W&E Source Corp. - Quarter Report: 2018 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, 2018 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 May 9, 2018.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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W&E Source Corp. and Subsidiaries

Condensed Consolidated Balance Sheets
As of March 31, 2018 and June 30, 2017

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

2

W&E Source Corp. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income
For the Three and Nine Months Ended March 31, 2018 and 2017
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed 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, 2018 and 2017
(Unaudited)

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

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W&E Source Corp. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Deficit
As of March 31, 2018 and Year Ended June 30, 2017
(Unaudited)

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

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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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Note 2 – Summary of Significant Accounting Policies

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 March 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, 2017. 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, 2017, and other reports filed with the SEC. Operating results for the nine months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full year ended June 30, 2018.

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.

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.

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

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

Basic loss per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. EPS excludes all potential dilutive shares of common stock if their effect is anti-dilutive. There were no dilutive securities at March 31, 2018 and June 30, 2017.

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On January 1, 2017, we adopted the new accounting standard ASC 606, revenue from contracts with customers and all the related amendments to all contracts using the modified retrospective method. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The Company currently receives its revenue from commissions on payment processing for flight tickets. The Company evaluates the Emerging Issue Task Force (EITF) number 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent,” which sets forth a number of guidelines for the correct treatment of revenue. We currently treat the revenues on a net basis.

The Company includes in cash and cash equivalents all short-term, highly liquid investments that mature within nine 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, 2018 and June 30, 2017, we have no cash equivalents.

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 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.

In March 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC Topic 840, Leases, and sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet a right-of-use asset and a lease liability, equal to the present value of the remaining lease payments, for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or a straight-line basis over the term of the lease. ASU 2016-02 will be effective for use beginning January 1, 2019, with early adoption permitted. Entities are required to use a modified retrospective transition method for existing leases. There is no impact of the adoption of this guidance on its consolidated financial statements.

Going Concern.

As reflected in the accompanying unaudited consolidated financial statements, the Company had accumulated deficits of $1,157,709 and $1,110,129, and net losses of $30,628 and $37,900, respectively, for the nine months ended March 31, 2018 and 2017. The Company currently has limited business activities to generate funds from its own operations and has not yet achieved profitable operations for the three and nine months ended March 31, 2018. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital and carry out its business plan by seeking a profitable business strategy or new opportunities. 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 efforts to obtain additional funding from independent investors or from the management and implementation of its strategic plans and seeking more business opportunities for the Company 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, or that the Company will succeed in implementing its business strategy.

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Note 3 – Prepayment & Security Deposit

As of March 31, 2018, the Company prepaid a security deposit of $11,636 (CAD$15,000) (June 30, 2017 - $11,565) to Consumer Protection British Columbia Province for the guarantee of service quality.

Note 4 - Accounts Payable and Accrued Liabilities

As of March 31, 2018, accounts payable and accrued liabilities of $3,580 (June 30, 2017 - $10,681) consists of payment for $3,350 in audit fees and others of $30.

Note 5 – Related Parties

Mrs. Hong Ba serves as the Chief Executive Officer and Director of the Company. Mr. Feng Li, the husband of Mrs. Hong Ba, is the owner of the Canada Airchn Financial Inc. (“CAFI”). Mr. Chen Xi Shi is the former Chief Financial Officer and Director of the Company. The shareholders make advances to the Company from time to time for the Company’s operations. These advances are due on demand and non-interest bearing.

During the nine months ended March 31, 2018, the Company owned by the husband of the CEO of the Company charged $5,702 (2017 - $5,414) in rent and $14,132 has been due to the related party as of March 31, 2018 (2017 - $7,402 of debt was transferred to an independent investor of the Company).

During the nine months ended March 31, 2018, the CEO of the Company advanced $159 (June 30, 2017 – Nil) to the Company for operating expenditure.

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 such debt was cancelled in exchange for the issuance of 4,712,727 common shares of the Company. The fair market value of the share issuance was $47,127.

Note 6 – 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, 2018 and June 30, 2017, 82,489,391 and 82,489,391 shares of common stock were issued and outstanding, respectively.

