[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
[ ] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[
X
] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [
X
] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange (check one):
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).
Yes
[
]
No [
X
]
The aggregate market value of the voting and non-voting stock
held by non-affiliates of the registrant, as of December 31, 2016, was $134,625.
All executive officers, directors and holders of 5% or more of our outstanding
common stock have been deemed, solely for the purpose of the foregoing
calculation, to be "affiliates" of the registrant.
As of September 28, 2017 there were 82,489,391 shares of the
issuer's common stock, $0.0001 par value per share, issued and outstanding.
PART I
ITEM 1. BUSINESS
Forward Looking Statements
This report contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as “may”,
“should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue” or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors”, that may cause our company’s or our industry’s
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our financial statements are stated in United States dollars
(US$) and are prepared in accordance with United States generally accepted
accounting principles.
In this report, unless otherwise specified, all references to
“common shares” refer to the common shares of our capital stock.
As used in this report, the terms “we”, “us”, “our”, “W&E
Source Corp.” means W&E Source Corp., unless otherwise indicated.
Corporate Overview
The Company has identified the global tourism market as its
first investment target. As it currently exists, the tourism industry is
fragmented into various geographic regions. We believe that approaching this
industry from a global perspective is an emerging market with tremendous growth
potential. We plan to set up and/or acquire offices in various regions of the
world and through them, develop the local tourism industry and expand our local
tourism market. Ultimately, we plan to unify and manage our regional offices and
to market our global services through the internet.
We have set up three subsidiaries, Airchn Travel Global, Inc.
in Seattle, Washington (“ATGI”) and Airchn Travel (Canada) Inc. in Vancouver,
British Columbia in Canada (“ATCI”) and Airchn Travel (Beijing) Inc. in Beijing,
China (“ATBI”). We plan to set up additional subsidiaries in Hong Kong, Macau,
Taiwan, Japan and Korea in the near future. Our Beijing office has been closed
as of June 30, 2017 due to lack of business and to reduce operating costs.
We are engaged in services such as airline and cruise
ticketing, customized and packaged tours, travel blogs, travel magazines, sales
of travel related merchandise, group hotel reservations, business travel
arrangements, conference travel arrangements, car rental and admission ticket
sale for local tourist attractions.
1
We will continue to explore other business growth
opportunities, regardless of industry, in order to diversify our business
operations and investments.
On January 17, 2012, the Company filed a Certificate of
Amendment to its Certificate of Incorporation with the Secretary of State of
Delaware to change its name from News of China, Inc. to W&E Source Corp. In
connection with the name change, our listing symbol on the OTCQB also changed
from “NWCH” to “WESC.” Our new website which is currently under construction can
be accessed at www.wescus.com. In addition, the Company also increased its total
authorized shares to 500,000,000 to anticipate future financing through the
issuance of our equity or convertible debt to finance our business.
Employees
As of June 30, 2017, we have one part time consultant, who is
responsible for sales of the various travel products we offer. We have not
experienced any labor disputes and we believe we have good relationships with
our employees. We are not a party to any collective bargaining agreements.
Research and Development Expenditures
We did not incur expenditures in research and development over
the last fiscal year.
Intellectual Property
We do not own, either legally or beneficially, any patent or
trademark.
ITEM 1A. RISK FACTORS
Our common shares are considered speculative. Prospective
investors should consider carefully the risk factors set out below.
Risks Related To Our Business
Our revenue is derived from the global travel industry and a
prolonged or substantial decrease in global travel volume, as well as other
industry trends, could adversely affect us.
Our revenue is derived from the global travel industry. As a
result, our revenue is directly related to the overall level of travel activity,
and is therefore significantly impacted by declines in, or disruptions to,
travel in any region due to factors entirely outside of our control. Such
factors include:
-
global security issues, political instability, acts or threats of
terrorism, hostilities or war and other political issues that could adversely
affect global air travel volume;
-
epidemics or pandemics, such as H1N1 “swine” flu, avian flu, Severe Acute
Respiratory Syndrome (“
SARS
”) and Ebola virus disease;
-
natural disasters, such as hurricanes, volcanic activity and resulting ash
clouds, earthquakes and tsunamis;
-
general economic conditions, particularly to the extent that adverse
conditions may cause a decline in travel volume, such as the crisis in the
global credit and financial markets, diminished liquidity and credit
availability, declines in consumer confidence and discretionary income,
declines in economic growth, increases in unemployment rates and uncertainty
about economic stability;
-
the financial condition of travel suppliers, including airlines and
hotels, and the impact of any
2
changes such as airline bankruptcies or
consolidations on the cost and availability of air travel and hotel rooms;
-
changes to laws and regulations governing the airline and travel industry
and the adoption of new laws and regulations detrimental to operations,
including environmental and tax laws and regulations;
-
fuel price escalation;
-
work stoppages or labor unrest at any of the major airlines or other
travel suppliers or at airports;
-
increased security, particularly airport security that could reduce the
convenience of air travel;
-
travelers’ perception of the occurrence of travel-related accidents, of
the environmental impact of air travel, particularly in regards to CO2
emissions, or of the scope, severity and timing of the other factors described
above; and
-
changes in occupancy and room rates achieved by hotels.
If there were to be a prolonged substantial decrease in travel
volume, for these or any other reason, it would have an adverse impact on our
business, financial condition and results of operations.
