We have reviewed the balance sheet of W&E Source Corp. of
Quarter three as of Mar. 31, 2016, and the related statement of operations,
retained earnings, and cash flow for the quarter then ended. Our review was made
in accordance with generally accepted standards established for review
engagement and accordingly consisted primarily of enquiry, analytical
procedures, discussion related to information supplied to us by the company. A
review does not constitute an audit, and consequently, we do not express an
audit opinion on these financial statements.
Based on our reviews, nothing has come to our attention that
causes us to believe that these financial statements are not, in all material
respects, in accordance with the US generally accepted accounting
principles.
The accompanying notes are an integral part of these
consolidated interim financial statements.
The accompanying notes are an integral part of these
consolidated interim financial statements.
The accompanying notes are an integral part of these
consolidated interim financial statements.
The accompanying notes are an integral part of these
consolidated interim financial statements.
W&E Source Corp. and Subsidiaries
(Formerly News of
China, Inc.)
Notes to Consolidated Financial Statements
For the Three
and Nine months Ended March 31, 2016 and 2015
Note 1 Organization, Nature of Operations and Basis of
Presentation
W&E Source Corp. (the Company)
was incorporated in the State of Delaware on October 11, 2005 and is based in
Montréal, Québec, Canada. The Company is providing air ticket reservations,
hotel reservations and other travel related services.
On August 25, 2011, the Company
incorporated a company called Airchn Travel Global, Inc. (ATGI) in the State
of Washington, USA. ATGI is a wholly owned subsidiary of the Company. ATGI
focuses on a business segment of travel businesses which includes air ticket
reservations, hotel reservations and other travel services.
On October 4, 2011, the Company
incorporated a company called Airchn Travel (Canada) Inc. (ATCI) in the
Province of British Columbia, Canada. ATCI is a wholly owned subsidiary of ATGI.
ATCI has a similar business segment as ATGI.
In January 2012, the Company changed
its name from News of China, Inc. to W&E Source Corp. and increased its
authorized shares to 500,000,000 shares. As a result of the name change, the
Companys listing symbol on OTCQB is also changed to WESC.
During the period ended March 31, 2012,
the Company incorporated a company named Airchn Travel (Beijing) Inc. (ATBI)
in Beijing, China. ATBI is also a wholly owned subsidiary of ATGI. ATBI has a
similar business segment as ATGI.
On December 15, 2012, Airchn Travel
(Beijing) Inc., a wholly owned subsidiary of W&E Source Corp. (the
Company), entered into the Share Purchase Agreement (the Agreement) with Mr.
Wu Hao (the Seller), a majority shareholder of Chengdu Baopiao Internet Co.,
Ltd. (Baopiao), to acquire part of his ownership in Baopiao which equals 51%
of all issued and outstanding stock of Baopiao (the Shares).
The Company will pay for the aggregate
purchase price of RMB 2,550,000 for the Shares in cash and by assuming the
Sellers debt to Baopiao in the amount of RMB1,800,000 (approximately
US$289,000) (the Debt). According to the terms of the Agreement, the Company
will assume the Debt upon execution of the Agreement and pay the Seller the
remaining RMB750,000 of the purchase price within 20 days from the execution of
the Agreement. Also at execution, the Company will paid Baopiao RMB200,000 as
repayment of the Debt and satisfy the remaining Debt of RMB1,600,000 within 20
day from the execution of the Agreement.
Also pursuant to the Agreement, the
Seller will provide guaranties that other than the information including
financial statements provided to the Company, Baopiao does not have any other
debts, and no third party has any rights or liens on the assets of Baopiao. The
Seller and Baopiao will also indemnify the Company against any damages,
liabilities, losses and expenses, which the Company may sustain or suffer due to
any breach of the guaranties made by the Seller or Baopiao.
Baopiao has obtained the necessary
shareholder approval for the transfer of the Shares and will register the
transfer of the Shares with the applicable State Administration for Industry and
Commerce within three days from the date of the Agreement.
In connection with the Agreement, the
Company also entered into an agreement with the Seller and Baopiao that as an
incentive for the management team of Baopiao, the Company will reserve up to 26
million shares of its common stock for issuance to the Baopiao employees upon
achievement of certain milestones over the next three years.
The Share Purchase Agreement with Mr.
Wu Hao was not completed in January 2013, and both the Company and Mr. Wu Hao
agreed to terminate the agreement entered on December 15, 2012.
