UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
_______.TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number:
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) (Zip Code) |
| ( |
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(Registrant’s telephone number, including area code) |
None |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check
mark whether the registrant (1) has filed 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.
Indicate by check
mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, Emerging Growth Company or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| x | Smaller reporting company | ||
| Emerging Growth Company |
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 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 ¨
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | N/A | N/A |
As of August 9, 2022, there were shares of common stock issued and outstanding. The registrant’s common stock is quoted on the OTCQB Venture Market of The OTC Markets Group, Inc. under the trading symbol “VEII.”
| 1 |
FORM 10-Q
Value Exchange International, Inc.
INDEX
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. Financial Statements | 3 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation | 27 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 40 | |
| Item 4. Controls and Procedures | 40 | |
| PART II - OTHER INFORMATION | ||
| Item 1. Legal Proceedings | 42 | |
| Item 1A. Risk Factors | 42 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 45 | |
| Item 3. Defaults Upon Senior Securities | 45 | |
| Item 4. Mine Safety Disclosures | 45 | |
| Item 5. Other Information | 45 | |
| Item 6. Exhibits | 46 | |
| Signatures | 47 |
| 2 |
ITEM 1. FINANCIAL STATEMENTS
VALUE EXCHANGE INTERNATIONAL, INC.
Financial Statements
| Page | ||
| Consolidated Balance Sheets (unaudited) | 4 | |
| Consolidated Statements of Operations and Comprehensive Income (unaudited) | 5 | |
| Consolidated Statements of Cash Flows (unaudited) | 6 | |
| Notes to the Consolidated Financial Statements (unaudited) | 7 |
| 3 |
VALUE EXCHANGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| ASSETS | (unaudited) | |||||||
| CURRENT ASSETS | ||||||||
| Cash | ||||||||
| Accounts receivable, less allowance for doubtful accounts | ||||||||
| Amounts due from related parties | ||||||||
| Other receivables and prepayments | ||||||||
| Inventories | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Plant and equipment, net | ||||||||
| Deferred tax assets | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Other payables and accrued liabilities | ||||||||
| Deferred income | ||||||||
| Amounts due to related parties | ||||||||
| Operating lease liabilities, current | ||||||||
| Short term bank loan | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Deferred tax liabilities | ||||||||
| Long term bank loan | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, shares authorized, $ par value; shares issued and outstanding | ||||||||
| Common stock, shares authorized, $ par value; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive losses | ( | ) | ||||||
| Total shareholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total liabilities and shareholders’ equity | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
VALUE EXCHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| Three Months | Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | ||||||||||||||||
| COST OF SERVICES | ||||||||||||||||
| Cost of service income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange loss | ( | ) | ( | ) | ||||||||||||
| PROFIT (LOSS) FROM OPERATIONS | ( | ) | ||||||||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Finance cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| VAT refund | ||||||||||||||||
| Management fee income | ||||||||||||||||
| Others | ( | ) | ||||||||||||||
| Total other income (expenses), net | ||||||||||||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | ( | ) | ||||||||||||||
| INCOME TAXES CREDIT (EXPENSES) | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) | ( | ) | ||||||||||||||
| OTHER COMPREHENSIVE INCOME: | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| COMPREHENSIVE INCOME | ( | ) | ||||||||||||||
| ATTRIBUTABLE TO: | ||||||||||||||||
| Equity holders of the Company | ( | ) | ||||||||||||||
| Non-controlling interests | ( | ) | ||||||||||||||
| ( | ) | |||||||||||||||
| Net income per share, basic and diluted | ( | ) | ||||||||||||||
| Weighted average number of shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
VALUE EXCHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | (unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net profit | ||||||||
| Adjustments to reconcile net profit to cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Interest income | ( | ) | ( | ) | ||||
| Interest expenses | ||||||||
| Finance costs on Right-of-use assets | ||||||||
| Deferred income taxes | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Other receivables and prepayments | ( | ) | ( | ) | ||||
| Amounts due from related parties | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Other payables and accrued liabilities | ( | ) | ( | ) | ||||
| Deferred income | ||||||||
| Amounts due to related parties | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment | ( | ) | ( | ) | ||||
| Interest received | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Issued share capitals | ||||||||
| Proceeds from non-controlling interests | ||||||||
| Proceeds of bank loan | ||||||||
| Interest paid | ( | ) | ||||||
| Principal payments on finance leases | ( | ) | ( | ) | ||||
| Repayment of short term bank loan | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ( | ) | ||||
| DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH, beginning of period | ||||||||
| CASH, end of period | ||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash (paid) refund for income taxes | ( | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Nature of Operations and Continuance of Business |
Value Exchange International, Inc. (“VEII”,
“Company”, “we” or “us”) was incorporated in the State of
On January 1, 2014, VEII received 100% of the issued and outstanding shares of in Value Exchange Int’l (China) Limited (“VEI CHN”) in exchange for i) newly issued 12,000,000 shares of VEII’s common stock to the majority stockholder of VEI CHN; and ii) 166,667 shares of our common stock held by VEI CHN to be transferred to the majority stockholder of VEI CHN (“Share Exchange”). This transaction resulted in the owners of VEI CHN obtaining a majority voting interest in VEII. The merger of VEI CHN into VEII, which has nominal net assets, resulted in VEI CHN having control of the combined entities.
For financial reporting purposes, the transaction represents a "reverse merger" rather than a business combination and VEII is deemed to be the accounting acquiree in the transaction. The transaction is being accounted for as a reverse merger and recapitalization. VEII is the legal acquirer but accounting acquiree for financial reporting purposes and VEI CHN is the acquired company but accounting acquirer. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the transaction will be those of VEI CHN and will be recorded at the historical cost basis of VEI CHN, and no goodwill was recognized in this transaction. The consolidated financial statements after completion of the transaction includes the assets and liabilities of VEI CHN and VEII, and the historical operations of VEII and the combined operations of VEI CHN from the initial closing date of the transaction.
The Company provides IT Business’ services and solutions to the retail sector through three operating subsidiaries located in Hong Kong SAR and People’s Republic of China (“PRC”).
On September 2, 2008, VEI CHN established its first operating subsidiary, Value Exchange Int’l (Shanghai) Limited (“VEI SHG”) in Shanghai, PRC, under the laws of the PRC. VEI SHG engages in software development, trading and servicing of computer hardware and software activities.
On September 25, 2008, VEI CHN acquired its second operating subsidiary, TAP Services (HK) Limited in Hong Kong which subsequently changed its name to Value Exchange Int’l (Hong Kong) Limited (“VEI HKG”) on May 14, 2013. VEI HKG engages in software development, trading and servicing of computer hardware and software activities.
| 7 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 14, 2013, VEI CHN further established another operating subsidiary, Ke Dao Solutions Limited in Hong Kong, which subsequently changed its name to Cumberbuy.com Limited (“CUMBERBUY”) on May 26, 2017. CUMBERBUY conducts consultancy services for IT Services and Solutions activities.
In January 2017, VEI CHN acquired
In January 2019, VEI SHG established an operating subsidiary, Value Exchange Int’l (Hunan) Limited (“VEI HN”) in Hunan, PRC, under the laws of the PRC. VEI HN engages in IT service call-center activities.
In February 2020, VEI SHG established an operating subsidiary, Shanghai Zhaonan Hengan Information Technology Co., Limited (“SZH”) in Shanghai, PRC, under the laws of the PRC. SZH engages in IT services.