The travel industry may not recover from the recent global
financial crisis and recession to the extent anticipated or may not grow in line
with long-term historical trends following any recovery.
As a participant in the global travel industry, our business
and operating results are impacted by global economic conditions, including the
recent European debt crisis, a slowdown in growth of the Chinese economy, a
prolonged slow economic recovery in Japan and a general reduction in net
disposable income as a result of fiscal measures adopted by countries to address
high levels of budgetary indebtedness, which may adversely affect our business,
results of operations and financial condition. In our industry, the recent
financial crisis and global recession have resulted in higher unemployment, a
decline in consumer confidence, large-scale business failures and tightened
credit markets. As a result, the global travel industry, which historically has
grown at a rate in excess of global GDP growth during economic expansions, has
experienced a cyclical downturn. A continuation of recent adverse economic
developments in areas such as employment levels, business conditions, interest
rates, tax rates, fuel and energy costs, particularly a rise in the price of
crude oil, and other matters could reduce discretionary spending further and
cause the travel industry to continue to contract. In addition, the global
economy may not recover as quickly or to the extent anticipated, and consumer
spending on leisure travel and business spending on corporate travel may not
increase despite improvement in economic conditions. As a result, our business
may not benefit from a broader macroeconomic recovery, which could adversely
affect our business, financial condition or results of operations.
The travel industry is highly competitive, and we are
subject to risks relating to competition that may adversely affect our
performance.
Our businesses operate in highly competitive industries. If we
cannot compete effectively, we may lose share to our competitors, which may
adversely affect our financial performance. Our continued success depends, to a
large extent, upon our ability to compete effectively in industries that contain
numerous competitors, some of which may have significantly greater financial,
marketing, personnel and other resources than us.
The travel industry is seasonal.
Our business travel operations will experience seasonal
fluctuations, reflecting seasonal variations in demand for travel services.
During the first quarter, demand for travel services generally declines and the number of bookings flattens or decreases, in part due to a
slowdown in business activity during the holidays. Demand for travel services
generally peaks during the second half of the year and there may be seasonal
fluctuations in allocations of travel services made available to us by travel
suppliers. Consequently, our revenue may fluctuate from quarter to quarter.
3
Our business depends on the technology infrastructure of
third parties.
We rely on third-party computer systems and other service
providers, including the computerized reservation systems of airlines and hotels
to make reservations and confirmations. Other third parties provide, for
instance, our back-up data center, telecommunications access lines, significant
computer systems and software licensing, support and maintenance service and
air-ticket delivery. Any interruption in these or other third-party services or
deterioration in their performance could impair the quality of our service.
Risks Related To Our Company
We have only commenced our business operations in October,
2005 and we have a limited operating history. If we cannot successfully manage
the risks normally faced by start-up companies, we may not achieve profitable
operations and ultimately our business may fail.
As of June 30, 2017, we had an accumulated deficit of
$1,127,081. We anticipate continuing to incur significant losses until, at the
earliest, we generate sufficient revenues to offset the substantial up-front
expenditures and operating costs associated with developing and marketing our
services. There can be no assurance that we will ever operate profitably.
We will also encounter risks and difficulties frequently
experienced by growing companies in evolving industries such as the travel
agency and travel service industry. Our operating history to date is not
adequate to evaluate how we will address these risks and difficulties in the
future. Some of the risks relate to our ability to: (i) attract and retain
customers and encourage our customers to engage in repeat transactions; (ii)
retain our existing agreements and relationships with travel suppliers such as
hotels and airlines and to expand our product and service offerings on
satisfactory terms with our travel suppliers; (iii) operate, support, expand and
develop our operations, our call centers, our website, and our communications
and other systems; (iv) diversify our sources of revenue; (v) maintain effective
control of our expenses; and (vi) respond to changes in our regulatory
environment.
If we are not successful in addressing any or all of these
risks, our business may be materially affected in an adverse manner.
There is substantial doubt about our ability to continue as
a going concern, which may hinder our ability to obtain future financing.
In their report accompanying this annual report, our
independent auditors stated that our consolidated financial statements were
prepared assuming that we would continue as a going concern. Our ability to
continue as a going concern is an issue raised as we have losses from operations
and an accumulated deficit. We anticipate that we will continue to experience
net operating losses. Our ability to continue as a going concern is subject to
our ability to obtain necessary funding from outside sources, including
obtaining additional funding from the sale of our securities. Our lack of
revenue and continued net operating losses increase the difficulty in meeting
such goals and there can be no assurances that such methods will prove
successful.
4
We have generated limited revenues and have only limited
marketing experience to develop customers.
We have generated revenues by
providing air ticket reservations, hotel reservations and other travel related
services to our customers. We do not believe that we will generate significant
revenues in the immediate future. There can be no assurance that we will ever be
able to obtain a significant number of customers to generate meaningful revenues
or achieve profitable operations.
We have only limited experience in developing and marketing our
travel services, and there is limited information available concerning the
potential performance or market acceptance of our proposed services. There can
be no assurance that unanticipated expenses, problems or technical difficulties
will not occur which would result in material delays in commercialization of our
services or that our efforts will result in successful commercialization.
The continued growth of our business will require additional
funding from time to time which would be used for general corporate purposes.
