LTGJ Xiamen Lutong International Travel Agency Company Ltd (CE)

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 March 31, 2014 compared to the three months ended March 31, 2013

Revenues

Our total revenue was $0 in the three months ended March 31, 2013 and in the three months ended March 31, 2014. As of March 31, 2014, 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 was $0 in the three months ended March 31, 2013 and in the three months ended March 31, 2014. As of March 31, 2014, 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 decreased by $132,912, from $366,734 in the three months ended March 31, 2013 to $233,822 in the three months ended March 31, 2014.

Interest expense increased by $5,717, from $256 in the three months ended March 31, 2013 to $5,973 in the three months ended March 31, 2014 due mainly to the additional amounts loaned the company in related party debt.

Net loss per share was $0.15 for the three months ended March 31, 2013 and $0.02 for the three months ended March 31, 2014. The weighted average shares outstanding were 2,419,600 for the three months ended March 31, 2013 and 14,047,600 for the three months ended March 31, 2014.

As of March 31, 2014, 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 nine months March 31, 2014 compared to the nine months ended March 31, 2013

Revenues

Our total revenue increased by $7,302, from $0 in the nine months ended March 31, 2013 to $7,302 in the nine months ended March 31, 2014. As of March 31, 2014, 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 nine months ended March 31, 2013 to $2,903 in the nine months ended March 31, 2014. As of March 31, 2014, 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 $7,584,256, from $375,036, in the nine months ended March 31, 2013, to $7,959,292 in the nine months ended March 31, 2014.

Interest expense increased by $69,300, from $256 in the nine months ended March 31, 2013 to $69,556 in the nine months ended March 31, 2014 due mainly to the additional amounts loaned the company in related party debt.

Net loss per share was $0.16 for the nine months ended March 31, 2013 and $0.94 for the nine months ended March 31, 2014. The weighted average shares outstanding were 2,419,600 for the nine months ended March 31, 2013 and 8,620,009 for the nine months ended March 31, 2014.

As of March 31, 2014, 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 $8,116,593 for the nine months ended March 31, 2014 as compared to a net loss of $375,292 for the nine months ended March 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 March 31, 2014, the Company had total current assets of $18,547 and total current liabilities of $478,600, resulting in a working capital deficit of $460,053.

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 Convertible 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. 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. In January 2014, these loans were reclassified and are now held in multiple Promissory notes that are unsecured, payable a year from the signed note and bear simple interest at 10% per annum and during the currently quarter additional funds were borrowed under notes with the same terms. As of March 31, 2014, the aggregate unpaid principal on these notes was $281,757, with interest accrued of $14,839.

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 March 31, 2014 the unpaid amount on the advance was $100.

Net cash used in operating activities was $164,993 during the nine-month period ended March 31, 2014.

Net cash provided by investing activities was $0 during the nine-month period ended March 31, 2014.

Net cash provided by financing activities was $120,527 during the nine-month period ended March 31, 2014.

Due to the substantial doubt of our ability to meet our working capital needs, history of losses, and current shareholders' deficit, our independent registered public accounting firm included an explanatory paragraph regarding concerns about out ability to continue as a going concern in their 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 March 31, 2014, a total of 14,167,600 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 nine month period ended March 31, 2014, an additional $161,327 was recognized and $18,791 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 nine months ended March 31, 2014.

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 nine months ended March 31, 2014. The fair value of the remaining 3,000,000 shares was determined to be $750,000 and it is being recognized over the expected successful completion date of the performance conditions of June 30, 2014. During the nine months ended March 31, 2014, $466,805 was recognized as expense for the 3,000,000 shares and $283,195 will be recognized through the expected completion date of the performance conditions.

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 nine months ended March 31, 2014.

On March 13, 2014, the company issued 225,000 common shares under a consulting agreement. The shares were fully earned upon execution of the agreement. The Company recognized the full fair value of the 225,000 shares of $56,250, based upon the closing price of our common stock of $0.25 on March 13, 2014, during the nine months ended March 31, 2014.

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 March 31, 2014, there were 0 shares of Highlight Networks, Inc. $0.001 par value preferred stock outstanding.