As of June 30, 2022, the Company held four wholly-owned
subsidiaries, and two subsidiaries with
| 2. | Summary of Significant Accounting Policies |
| a) | Basis of Presentation |
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the financial statements of the Company and all its wholly-owned subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities were consolidated as of June 30, 2022:
| Place of incorporation | Ownership percentage | |||
| Parent Company | ||||
Technology Co., Ltd. |
| 8 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| b) | Use of Estimates |
Preparing consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting 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 expenses during the reporting period. The more significant areas requiring using management’s estimates and assumptions relate to the collectability of its receivables, the fair value and accounting treatment of financial instruments, the valuation of long-lived assets and valuation of deferred tax liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates. In addition, different assumptions or circumstances could reasonably be expected to yield different results.
| c) | Cash and Cash Equivalents |
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of six months or less at the time of purchase to be cash equivalents. Cash includes cash on hand and demand deposits in accounts maintained with financial institutions or state-owned banks within the PRC and Hong Kong.
| d) | Interim Financial Statements |
These interim unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
| e) | Accounts receivable and other receivables |
Receivables include trade accounts due from customers and other receivables such as cash advances to employees, utility deposits paid and advances to suppliers. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. As of June 30, 2022 and December 31, 2021, there was no allowance for uncollectible accounts receivable. Management believes that the remaining accounts receivable are collectable.
| f) | Inventories |
Inventories are valued at the lower of cost and net realizable value. Cost for inventories is determined using the “first-in, first-out” method.
Management reviews inventories for obsolescence or cost in excess of net realizable value periodically. The obsolescence, if any, is recorded as a provision against the inventory. The cost in excess of market value is written off and recorded as additional cost of sales.
| 9 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| g) | Plant and equipment |
Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred. Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
| Estimated Useful Life | ||
| Leasehold improvements | Lesser of lease term or the estimated useful lives of years | |
| Computer equipment | years | |
| Computer software | years | |
| Office furniture and equipment | years | |
| Motor Vehicle | years | |
| Building | years |
| h) | Goodwill and intangibles |
Intangibles with a definite life, including customer relationships and goodwill were recorded in connection with the acquisition of TSI. Intangible assets are amortized based on their estimated economic lives using the straight-line method with estimated lives as follows:
| Estimated Economic Life | ||
| Customer relationship |
Goodwill represents the excess of the cost of acquisition over the fair value of net assets acquired. Goodwill is not amortized, but is instead tested for impairment annually.
| 10 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| i) | Impairment of long-lived assets |
Property, Plant, and Equipment
The Company evaluates long-lived assets, including equipment, for impairment at least once per year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets by comparing the asset's estimated fair value with its carrying value, based on cash flow methodology. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired and an impairment loss equal to an amount by which the carrying value exceeds the fair value of the asset is recognized.
Impairment of Goodwill
The carrying value of goodwill is evaluated annually or more frequently if events or circumstances indicate that an impairment loss may have occurred. Such circumstances could include, but are not limited to, a significant adverse change in business climate, increased competition or other economic conditions. Under FASB Accounting Standard Codification (ASC) Topic 350 “Intangibles - Goodwill and Other”, goodwill is tested at a reporting unit level. The impairment test involves a two-step process. The first step involves comparing the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If this comparison indicates that a reporting unit’s estimated fair value is less than its carrying value, a second step is required. If applicable, the second step requires us to allocate the estimated fair value of the reporting unit to the estimated fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of the goodwill exceeds its fair value, the carrying value is written down by an amount equal to such excess.
The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, and is subject to inherent uncertainties and subjectivity. Estimating a reporting unit’s discounted cash flows involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including sales, gross margin and selling, general and administrative rates, capital expenditures, cash flows and the selection of an appropriate discount rate. Projected sales, gross margin and selling, general and administrative expense rate assumptions and capital expenditures are based on our annual business plans and other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit directly resulting from the use of its assets in its operations. These estimates are based on the best information available to us as of the date of the impairment assessment.
| 11 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| j) | Fair value of financial instruments |
The Company values its financial instruments as required by FASB ASC 320-12-65. The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
| Level one — | Quoted market prices in active markets for identical assets or liabilities; |
| Level two — | Inputs other than level one inputs that are either directly or indirectly observable; and |
| Level three — | Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. |
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The carrying values of the Company’s financial instruments; consisting of cash and cash equivalents, accounts receivable, accounts payable, other receivables and prepayments, other payables and accrued liabilities, balances with a related party, balances with related companies and amounts due to director approximate their fair values due to the short maturities of these instruments.
There was no asset or liability measured at fair value on a non-recurring basis as of June 30, 2022 and December 31, 2021.
| 12 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| k) | Comprehensive income |
U.S. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net income or loss. Although certain changes in assets and liabilities are reported as separate components of the equity section of the consolidated balance sheet, such items, along with net income, are components of comprehensive income or loss. The components of other comprehensive income or loss consist of foreign currency translation adjustments.
| l) | Earnings per share |
The Company reports earnings per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
| m) | Revenue recognition |
Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured.
The Company’s revenue is derived from three primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and (iii) sale of hardware and consumables during the service performed as stated above.
Multiple-deliverable arrangements
The Company derives revenue from fixed-price sale contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses. In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:
| – | The delivered item(s) has value to the customer on a stand-alone basis; |
| – | There is objective and reliable evidence of the fair value of the undelivered item(s); and |
| – | If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. |
| 13 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s multiple-element contracts generally include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests at the Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered equipment and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services, and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result, the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements. In addition, the arrangement generally includes customer acceptance criteria that cannot be tested before installation and integration at the customer’s site. Accordingly, revenue recognition is deferred until customer acceptance, indicated by an acceptance certificate signed off by the customer.
Revenues of maintenance services are recognized when the services are performed in accordance with the contract term.
Revenues of sale of software, if not bundled with other arrangements, are recognized when shipped and customer acceptance obtained, if all other revenue recognition criteria are met. Costs associated with revenues are recognized when incurred.
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | ||||||||||||||||
| - systems development and integration | ||||||||||||||||
| - systems maintenance | ||||||||||||||||
| - sales of hardware and consumables | ||||||||||||||||
Billings in excess of revenues recognized are recorded as deferred revenue.
| 14 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| n) | Income taxes |
The Company accounts for income taxes in accordance with the accounting standard issued by the Financial Accounting Standard Board (“FASB”) for income taxes. Under the asset and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The charge for taxation is based on the results for the reporting period as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
Under the accounting standard regarding accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
| o) | Operating leases |
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the statements of income on a straight-line basis over the lease periods.
| p) | Advertising costs |
The Company expenses the cost of advertising as incurred in the period in which the advertisements and marketing activities are first run or over the life of the endorsement contract. Advertising and marketing expense for the six months ended June 30, 2022 and 2021 were insignificant.
| q) | Shipping and handling |
Shipping and handling cost incurred to ship computer products to customers are included in selling expenses. Shipping and handling expenses for the six months ended June 30, 2022 and 2021 were insignificant.
| r) | Research and development costs |
Research and development costs are expensed as incurred and are included in general and administrative expenses. Research and development costs for the six months ended June 30, 2022 and 2021 were insignificant.
| 15 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| s) | Foreign currency translation |
The functional currency and reporting currency of the Company is the U.S. Dollar. (“US$” or “$”). The functional currency of the Hong Kong subsidiaries is the Hong Kong Dollar. The functional currency of the PRC subsidiary is RMB. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the exchange rate as quoted by the Hong Kong Monetary Authority (“HKMA”) at the end of the period. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
| Quarter ended | June 30, 2022 | June 30, 2021 | ||||||
| RMB : USD exchange rate | ||||||||
| three months average period ended | ||||||||
| HKD : USD exchange rate | ||||||||
| three months average period ended | ||||||||
| PESO : USD exchange rate | ||||||||
| three months average period ended | ||||||||
| Quarter ended | June 30, 2022 | June 30, 2021 | ||||||
| RMB : USD exchange rate | ||||||||
| six months average period ended | ||||||||
| HKD : USD exchange rate | ||||||||
| six months average period ended | ||||||||
| PESO : USD exchange rate | ||||||||
| six months average period ended | ||||||||
| Quarter ended | June 30, 2022 | December 31, 2021 | ||||||
| RMB : USD exchange rate | ||||||||
| HKD : USD exchange rate | ||||||||
| PESO : USD exchange rate | ||||||||
| t) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
| u) | Commitments and contingencies |
The Company follows FASB ASC Subtopic 450-20, “Loss Contingencies” in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
| 16 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| v) | Segment Reporting |
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue from software development and maintenance services (but not by sub-services/product type or geographic area) and operating results of the Company and, as such, the Company has determined that the Company has one operating segment as defined by ASC Topic 280 “Segment Reporting”.
| w) | Recent accounting pronouncements |
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The ASU sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company intends to adopt this ASU in January 2022. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements and related disclosures.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard addresses the risks from the discontinuation of the London Interbank Offered Rate (LIBOR) and provides optional expedients and exceptions to contracts, hedging relationships and other transactions that reference LIBOR if certain criteria are met. This new guidance is effective and may be applied beginning March 12, 2020 through December 31, 2022. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
| 17 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by eliminating the requirement to separately account for an embedded conversion feature as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The new guidance provides temporary optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.
