Notes to the Consolidated Financial
Statements
June 30, 2015
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company was formed on June 21, 2007
as a Nevada corporation. 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. EZ Recycling was spun off in conjunction with the share purchase agreement referred to in the following paragraph.
All inter-company balances and transactions entered into prior to the change in ownership described in the following paragraph
were eliminated in consolidation and the financial statements reflect the deconsolidation of the subsidiary as of the change in
control date.
On June 5, 2015, Legacy International
Holdings Group, LLC, and Allied Crown Enterprises Limited, entered into a share purchase agreement (the "SPA") to purchase
98% of the outstanding capital stock of Highlight Networks, Inc., from Infanto Holding Corp. for an aggregate purchase price of
$315,000. The purchase represented 98% of Highlight Networks, Inc., or 57,000,000 shares of restricted common stock. The Company
has 58,167,600 shares issued and outstanding as of the date of this filing.
Nature of Business
From
the date of its change of control on June 18, 2015, the Company has conducted no business operations and has been in the developmental
stage
. Upon the Change of Control on June 18, 2015, the Company’s operating asset,
EZ Recycling, Inc. was removed and the Company reverted to shell company status.
The U.S. Securities
and Exchange Commission (the “SEC”) defines those companies as “any development stage company within the meaning
of Section 3 (a)(51) of the Exchange Act of 1934, as amended, (the “Exchange Act”) and that has no specific business
plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” Under Rule
12b-2 of the Exchange Act, the Company also qualifies as a “shell company,” because it has no or nominal assets (other
than cash) and no or nominal operations.
The Company’s principal executive offices are located
at 2371 Fenton Street, Chula Vista, CA 91914.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”).The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Management further acknowledges
that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting
control, and preventing and detecting fraud. Our system of internal accounting control is designed to assure, among other items,
that: (1) recorded transactions are valid; (2) valid transactions are recorded; and (3) transactions are recorded in the proper
period in a timely manner to produce financial statements that present fairly our financial condition, results of operations, and
cash flows for the respective periods being presented.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentration of credit risk
Financial instruments which potentially
subject the Company to concentration of credit risk consist of cash deposits and customer receivables. The Company maintains
cash with various major financial institutions. The Company performs periodic evaluations of the relative credit standing
of these institutions. To reduce risk, the Company performs credit evaluations of its customers and maintains reserves
when necessary for potential credit losses.
Cash and cash equivalents
We
consider all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. There
were no cash equivalents as of June 30
,
2015 and 2014.
Revenue recognition
The Company follows paragraph 605-10-S99-1
of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized
or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria
are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered
to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Stock-based Compensation
We account for equity-based transactions
with nonemployees under the provisions of ASC Topic No. 505-50,
Equity-Based Payments to Non-Employees
(“ASC 505-50”).
ASC 505-50 establishes that equity-based payment transactions with nonemployees shall be measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock
issued for payments to nonemployees is measured at the market price on the date of grant. The fair value of equity instruments,
other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize the fair value of
the equity instruments issued as deferred stock compensation and amortize the cost over the term of the contract.
We account for employee stock-based compensation
in accordance with the guidance of FASB ASC Topic 718,
Compensation—Stock Compensation,
which requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their
fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in
capital over the period during which services are rendered.
Net Loss per Share
Net income (loss) per common share is
computed pursuant to section ASC 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common
share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the
period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number
of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number
of common shares outstanding and potentially outstanding common shares assumes that the Company incorporated as of the beginning
of the first period presented. There were no potentially dilutive shares as of June 30, 2015.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10
of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted
in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency
and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described
below:
Level 1: Quoted market prices available in active markets for
identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other
than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting
date.
Level 3: Pricing inputs that are generally observable inputs
and not corroborated by market data.
The carrying amount of the Company’s
financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the
short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments based
upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements
at June 30, 2015 and 2014.
The Company does not have any assets
or liabilities measured at fair value on a recurring or a non-recurring basis as of June 30, 2015 and 2014.
Income Taxes
We follow ASC 740-10-30, which requires
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between
the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which
the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes
it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income
in the period that includes the enactment date.
We adopted ASC 740-10-25 (“ASC
740-10-25”) with regard to uncertainty income taxes. ASC 740-10-25 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-25, we
may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate settlement. ASC 740-10-25 also provides guidance on derecognition, classification, interest and
penalties on income taxes, and accounting in interim periods and requires increased disclosures. We had no material adjustments
to our liabilities for unrecognized income tax benefits according to the provisions of ASC 740-10-25.
Recent Accounting Pronouncements
The Company has reviewed all recently
issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of
any other pronouncements to have an impact on its results of operations or financial position.
NOTE 3 – INVENTORY
Inventories are valued at the lower of
cost (using average cost) or market. As of June 30, 2014, the company had 6,475 lbs. of scrap metal and used circuit boards in
inventory valued at $4,864 and 444 items of EBAY merchandise in inventory valued at $6,084. During the year ended June 30, 2015,
management determined that the remaining inventory was impaired and an impairment loss of $10,948 was recognized. The impairment
loss is classified as cost of goods sold in the consolidated statements of operations.
