The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
Note 1 Organization and Nature of Operations
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 quarter 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, Airchin 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 days 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 is 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.
On August 5, 2016, the Company issued 19,051,091 common shares
of the Company to settle the debts payable of $25,920 to a related party and
$78,861 to an independent party of the Company at $0.0055 per share,
respectively.
F-6
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 consolidated
financial statements are expressed in U.S. dollars.
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 the U.S. dollar. Therefore, the
consolidated financial statements for all periods presented have been translated
into the 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 shareholders equity.
c. Principles of consolidation.
The 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.
d. Use of Estimates.
The preparation of consolidated
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
consolidated financial statements and the reported amounts of revenues and
expense during the period. Actual results could differ from those estimates.
e. Loss per share.
Basic loss per share (EPS) is
computed by dividing net loss 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 June 30, 2016 and 2015.
f. Revenue recognition.
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 non-cancellable, 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.
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 June 30, 2016 and 2015, we have no cash
equivalents.
h. Equipment.
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.
i. Income taxes.
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 carryforwards, 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 carryforwards 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 consolidated results of operations, financial
position, or cash flows of the Company.
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.
F-7
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.
F-8
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 3 - Going Concern
As reflected in the accompanying consolidated financial
statements, the Company has an accumulated deficit of $1,072,229, and a net loss
for $48,706 of the years ended June 30, 2016 and 2015 of $1,023,523 and $81,141,
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 the current action to obtain
additional funding and implement its strategic plans provide the opportunity for
the Company to continue as a going concern. There are no assurances that
additional funds will be available when needed from any source or, if available,
will be available on terms that are acceptable to us.
Note 4 - Accounts Payable and Accrued Liabilities
Accounts Payable and Accrued Liabilities of $13,245 as of June
30, 2016 consists of a refund to customer of $1,257, payment for vendors (hotel)
of $572, $1,400 in legal fee, $328 in commission fees, $9,500 in audit fee and
others of $216.
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 fiscal year ended June 30, 2015, the Company owned
by a director of the Company charged $7,686 in rent and $5,764 was settled in
share issuance and $1,921 has been due to the related party.
During the fiscal year ended June 30, 2016, the Company owned
by a director of the Company charged $7,236 in rent and the debt was transferred
to an individual investor of the company.
During fiscal year ended June 30, 2016, the former director of
the Company transferred the debt of $25,920 in full to a related party, the
sister in law of CEO of the Company.
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.
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
F-9
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 Year Ended
|
|
|
For the Year Ended
|
|
|
|
June
30, 2016
|
|
|
June
30, 2015
|
|
|
|
|
|
|
|
|
United States of America
|
$
|
(36,187
|
)
|
$
|
(34,880
|
)
|
Canada
|
|
(9,332
|
)
|
|
(39,433
|
)
|
People's Republic of China
|
|
(3,187
|
)
|
|
(6,828
|
)
|
Loss before income taxes
|
$
|
(48,706
|
)
|
$
|
(81,141
|
)
|
The components of deferred taxes assets at June 30:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
USA net operating losses
|
$
|
12,303
|
|
$
|
11,859
|
|
Canada net operating losses
|
|
1,260
|
|
|
5,323
|
|
PRC net operating losses
|
|
866
|
|
|
1,855
|
|
Deferred tax assets, net
|
|
14,429
|
|
|
19,037
|
|
Less: valuation allowance
|
|
(14,429
|
)
|
|
(19,037
|
)
|
Deferred tax assets, net
|
$
|
-
|
|
$
|
-
|
|
As of June 30, 2016, the Company has an accumulated deficit of
$1,072,229 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 June 30, 2016 and 2015, there were no tax penalties or interest.
Note 7 Commitment and Contingencies
The Company leases an office space in Canada. The lease term is month to month and the monthly rent is
Cdn$800.
The lease agreement in Beijing office was terminated effective
from October 1, 2013.
On May 30, 2014, the Company assigned the lease agreement dated
November 1, 2011 in Seattle to Meixi Travel LLC effective on August 1, 2014.
For each of the years ended June 30, 2016 and 2015, the Company
recorded a rent expense of $7,236 (Cdn$9,600) and $10,044, 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.
F-10
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 June 30, 2016 and June 30, 2015,
63,438,300 and 63,438,300 shares of common stock were issued and outstanding,
respectively.
Note 9 Subsequent Events
On August 5, 2016, the Company entered into Debt Conversion
Agreements (the Agreements) with each of Lin Li and Youzhe Li, who were each
creditors to the Company with total outstanding balances of $25,920 (the Lin Li
Loan) and $78,861 (the Youzhe Li Loan and, together with the Lin Li Loan, the
Loans), respectively. Pursuant to the Agreements the Company agreed to issue
an aggregate total of 19,051,091 shares of its common stock, $0.0001 par value
per share (the Shares), at the conversion rate of $0.0055 per share as full
payment for the Loans. Upon issuance and delivery of the Shares, the Loans shall
be fully paid and the Company shall no longer have any obligations to the
individuals under the Loans.
Lin Li is the sister of Mr. Feng Li, who is the husband of Hong
Ba, the Companys director, CEO and CFO.
As the filing date of these financial statements, there are
82,489,391 shares issued outstanding.
F-11