In August 2021, the FASB issued ASU No. 2021-06, “Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946).” The ASU includes Release No.33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. This update amends certain SEC disclosure guidance that is included in the accounting standards codification to reflect the SEC’s recent issuance of rules intended to modernize and streamline disclosure requirements, including updates to business acquisition and disposition significance tests used, the significance thresholds for proforma statement disclosures, the number of preceding years of financial statements required for disclosure, and other provisions in the SEC releases. The guidance is effective upon its addition to the FASB codification. The Company is assessing the impact of ASU No. 2021-06 but does not expect that it will have a material impact on its consolidated financial statements and related disclosures.
| 18 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU addresses diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the standard is permitted, including adoption in an interim period. The adoption of this standard update is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
| 19 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 3. | Accounts receivable |
Accounts receivable consisted of the following as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Accounts receivable | ||||||||
All of the Company’s customers are located in the PRC, Hong Kong and Manila, Philippines. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.
| 4. | Other receivables and prepayments |
Other receivables and prepayments consisted of the following as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Deposits and prepaid expense | ||||||||
| Others | ||||||||
| 5. | Inventories |
Inventories as of June 30, 2022 and December 31, 2021 consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Finished goods | ||||||||
| 20 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. | Plant and equipment, net |
Plant and equipment consisted of the following as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Leasehold improvements | ||||||||
| Office furniture and equipment | ||||||||
| Computer equipment | ||||||||
| Computer software | ||||||||
| Motor Vehicle | ||||||||
| Building | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Plant and equipment, net | ||||||||
Depreciation expense for the six months period ended
June 30, 2022 and 2021 amounted to $
| 7. | Goodwill |
Goodwill consisted of the following as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Goodwill arising from acquisition of TSI | ||||||||
| 8. | Leases |
We have entered into various non-cancelable operating lease agreements for certain of our offices. Our leases have original lease periods expiring between the remainder of 2022 and 2024. Many leases include option to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| 21 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease liabilities are as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Lease liabilities, current | ||||||||
| Lease liabilities, non-current | ||||||||
| Present value of lease liabilities | ||||||||
Total lease cost for the six months period ended
June 30, 2022 and 2021 amounted to $
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Year one | ||||||||
| Year two | ||||||||
| Year three | ||||||||
| Year four | ||||||||
| Thereafter | ||||||||
| Total undiscounted cash flows | ||||||||
| Less: Imputed interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | ||||||||
| 22 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 9. | Bank loan |
Bank loan and accruals consisted of the following as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Long term bank loan | ||||||||
| Less: Current portion of long term bank loan | ( | ) | ( | ) | ||||
| Current portion of long term bank loan | ||||||||
As of June 30, 2022 and December 31, 2021, the above
| 10. | Other payables and accrued liabilities |
Other payables and accruals consisted of the following as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Accrual | ||||||||
| Income taxes payable | ||||||||
Accrual mainly represents salary payables and fringe and social security accruals. According to the prevailing laws and regulations of the PRC, all eligible employees of the Company’s subsidiaries are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Company’s subsidiaries are required to accrue for these benefits based on certain percentages of the qualified employees’ salaries. The Company’s subsidiary is required to make contributions to the plans out of the amounts accrued.
The Company’s subsidiaries incorporated in Hong Kong manage a defined contribution Mandatory Provident Fund (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. The Company is required to contribute 5% of the monthly salaries for all Hong Kong based employees to the MPF Scheme up to a maximum statutory limit.
| 23 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 11. | Deferred income |
Deferred income consisted of the following as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Service fees received in advance | ||||||||
| 12. | Statutory reserves |
Statutory reserves
The laws and regulations of the PRC require that before an enterprise distributes profits to its owners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the Board of Directors after the statutory reserves.
As stipulated by the Company Law of the PRC, as applicable to Chinese companies with foreign ownership, net income after taxation can only be distributed as dividends after appropriation has been made for the following:
| 1. | Making up cumulative prior years’ losses, if any; |
| 2. | Allocations to the “Statutory surplus reserve” of at least
|
| 3. | Allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting. |
The statutory reserve fund is non-distributable other
than during liquidation and can be used to fund previous years’ losses, if any. It may be utilized for business expansion or converted
into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of
the shares currently held by them, provided that the remaining reserve balance after such issue is not less than
| 24 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 13. | Related party and shareholder transactions |
Other than disclosed elsewhere in these financial statements, the Company also had the following related party balances and transactions:
Related party balances
| June 30, 2022 | December 31, 2021 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Due from related parties | ||||||||
| Value Exchange International Limited (i) | ||||||||
| Cucumbuy.com Limited (ii) | ||||||||
| SmartMyWays Co., Limited (iii) | ||||||||
| Retail Intelligent Unit Limited (iv) | ||||||||
| AppMyWays Co., Limited (v) | ||||||||
| TAP Technology (HK) Limited (vi) | - | |||||||
| Due to related parties | ||||||||
| TAP Technology (HK) Limited (vi) | - | |||||||
| Mr. Johan Pehrson (vii) | - | |||||||
Related party transactions
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Service income received from | ||||||||||||||||
| Value Exchange International Limited (i) | ||||||||||||||||
| AppMyWays Co., Limited (v) | ||||||||||||||||
| Subcontracting fees payable to | ||||||||||||||||
| Value Exchange International Limited (i) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cucumbuy.com Limited (ii) | ( | ) | ( | ) | ||||||||||||
| TAP Technology (HK) Limited (vi) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Value E Consultant International (M)
Sdn. Bhd (viii) | ( | ) | ( | ) | ( | ) | ||||||||||
| Management fees received from | ||||||||||||||||
| Value Exchange International Limited (i) | ||||||||||||||||
| Cucumbuy.com Limited (ii) | ||||||||||||||||
| SmartMyWays Co., Limited (iii) | ||||||||||||||||
| Retail Intelligent Unit Limited (iv) | ||||||||||||||||
| TAP Technology (HK) Limited (vi) | ||||||||||||||||
| 25 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 13. | Related party and shareholder transactions (Continued) |
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| (vi) |
| (vii) |
| (viii) |
| (ix) |
| 26 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “intends,” “projects,” “will,” “should,” “may,” “hopes” and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report include, but are not limited to, expectations of future levels of business development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us and effects as well as our ability to fund, and integrate and grow any acquired or new business operations. Business operations and financial condition may be materially and adversely affected by any slowdown in regional and national economic growth, weakened liquidity and financial condition of customers or other factors that Company cannot foresee. Coronavirus COVID 19 continues to be a threat to business and financial operations’ condition and performance. Further, the Company being identified by the Securities and Exchange Commission or “SEC” in April 2022 as a Commission Identified Issuer under the Holding Foreign Companies Accountable Act or “HFCAA” may have an adverse impact on the public market for Company Common Stock and hinder ability of Company to raise working capital from investors or lenders. Forward-looking statements are subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. New risks and uncertainties emerge from time to time, and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The forward-looking statements made in this report on Form 10-Q relate only to events as of the date on which the statements are made and we undertake no obligation to update them to reflect events or circumstances after the date of this report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
These forward-looking statements include, but are not limited to, statements concerning the following:
•our ability to retain existing customers, acquire new customers, and expand our customer reach faced with limitations on marketing imposed by COVID 19 pandemic restrictions on travel and gatherings and limitations of available cash flow and funding;
•our expectations regarding our future financial performance, including total revenue, gross profit/(loss), net income/(loss), adjusted gross profit/(loss), and adjusted EBITDA;
•the impact of the COVID-19 pandemic and emerging variants and subvariants of that virus as well as governmental and private sector/customer responses thereto on our business and financial condition;
•the impact of any economic disruptions, including inflationary pressures, or on our business and financial condition;
•our ability to maintain our business model and improve our capital and marketing efficiency;
•our ability to maintain and enhance our brand and reputation in existing markets and new market niches;
•our ability to effectively manage any future growth of our business;
•our ability to raise additional capital as needed and on affordable terms and conditions as well as to prudently use existing funding;
•our ability to improve our product/service offerings, introduce new products/services and expand into additional markets or niches within existing markers through effective marketing and sales efforts;
•our ability to compete effectively with existing competitors and new market entrants in our industry;
•our ability to engage, retain and afford qualified personnel and contractors;
•our ability to protect our and any customer data and intellectual property and pay any costs associated therewith; and
•our ability to stay in compliance with laws and regulations of China and Hong Kong SAR that currently apply or become applicable to our business in the future.