Inventory consisted of the following
finished goods as of June 30:
|
|
|
2015
|
|
2014
|
|
EBAY merchandise
|
$
|
-
|
$
|
6,084
|
|
Scrap metal
|
|
-
|
|
4,864
|
|
Total inventor
|
$
|
-
|
$
|
10,948
|
NOTE 4 – STOCKHOLDERS’ EQUITY
On October 9, 2014, the Company, Data
Capital Corp and Gemini Global Group Corp. mutually agreed to cancel the Engagement Agreement dated November 1, 2013 and the commitment
to issue the 3,000,000 unearned shares, along with the 1,000,000 shares previously issued. The 1,000,000 shares of common stock
that had vested were returned to the Company and cancelled. The previously recognized stock compensation on the unvested shares
of $673,063 was reversed during the year ended June 30, 2015. On November 17, 2014, 10,000,000 shares of common stock previously
issued to an officer and Director were returned to the Company and cancelled. The 11,000,000 cancelled shares referred to above
were valued at $11,000 based on the Company’s per share par value of $0.001. The par value was used for valuation purposes
because the Company’s stock was not trading for significant periods throughout the related cancellation transaction dates.
In conjunction with the change of control
on June 18, 2015, total related party debt of $261, 269 was forgiven and credited to paid in capital.
In conjunction with the change of control
on June 18, 2015, $300,000 of related party debt was converted into 55,000,000 shares of common stock.
NOTE 5 - RELATED PARTY TRANSACTIONS
From 2013-2015, the Company incurred
loans due to related parties, Friction & Heat LLC and Joseph C. Passalaqua. Joseph C. Passalaqua is the sole managing member
of Friction & Heat LLC and a former officer of Highlight Networks, Inc. The outstanding related party debt was held in unsecured
promissory notes, bearing interest at 10% per annum and matured between on demand and March 31, 2016. As of June 30, 2014, the
Company had a total outstanding principal and accrued interest of $323,027 and $22,176, respectively. During the year ended June
30, 2015, an additional $77,735 was borrowed and $34,742 of interest accrued bringing the total related party debt to $457,680.
In conjunction with the change of control on June 18, 2015, all principal and accrued interest were exchanged for common stock
and a new $256,132 Promissory Note. The new note to Friction & Heat, LLC was executed on June 5, 2015, is unsecured, due on
demand and accrues interest at 10% per annum. The remaining related party debt balance of $201,548 was part of the $300,000 related
party debt that was converted into 55,000,000 shares of common stock.
From 2013-2015, the Company incurred
liabilities for unpaid rent at $8,000 monthly to Remix Ventures, LLC, according to a signed rental agreement. Joseph C. Passalaqua
the sole managing member of Remix Ventures, LLC and former officer of Highlight Networks, Inc. As of June 18, 2015 and June 30,
2014, the amount due for rent was $216,000 and $32,000, respectively. In conjunction with the change of control on June 18, 2015,
the balance due of $216,000 was forgiven and was part of the $261,269 credited to paid in capital.
From 2013 -2015, the Company incurred
liabilities for the reimbursement of property taxes that were paid by Remix Ventures, LLC, according to a signed rental agreement.
Joseph C. Passalaqua is the sole managing member of Remix Ventures, LLC and a former officer of Highlight Networks, Inc. As of
June 18, 2015 and June 30, 2014, the amount due in property tax reimbursement to Remix Ventures LLC was $72,282 and $42,165, respectively.
In conjunction with the change of control on June 18, 2015, the balance due of $72,282 was a portion of the total related party
debt of $300,000 that was converted into 55,000,000 shares of common stock.
In 2015, the Company incurred liabilities
for bookkeeping, internal accounting, office assistant services and secretarial services that were rendered by Lyboldt-Daly, Inc.
As of January 1, 2015, Highlight Networks ceased all payroll activities and does not have employees, therefore reimbursement is
owed to Lyboldt-Daly, Inc for use of their employees in rendering these outside services. Joseph C. Passalaqua is the President
of Lyboldt-Daly, Inc. and a former officer of Highlight Networks, Inc. As of June 18, 2015, the amount due for outside services
to Lyboldt-Daly, Inc. was $26,170. The balance due was forgiven and was part of the $300,000 total related party debt converted
into 55,000,000 shares of common stock.
In conjunction with the change of control
on June 18, 2015, other related party accounts payable totaling $45,269 were forgiven and credited to paid in capital.
NOTE 6 – INCOME TAXES
The Company had no income tax expense
(benefit) for the years ended June 30, 2015 and 2014. At June 30, 2015, the Company’s accumulated net operating loss carry-forwards
for federal and state income purposes was approximately $1,119,000. These losses are available for future years and expire through
June 2034. Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant
to Internal Revenue Code Section 382. At June 30, 2015 and 2014, the Company had deferred tax assets of approximately $389,200
and $305,200, respectively, principally arising from net operating loss carry forwards for income tax purposes. The Company has
determined it more likely than not that these timing differences will not materialize and provided a full valuation allowance against
all of the deferred tax assets.
NOTE 7 - GOING CONCERN
The accompanying financial statements
have been prepared on the basis of accounting principles applicable to a “going concern,” which assume that Highlight
Networks, Inc. (hereto referred to as the “Company”) will continue in operation for at least one year and will be able
to realize its assets and discharge its liabilities in the normal course of operations.
Several
conditions and events raise substantial doubt as to the Company’s ability to continue as a “going concern.” The
Company has an accumulated deficit of $
8,859,088
, a working
capital deficit and has had limited revenues The Company 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 8 – DECONSOLIDATION
Prior to the Company’s change of
control referred to in Note 1, the results of operations of the Company’s subsidiary, EZ Recycling, was included in the statement
of operations, after giving effect to any necessary eliminating entries for intercompany transactions. Upon the change of control,
the subsidiary was spun-off and consolidation ceased. Accordingly, at June 30, 2015 the books of the Company were only comprised
of one entity, Highlights Networks, Inc.
NOTE 9 – SUBSEQUENT EVENTS
Management has evaluated subsequent events
pursuant to the requirements of ASC Topic 855-10,
Subsequent Events
, through the date the financial statements were issued
and determined that no subsequent events occurred that would require adjustment to or disclosure in the financial statements.