and determined that beneficial conversion features existed. The aggregate intrinsic value of the beneficial conversion features was determined to be $145,990 and was recognized as a discount to the debt that is being amortized using the effective interest method over the life of the notes. During the six months ended December 31, 2013, amortization of $53,846 was recorded against the discounts. As of December 31, 2013, the aggregate unamortized discount on the notes was $92,144.

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, 2013 the unpaid amount on the advance was $100.

Note 5— Equity

Highlight Networks, Inc. is authorized to issue 150,000,000 shares of common stock, with par value of $0.001 per share. As of December 31, 2013, a total of 13,942,600 shares of common stock were issued and outstanding. Holders of common stock are entitled to receive dividends, when and if declared by the board of directors, subject to prior rights of holders of any preferred stock then outstanding and to share ratably in the net assets of the company upon liquidation. Holders of common stock do not have preemptive or other rights to subscribe for additional shares. The articles of incorporation do not provide for cumulative voting. Shares of common stock have equal voting, dividend, liquidation and other rights, and have no preference, exchange or appraisal rights.

On April 15, 2013, the Company granted an aggregate of 300,000 common shares to officers of the Company for services to be rendered. 150,000 shares vested immediately on April 15, 2013 and 150,000 shares vest on May 1, 2014. The shares were valued at $450,000 of which $269,882 was recognized during the year ended June 30, 2013. During the six month period ended December 31, 2013, an additional $108,177 was recognized and $71,941 will be recognized over the remaining vesting period.

On September 18, 2013, the company issued 48,000 common shares under a consulting agreement. The shares were fully earned upon execution of the agreement and were valued using the closing stock price of the Company’s common stock at September 18, 2013. The Company recognized the full fair value of these shares of $72,720 as an expense during the six months ended December 31, 2013.

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 six months ended December 31, 2013. The fair value of the remaining 3,000,000 shares was determined to be $1,530,000 and it is being recognized over the expected successful completion date of the performance conditions of June 30, 2014. During the six months ended December 31, 2013, $466,971 was recognized as expense for the 3,000,000 shares.

On November 11, 2013, the Company issued 10,000,000 shares of common stock to the majority shareholder for consulting services. The shares were fully earned upon issuance. The Company recognized the full fair value of the 10,000,000 shares of $6,270,000, based upon the closing price of our common stock of $0.63 on November 11, 2013, during the six months ended December 31, 2013.

Note 6—Subsequent Events

In January 2014, the unsecured convertible notes that were due to a related party were modified whereby the conversion option was removed. These notes with an aggregate principal amount of $223,182 were reclassified in multiple promissory notes, bear simple interest at 10% per annum and are payable upon demand.

In January 2014, an additional $18,450 was loaned to the Company from a related party. The principal amount of $12,950 is held in a promissory note, bear simple interest at 10% per annum and is payable upon demand.

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, 2013 compared to the three months ended December 31, 2012

Revenues

Our total revenue was $0 in the three months ended December 31, 2012 and in the three months ended December 31, 2013. The Company generated no sales revenue in 2012. As of December 31, 2013, the principal revenue was from recycling, refining, metals trading and assisting in metal recovery, with a focus on precious metals refining from electronic waste.

Cost of Goods Sold

Our overall cost of goods sold increased by $63, from $0 in the three months ended December 31, 2012 to $63 in the three months ended December 31, 2013. The Company had no costs of goods sold related to sales revenue in 2012. As of December 31, 2013, the principal costs of goods sold related to the ongoing operations are treatment, refining and assay fees from the metal recycling process.

Operation and Administrative Expenses

Operating expenses which includes accounting and legal expenses, administrative expenses and rent increased by $7,499,411, from $4,519 in the three months ended December 31, 2012 to $7,503,930 in the three months ended December 31, 2013.

Interest expense increased by $47,857, from $0 in the three months ended December 31, 2012 to $47,857 in the three months ended December 31, 2013 due mainly to the amortization of the beneficial conversion option debt discounts on the related party convertible debt.

Net loss per share was $0.00 for the three months ended December 31, 2012 and $0.84 for the three months ended December 31, 2013. The weighted average shares outstanding were 2,419,600 for the three months ended December 31, 2012 and 9,029,557 for the three months ended December 31, 2013.

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

Results of Operations for the six months December 31, 2013 compared to the six months ended December 31, 2012

Revenues

Our total revenue increased by $7,302, from $0 in the six months ended December 31, 2012 to $7,302 in the six months ended December 31, 2013. The Company generated no sales revenue in 2012. As of December 31, 2013, the principal revenue was from recycling, refining, metals trading and assisting in metal recovery, with a focus on precious metals refining from electronic waste.

Cost of Goods Sold

Our overall cost of goods sold increased by $2,903, from $0 in the six months ended December 31, 2012 to $2,903 in the six months ended December 31, 2013. The Company had no costs of goods sold related to sales revenue in 2012. As of December 31, 2013, the principal costs of goods sold related to the ongoing operations are treatment, refining and assay fees from the metal recycling process.