General corporate purposes may include acquisitions, investments, repayment of
debt, capital expenditures, repurchase of our capital stock and any other
purposes that we may specify in any prospectus supplement. Obtaining additional
funding would be subject to a number of factors including market conditions,
operational performance and investor sentiment. These factors may make the
timing, amount, terms and conditions of additional funding unattractive, or
unavailable, to us.
The terms of any future financing may adversely affect your
interest as stockholders.
If we require additional financing in the future, we may be
required to incur indebtedness or issue equity securities, the terms of which
may adversely affect your interests in our company. For example, the issuance of
additional indebtedness may be senior in right of payment to your shares upon
our liquidation. In addition, indebtedness may be under terms that make the
operation of our business more difficult because the lender’s consent will be
required before we take certain actions. Similarly the terms of any equity
securities we issue may be senior in right of payment of dividends to your
common stock and may contain superior rights and other rights as compared to
your common stock. Further, any such issuance of equity securities may dilute
your interest in our company, which may reduce the value of your investment.
Our Certificate of Incorporation and Bylaws contain
limitations on the liability of our directors and officers, which may discourage
suits against directors and executive officers for breaches of fiduciary
duties.
Our Certificate of Incorporation, as amended, and our Bylaws
contain provisions limiting the liability of our directors for monetary damages
to the fullest extent permissible under Delaware law. This is intended to
eliminate the personal liability of a director for monetary damages on an action
brought by origin our right for breach of a director’s duties to us or to our
stockholders except in certain limited circumstances. In addition, our
Certificate of Incorporation, as amended, and our Bylaws contain provisions
requiring us to indemnify our directors, officers, employees and agents serving
at our request, against expenses, judgments (including derivative actions),
fines and amounts paid in settlement. This indemnification is limited to actions
taken in good faith in the reasonable belief that the conduct was lawful and in,
or not opposed to our best interests. The Certificate of Incorporation and the
Bylaws provide for the indemnification of directors and officers in connection
with civil, criminal, administrative or investigative proceedings when acting in
their capacities as agents for us. These provisions may reduce the likelihood of
derivative litigation against directors and executive officers and may discourage or deter stockholders or management from suing
directors or executive officers for breaches of their fiduciary duties, even
though such an action, if successful, might otherwise benefit our stockholders
and directors and officers.
5
Our success depends on our management team and other key
personnel, the loss of any of whom could disrupt our business operations.
Our future success will depend in substantial part on the
continual services of our senior management, including our President, Chief
Executive Officer and Chief Financial Officer, Hong Ba. As a startup company,
currently none of the senior management team draws salaries from our company. We
do not carry key person life insurance on any of our officers or employees. The
loss of the services of one or more of our key personnel could impede
implementation of our business plan and result in reduced profitability.
Because our officers, directors and principal shareholders
control a majority of our common stock, investors will have little or no control
over our management or other matters requiring shareholder approval.
Our officers and directors in the aggregate, beneficially own
approximately 44.9% of issued and outstanding shares of our common stock. As a
result, they have the ability to control matters affecting minority
shareholders, including the election of our directors, the acquisition or
disposition of our assets, and the future issuance of our shares. Because our
officers, directors and principal shareholders control the company, investors
will not be able to replace our management if they disagree with the way our
business is being run. Because control by these insiders could result in
management making decisions that are in the best interest of those insiders and
not in the best interest of the investors, you may lose some or all of the value
of your investment in our common stock.
Because we do not have sufficient insurance to cover our
business losses, we might have uninsured losses, increasing the possibility that
you would lose your investment.
We may incur uninsured liabilities and losses as a result of
the conduct of our business. We do not currently maintain any comprehensive
liability or property insurance. Even if we obtain such insurance in the future,
we may not carry sufficient insurance coverage to satisfy potential claims. We
do not carry any business interruption insurance. Should uninsured losses occur,
any purchasers of our common stock could lose their entire investment.
Risks Relating to the People’s Republic of China
The economic policies of the People’s Republic of China
could affect our business.
China is one of the regions which we will focus our business
development. Accordingly, our results of operations and prospects are subject,
to a significant extent, to the economic, political and legal developments in
the People’s Republic of China. While the People’s Republic of China’s economy
has experienced significant growth in the past 20 years, such growth has been
uneven, both geographically and among various sectors of the economy. The
Chinese government has implemented various measures to encourage economic growth
and guide the allocation of resources. Some of these measures benefit the
overall economy of the People’s Republic of China, but they may also have a
negative effect on us.
The economy of the People’s Republic of China has been changing
from a planned economy to a more market-oriented economy. In recent years, the Chinese
government has implemented measures emphasizing the utilization of market forces
for economic reform and the reduction of state ownership of productive assets,
and the establishment of corporate governance in business enterprises; however,
a substantial portion of productive assets in the People’s Republic of China are
still owned by the Chinese government. In addition, the Chinese government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over the
People’s Republic of China’s economic growth through the allocation of
resources, the control of payment of foreign currency-denominated obligations,
the setting of monetary policy and the provision of preferential treatment to
particular industries or companies.
6
Capital outflow policies in the People’s Republic of China may
hamper our ability to expand our business and/or operations. The People’s
Republic of China has adopted currency and capital transfer regulations. These
regulations may require us to comply with complex regulations for the movement
of capital. Although our management believes that it is currently in compliance
with these regulations, should these regulations or the interpretation of them
by courts or regulatory agencies change, we may not be able to remit income
earned and proceeds received in connection with any off-shore operations or from
other financial or strategic transactions we may consummate in the future.
