W&E Source Corp. - Quarter Report: 2017 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017 or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-52276

W&E SOURCE CORP.
(Exact name of registrant as specified in its charter)

113 Barksdale Professional Center, Newark, DE 19711
(Address of principal executive offices) (Zip Code)

(302) 722-6266
(Registrant’s telephone number, including area code)

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 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 Act.

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 Exchange Act).
Yes [   ]        No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 82,489,391 shares of common stock issued and outstanding as of April 28, 2017.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

W&E Source Corp. and Subsidiaries

Condensed Consolidated Balance Sheets
As of March 31, 2017 and June 30, 2016

The accompanying notes are an integral part of these consolidated interim financial statements.

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W&E Source Corp. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income
For the Three and Nine Months Ended March 31, 2017 and 2016
(Unaudited)

The accompanying notes are an integral part of these consolidated interim financial statements.

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W&E Source Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flow
For the Nine Months Ended March 31, 2017 and 2016
(Unaudited)

The accompanying notes are an integral part of these consolidated interim financial statements.

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W&E Source Corp. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
For the Nine Months Ended March 31, 2017 and Year Ended June 30, 2016
(Unaudited)

The accompanying notes are an integral part of these consolidated interim financial statements.

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W&E Source Corp. and Subsidiaries
Notes to Unaudited Condensed Consolidated 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 period ended March 31, 2012, the Company incorporated a company named Airchn Travel (Beijing) Inc. (“ATBI”) in Beijing, China. ATBI is also a wholly owned subsidiary of ATGI. ATBI has a similar business segment as ATGI.

On December 15, 2012, Airchn Travel (Beijing) Inc., a wholly owned subsidiary of W&E Source Corp. (the “Company”), entered into the Share Purchase Agreement (the “Agreement”) with Mr. Wu Hao (the “Seller”), a majority shareholder of Chengdu Baopiao Internet Co., Ltd. (“Baopiao”), to acquire part of his ownership in Baopiao which equals 51% of all issued and outstanding stock of Baopiao (the “Shares”).

The Company will pay for the aggregate purchase price of RMB 2,550,000 for the Shares in cash and by assuming the 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 day from the execution of the Agreement.

Also pursuant to the Agreement, the Seller will provide guaranties that other than the information including financial statements provided to the Company, Baopiao does not have any other debts, and no third party has any rights or liens on the assets of Baopiao. The Seller and Baopiao will also indemnify the Company against any damages, liabilities, losses and expenses, which the Company may sustain or suffer due to any breach of the guaranties made by the Seller or Baopiao.

Baopiao has obtained the necessary shareholder approval for the transfer of the Shares and will register the transfer of the Shares with the applicable State Administration for Industry and Commerce within three days from the date of the Agreement.

In connection with the Agreement, the Company also entered into an agreement with the Seller and Baopiao that as an incentive for the management team of Baopiao, the Company will reserve up to 26 million shares of its common stock for issuance to the Baopiao employees upon achievement of certain milestones over the next three years.

The Share Purchase Agreement with Mr. Wu Hao was not completed in January 2013, and both the Company and Mr. Wu Hao agreed to terminate the agreement entered on December 15, 2012.

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W&E Source Corp. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies

a.        Basis of presentation.

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 consolidated balance sheet information as of June 30, 2016 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, 2016. These 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, 2016, and other reports filed with the SEC. Operating results for the nine months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the full year ended June 30, 2017.

The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole.

b.        Foreign currency translation.

ATCI's and ATBI’s functional currency for operations and expenditure is the Canadian dollar and Chinese Yuan. However, the Company's reporting currency is in U.S. dollars. Therefore, the financial statements for all periods presented have been translated into U.S. dollars using the current rate method. Under this method, the income statement and the cash flows for each period have been translated into U.S. dollars using the average rate of the reporting period, and assets and liabilities have been translated using the exchange rate at the end of the period. All resulting exchange differences are reported in the cumulative translation adjustment account as a separate component of stockholders’ equity.

c.        Principles of consolidation.

The unaudited consolidated statements include the accounts of the Company and its wholly owned subsidiaries, ATGI, ATCI and ATBI. All inter-company transactions and balances were eliminated.

d.        Use of Estimates.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expense during the period. Actual results could differ from those estimates.

e.        Loss per share.