| 27 |
These risks and uncertainties are reviewed and updated with each SEC report and accompany, but are not limited to those described in “Risk Factors” contained in the Company’s reports filed with the U.S. Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and any amendments to that Form 10-K.
Unless the context otherwise indicates, references in this report to the terms “VEII” “the Company,” “we,” “our” and “us” refer to Value Exchange International, Inc. and its subsidiaries and “you” and “your” refers to recipients of this report of Form 10-Q.
Certain Terms
Except as otherwise indicated by the context, references in this report to:
| · | “Company,” “we,” “us” and “our” are to the combined business of Value Exchange International, Inc., a Nevada corporation, and its consolidated subsidiaries; |
| · | “China,” “Chinese” and “PRC,” refer to the People’s Republic of China; |
| · | “Renminbi” and “RMB” refer to the legal currency of China; |
| · | “U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States; |
| · | “SEC” or “Commission” refers to the United States Securities and Exchange Commission; |
| · | “Securities Act” refers to the Securities Act of 1933, as amended; and |
| · | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended. |
CORPORATE OVERVIEW
History of Value Exchange International, Inc.
Organization.
We were incorporated in the State of Nevada on June 26, 2007 under the name “China Soaring Inc.” We changed the Company's name to “Sino Payments, Inc.” on November 26, 2008 and then further changed to the current name as “Value Exchange International, Inc.” in October 2016. Our Common Stock’s trading symbol changed at the same time from “SNPY” to “VEII.” Our common stock is quoted on the OTCQB Venture Market.
Current Business Focus.
We are a provider of customer-centric solutions for the retail industry in China, Hong Kong SAR and Philippines. Due to impact of Coronavirus/COVID-19 pandemic and lack of adequate funding, our strategic plan to expand our business into Southeast Asia made no progress.
By integrating market-leading Point-of-Sale/Point-of-Interaction (“POS/POI”), Merchandising, Customer Relations Management or “CRM” and related rewards, Locational Based (GPS & Indoor Positioning System (“IPS”)) Marketing, Customer Analytics, Business Intelligence solutions, our products and services are intended to provide retailers with the capability to offer a consistent shopping experience across all channels, enabling them to easily and effectively manage the customer lifecycle on a one-to-one basis. We promote ourselves as a single IT source for retailers who want to extend existing traditional transaction processing to multiple points of interaction, including the Internet, kiosks and wireless devices. Our products and services are focused on helping retailers realize the full benefits of Customer Chain Management with its suite of solutions that focus on the customer, on employees, and the infrastructure that supports the selling channel. Company is headquartered in Hong Kong and with offices in Shenzhen, Guangzhou, Shanghai, Beijing, China; Manila, Philippines; and Kuala Lumpur, Malaysia.
We believe that the IT Business often presents opportunities to expand a provider’s market reach or customer base by acquisitions of existing businesses or operating assets. The Company’s business strategy includes reviewing possible acquisitions of existing businesses or operating assets in existing or adjacent markets and to do so when and if such an acquisition appears to be compatible and an enhancement of our core business lines and can be consummated with available cash and other resources. Our ability to pursue and consummate acquisitions may be limited, and has been limited, by available cash and other resources and the perceived cost and burdens of acquiring and integrating the target business or new operating assets into our operations. The availability of funding and cash flow are the most significant limitations on our ability to expand through acquisitions of businesses and assets – both in terms of money on hand and ability to finance acquisitions. We have not expanded into any new markets by acquisition or otherwise during the fiscal quarter ended June 30, 2022.
| 28 |
The Company, through its operating subsidiaries, is focusing and will focus on its IT Business, and seek to expand its IT Business services to commercial customers in PRC and Asia Pacific Region. This strategy is based upon our subjective business judgment that the IT Business presents more opportunities for potential customer order in our core markets of Hong Kong SAR and China than the “IP Business” (as defined below) and presents an industry segment that better suits our current technical capabilities, marketing capabilities and financial resources.
Initial Business Focus.
Our initial intended, primary business was to operate a credit card processing and merchant-acquiring services company that provide credit card clearing services to merchants and financial institutions in PRC. From inception, we strove unsuccessfully to create and establish a proposed Global Processing Platform concept to support the credit card processing services (“SinoPay GPP”). Specifically, the Company’s IP business was to be a provider of Internet Protocol (“IP”) processing services in Asia to bank card-accepting merchants (“IP Business”). The prior Company efforts to establish an IP Business failed despite a prolonged effort.
With the acquisition of VEI CHN in 2014 shifted the primary business focus on our IT Business because IT Business provided a revenue generating business line and because of our strategic decision that IT Business presented a greater growth and profit potential than IP Business. Further, we believe that the SinoGPP system would require ongoing and potentially expensive marketing and sales effort as well as extensive technical upgrades and function enhancements due to the highly competitive market for Point Of Sale (“POS”) systems and longer sales cycle for POS systems than IT Business project and consulting sales.
Smart Baggage Tag. Through a cooperative effort with another company, Company has the ability to market a smart baggage tag that allows consumers to track the location of their baggage through a smart phone or device using the smart baggage tag and related application. Efforts to promote the smart baggage tag were suspended due to impact of COVID-19 pandemic on air travel.
The prospects of the Smart Tag business as of the date of this Form 10-Q report are uncertain. The Company will have to determine if an expanded or sustained marketing effort for the Smart Tag is possible based on available resources and business priorities. The IT Business remains the focus of our business and funding.
Industry Trends and Economic Conditions.
The IT Business in Hong Kong and China is large and fragmented, comprised of thousands of competitors as well as being a highly competitive industry. A general trend affecting our IT Business is the trend of increasing competition for skilled labor. With a global economy and foreign competitors seeking to penetrate Hong Kong and China as markets as well as to tap into new pools of skilled workers in IT Business, we will undoubtedly face increasing competition for skilled workers in IT Business in the Hong Kong and China markets. We may be unable to afford or effectively compete for necessary skilled workers in Hong Kong, Philippines and China and, if we are unable to afford or effectively compete for necessary skilled workers, our growth and ability to attain and sustain profit operations in the IT Business may fail. We have not experienced any significant problems in recruiting necessary skilled workers in fiscal years 2021 or 2022 to date.
| 29 |
A common problem in the IT Business is retaining skilled workers throughout the duration of a project. Due to the global nature of the IT Business and the growing demand for skilled IT Business workers, a skilled IT business worker can often readily find higher paying positions with competitors, whether local or foreign. While we have not experienced retention problems due primarily to our focus on smaller, shorter term IT business projects, we may experience retention of skilled worker problems if we grow our IT Business and undertake longer term, more complex IT business projects for customers.