Fluctuation of the Chinese Yuan, or Chinese Yuan
(“Renminbi”), could materially affect our financial condition and results of
operations.
Fluctuation of the Renminbi, the currency of the People’s
Republic of China, could materially affect our financial condition and results
of operations. The value of the Renminbi fluctuates and is subject to changes in
the People’s Republic of China’s political and economic conditions. Since July
2005, the conversion of Renminbi into foreign currencies, including United
States dollars, is pegged against the inter-bank foreign exchange market rates
or current exchange rates of a basket of currencies on the world financial
markets. As of June 30, 2017, the exchange rate between the Renminbi and the
United States dollar was approximately 6.7797 Renminbi to every one United
States dollar.
It will be extremely difficult to acquire jurisdiction and
enforce liability against our officers, directors and assets based in The
People’s Republic of China.
Because some of our executive officers and current directors
are Chinese citizens, it may be difficult, if not impossible, to acquire
jurisdiction over these persons in the event a lawsuit is initiated against us
and/or our officers and directors by a stockholder or group of stockholders in
the United States.
Risks Associated With Our Common Stock
Trading on the OTCQB may be volatile and sporadic, which
could depress the market price of our common stock and make it difficult for our
stockholders to resell their shares.
Our common stock is quoted on the OTCQB service of the
Financial Industry Regulatory Authority (“FINRA”). Trading in stock quoted on
the OTCQB is often thin and characterized by wide fluctuations in trading prices
due to many factors that may have little to do with our operations or business
prospects. This volatility could depress the market price of our common stock
for reasons unrelated to operating performance. Moreover, the OTCQB is not a
stock exchange, and trading of securities on the OTCQB is often more sporadic
than the trading of securities listed on a quotation system like Nasdaq or a
stock exchange like the American Stock Exchange. Accordingly, our shareholders
may have difficulty reselling any of their shares.
7
Our stock is a penny stock. Trading of our stock may be
restricted by the SEC’s penny stock regulations and the FINRA’s sales practice
requirements, which may limit a stockholder’s ability to buy and sell our
stock.
Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines “penny stock to be any
equity security that has a market price (as defined) less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and “accredited investors”. The term
“accredited investor” refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer’s account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in, and limit
the marketability of, our common stock.
In addition to the “penny stock rules” promulgated by the
Securities and Exchange Commission, the Financial Industry Regulatory Authority
has adopted rules that require that in recommending an investment to a customer,
a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the Financial Industry Regulatory Authority believes that there
is a high probability that speculative low-priced securities will not be
suitable for at least some customers. The Financial Industry Regulatory
Authority requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy
and sell our stock.
Other Risks
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most
significant risks to our business, but we cannot predict whether, or to what
extent, any such risks may be realized nor can we guarantee that we have
identified all possible risks that might arise. Investors should carefully
consider all of the risk factors before making an investment decision with
respect to our common stock.
8
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently lease our only office in Vancouver which covers
approximately 400 square feet with an annual lease of CA$9,600. We subleased out
office in Seattle to a third party effective August 1, 2014. We did not renew
our lease for our Beijing office which terminated at the end of 2013.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial shareholder,
is an adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The following table sets forth information regarding our
directors and executive officers.
|
|
|
|
Date First Elected or
|
|
Name
|
Position Held with our Company
|
Age
|
Appointed
|
|
Hong Ba
|
Chief Executive
Officer, Chief Financial Officer, and Director
|
50
|
August 1, 2011
September 1,
2011
|
|
Junjun Wu
|
Director
|
46
|
September 1, 2011
|
The following is a brief account of the education and business
experience of directors and executive officers during the past five years,
indicating their principal occupation during the period, and the name and
principal business of the organization by which they were employed.
Hong Ba
Mrs. Ba joined our company in August 2011 as Chief Executive
Officer and was appointed as a Director on September 1, 2011 and as our Chief
Financial Officer on May 13, 2013. Mrs. Ba was born in 1966. She graduated from
Taiyuan University Software in 1988. She had worked in China Eastern Airline
from 1988. She has over 20 years of work experience in aviation marketing. Mrs.
Ba has been working for Shanxi Jinyan Aviation Business Inc. as the president
and a director from 2008. Mrs. Ba provides her services on a full time basis to
our company.
We believe Mrs. Ba is qualified to serve on our board of
directors because of her extensive business experience and network of business
associates in China which will assist our company to seek and identify future
opportunities.
Junjun Wu
Mr. Wu was born in 1970. He graduated from Wanbailin High
School in 1990. He started to do business from 1990 such as garage, scrap steel
recycling, decoration materials, storage and logistics, trade, etc. Mr. Wu is
the founder of Shanxi Baisheng Investment Ltd and has been serving as President
and Director since founding the company in June, 2004 (Date of Inception).
Shanxi Baisheng Investment Ltd is focused on investments in coal mining and real
estate.
We believe Mr. Wu is qualified to serve on our board of
directors because of his extensive business experience and network of business
associates in China which will assist our company to seek and identify future
opportunities.