Operation and Administrative Expenses

Operating expenses which includes accounting and legal expenses, administrative expenses and rent increased by $7,717,168, from $8,302 in the six months ended December 31, 2012 to $7,725,470 in the six months ended December 31, 2013.

Interest expense increased by $63,583, from $0 in the six months ended December 31, 2012 to $63,583 in the six months ended December 31, 2013 due mainly to the amortization of the beneficial conversion option debt discounts on the related party convertible debt.

Net loss per share was $0.00 for the six months ended December 31, 2012 and $1.31 for the six months ended December 31, 2013. The weighted average shares outstanding were 2,419,600 for the six months ended December 31, 2012 and 5,965,209 for the six months ended December 31, 2013.

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

Net Loss

The Company had a net loss of $7,784,654 for the six months ended December 31, 2012 as compared to a net loss of $8,302 for the six months ended December 31, 2013.

Cash Flow

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

Working Capital 

As of the year ended June 30, 2013, the Company had total current assets of $66,316 and total current liabilities of $209,868, resulting in working capital deficit of $143,552. As of December 31, 2013, the Company had total current assets of $14,406 and total current liabilities of $251,754, resulting in a working capital deficit of $237,348.

Liquidity and Capital Resources

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

In 2013, the Company entered into Promissory note agreements with related parties, Friction & Heat LLC and Joseph Passalaqua. The promissory notes were unsecured, bear simple interest at 10% per annum and are due on demand. In September 2013, these loans were reclassified and are now held in multiple Convertible Promissory notes that are unsecured, payable a year from the signed note and bear simple interest at 10% per annum. As of December 31, 2013, the aggregate unpaid principal on these notes was $223,182, with interest accrued of $8,930. Highlight Networks evaluated the notes for a beneficial conversion feature under ASC 470-20 as of the date of the notes and determined that a beneficial conversion feature existed. The intrinsic value of the beneficial conversion feature was determined to be $145,990 and was recognized as a discount to the debt that is being amortized using the effective interest method over the life of the notes. During the six months ended December 31, 2013, amortization of $53,846 was recorded against this discount.

In 2013, EZ Recycling, Inc., the wholly owned subsidiary of Highlight Networks, Inc. borrowed $100 from a related party, Joseph C. Passalaqua. The amount is non-interest bearing advance. As of December 31, 2013 the unpaid amount on the advance was $100.

Net cash used in operating activities was $110,989 during the six-month period ended December 31, 2013.

Net cash provided by investing activities was $0 during the six-month period ended December 31, 2013.

Net cash provided by financing activities was $61,952 during the six-month period ended December 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, 2013.  Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditor.

Commitments and Capital Expenditures

The Company had no material commitments for capital expenditures.  

Critical Accounting Policies Involving Management Estimates and Assumptions

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

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, 2013, 13,942,600 shares of common stock are outstanding. Holders of common stock are entitled to receive dividends, when and if declared by the board of directors, subject to prior rights of holders of any preferred stock then outstanding and to share ratably in the net assets of the company upon liquidation. Holders of common stock do not have preemptive or other rights to subscribe for additional shares. The articles of incorporation do not provide for cumulative voting. Shares of common stock have equal voting, dividend, liquidation and other rights, and have no preference, exchange or appraisal rights.

On April 15, 2013, the Company granted an aggregate of 300,000 common shares to officers of the Company for services to be rendered. 150,000 shares vested immediately on April 15, 2013 and 150,000 shares vest on May 1, 2014. The shares were valued at $450,000 of which $269,882 was recognized during the year ended June 30, 2013. During the six month period ended December 31, 2013, an additional $108,177 was recognized and $71,941 will be recognized over the remaining vesting period.

On September 18, 2013, the company issued 48,000 common shares under a consulting agreement. The shares were fully earned upon execution of the agreement and were valued using the closing stock price of the Company’s common stock at September 18, 2013. The Company recognized the full fair value of these shares of $72,720 as an expense during the six months ended December 31, 2013.

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 six months ended December 31, 2013. The fair value of the remaining 3,000,000 shares was determined to be $1,530,000 and it is being recognized over the expected successful completion date of the performance conditions of June 30, 2014. During the six months ended December 31, 2013, $466,971 was recognized as expense for the 3,000,000 shares.

On November 11, 2013, the Company issued 10,000,000 shares of common stock to the majority shareholder for consulting services. The shares were fully earned upon issuance. The Company recognized the full fair value of the 10,000,000 shares of $6,270,000, based upon the closing price of our common stock of $0.63 on November 11, 2013, during the six months ended December 31, 2013.

Preferred Stock

On July 16, 2013, the Company Amended the Articles of Incorporation to state that the Company is authorized to issue 20,000,000 shares of Preferred Stock. The Amendment was effective when the Certificate of Amendment was filed with the Secretary of the State of Nevada on July 18, 2013. As of December 31, 2013, 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, 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 December 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.

The material weaknesses identified relates to the following:

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, 2013 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, 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.

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 14, 2014

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)