IT Business is often affected by general economic conditions in our markets and any decline in those conditions could adversely impact our business and financial performance. During periods of economic growth, customers general spend more for IT Business products and services. During periods of economic contraction or uncertainty, such spending generally decreases or is deferred. As such, the prospective business for our IT Business is generally greater during periods of economic growth or stability in Hong Kong or China or Manila, Philippines, respectively, and decreases during periods of economic decline or uncertainty in Hong Kong, China or Manila, Philippines. In our global economy, and with PRC being still a principal export economy, adverse economic conditions globally or in other regions can adversely impact economic conditions in Hong Kong, Philippines or China. China has experienced a less dynamic growth in gross national product in the past year and this may reduce the willingness of customers to spend on IT Business or IP Business.
The IT Business is global and, with the growth of cloud computing, there is a growing capability and infrastructure for companies in a foreign nation to provide IT Business to customers around the globe as a complement to cloud computing. We have not seen any significant impact of cloud computing on our IT Business as of the fiscal quarter ending June 30, 2022, but we perceive that the expansion of cloud computing coupled with IT services and products could allow foreign companies to provide IT Business products and services to its cloud computing customers in our Hong Kong and China core markets as well as in the Philippines. We may find it more difficult to compete for IT Business in Hong Kong and China, and perhaps the Philippines, if customers of IT Business elect to have cloud computing companies manage, repair and enhance IT Business products, software and systems. The growth of cloud computing coupled with IT Business products and services as an ancillary component of the cloud computing menu of products and services could adversely impact our IT Business in Hong Kong and China markets as well as the Philippines.
The nature of our IT Business is such that our most significant current asset is accounts receivable. Our most significant current liabilities are payroll related costs, which are generally paid either every two weeks or monthly. If the demand for our IT Business products and services increases, we may generally see an increase in our working capital needs, as we continue to pay our workers on a weekly or monthly basis while the related accounts receivable are outstanding for much longer than normal payment cycle, which may result in a decline in operating cash flows. Conversely, as the demand for our IT Business products and services declines, we may generally see a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level, resulting in a decline of our accounts receivable balance, with less of an effect on current liabilities due to the shorter cycle time of the payroll related items. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that a local or global economic downturn continued for an extended period.
In order for us to attain sustained success in the near term, we must continue to maintain and grow our customer base, provide high-quality service and satisfy our existing clients. In the current economic environment, we must provide our customers with service offerings that are appropriately priced, satisfy their needs, and provide them with measurable business benefits. While we have recently experienced more demand for our IT Business products and services, we believe that it is too early to determine if developments will translate into sustainable improvements in our pricing or margins in fiscal year 2022 or over the longer term.
The increasing need for cybersecurity products and technologies may be a future weakness of our business plan. We do not have a current cybersecurity product and service line beyond consultants engaged to provide cybersecurity services to customers and we have not current plans to develop a cybersecurity business line. Cybersecurity companies may have an advantage over our business model in the future in that cybersecurity companies could leverage their cybersecurity offerings to also sell IT Business services and products that compete with our IT Business products and services.
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We also face a possible competitive threat from Cloud computing services, which we do not provide to customers (except through third party providers). Cloud computing services can and do offer additional services to customers, which services can include the same IT Business services as our company. Cloud computing companies could leverage their relationship with customers to persuade them to use the Cloud computing service for IT Business needs. This leverage could pose a competitive threat to our IT Business. We lack the current financial and technical resources to compete in the Cloud computing business.
Covid 19 Pandemic. Since the beginning of 2020, the worldwide spread of the novel coronavirus (“Covid 19”) has been rapid and unprecedented. On March 11, 2020, the World Health Organization declared Covid 19 a global pandemic. Efforts to control the spread of Covid 19 have led governments and other authorities to impose restrictions which have resulted in business closures and disrupted global supply chains. In addition to reductions in business levels, the altered marketplace environment has negatively impacted our freight mix and shipment profile. The extent of the long term adverse effect of the COVID-19 pandemic on our business results is unknown and depends on future developments, including the severity and duration of the pandemic.
Covid 19 pandemic affected our primary operations in Hong Kong SAR and Manila, Philippines in first fiscal quarter of 2020 by forcing limited business travel, remote work arrangements by personnel, customers suspending or reducing operations and use of third party services and suspension or cancellations of normal business activities by us and customers. While there has been a degree of easing restrictions on businesses, there are still restrictions on our and customers’ business activities. The full impact of Covid 19 pandemic on our business may not be fully understood or realized from fiscal period to fiscal period in light of the emergence of new variants of the virus with differing potential impact on our business and economies of our primary markets. There remains the risk of new variants of Covid 19 emerging that are vaccine resistant and, as such, capable of significant disruption of the economies in our primary markets.
Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. Company has not sought and does not intend to seek any assistance under the CARES Act as of the date of this Form 10-Q report. Our operations and personnel are not based in the U.S.
History of Value Exchange Int’l (China) Limited
VEI CHN was first established on November 16, 2001 in Hong Kong SAR with limited liability under the name of “Triversity Hong Kong Limited” and subsequently changed its name to “Triversity (Asia Pacific) Limited” on April 24, 2002 and then further changed its name to “TAP Investments Group Limited” on November 16, 2007. TAP Investments Group Limited changed to its current name as “Value Exchange Int’l (China) Limited” on May 13, 2013.
VEI CHN is an investment holding company with two subsidiaries established in Hong Kong SAR, namely TAP Services (HK) Limited which was incorporated on August 25, 2003 and acquired by VEI CHN on September 25, 2008, and subsequently changed to its current name as Value Exchange Int’l (Hong Kong) Limited (“VEI HKG”) on May 13, 2013. VEI CHN set up a wholly-owned Foreign Enterprise (WOFE) in Shanghai, PRC, in September 2, 2008 in the name of Value Exchange Int’l (Shanghai) Limited (“VEI SHG”). In January 2019, VEI SHG set up a 51% subsidiary in Hunan, PRC, in the name of Value Exchange Int’l (Hunan) Limited (“VEI HN”). In February 2020, VEI SHG set up a 51% subsidiary in Shanghai, PRC, in the name of Shanghai Zhaonan Hengan Information Technology Co., Limited (“SZH”).
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Principal business
Company’s primary operating subsidiary is VEI CHN. The principal business of VEI CHN for more than 15 years is to provide the Information Technology Services and Solutions (consisting of select services and solutions in computer software programming and integration, and computer systems, Internet and information technology systems engineering, consulting, administration and maintenance, including e-commerce and payment processing) to the Retail Sector, primarily to leading retailers in Hong Kong SAR, Macau SAR and PRC and as more fully described below. As is customary in the industry, such services and solutions are provided by both company employees, contractors and consultants. The primary services and products of the IT Business are:
| a) | Systems maintenance and related service |
VEI CHN Group provides development, customization of software and hardware, enhancements thereto and maintenance services for installed POS system. VEI CHN Group markets, sells and maintains its own brand POS software – edgePOS as well as third party brands (e.g. NCR / Retalix), which is one of the leading POS software programs in the market. These software enhancements and programming can integrate with different IP systems.
Systems maintenance services consist of: i) software maintenance service, including software patches and software code revisions; ii) installing, testing and implementing software; iii) training of customer personnel for the use of software; and iv) technical support for software systems.