Corporate Governance
Director Independence
Our board of directors has concluded that none of our directors
will be independent as the term “independent” is defined by the rules of the New
York Stock Exchange and Rule 10A-3 of the U.S. Securities Exchange Act of 1934,
as amended.
16
Board Meetings and Committees
Our board of directors held no formal meetings during the year
ended June 30, 2017. All proceedings of the board of directors were conducted by
resolutions consented to in writing by all the directors and filed with the
minutes of the proceedings of the directors. Such resolutions consented to in
writing by the directors entitled to vote on that resolution at a meeting of the
directors are, according to the Delaware Corporation Law and the bylaws of our
company, as valid and effective as if they had been passed at a meeting of the
directors duly called and held.
We do not have standing audit, nominating or compensation
committees, or committees performing similar functions. Our board of directors
believes that it is not necessary to have a standing audit or compensation
committees at this time because the functions of such committees are adequately
performed by our board of directors.
Our board of directors also is of the view that it is
appropriate for us not to have a standing nominating committee because the
current size of our board of directors does not facilitate the establishment of
a separate committee. Our board of directors has performed and will perform
adequately the functions of a nominating committee. The directors who perform
the functions of a nominating committee are not independent because they are
also officers of our company. The determination of independence of directors has
been made using the definition of “independent director” contained under Rule
4200(a)(15) of the Rules of the Financial Industry Regulatory Authority. Our
board of directors has not adopted a charter for the nomination committee. There
has not been any defined policy or procedure requirements for stockholders to
submit recommendations or nomination for directors. Our board of directors does
not believe that a defined policy with regard to the consideration of candidates
recommended by stockholders is necessary at this time because we believe that,
given the early stages of our development, a specific nominating policy would be
premature and of little assistance until our business operations are at a more
advanced level. There are no specific, minimum qualifications that our board of
directors believes must be met by a candidate recommended by our board of
directors. The process of identifying and evaluating nominees for director
typically begins with our board of directors soliciting professional firms with
whom we have an existing business relationship, such as law firms, accounting
firms or financial advisory firms, for suitable candidates to serve as
directors. It is followed by our board of directors’ review of the candidates’
resumes and interview of candidates. Based on the information gathered, our
board of directors then makes a decision on whether to recommend the candidates
as nominees for director. We do not pay any fee to any third party or parties to
identify or evaluate or assist in identifying or evaluating potential nominee.
Our company does not have any defined policy or procedural
requirements for shareholders to submit recommendations or nominations for
directors. Our directors believe that, given the stage of our development, a
specific nominating policy would be premature and of little assistance until our
business operations develop to a more advanced level. Our company does not
currently have any specific or minimum criteria for the election of nominees to
the Board of Directors and we do not have any specific process or procedure for
evaluating such nominees. Our board of directors will assess all candidates,
whether submitted by management or shareholders, and make recommendations for
election or appointment.
A shareholder who wishes to communicate with our Board of
Directors may do so by directing a written request addressed to our President,
at the address appearing on the first page of this annual report.
17
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee at the present time.
Our board of directors has determined that we do not have a board member that
qualifies as an “audit committee financial expert” as defined in Item 401(h) of
Regulation S-K, nor do we have a board member that qualifies as “independent” as
the term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Securities
Exchange Act of 1934, as amended.
We believe that our board of directors is capable of analyzing
and evaluating our financial statements and understanding internal controls and
procedures for financial reporting. The board of directors of our company does
not believe that it is necessary to have an audit committee because we believe
that the functions of an audit committee can be adequately performed by the
board of directors. In addition, we believe that retaining an independent
director who would qualify as an “audit committee financial expert” would be
overly costly and burdensome and is not warranted in our circumstances given the
early stages of our development.
Family Relationships
There are no family relationships between any director or
executive officer.
Involvement in Certain Legal Proceedings
Our directors, executive officers, or control persons have not
been involved in any of the following events during the past ten years:
|
|
1.
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any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that
time;
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|
|
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2.
|
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other
minor offences);
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|
|
3.
|
being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; or
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|
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4.
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being found by a court of competent jurisdiction (in a
civil action), the Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or
vacated.
|
18
Code of Ethics
On September 10, 2007, our board of directors confirmed the
adoption of our Code of Ethics and Business Conduct that applies to, among other
persons, our company's chief executive officer, president and chief financial
officer (being our principal executive officer, principal financial officer and
principal accounting officer), as well as persons performing similar functions.
As adopted, our Code of Ethics and Business Conduct sets forth written standards
that are designed to deter wrongdoing and to promote:
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1.
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honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between personal and
professional relationships;
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2.
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full, fair, accurate, timely, and understandable
disclosure in reports and documents that we file with, or submit to, the
Securities and Exchange Commission and in other public communications made
by us;
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3.
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compliance with applicable governmental laws, rules and
regulations;
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4.
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the prompt internal reporting of violations of the Code
of Ethics and Business Conduct to an appropriate person or persons
identified in the Code of Ethics and Business Conduct; and
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5.
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accountability for adherence to the Code of Ethics and
Business Conduct.
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Our Code of Ethics and Business Conduct requires, among other
things, that all of our company's senior officers commit to timely, accurate and
consistent disclosure of information; that they maintain confidential
information; and that they act with honesty and integrity.