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. As of March 31, 2018, the fair market value of the share issuance was $190,511.

Lin Li is the sister of Mr. Feng Li, who is the husband of Hong Ba, the Company’s director, CEO and CFO.

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As of March 31, 2018 and June 30, 2017, the Company had received $81,033 and $47,986, 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. The fair market value of the share issuance was $143,384.

As of the filing date of these unaudited financial statements, there are 82,489,391 common shares issued and outstanding.

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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, 2018 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.

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, 2018 and 2017 contained in this Report.

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Nine Months Ended March 31, 2018 and 2017:

Revenues

We have generated total revenues of $307 from operations during the nine months ended March 31, 2018 as compared to $463 for the same period in 2017, a decrease of $156 or 34%. The decrease was mainly due to the decrease in our travel business in the quarter ended March 31, 2018.

General and administrative expenses

General and administrative expenses for the nine months ended March 31, 2018 increased by $722 or 2%, compared with the same period in 2017 primarily because of increased operating cost in audit and accounting fees.

Net loss

We had net losses of $30,628 and $37,900 for the nine months ended March 31, 2018 and 2017, respectively, an increase of $7,272 or 24%, and had an accumulated deficit of $1,157,709 since the inception of our business as at March 31, 2018. The decrease in net loss is mainly attributable to a gain in foreign exchange partially offset by an increase of audit and accounting expenses and to a lesser extent by a decrease in sales revenue.

Three Months Ended March 31, 2018 and 2017:

Revenues

We have generated total revenues of $78 from operations during the three months ended March 31, 2018 as compared to $Nil for the same period in 2017, an increase of $78 or 100%. The increase was due to an increase in our travel business in the quarter ended March 31, 2018.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2018 increased by $1,891 or 16%, compared with the same period in 2017 primarily because of increased operating cost in audit fee expenses.

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Net loss

We had net losses of $11,974 and $10,970 for the three months ended March 31, 2018 and 2017, respectively, an increase of $1,004 or 9%, and had an accumulated deficit of $1,157,709 since the inception of our business as at March 31, 2018. The increase in net loss in 2018 is mainly attributable to an increase in general and administrative expenses, partially offset by an increase in foreign currency exchange gain and an increase in sales revenue.

Liquidity and Capital Resources

Our financial condition at the end of and for the three month periods ended March 31, 2018 and June 30, 2017 are summarized as follows:

Our working capital deficit increased from the previous year and current assets were still insufficient to cover liabilities; the deficit magnitude increased by some $34,743 due to additional funds advanced for share issuance and due to related parties.

Cash Used in Operating Activities

For the nine months ended March 31, 2018, our cash used in operating activities decreased by $6,857 or 17% to $39,733, compared with $46,590 for the nine months in the prior year. The decrease is mainly due to a decrease in general and administrative expenses and accounts payable and accrued liabilities and foreign exchange loss compared with the nine months in the prior year.

Cash Used in Investing Activities

For the nine months ended March 31, 2018, we have no cash investing activities as compared from the same period last year.

Cash Provided by Financing Activities

For the nine months ended March 31, 2018, the Company received $33,443 from financing activities in the form of cash advances for future share issuances from an independent party and $157 advanced from the CEO of the Company and $4,598 from the husband of the CEO of the Company for operating activities.

Cash Requirements

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

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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.

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 nine months ended March 31, 2018, the Company owned by the husband of the CEO of the Company charged $5,702 (2017 - $5,414) in rent and $14,132 has been due to the related party as of March 31, 2018 (2017 - $7,236 of debt was transferred to an independent investor of the Company).

During the nine months ended March 31, 2018, the CEO of the Company advanced $159 (June 30, 2017 – Nil) to the Company for operating expenditure.

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 such debt was cancelled in exchange for the issuance of 4,712,727 common shares of the Company. The fair market value of the share issuance was $47,127.

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.

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.

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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, 2017.

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, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, 2017. 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, 2017 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.

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

During the quarter ended March 31, 2018, 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, 2018, the aggregate amount of the advances to be used for such share purchases was $81,033, 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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