Basic loss per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. EPS excludes all potential dilutive shares of common stock if their effect is anti-dilutive. There were no dilutive securities at March 31, 2017 and June 30, 2016.

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W&E Source Corp. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

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 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 March 31, 2017 and June 30, 2016, we have no cash equivalents.

h.        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 carry forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Company’s net operating losses carry forwards are subject to Section 382 limitation.

i.        Recently issued accounting pronouncements.

The Company does not expect that any recently issued accounting pronouncement will have a significant impact on the results of operations, financial position, or cash flows of the Company.

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.

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W&E Source Corp. and Subsidiaries
Notes to Unaudited Condensed 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.

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W&E Source Corp. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

j.        Going Concern.

As reflected in the accompanying financial statements, the Company has an accumulated deficit of $1,110,129, and a net loss for the quarters ended March 31, 2017 and 2016 of $37,900 and $23,349, respectively. The Company currently has business activities to generate funds for its own operations, however, has not yet achieved profitable operations. These factors raise substantial doubt about our ability to continue as a going concern. The 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 actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

Note 3 - Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities of $2,160 as of March 31, 2017 (June 30, 2016 - $13,245) consists of a payment for vendor (hotel) of $556 (June 30, 2016 – $572), various vendors of $309 (June 30, 2016 - $12,673) in operating expenses and legal fee of $1,295 (June 30, 2016 - $Nil).

Note 4 – 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 nine months ended March 31, 2017, a Company owned by Feng Li, the husband of Mrs. Hong Ba, our CEO, charged the Company $5,414 (2016 - $7,392) in rent and $5,414 (June 30, 2016 - $Nil) is outstanding.

During the nine months ended March 31, 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 the debt was settled in exchange for the issuance of 4,712,727 common shares of the Company at fair value of $0.0055 per share.

Note 5 – Common Stock

The Company is authorized to issue 500,000,000 shares of common stock with par value of $0.0001.

As of March 31, 2017 and June 30, 2016, 82,489,391 and 63,438,300 shares of common stock were issued and outstanding, respectively.

On August 5, 2016, the Company issued 19,051,091 common shares of the Company to settle the debts payable of $25,920 to a related party and $78,861 to an independent party of the Company for the share issuance advance at fair value of $0.0055 per share, respectively.

During the nine months ended March 31, 2017 and twelve months ended June 30, 2016, the Company has received $37,795 and $79,098, 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.

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 quarterly report, unless otherwise specified, all references to “common shares” refer to the common shares of our capital stock.

As used in this quarterly report, the terms “we”, “us”, “our”, “W&E Source Corp.”, “the Company” 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 March 31, 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.

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 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.

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Results of Operations

The following summary of our results of operations should be read in conjunction with our unaudited financial statements for the quarters ended March 31, 2017 and 2016 contained in this Report.

Nine Months Ended March 31, 2017 and 2016:

Revenues

We have generated total revenues of $463 from operations during the nine months ended March 31, 2017 as compared to $2,955 for the same period in 2016, a decrease of $2,492 or 84%. The decrease was mainly due to the decrease in our travel business in the quarter ended March 31, 2017.

General and administrative expenses

General and administrative expenses for the nine months ended March 31, 2017 increased by $5,518 or 19%, compared with the same period in 2016 primarily because of increased operating expense in audit fees.

Net loss

We had net losses of $37,900 and $28,249 for the nine months ended March 31, 2017 and 2016, respectively, an increase of $9,651 or 34%, and had an accumulated deficit of $1,110,129 since the inception of our business as at March 31, 2017. The increase in net loss is mainly attributable to an increase of general and administrative expenses, and to a lesser extent a decrease in sales revenue.

Three Months Ended March 31, 2017 and 2016:

Revenues

We have generated total revenues of $Nil from operations during the three months ended March 31, 2017 as compared to $391 for the same period in 2016, a decrease of $391 or 100%. The decrease was mainly due to the decrease in our travel business in the quarter ended March 31, 2017 due to intense market competition and a shortage of operating funds to hire sales associates.

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General and administrative expenses

General and administrative expenses for the three months ended March 31, 2017 increased by $111 or 1%, compared with the same period in 2016 primarily because of increased operating expense in audit fees expenses.