On October 26, 2014, the Company issued
15,538,300 common shares of the Company to settle the debts payable of $155,383
to related parties at $0.01 per share.
7
W&E Source Corp. and Subsidiaries
(Formerly News of
China, Inc.)
Notes to Consolidated Financial Statements
For the Three
and Nine months Ended March 31, 2016 and 2015
Note 2 Summary of Significant Accounting Policies
|
a.
|
Basis of presentation.
|
The Company prepares its financial
statements in accordance with accounting principles generally accepted in the
United States. This basis of accounting involves the application of accrual
accounting and consequently, revenues and gains are recognized when earned, and
expenses and losses are recognized when incurred. The financial statements are
expressed in U.S. dollars. These unaudited financial statements should be read
in conjunction with a reading of the financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended June 30, 2015, as
filed with the U.S. Securities and Exchange Commission.
|
b.
|
Foreign currency
translation.
|
ATCI's and ATBIs functional currency
for operations is the Canadian dollar and Chinese Yuan. However, the Company's
reporting currency is in U.S. dollar. Therefore, the financial statements for
all periods presented have been translated into U.S. dollar using the current
rate method. Under this method, the income statement and the cash flows for each
period have been translated into U.S. dollars using the average rate of the
reporting period, and assets and liabilities have been translated using the
exchange rate at the end of the period. All resulting exchange differences are
reported in the cumulative translation adjustment account as a separate
component of stockholders equity.
|
c.
|
Principles of
consolidation.
|
The unaudited consolidated statements
include the accounts of the Company and its wholly owned subsidiaries, ATGI,
ATCI and ATBI. All inter-company transactions and balances were eliminated.
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 as of the date of the financial statements and
the reported amounts of revenues and expense during the period. Actual results
could differ from those estimates.
Basic loss per share (EPS) is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding during the period, excluding the
effects of any potentially dilutive securities. Diluted EPS gives effect to all
dilutive potential of shares of common stock outstanding during the period
including stock options or warrants, using the treasury stock method (by using
the average stock price for the period to determine the number of shares assumed
to be purchased from the exercise of stock options or warrants), and convertible
debt or convertible preferred stock, using the if-converted method. EPS excludes
all potential dilutive shares of common stock if their effect is anti-dilutive.
There were no dilutive securities at March 31, 2016.
The Company recognizes revenue when it
is realized or realizable and earned. The Company considers revenue realized or
realizable and earned when it has persuasive evidence of an arrangement,
delivery has occurred, the sales price is fixed or determinable, and
collectability is reasonably assured. Revenue, which primarily consists of
commission fees from air ticketing and hotel booking operations, is recognized
as tickets and hotels are booked, and is recorded on a net basis (that is, the
amount billed to a customer less the amount paid to a supplier) as the Company
acts as an agent in these transactions.
8
W&E Source Corp. and Subsidiaries
(Formerly News of
China, Inc.)
Notes to Consolidated Financial Statements
For the Three
and Nine months Ended March 31, 2016 and 2015
|
g.
|
Cash and cash equivalents.
|
The Company includes in cash and cash
equivalents all short-term, highly liquid investments that mature within three
months or less of their acquisition date. Cash equivalents consist principally
of investments in interest-bearing demand deposit accounts and liquidity funds
with financial institutions and are stated at cost, which approximates fair
value. As of March 31, 2016, we have no cash equivalents.
Equipment is stated at cost and
depreciated using the straight-line method over the estimated useful life of the
asset. The estimated useful lives of our property and equipment are generally
three years.
Deferred tax assets and liabilities
are recognized for future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, the Company recognizes future tax
benefits, such as carry forwards, to the extent that realization of such
benefits is more likely than not and that a valuation allowance is provided when
it is more likely than not that some portion of the deferred tax asset will not
be realized. Companys net operating losses carry forwards are subject to
Section 382 limitation.
|
j.
|
Recently issued accounting
pronouncements.
|
The Company does not expect that any
recently issued accounting pronouncement will have a significant impact on the
results of operations, financial position, or cash flows of the Company.
As reflected in the accompanying
financial statements, the Company has an accumulated deficit of $1,051,772, and
a net loss for the quarters ended March 31, 2016 and 2015 of $28,249 and
$66,068, respectively. The Company currently has business activities to generate
funds for its own operations, however, has not yet achieved profitable
operations. These factors raise substantial doubt about our ability to continue
as a going concern. The Companys ability to continue as a going concern is
dependent on its ability to raise additional capital and implement its business
plan. These financial statements do not include any adjustments to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Management believes that actions
presently being taken to obtain additional funding and implement its strategic
plans provide the opportunity for the Company to continue as a going concern.