In addition, our Code of Ethics and Business Conduct emphasizes
that all employees have a responsibility for maintaining financial integrity
within our company, consistent with generally accepted accounting principles,
and federal and state securities laws. Any employee who becomes aware of any
incidents involving financial or accounting manipulation or other
irregularities, whether by witnessing the incident or being told of it, must
report it to our company. Any failure to report such inappropriate or irregular
conduct of others is to be treated as a severe disciplinary matter. It is
against our company policy to retaliate against any individual who reports in
good faith the violation or potential violation of our company's Code of Ethics
and Business Conduct by another.
Our Code of Ethics and Business Conduct was filed with the
Securities and Exchange Commission as Exhibit 14.1 to our annual report on Form
10-KSB filed on September 28, 2007. We will provide a copy of the Code of Ethics
and Business Conduct to any person without charge, upon request. Requests can be
sent to our President at the address appearing on the first page of this annual
report.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act requires our
executive officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and transactions in, our
securities with the Securities and Exchange Commission and to provide us with
copies of those filings. Based solely on our review of the copies of such forms
received by us, or written representations from certain reporting persons, we
believe that during the fiscal year ended June 30, 2017, all filing requirements applicable to our officers, directors and greater
than 10% beneficial owners were complied with except that Youzhi Li failed to
file a Form 3 in connection with her acquisition of shares in August 2016.
19
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The particulars of compensation paid to the following persons:
|
•
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our principal executive officer;
|
|
•
|
each of our two most highly compensated executive
officers who were serving as executive officers at the end of the year
ended June 30, 2017; and
|
|
•
|
up to two additional individuals for whom disclosure
would have been provided under (b) but for the fact that the individual
was not serving as our executive officer at the end of the most recently
completed financial year, who we will collectively refer to as the named
executive officers, for our fiscal years ended June 30, 2017 and 2016, are
set out in the following summary compensation table:
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
Hong Ba
CEO, CFO
and Director
|
2017
2016
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Employment Agreements
We have not entered into any employment agreement or consulting
agreement with our executive officers.
There are no arrangements or plans in which we provide pension,
retirement or similar benefits for executive officers. Our executive officers
may receive stock options at the discretion of our board of directors in the
future. We do not have any material bonus or profit sharing plans pursuant to
which cash or non-cash compensation is or may be paid to our directors or
executive officers, except that stock options may be granted at the discretion
of our board of directors.
We have no plans or arrangements in respect of remuneration
received or that may be received by our executive officers to compensate such
officers in the event of termination of employment (as a result of resignation,
retirement, change of control) or a change of responsibilities following a
change of control, where the value of such compensation exceeds $60,000 per
executive officer.
Outstanding Equity Awards at Fiscal Year-End
As at June 30, 2017, we had not adopted any equity compensation
plan and no stock, options, or other equity securities were awarded to our
executive officers.
Option exercises and stock vested
As at June 30, 2017, we had not adopted any equity compensation
plan and no stock, options, or other equity securities were awarded to our executive officers. No
options have been exercised.
20
Compensation of Directors
The particulars of compensation paid to our director for our
year ended June 30, 2017, is set out below:
Name
|
Fees
Earned or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
($)
|
Total
($)
|
|
Junjun Wu
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Hong Ba
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
We reimburse our directors for expenses incurred in connection
with attending board meetings. We did not pay director's fees or other cash
compensation for services rendered as a director in the year ended June 30,
2017.
We have no formal plan for compensating our directors for their
service in their capacity as directors, although such directors are expected in
the future to receive stock options to purchase common shares as awarded by our
board of directors or (as to future stock options) a compensation committee
which may be established. Directors are entitled to reimbursement for reasonable
travel and other out-of-pocket expenses incurred in connection with attendance
at meetings of our board of directors. Our board of directors may award special
remuneration to any director undertaking any special services on our behalf
other than services ordinarily required of a director. No director received
and/or accrued any compensation for their services as a director, including
committee participation and/or special assignments.
Aggregated Options Exercised in the Year Ended June 30, 2017
and Year End Option Values
As at June 30, 2017, we had not adopted any equity compensation
plan and no stock, options, or other equity securities were awarded to our
executive officers. No options have been exercised.
Re-pricing of Options/SARS
There were no options granted during the year ended June 30,
2017 therefore no options were re-priced.
21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
In the following tables, we have determined the number and
percentage of shares beneficially owned in accordance with Rule 13d-3 of the
Exchange Act based on information provided to us by our controlling
shareholders, executive officers and directors, and this information does not
necessarily indicate beneficial ownership for any other purpose. In determining
the number of shares of our common stock beneficially owned by a person and the
percentage ownership of that person, we include any shares as to which the
person has sole or shared voting power or investment power, as well as any
shares subject to warrants or options held by that person that are currently
exercisable or exercisable within 60 days.
|
(1) Title of
|
|
(2) Name and address of
|
|
(3) Amount and nature of
|
|
(4) Percent of
|
|
class
|
|
beneficial owner
|
|
beneficial ownership
|
|
class
1
|
|
Officers and Directors
|
|
|
|
|
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common stock
|
|
Hong Ba
Unit 2702, Sanlitun SOHO
Building 2,
No. 8, Gongtibeilu
Chaoyang District, Bejing China
100027
|
|
22,000,000 Direct
|
|
26.7%
|
|
|
|
|
|
|
|
|
common stock
|
|
Junjun Wu
1-97 Hongqi North Street
Xiaowang Village, Wanbailin
District
Taiyuan Shanxi PRC 030024
|
|
15,000,000 Direct
|
|
18.2%
|
|
|
|
|
|
|
|
|
|
|
|
Directors and
Officers as a
Group (2 persons)
|
|
37,000,000
Direct
|
|
44.9%
|
|
5% Beneficial Owner
|
|
|
|
|
|
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common stock
|
|
Shuzhen
Lin
#6-6-202 Juifeng Rd.