Other services include system installation and implementation, including i) project planning; ii) analysis of customer information and business needs from a IT perspective (“System Analysis”); iii) design of the entire system; iv) hardware and consumables selection advice and sales; and v) system hardware maintenance. These services typically consist of customer projects for New Store Opening (“NSO”) and Install, Move, Add and Change (“IMAC”) for retail, and ad-hoc custom system projects for other business sectors. Our primary focus is the retail sector in Hong Kong SAR, PRC and Manila, Philippines.
| b) | Systems development and integration |
VEI CHN Group provides value-added software, which integrates with customer owned or licensed software, and ad-hoc software development projects for other business sectors. Besides use of proprietary, custom software code, VEI CHN services may from time to time license standard third party software programs.
Financial Performance Highlights
The following are some financial highlights for the second quarter of 2022:
| · | Net revenue: Our net revenues were $5,181,034 for the six months ended June 30, 2022, as compared to $4,593,767 for the same period in 2021, an increase of $587,267 or 12.8%. |
| · | Gross profit: Gross profit for the six months ended June 30, 2022 was $ 1,026,373 or 19.8% of net revenues, as compared to $1,308,589 or 28.5% of net revenues for the same period in 2021, a decrease of $282,216 or 21.6%. |
| · | Income from operations: Our income from operations totaled $163,128 for the six months ended June 30, 2022, as compared to $200,237 for the same period in 2021, a decrease of $37,109 or 18.5%. |
| · | Net income: We had a net income of $305,673 for the six months ended June 30, 2022, compared to $325,724 for the same period in 2021, a decrease of $20,051 or 6.2%. |
| · | Basic and diluted net income per share was $0.01 for the six months ended June 30, 2022. |
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RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 2022 and 2021
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||||||||||
| US$ | As a percentage of revenues | US$ | As a percentage of revenues | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | 2,589,850 | 100 | % | 2,389,995 | 100 | % | ||||||||||
| COST OF SERVICES | ||||||||||||||||
| Cost of service income | (1,903,601 | ) | (73.5 | %) | (1,818,946 | ) | (76.1 | %) | ||||||||
| GROSS PROFIT | 686,249 | 26.5 | % | 571,049 | 23.9 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | (592,633 | ) | (22.9 | %) | (659,896 | ) | (27.6 | %) | ||||||||
| Foreign exchange loss | 179,055 | 6.9 | % | (16,297 | ) | (0.7 | %) | |||||||||
| PROFIT (LOSS) FROM OPERATIONS | 272,671 | 10.5 | % | (105,144 | ) | (4.4 | %) | |||||||||
| OTHER INCOME (EXPENSES) | 75,205 | 2.9 | % | 56,721 | 2.4 | % | ||||||||||
| PROFIT (LOSS) BEFORE PROVISION FOR INCOME TAXES | 347,876 | 13.4 | % | (48,423 | ) | (2.0 | %) | |||||||||
| INCOME TAXES CREDIT (EXPENSES) | 26 | 0.0 | % | (2,464 | ) | (0.1 | %) | |||||||||
| NET INCOME (LOSS) | 347,902 | 13.4 | % | (50,887 | ) | (2.1 | %) | |||||||||
Net revenues. Net revenues were $2,589,850 for the three months ended June 30, 2022, as compared to $2,389,995 for the same period in 2021, an increase of $199,855 or 8.4%. This increase was primarily attributable to the increase in our revenue from i) sales of systems maintenance with revenues increasing from $1,898,908 for the three months ended June 30, 2021 to $2,160,438 for the three months ended June 30, 2022; offset by ii) sales of hardware and consumables with revenue decreasing from $365,026 for the three months ended June 30, 2021 to $310,094 for the three months ended June 30, 2022; iii) sales of systems development and integration with revenues decreasing from $126,061 for the three months ended June 30, 2021 to $119,318 for the three months ended June 30, 2022.
Cost of services. Our cost of services is primarily comprised of our costs of technical staff, contracting fees to suppliers and general operating overhead. Our cost of services increased to $1,903,601 or 73.5% of net revenues, for the three months ended June 30, 2022, as compared to $1,818,946 or 76.1% of net revenues, for the same period in 2021, an increase of $84,655 or 4.7%. The increase in cost of services was mainly attributable to the increase in our cost of technical staff, and general operating overhead.
Gross profit. Gross profit for the three months ended June 30, 2022 was $686,249 or 26.5% of net revenues, as compared to $571,049 or 23.9% of net revenues, for the same period in 2021, an increase of $115,200 or 20.2%. The increase of gross profit was largely due to the increase in net revenues, offset by the increase in cost of services in this period, as compared with the same period of 2021.
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General and administrative expenses. General and administrative expenses include the costs associated with staff and support personnel who manage our business activities, office rental expenses, depreciation charge for fixed assets, and professional fees paid to third parties. General and administrative expenses decreased to $592,633 or 22.9% of net revenues, for the three months ended June 30, 2022, as compared to $659,896 or 27.6% of net revenues, for the same period in 2021, a decrease of $67,263 or 10.2%. The reasons for the decrease was attributable to the decrease in staff cost, consultancy and professional fee and other administrative cost.
Profit (loss) from operations. As a result of the above, our profit from operations totaled $272,671 for the three months ended June 30, 2022, as compared to loss from operations totaled $105,144 for the same period in 2021, a change of $377,815.
Income taxes credit (expenses). Income taxes credit totaled $26 during the three months ended June 30, 2022, as compared to Income taxes expenses totaled $2,464 for the same period in 2021, a change of $2,490.
Net income (loss). As a result of the foregoing, we had a net income of $347,902 for the three months ended June 30, 2022, compared to net loss of $50,887 for the same period in 2021, a change of $398,789 as a result of the factors described above.
Comparison of Six Months Ended June 30, 2022 and 2021
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||
| US$ | As a percentage of revenues | US$ | As a percentage of revenues | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | 5,181,034 | 100 | % | 4,593,767 | 100 | % | ||||||||||
| COST OF SERVICES | ||||||||||||||||
| Cost of service income | (4,154,661 | ) | (80.2 | %) | (3,285,178 | ) | (71.5 | %) | ||||||||
| GROSS PROFIT | 1,026,373 | 19.8 | % | 1,308,589 | 28.5 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | (886,588 | ) | (17.1 | %) | (1,094,774 | ) | (23.8 | %) | ||||||||
| Foreign exchange loss | 23,343 | 0.5 | % | (13,578 | ) | (0.3 | %) | |||||||||
| PROFIT FROM OPERATIONS | 163,128 | 3.1 | % | 200,237 | 4.4 | % | ||||||||||
| OTHER INCOME (EXPENSES) | 144,707 | 2.8 | % | 131,848 | 2.9 | % | ||||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 307,835 | 5.9 | % | 332,085 | 7.2 | % | ||||||||||
| INCOME TAXES EXPENSES | (2,162 | ) | (0.0 | %) | (6,361 | ) | (0.1 | %) | ||||||||
| NET INCOME | 305,673 | 5.9 | % | 325,724 | 7.1 | % | ||||||||||
Net revenues. Net revenues were $5,181,034 for the six months ended June 30, 2022, as compared to $4,593,767 for the same period in 2021, an increase of $587,267 or 12.8%. This increase was primarily attributable to the increase in our revenues from i) sales of systems maintenance with revenues increasing from $3,507,374 for the six months ended June 30, 2021 to $4,081,627 for the six months ended June 30, 2022; ii) sales of systems development and integration with revenues increasing from $160,138 for the six months ended June 30, 2021 to $207,347 for the six months ended June 30, 2022; offset by iii) sales of hardware and consumables with revenue decreasing from $926,255 for the six months ended June 30, 2021 to $892,060 for the six months ended June 30, 2022.
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Cost of services. Our cost of services is primarily comprised of our costs of technical staff, contracting fees to suppliers and overhead. Our cost of services increased to $4,154,661 or 80.2% of net revenues, for the six months ended June 30, 2022, as compared to $3,285,178 or 71.5% of net revenues, for the same period in 2021, an increase of $869,483 or 26.5%. The increase in cost of services was mainly attributable to the increase in our cost of technical staff, and contracting fees to suppliers.