Note 3 - Recently Issued Accounting Pronouncements
In July 2015, the FASB issued ASU
2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The
amendments in ASU 2015-11 require an entity to measure in scope inventory at the
lower of cost and net realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal, and transportation. Subsequent measurement is
unchanged for inventory measured using LIFO or the retail inventory method. The
amendments do not apply to inventory that is measured using last-in, first-out
(LIFO) or the retail inventory method. The amendments apply to all other
inventory, which includes inventory that is measured using first-in, first-out
(FIFO) or average cost. The amendments in this ASU are effective for public
business entities for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2016, and
interim periods within fiscal years beginning after December 15, 2017. A
reporting entity should apply the amendments prospectively with earlier
application permitted as of the beginning of an interim or annual reporting
period. The adoption of ASU 2015-11 is not expected to have a material impact on
the Companys consolidated financial statements.
9
W&E Source Corp. and Subsidiaries
(Formerly News of
China, Inc.)
Notes to Consolidated Financial Statements
For the Three
and Nine months Ended March 31, 2016 and 2015
In August 2015, the FASB issued ASU
2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the
Effective Date. The amendments in ASU 2015-14 defer the effective date of ASU
2014-09 for all entities by one year. Public business entities, certain
not-for-profit entities, and certain employee benefit plans should apply the
guidance in ASU 2014-09 to annual reporting periods beginning after December 15,
2017, including interim reporting periods within that reporting period. Earlier
application is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that reporting
period. The Company is currently in the process of evaluating the impact of the
adoption on its consolidated financial statements.
In September 2015, the FASB issued ASU
2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments. The amendments in ASU 2015-16 require that an
acquirer recognize adjustments to estimated amounts that are identified during
the measurement period in the reporting period in which the adjustment amounts
are determined. The amendments require that the acquirer record, in the same
periods financial statements, the effect on earnings of changes in
depreciation, amortization, or other income effects, if any, as a result of the
change to the estimated amounts, calculated as if the accounting had been
completed at the acquisition date. The amendments also require an entity to
present separately on the face of the income statement or disclose in the notes
the portion of the amount recorded in current-period earnings by line item that
would have been recorded in previous reporting periods if the adjustment to the
estimated amounts had been recognized as of the acquisition date. The amendments
in this ASU are effective for public business entities for fiscal years
beginning after December 15, 2015, including interim periods within those fiscal
years. The amendments should be applied prospectively to adjustments to
provisional amounts that occur after the effective date with earlier application
permitted for financial statements that have not been issued. The adoption of
ASU 2015-16 is not expected to have a material impact on the Companys
consolidated financial statements.
In November 2015, the FASB issued ASU
2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes. The amendments in ASU 2015-17 eliminates the current requirement for
organizations to present deferred tax liabilities and assets as current and
noncurrent in a classified balance sheet. Instead, organizations will be
required to classify all deferred tax assets and liabilities as noncurrent. The
amendments in this ASU are effective for public business entities for financial
statements issued for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. The amendments may be applied
prospectively to all deferred tax liabilities and assets or retrospectively to
all periods presented. The Company is currently in the process of evaluating the
impact of the adoption on its consolidated financial statements.
In January 2016, the FASB issued ASU
2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. The amendments in
ASU 2016-01, among other things, requires equity investments (except those
accounted for under the equity method of accounting, or those that result in
consolidation of the investee) to be measured at fair value with changes in fair
value recognized in net income; Requires public business entities to use the
exit price notion when measuring the fair value of financial instruments for
disclosure purposes; Requires separate presentation of financial assets and
financial liabilities by measurement category and form of financial asset (i.e.,
securities or loans and receivables); Eliminates the requirement for public
business entities to disclose the method(s) and significant assumptions used to
estimate the fair value that is required to be disclosed for financial
instruments measured at amortized cost. The amendments in this ASU are effective
for public companies for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The new guidance permits
early adoption of the own credit provision. In addition, the new guidance
permits early adoption of the provision that exempts private companies and
not-for-profit organizations from having to disclose fair value information
about financial instruments measured at amortized cost. The Company is currently
in the process of evaluating the impact of the adoption on its consolidated
financial statements.
