W&E Source Corp. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders' Deficit
As of December 31, 2018 and Year Ended June 30, 2018
(Unaudited)
The accompanying notes are an integral part
of these unaudited condensed consolidated interim financial statements.
Note 1 – Organization, Nature of Operations
and Basis of Presentation
W&E Source Corp. (“the Company”)
was incorporated in the State of Delaware on October 11, 2005 and is based in Montréal, Québec, Canada. The Company
is providing air ticket reservations, hotel reservations and other travel related services.
On August 25, 2011, the Company incorporated
a company called Airchn Travel Global, Inc. (“ATGI”) in the State of Washington, USA. ATGI is a wholly owned subsidiary
of the Company. ATGI focuses on a business segment of travel businesses which includes air ticket reservations, hotel reservations
and other travel services.
On October 4, 2011, the Company incorporated
a company called Airchn Travel (Canada) Inc. (“ATCI”) in the Province of British Columbia, Canada. ATCI is a wholly
owned subsidiary of ATGI. ATCI has a similar business segment as ATGI.
In January 2012, the Company changed its name
from News of China, Inc. to W&E Source Corp. and increased its authorized shares to 500,000,000 shares. As a result of the
name change, the 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, Airchn Travel (Beijing)
Inc., a wholly owned subsidiary of W&E Source Corp. (the “Company”), entered into the Share Purchase Agreement
(the “Agreement”) with Mr. Wu Hao (the “Seller”), a majority shareholder of Chengdu Baopiao Internet Co.,
Ltd. (“Baopiao”), to acquire part of his ownership in Baopiao which equals 51% of all issued and outstanding stock
of Baopiao (the “Shares”).
The Company will pay for the aggregate purchase
price of RMB 2,550,000 for the Shares in cash and by assuming the 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 pay 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
was not completed in January, 2013 and both the Company and Mr. Wu Hao agreed to terminate the agreement entered on December 15,
2012.
Note 2 – Summary of Significant Accounting
Policies
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a.
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Basis of presentation.
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The accompanying interim consolidated
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 8 of Regulation S-X as promulgated by the Securities and Exchange Commission
(the “SEC”). In the opinion of management, the financial statements include all adjustments of a normal recurring nature
necessary for a fair statement of the results for the periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted
as permitted by the rules and regulations of the United States Securities and Exchange Commission (“SEC”), although
the Company believes that the disclosures contained in this report are adequate to make the information presented not misleading.
The unaudited consolidated balance sheet information as of December 31, 2018 was derived from the consolidated audited financial
statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018. These unaudited consolidated
financial statements should be read in conjunction with the annual consolidated audited financial statements and the notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018, and other reports filed with the SEC.
Operating results for the three and six months ended December 31, 2018 are not necessarily indicative of the results that may be
expected for the full year ended June 30, 2019.
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 December 31, 2018 and June 30, 2018.
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. Effective January 1, 2018,
the Company adopted the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts. The implementation of
ASC 606 did not have a material impact on the Company’s consolidated financial statements. ASC 606 create a five-step model
that requires entities to exercise judgement when considering the terms of contract, which includes (1) identifying the contracts
or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction
price, (4) allocating the transaction price to the separate performance obligation, and (5) recognizing revenue as each performance
obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect
the consideration it is entitled to in exchange for the services it transfers to its clients. The Company’s revenue consists
of revenue from providing travel consulting and travel arrangement advisory services (“service revenue”), and service
revenue from travel schedule arrangements and advisory.
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 December 31, 2018 and June 30, 2018, 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. As of December 31, 2018, there is no property or equipment.
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. The 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.
Recently Issued Accounting
Pronouncements
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. There is no impact of the adoption of this guidance on its consolidated financial statements.
Note 3 - Going Concern
As reflected in the accompanying consolidated
financial statements, the Company had accumulated deficits of $1,205,931 and $1,145,665, and net losses of $27,549 and $18,584,
respectively, for the Six Months ended December 31, 2018 and 2017. 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 the management and to implement its strategic plans should allow
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 December 31, 2018, the Company prepaid
a security deposit of $10,994 (Cnd$15,000) ($11,415 – 2018) 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
$9,297 as of December 31, 2018 consists of payment of $3,360 in legal fees, $5,728 in audit and accounting fees and others of $209
(June 30, 2018 - $11,283).
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”). 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.
As of the Six Months ended December 31, 2018,
the CEO of the Company advanced $145 (June 30, 2018 – $151) to the Company for operating expenditure.
During the Six Months ended December 31, 2018,
a company owned by Feng Li, the husband of Mrs. Hong Ba, our CEO, charged the Company $3,643 (Cnd$4,800) (2017 - $1,916) in rent
and the debt of $18,690 has been due to the related party (2018 - $11,280).
During the Six Months ended December 31, 2018,
the husband of Mrs. Hong Ba, our CEO, advanced $1,100 (June 30, 2018 - $Nil) to the Company for the operating expenditure.
As of December 31, 2018, the Company has received
advances for future share issuance of $111,957 (June 30, 2018 - $87,243) from a related party who will be over 10% stock shareholder
of the Company.
Note 7 – Commitment and Contingencies
The Company leases an office space in Canada
for a term under a long-term, non-cancelable operating lease agreement. Monthly rent is $616 (Cdn$800).
The lease agreement for the Beijing office was terminated effective
from October 1, 2013.
For each of the three and six months ended
December 31, 2018 and 2017, the Company recorded a rent expense of $3,643 (Cdn$4,800) and $3,697 (Cdn$4,800), respectively.
Note 8 – Common Stock
On January 23, 2012, the Company entered into a subscription agreement
with the significant shareholder Hong Ba, for the sale of 22,000,000 common shares for $630,000 from cash received and expense
paid on behalf by Hong Ba. Subsequent to the sale, Hong Ba owns 22,000,000 common shares which represent 45.9% of the issued and
outstanding shares of the Company.
The Share Purchase Agreement with Mr. Wu Hao
was not completed in January 2013, and both the Company and Mr. Wu Hao agreed to terminate the agreement entered on December 15,
2012. On October 26, 2014, the Company issued 15,538,300 common shares of the Company to settle the debts payable of $155,383 to
related parties at $0.01 per share.
The Company is authorized to issue 500,000,000
shares of common stock with par value of $0.0001. As of December 31, 2018 and June 30, 2018, 82,489,391 and 82,489,391 shares of
common stock were issued and outstanding, respectively.
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 were fully paid and the
Company no longer had 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.
As of December 31, 2018 and June 30,
2018, the Company has received $111,957 and $87,243, respectively, advanced for a future share issuance from a related 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 a related party in cancellation of the debt of $78,861 owed to such party at such time.
As the filing date of these financial statements,
there are 82,489,391 shares issued outstanding.