39 Jiancaoping Zone
Taiyuan,
Shanxi
China
|
|
12,975,800 Direct
|
|
15.7%
|
|
|
|
|
|
|
|
|
common stock
|
|
Lin Li
(1)
Suite 202, Block 4, Na.7 Fengle
Suiiding, Ns. 3g liufeng Soad,
Caopin8
District, .tiancaoping,
Taiyuan,
China.
|
|
4,712,727 Direct
|
|
5.7%
|
|
|
|
|
|
|
|
|
common stock
|
|
Youzhe Li
2020-91111 Beckwith Road,
Richmond BC V6X 1V7
|
|
14,338,364 Direct
|
|
17.4%
|
22
|
|
(1)
|
Lin Li is the sister of Mr. Li Feng, who is the husband
of Hong Ba, the Company’s director, CEO and CFO.
|
Security ownership of certain beneficial owners
Percentage of ownership is based on 82,489,391 shares of common
stock issued and outstanding as of September 28, 2017. Except as otherwise
indicated, we believe that the beneficial owners of the common stock listed
above, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with respect
to securities. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes
of computing the percentage ownership of the person holding such option or
warrants, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Transactions with related persons
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 Company’s operations. These advances are
due on demand and non-interest bearing.
During the fiscal year ended June 30, 2016, a company owned by
Feng Li, the husband of Mrs. Hong Ba, our CEO, charged the Company $7,686 in
rent and $5,764 of this was settled by the issuance of 576,400 shares of the
Company’s common stock at a price of $0.01 per share to Mr. Li and $1,921 is
still outstanding.
During the fiscal year ended June 30, 2017, a company owned by
Feng Li, the husband of Mrs. Hong Ba, our CEO, charged the Company $7,209
(Cnd$9,600) in rent and the debt of $7,402 (Cnd$9,600).
During the fiscal year ended June 30, 2017, a former director
of the Company transferred a debt of the Company of $25,920 (the “Lin Li Loan”)
in full to a related party, Lin Li, the sister-in-law of the CEO of the Company.
On August 5, 2016, the Company entered into a Debt Conversion Agreement with Lin
Li and issued 4,712,727 shares of its common stock at the conversion rate of
$0.0055 per share as full payment for the Lin Li Loan.
Other than the disclosure above, none of the following parties
has, during the Company’s last two fiscal years or thereafter, had any material
interest, direct or indirect, in any transaction with us or in any presently
proposed transaction that has or will materially affect us, other than as noted
in this section:
|
|
(i)
|
Any of our directors or officers;
|
|
|
|
|
|
|
(ii)
|
Any person proposed as a nominee for election as a
director;
|
23
|
|
(iii)
|
Any person who beneficially owns, directly or indirectly,
shares carrying more than 5% of the voting rights attached to our
outstanding shares of common stock;
|
|
|
|
|
|
|
(iv)
|
Any of our promoters; and
|
|
|
|
|
|
|
(v)
|
Any member of the immediate family (including spouse,
parents, children, siblings and in- laws) of any of the foregoing
persons.
|
Employment Contracts
We are not party to any employment contracts with our directors
and officers.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers. We have no
material bonus or profit sharing plans pursuant to which cash or non-cash
compensation is or may be paid to our directors or executive officers, except
that stock options may be granted at the discretion of the Board of Directors or
a committee thereof.
We have no plans or arrangements in respect of remuneration
received or that may be received by our executive officers to compensate such
officers in the event of termination of employment (as a result of resignation,
retirement, change of control) or a change of responsibilities following a
change of control, where the value of such compensation exceeds $60,000 per
executive officer.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit and Accounting Fees
The following table sets forth the fees billed to the Company
for professional services rendered by the Company's principal accountant, for
the years ended June 30, 2017 and 2016:
|
Services
|
|
2017
|
|
|
2016
|
|
|
Audit fees
|
$
|
19,500
|
|
$
|
12,500
|
|
|
Tax fees
|
|
-
|
|
|
-
|
|
|
All other fees
|
|
400
|
|
|
2,397
|
|
|
Total fees
|
$
|
14,897
|
|
$
|
14,897
|
|
Audit Fees
Consist of fees billed for professional services rendered for
the audits of our financial statements, reviews of our interim financial
statements included in quarterly reports, services performed in connection with
filings with the Securities and Exchange Commission and related comfort letters
and other services that are normally provided by independent auditors and
accountants for the fiscal years ended June 30, 2017 and 2016 in connection with
statutory and regulatory filings or engagements.
Tax Fees
24
Consisted of fees billed for professional services rendered by
the principal accountant for tax compliance.
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 Company’s 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 Seller’s 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.
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 ATBI’s
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, 2017 and 2016.
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, 2017 and 2016, 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. Company’s 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.
F-7
Recently Issued Accounting Pronouncements
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 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 lessee‘s 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 lessee’s 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.
