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HNET > SEC Filings for HNET > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for HIGHLIGHT NETWORKS, INC.

Form 10-Q for HIGHLIGHT NETWORKS, INC.


8-Nov-2013

Quarterly Report


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

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

Overview

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

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

Revenues

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

Cost of Goods Sold

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

Operation and Administrative Expenses

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

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

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

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

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

Net Loss

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

Cash Flow

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

Working Capital

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

Commitments and Capital Expenditures

The Company had no material commitments for capital expenditures.

Critical Accounting Policies Involving Management Estimates and Assumptions

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

Stock Based Compensation

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

Use of Estimates

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

Deferred Tax Valuation Allowance

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

Off-Balance Sheet Arrangements

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

Common Stock

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

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

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

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

Preferred Stock

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

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