Gross profit. Gross profit for the six months ended June 30, 2022 was $1,026,373 or 19.8% of net revenues, as compared to $1,308,589 or 28.5% of net revenues, for the same period in 2021, a decrease of $282,216 or 21.6%. The decrease of gross profit was largely due to the increase in cost of services, offset by the increase in net revenues in this period, as compared with the same period of 2021.
General and administrative expenses. General and administrative expenses include the costs associated with staff and support personnel who manage our business activities, office rental expenses, depreciation charge for fixed assets, and professional fees paid to third parties. General and administrative expenses decreased to $886,588 or 17.1% of net revenues, for the six months ended June 30, 2022, as compared to $1,094,774 or 23.8% of net revenues, for the same period in 2021, a decrease of $208,186 or 19.0%. The primary reason for the decrease was attributable to the decrease in consultancy and professional fee, and other administrative cost.
Profit from operations. As a result of the above, our profit from operations totaled $163,128 for the six months ended June 30, 2022, as compared to profit from operations totaled $200,237 for the same period in 2021, a decrease of $37,109 or 18.5%.
Income tax expenses. Income taxes expenses totaled $2,162 during the six months ended June 30, 2022, as compared to $6,361 for the same period in 2021, a decrease of $4,199 or 66%.
Net income. As a result of the foregoing, we had a net income of $305,673 for the six months ended June 30, 2022, compared to $325,724 for the same period in 2021, a decrease of $20,051 or 6.2%, as a result of the factors described above.
Liquidity and Capital Resources
As of June 30, 2022, we had cash and cash equivalents of $114,348. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report.
Cash Flows
(All amounts in U.S. dollars)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| US$ | US$ | |||||||
| Net cash provided by (used in) operating activities | 74,290 | (334,977 | ) | |||||
| Net cash used in investing activities | (58,840 | ) | (27,046 | ) | ||||
| Net cash (used in) provided by financing activities | (139,562 | ) | 473,670 | |||||
| Effect of exchange rate changes on cash and cash equivalents | (50,938 | ) | (115,286 | ) | ||||
| Net decrease in cash and cash equivalents | (175,050 | ) | (3,639 | ) | ||||
| Cash and cash equivalents at the beginning of period | 289,398 | 523,337 | ||||||
| Cash and cash equivalents at the end of period | 114,348 | 519,698 | ||||||
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Operating Activities
Net cash provided by operating activities was $74,290 for the six months ended June 30, 2022, which was a change of $409,267 from net cash used in operating activities $334,977 for the same period of 2021. The change in net cash provided by (used in) operating activities was mainly attributable to the following:
| 1) | A change of Accounts payable, Deferred income and Inventory increased our operating cash balances by $472,935 , $539,568, and $211,557 respectively; offset by; |
| 2) | Net income of $305,673 for the six months ended June 30, 2022, compared to $325,724 for the same period in 2021; and |
| 3) | A change of Accounts receivable, and Amounts due from related parties decreased our operating cash balances by $678,807 and $177,372. |
Investing Activities
Net cash used in investing activities was $58,840 for the six months ended June 30, 2022, which was an increase of $31,794 or 117.6% from $27,046 in the same period in 2021. The increase in net cash used in investing activities was attributable to cash used in the purchase of plant and equipment by $59,138; offset by interest received by $298, during the six months ended June 30, 2022.
Financing Activities
Net cash used in financing activities was $139,562 for the six months ended June 30, 2022, which was a change of $613,232 from net cash provided by financing activities $473,670 in the same period in 2021. The change in net cash used in financing activities was attributable to the Repayment of bank loan by $25,871, Principal payments on finance leases by $145,751, and Interest paid by $2,687; offset by Process of bank loan by $34,747, during the six months ended June 30, 2022.
Future Financings
We believe that our cash on hand and cash flow from operations will meet our expected capital expenditure and working capital requirements for the next 12 months. However, we may in the future require additional cash resources due to changes in business conditions, implementation of our strategy to expand our production capacity, sales, marketing and branding activities or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Off-Balance Sheet Arrangements
We have no 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.
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Critical Accounting Policies
Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note 2 of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the financial statements of the Company and all its subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities were consolidated as of June 30, 2022:
| Place of incorporation | Ownership percentage | ||||
| Value Exchange International, Inc. | USA | Parent Company | |||
| Value Exchange Int’l (China) Limited | Hong Kong | 100% | |||
| Value Exchange Int’l (Shanghai) Limited | PRC | 100% | |||
| Value Exchange Int’l (Hong Kong) Limited | Hong Kong | 100% | |||
| TapServices, Inc. | Philippines | 100% | |||
| Value Exchange Int’l (Hunan) Limited | PRC | 51% | |||
| Shanghai Zhaonan Hengan Information Technology Co., Ltd. | PRC | 51% |
Use of Estimates
Preparing consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring using management’s estimates and assumptions relate to the collectability of its receivables, the fair value and accounting treatment of financial instruments, the valuation of long-lived assets and valuation of deferred tax liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates. In addition, different assumptions or circumstances could reasonably be expected to yield different results.
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Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred. Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
| Estimated Useful Life | ||
| Leasehold improvements | Lesser of lease term or the estimated useful lives of 5 years | |
| Computer equipment | 5 years | |
| Computer software | 5 years | |
| Office furniture and equipment | 5 years | |
| Motor Vehicle | 3 years | |
| Building | 5 years |
Revenue recognition
Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured.
The Company’s revenue is derived from three primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and (iii) sale of hardware and consumables during the service performed as stated above.
Multiple-deliverable arrangements
The Company derives revenue from fixed-price sale contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses. In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:
| – | The delivered item(s) has value to the customer on a stand-alone basis; |
| – | There is objective and reliable evidence of the fair value of the undelivered item(s); and |
| – | If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. |
The Company’s multiple-element contracts generally include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests at the Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered equipment and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services, and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result, the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements. In addition, the arrangement generally includes customer acceptance criteria that cannot be tested before installation and integration at the customer’s site. Accordingly, revenue recognition is deferred until customer acceptance, indicated by an acceptance certificate signed off by the customer.
Revenues of maintenance services are recognized when the services are performed in accordance with the contract term.
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Revenues of sale of software, if not bundled with other arrangements, are recognized when shipped and customer acceptance obtained, if all other revenue recognition criteria are met. Costs associated with revenues are recognized when incurred.
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | ||||||||||||||||
| - systems development and integration | 119,318 | 126,061 | 207,347 | 160,138 | ||||||||||||
| - systems maintenance | 2,160,438 | 1,898,908 | 4,081,627 | 3,507,374 | ||||||||||||
| - sales of hardware and consumables | 310,094 | 365,026 | 892,060 | 926,255 | ||||||||||||
| 2,589,850 | 2,389,995 | 5,181,034 | 4,593,767 | |||||||||||||
Billings in excess of revenues recognized are recorded as deferred revenue.
Income taxes
The Company accounts for income taxes in accordance with the accounting standard issued by the Financial Accounting Standard Board (“FASB”) for income taxes. Under the asset and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The charge for taxation is based on the results for the reporting period as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
Under the accounting standard regarding accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
Foreign currency translation
The functional currency and reporting currency of the Company is the U.S. Dollar. (“US$” or “$”). The functional currency of the Hong Kong subsidiaries is the Hong Kong Dollar. The functional currency of the PRC subsidiary is RMB. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the exchange rate as quoted by the Hong Kong Monetary Authority (“HKMA”) at the end of the period. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
| 39 |
| Quarter ended | June 30, 2022 | June 30, 2021 | ||||||
| RMB : USD exchange rate | 6.5892 | 6.4806 | ||||||
| three months average period ended | ||||||||
| HKD : USD exchange rate | 7.800 | 7.800 | ||||||
| three months average period ended | ||||||||
| PESO : USD exchange rate | 52.4805 | 47.6357 | ||||||
| three months average period ended | ||||||||
| Quarter ended | June 30, 2022 | June 30, 2021 | ||||||
| RMB : USD exchange rate | 6.4641 | 6.4989 | ||||||
| six months average period ended | ||||||||
| HKD : USD exchange rate | 7.800 | 7.800 | ||||||
| six months average period ended | ||||||||
| PESO : USD exchange rate | 51.4498 | 47.6720 | ||||||
| six months average period ended | ||||||||
| Quarter ended | June 30, 2022 | December 31, 2021 | ||||||
| RMB : USD exchange rate | 6.6587 | 6.4838 | ||||||
| HKD : USD exchange rate | 7.800 | 7.800 | ||||||
| PESO : USD exchange rate | 54.7368 | 47.4164 | ||||||
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and Procedures.