In February 2016, the FASB issued ASU
2016-02, Leases (Topic 842). Among other things, in the amendments in ASU
2016-02, lessees will be required to recognize the following for all leases
(with the exception of short-term leases) at the commencement date: A lease
liability, which is a lessees obligation to make lease payments arising from a
lease, measured on a discounted basis; and A right-of-use asset, which is an
asset that represents the lessees right to use, or control the use of, a
specified asset for the lease term. Under the new guidance, lessor accounting is
largely unchanged. Certain targeted improvements were made to align, where
necessary, lessor accounting with the lessee accounting model and Topic 606,
Revenue from Contracts with Customers. The amendments in this ASU are effective
for public business entities for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early application is
permitted for all public business entities and all nonpublic business entities
upon issuance. Lessees (for capital and operating leases) and lessors (for
sales-type, direct financing, and operating leases) must apply a modified
retrospective transition approach for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial
statements. The modified retrospective approach would not require any transition
accounting for leases that expired before the earliest comparative period
presented. Lessees and lessors may not apply a full retrospective transition
approach. The Company is currently in the process of evaluating the impact of
the adoption on its consolidated financial statements.
10
W&E Source Corp. and Subsidiaries
(Formerly News of
China, Inc.)
Notes to Consolidated Financial Statements
For the Three
and Nine months Ended March 31, 2016 and 2015
In March 2016, the FASB issued ASU
2016-03, Intangibles-Goodwill and Other (Topic 350); Business Combinations
(Topic 805); Consolidation (Topic 810); Derivatives and Hedging (Topic 815):
Effective Date and Transition Guidance. The amendments in this ASU make the
guidance in ASUs 2014-02, 2014-03, 2014-07, and 2014-18 effective immediately by
removing their effective dates. The amendments also include transition
provisions that provide that private companies are able to forgo a preferability
assessment the first time they elect the accounting alternatives within the
scope of this ASU. Any subsequent change to an accounting policy election
requires justification that the change is preferable under Topic 250, Accounting
Changes and Error Corrections. The amendments in this ASU also extend the
transition guidance in ASUs 2014-02, 2014-03, 2014-07, and 2014-18 indefinitely.
While this ASU extends transition guidance for Updates 2014-07 and 2014-18,
there is no intention to change how transition is applied for those two ASUs.
The Company is currently in the process of evaluating the impact of the adoption
on its consolidated financial statements.
Note 4 - Accounts Payable and Accrued Liabilities
Accounts Payable and Accrued
Liabilities of $26,998 as of March 31, 2016 consists of a payment for vendor
(hotel) of $569, various vendors of $509 for operating expenses and previous
director of $25,920.
Note 5 Related Parties
Mrs. Hong Ba serves as the Chief
Executive Officer and Director of the Company. Mr. Feng Li, the husband of Mrs.
Hong Ba, is the owner of the Canada Airchn Financial Inc. (CAFI). Mr. Chen Xi
Shi is the former Chief Financial Officer and Director of the Company. The
shareholders make advances to the Company from time to time for the Companys
operations. These advances are due on demand and non-interest bearing.
During the nine months ended March 31,
2016, no shares of the Companys capital stock were issued. During the last
fiscal year ended June 30, 2015, on October 26, 2014, the Company issued
14,962,200 common shares of the Company to settle the debts payable of $149,622
to related parties at $0.01 per share for operations on behalf of ATCI, ATGI and
ATBI.
During the nine months ended March 31,
2016, a Company owned by Feng Li, the husband of Mrs. Hong Ba, our CEO, charged
the Company $7,392 (2015 - $8,151) in rent and $9,702 (June 30, 2015 - $1,921)
is outstanding.
Note 6 Income Taxes
United States of America
The Company and its subsidiary are
subject to income taxes on an entity basis on income arising in, or derived
from, the tax jurisdiction in which they operate.
11
W&E Source Corp. and Subsidiaries
(Formerly News of
China, Inc.)
Notes to Consolidated Financial Statements
For the Three
and Nine months Ended March 31, 2016 and 2015
Canada
The Companys subsidiary, Airchn Travel
(Canada) Inc. is incorporated in British Columbia in Canada. It is subject to
income taxes on income arising in, or derived from, the tax jurisdiction in
British Columbia it operates. The basic federal rate of Part I tax is 38% of
taxable income, 28% after federal tax abatement. After the general tax
reduction, the net federal tax rate is 18% effective January 1, 2010; 16.5%
effective January 1, 2011; 15% effective January 1, 2012. The provincial and
territorial lower and higher tax rates in British Columbia are 2.5% and 10%,
respectively. Other than income tax, Airchn Travel (Canada) Inc. is GST
registrants who make taxable services in British Columbia and collect tax at the
5% GST rate on taxable services.