In August 2016, the FASB issued ASU
2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments. The new guidance is intended to reduce diversity in
practice in how certain transactions are classified in the statement of cash
flows. ASU 2016-15 is effective for public business entities for fiscal years
beginning after 15 December 2017, and interim periods within those years. For
all other entities, it is effective for fiscal years beginning after 15 December
2018, and interim periods within fiscal years beginning after 15 December 2019.
Early adoption is permitted. Entities will have to apply the guidance
retrospectively, but if it is impracticable to do so for an issue, the
amendments related to that issue would be applied prospectively. The Company is
currently evaluating the impact of the adoption of this guidance on its
consolidated financial statements, if any.
On November 17, 2016, the FASB issued
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. Entities will
be required to show the changes in the total of cash, cash equivalents,
restricted cash and restricted cash equivalents in the statement of cash flows.
As a result, entities will no longer present transfers between cash and cash
equivalents and restricted cash and restricted cash equivalents in the
statement of cash flows. The Company is currently evaluating the impact of the
adoption of this guidance on its consolidated financial statements, if any.
F-8
Note 3 - Going Concern
As reflected in the accompanying consolidated financial
statements, the Company had accumulated deficits of $1,127,081 and $1,072,229,
and net losses of $54,852 and $48,706, respectively, for the years ended June
30, 2017 and 2016. 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 Company’s 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 actions to obtain additional funding from independent investors or from management and implementing its strategic plans and seeking more business opportunities for the Company 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 - Prepayment
As of June 30, 2017, the Company prepaid a security deposit of
$11,565 (C$15,000) ($11,613 – 2016) to Consumer Protection British Columbia
Province for the guarantee of service quality.
Note 5 - Accounts Payable and Accrued Liabilities
Accounts Payable and Accrued Liabilities of $10,681 as of June
30, 2017 consists of payment for vendors (hotel) of $572, $9,900 in audit fee
and others of $212.
Note 6 – 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 Company’s operations. These advances are
due on demand and non-interest bearing.
During the fiscal year ended June 30, 2017, the Company owned by a director of the Company charged $7,209 (2016 - $7,236) in rent and $7,402 has been due to the related party (2016 - $7,236 of debt was transferred to an independent investor of the Company).
During fiscal year ended June 30, 2017, the former director of the Company transferred the debt of $25,920 in full to a related party, the sister in law of the CEO of the Company, and such debt was cancelled in exchange for the issuance of 4,712,727 common shares of the Company. As of June 30, 2017, the fair market value of the share issuance was $47,127.
Note 7 – 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 and have filed annual tax returns.
Canada
The Company’s 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.
People’s Republic of China
F-9
The Company’s 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.
F -10
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, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
United States of America
|
$
|
(44,869
|
)
|
$
|
(36,187
|
)
|
|
Canada
|
|
(8,443
|
)
|
|
(9,332
|
)
|
|
People's Republic of China
|
|
(1,440
|
)
|
|
(3,187
|
)
|
|
Loss before income taxes
|
$
|
(54,852
|
)
|
$
|
(48,706
|
)
|
The components of deferred taxes assets at June 30:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
USA net operating losses
|
$
|
15,255
|
|
$
|
12,303
|
|
|
Canada net operating losses
|
|
1,140
|
|
|
1,260
|
|
|
PRC net operating losses
|
|
391
|
|
|
866
|
|
|
Deferred tax assets, net
|
|
16,786
|
|
|
14,429
|
|
|
Less: valuation allowance
|
|
(16,786
|
)
|
|
(14,429
|
)
|
|
Deferred tax assets, net
|
$
|
-
|
|
$
|
-
|
|
As of June 30, 2017, the Company has an accumulated deficit of
$1,127,081 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, 2017 and 2016, there were no tax penalties or interest.
Note 8 – Commitment and Contingencies
The Company leases an office space in Canada for a terms under
long-term, non-cancelable operating lease agreement. Monthly rent is
$7,402 (Cdn$800).
The lease agreement in Beijing office was terminated effective
from October 1, 2013.
On May 30, 2014, the Company assigned the lease agreement dated
November 1, 2011 in Seattle to Meixi Travel LLC effective on August 1, 2014.
The following is a schedule by year of future minimum rental
payments required under the operating lease agreements:
|
Year Ending June
30
|
|
Amounts ($)
|
|
|
|
|
|
|
|
2017
|
|
7,402
|
|
|
2018
|
|
7,402
|
|
|
Total
|
$
|
14,804
|
|
For each of the years ended June 30, 2017 and 2016, the Company
recorded a rent expense of $7,209 (Cdn$9,600) and $7,236, respectively.
Note 9 – 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 June 30, 2017 and June 30, 2016,
82,489,391 and 63,438,300 shares of common stock were issued and outstanding,
respectively.
F -11
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 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 Company’s director, CEO and CFO.
During the years ended June 30, 2017 and 2016, the Company has received $46,735 and $37,080, respectively, advanced for a future share issuance from an independent third party, which amounts do not bear interest and are due on demand. On August 5, 2016, the Company issued 14,338,364 common shares of the Company to such independent party in cancellation of the debt of $78,861 owed to such party at such time. As of June 30, 2017, the fair market value of the share issuance was $143,384.
As the filing date of these financial statements, there are
82,489,391 shares issued outstanding.
F -12