Net loss

We had net losses of $10,970 and $4,669 for the three months ended March 31, 2017 and 2016, respectively, an increase of $6,301 or 135%, and had an accumulated deficit of $1,110,129 since the inception of our business as at March 31, 2017. The increase in net loss is mainly attributable to an increase of general and administrative expenses, but a decrease of foreign exchange gain and a decrease in sales revenue.

Liquidity and Capital Resources

Our financial condition for the nine month periods ended March 31, 2017 and March 31, 2016 are summarized as follows:

Working Capital

Our working capital deficit decreased from the previous year and current assets were still insufficient to cover liabilities; the deficit magnitude decreased by $71,033 due to debts converted into shares.

Cash Flows

Cash Used in Operating Activities

For the nine months ended March 31, 2017, our cash used in operating activities increased by $11,307 or 32% to $46,590 compared with $35,283 for the nine months in the prior year. The increase is mainly due to an increase in general and administrative expenses and an increase in accounts payable and accrued liabilities and partially offset by an increase in foreign exchange loss compared with the nine months in prior year.

Cash Used in Investing Activities

For the nine months ended March 31, 2017 and March 31, 2016, we had no cash investing activities.

Cash Provided by Financing Activities

For the nine months ended March 31, 2017, we received $5,452 from financing activities advanced from a related party, as compared with $9,761 advanced from related parties for operating expenses for the nine months ended March 31, 2016. For the nine months ended March 31, 2017, we received $39,562 for share issuance in advance compared with $17,869 for the nine months ended March 31, 2016.

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Cash Requirements

Over the next 12-months, we anticipate that we will incur the following operating expenses:

Our CEO, Hong Ba, has committed to providing our working capital requirements for the next 12 months.

Management believes that the Company will be able to raise sufficient capital to meet our working capital requirements for the next 12 month period. Management is currently seeking financing opportunities to meet our estimated funding requirements for the next 12 months primarily through private placements of our equity securities.

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon the continued financial support from our shareholders, our ability to obtain necessary equity financing to continue operations, and achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

In addition to the issues set out above regarding our ability to raise capital, global economies are currently undergoing a period of economic uncertainty related to the tightening of credit markets worldwide. This has resulted in numerous adverse effects, including unprecedented volatility in financial markets and stock prices, slower economic activity, decreased consumer confidence and commodity prices, reduced corporate profits and capital spending, increased unemployment, liquidity concerns and volatile but generally declining energy prices. We anticipate that the current economic conditions and the credit shortage will adversely impact our ability to raise financing. In addition, if the future economic environment continues to be less favorable than it has been in recent years, we may experience difficulty in completing our current business plan.

Transactions with related persons

During the nine months ended March 31, 2017, a Company owned by Feng Li, the husband of Mrs. Hong Ba, our CEO, charged the Company $5,452 (2016 - $7,392) in rent and $5,414 (June 30, 2016 - $Nil) is outstanding.

During the nine months ended March 31, 2017, the former director of the Company transferred the debt of $25,920 (June 30, 2016 - $Nil) in full to a related party, the sister in law of the CEO of the Company, and such debt was settled in exchange for the issuance of 4,712,727 common shares of the Company at fair market value of $0.0055 per share.

Off Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Recently Issued Accounting Standards

We continue to assess the effects of recently issued accounting standards. The impact of all recently adopted and issued accounting standards has been disclosed in the Footnotes to the financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting officer to allow timely decisions regarding required disclosure.

As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were not effective due to the material weaknesses described in Management's annual report on internal control over financial reporting contained in our Annual Report on Form 10-K for the year ended June 30, 2016.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. 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 1A. RISK FACTORS

As of the date of this filing, there have been no material changes from the risk factors disclosed in Part I, Item 1A (Risk Factors) contained in our Annual Report on Form 10-K for the year ended June 30, 2016. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect out operations. The risks, uncertainties and other factors set forth in our Annual Report on Form 10-K for the year ended June 30, 2016 may cause our actual results, performances and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occurs, our business, financial condition or results of operations may be adversely affected.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended March 31, 2017, the Company has agreed orally with a creditor that certain advances from the creditor shall be used to pay for shares of common stock of the Company at a future date. The price per share to be paid for such shares shall be the fair market value of the shares. The timing and amount of shares to be issued in such sale have not yet been determined. As of March 31, 2017, the aggregate amount of the advances to be used for such share purchases was $30,276, which amount may increase in the future.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

*filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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