Peoples Republic of
China
The Companys subsidiary, Airchn Travel
(Beijing) Inc. is incorporated in Beijing in China. It is subject to PRC tax
laws. Prior to January 1, 2008, PRC enterprise income tax (EIT) was generally
assessed at the rate of 33% of taxable income. In March 2007, a new enterprise
income tax law (the New EIT Law) in the PRC was enacted which was effective on
January 1, 2008. The New EIT Law generally applies a uniform 25% EIT rate to
both foreign invested enterprises and domestic enterprises.
For the reporting periods, the
components of loss before income taxes were comprised of the following:
|
|
|
For the Quarter Ended
|
|
|
For the Year Ended
|
|
|
|
|
March 31, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
United States of America
|
$
|
(21,178
|
)
|
$
|
(34,880
|
)
|
|
Canada
|
|
(6,174
|
)
|
|
(39,433
|
)
|
|
People's Republic of China
|
|
(897
|
)
|
|
(6,828
|
)
|
|
Loss before income taxes
|
$
|
(28,249
|
)
|
$
|
(81,141
|
)
|
Note 6 Income Taxes (continued)
The components of deferred taxes assets
at March 31, 2016 and June 30, 2015:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
USA net operating losses
|
$
|
7,201
|
|
$
|
11,859
|
|
|
Canada net operating losses
|
|
772
|
|
|
5,323
|
|
|
PRC net operating losses
|
|
224
|
|
|
1,855
|
|
|
Deferred tax assets, net
|
|
8,197
|
|
|
19,037
|
|
|
Less: valuation allowance
|
|
(8,197
|
)
|
|
(19,037
|
)
|
|
Deferred tax assets, net
|
$
|
-
|
|
$
|
-
|
|
As of March 31, 2016, the Company has
an accumulated deficit of $1,051,772 that can be carried forward to offset
future net profit for income tax purposes. All tax penalties and interest are
expensed as incurred. For the years ended March 31, 2016 and June 30, 2015,
there were no tax penalties or interest.
Note 7 Commitment and Contingencies
The Company leases office spaces for
different terms under long-term, non-cancelable operating lease agreements.
Monthly rent ranges from $780 to $8,151 and deposits range from $4,000 to
$16,302. The leases expire at various dates through 2016 and provide for renewal
options ranging from twenty-six months to six years. In the normal course of
business, it is expected that these leases will be renewed or replaced by leases
on other properties.
12
W&E Source Corp. and Subsidiaries
(Formerly News of
China, Inc.)
Notes to Consolidated Financial Statements
For the Three
and Nine months Ended March 31, 2016 and 2015
On May 30, 2014, the Company assigned
the lease agreement dated November 1, 2011 to Meixi Travel LLC effective on
August 1, 2014.
The following is a schedule by year of
future minimum rental payments required under the operating lease agreements:
Year Ending June 30
|
|
Amounts
|
|
|
|
|
|
2016
|
|
9,600
|
|
2017
|
|
9,600
|
|
2018
|
|
9,600
|
|
2019 and thereafter
|
|
-
|
|
|
|
|
|
Total
|
$
|
28,800
|
|
For each of the quarters ended March
31, 2016 and 2015, the Company recorded a rent expense of $7,392 and $8,101,
respectively.
Note 8 Common Stock
On January 23, 2012, the Company
entered into a subscription agreement with the significant shareholder Hong Ba,
for the sale of 22,000,000 common shares for $630,000 from cash received and
expense paid on behalf by Hong Ba. Subsequent to the sale, Hong Ba owns
22,000,000 common shares which represent 45.9% of the issued and outstanding
shares of the Company.
The Share Purchase Agreement with Mr.
Wu Hao was not completed in January 2013, and both the Company and Mr. Wu Hao
agreed to terminate the agreement entered on December 15, 2012. On October 26,
2014, the Company issued 15,538,300 common shares of the Company to settle the
debts payable of $155,383 to related parties at $0.01 per share.
The Company is authorized to issue
500,000,000 shares of common stock with par value of $0.0001. As of March 31,
2016 and June 30, 2015, 63,438,300 and 63,438,300 shares of common stock were
issued and outstanding, respectively.
13