The Company's management, under the direction of Kenneth Tan, the Company’s Chief Executive Officer and Channing Au, the Company’s Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in Company’s reports filed with the Commission is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and is accumulated and communicated to management, including Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer determined that the Company's disclosure controls and procedures were deemed to be effective as of June 30, 2022.
| 40 |
Changes in Internal Control over Financial Reporting
We have not experienced any material impact to our internal control over financial reporting during the quarter ended June 30, 2022, and there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
The Company monitors the impact of Coronavirus/COVID 19 pandemic on operations in order to determine any adjustments of internal controls and financial reporting. After the filing of its Annual Report on Form 10-K for fiscal year ended December 31, 2021, in April 2022, the Company was identified by the SEC as a Commission Identified Issuer under the HFCAA. The Company will also evaluate the impact of being a Commission Identified Issuer by the SEC under the HFCAA in respect of internal controls and financial reporting as well as the necessity of engaging a public auditor who can be fully investigated and audited by the Public Company Accounting Oversight Board or “PCAOB.”
Limitations on Effectiveness of Controls and Procedures. Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
| 41 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
Item 1A. Risk Factors
HFCAA. After filing its Annual Report on Form 10-K for fiscal year ended on December 31, 2021, on April 15, 2022, the Company was identified as a Commission Identified Issuer by the SEC under the Holding Foreign Companies Accountable Act (“HFCAA”) due to its public auditor for fiscal year ended December 31, 2021, Zhen Hui CPA, being identified by the Public Company Accounting Oversight Board or “PCAOB” as a public auditor located in a foreign jurisdiction and who cannot be investigated and audited completely by PCAOB due to influence of a foreign authority. Such a public auditor being referred to as a “Listed Auditor” for purposes of this Item 1A. Zhen Hui CPA is located in Hong Kong SAR. If the Company has a public auditor who is a Listed Auditor for three consecutive annual fiscal audit reports, commencing with fiscal year ended December 31, 2021, then the Company’s Common Stock would be subject to an SEC ban on trading of its Common Stock in the U.S. in early 2024. As of now, the SEC is only complying a list of Commission Identified Issuers under HFCAA. Under the HFCAA, a trading ban by the SEC would not occur until early 2024 for a public company that used a Listed Auditor for three consecutive fiscal years starting in 2021 (for a December 31st fiscal year end company).
On June 22, 2021, the U.S. Senate passed a bill known as the Accelerating Holding Foreign Companies Accountable Act, to amend Section 104(i) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)) (“Proposed Law”) to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded over-the-counter if the auditor of the registrant’s financial statements is not subject to PCAOB inspection for two consecutive years, instead of three consecutive years as currently provided in the HFCAA. On February 4, 2022, the U.S. House of Representatives passed the America Competes Act of 2022 which includes the exact same amendments as the bill passed by the Senate. The America Competes Act, however, includes a broader range of legislation not related to the HFCAA in response to the U.S. Innovation and Competition Act passed by the Senate in 2021. The U.S. House of Representatives and U.S. Senate will need to agree on amendments to these respective bills to align the legislation and pass their amended bills before the U.S. President can sign into law. It is unclear when the U.S. Senate and U.S. House of Representatives will resolve the differences in the U.S. Innovation and Competition Act and the America Competes Act of 2022 bills currently passed, or when the U.S. President will sign the bill to make the amendment into law, if at all. In the case that the bill becomes the law, it will reduce the time period before shares could be prohibited from trading in the U.S. Company is not certain as of the date of this report of when and if the Proposed Law will become law and applicable to public companies like our company.
Company is actively exploring possible solutions to avoid a U.S. trading ban in 2024 of its Common Stock. The Company will continue to seek to comply with applicable laws and regulations in both Hong Kong SAR/China and the United States, and strive to maintain its listing status on the OTC QB Venture Market.
Being listed as a Commission Identified Issuer may adversely affect investor confidence in our Common Stock as an investment or raise concerns about the audit process for our company. This lack or loss of confidence could not only cause investors to avoid trading our Common Stock or sell positions in our Common Stock, but could also undermine efforts of the Company to secure equity or debt financing, hinder any efforts to up-list the Common Stock to a national securities exchange, adversely influence the decision of third parties to conduct business with our company, or have other adverse business or financial consequences.
| 42 |
Covid 19 Pandemic. Since the commencement of COVID 19 pandemic in Hong Kong SAR and China, the primary markets of the Company, the primary impact of the COVID-19 pandemic on the Company has been to suspend or reduce marketing and sales efforts traditionally conducted face-to-face or in personal presentations and the ability of Company personnel to work together in or travel to the office or a customer facility. Anecdotally, Company believes that the impact of COVID-19 pandemic on the economies of Company’s primary markets has also from time to time probably delayed, suspended or terminated some customer or prospective customer projects or work that might have involved services from or otherwise benefited the Company. While the IT Business can be and has been from time to time conducted remotely by personnel, some operational efficiencies and some communications and interactions among personnel are more effectively conducted in person than remotely by conference call or web cast. The primary adverse impact of COVID 19 pandemic on the Company continues to be travel and gathering restrictions, whether government or public sector imposed, that restrict face-to-face pitches or presentations to customers and prospective customers. For a small IT Business, the Company deems relationship building and personal marketing as important to obtaining new business and COVID 19 pandemic has delayed or prevented that personal marketing and relationship building from time to time in the past two years.
Variants of the COVID-19 virus emerged in early 2022 in Hong Kong and parts of China and caused an increase in infections and fatalities in Hong Kong. The new variants appear to be more easily transmitted than prior variants and there is a concern about the effectiveness of prior vaccinations in combating these new variants. Effective February 24, 2022, Hong Kong SAR imposed a new vaccine pass requirement for use of certain public places as well as workers in those public places. According to the Hong Kong SAR government, 86.4% of the population over the age of 11 has received at least one vaccine dosage while 76% are fully vaccinated as of 23 February 2022. Yet the emergence of new variants and subvariants of the COVID 19 virus continue to adversely affect public travel and gatherings in Hong Kong and China. Hong Kong and China, our primary markets, also continue to have a quarantine system and restrictions for travelers, On June 1, 2022, Hong Kong revived prior quarantine requirements for persons exhibiting even mild forms of infection due to emergence of highly contagious omicron variant of COVID 19 virus.
While the Company has been able to sustain operations through the COVID 19 pandemic and conduct a degree of marketing and sales efforts for new business as of June 30, 2022, the continued emergence of new variants and subvariants and the potential for more severe economic disruption from new variants and subvariants of the COVID 19 virus that are not controlled in spread or severity of illness by then current vaccinations and medicines makes it difficult to predict the future impact of COVID 19 pandemic and governmental and business industry responses on the Company’s business and financial performance.
Cybersecurity. As an IT services business, the Company faces the risk of theft of technology, data (including customer data) and intellectual property through a direct intrusion by private parties or foreign actors, including those affiliated with or controlled by state actors, through hacking or other cyber intrusions into a Company’s computer systems or customer computer systems serviced or operated by Company personnel. Physical theft of technology, data and intellectual property through corporate espionage or by Company personnel or contractors is also a threat to the Company. In addition to cybersecurity measures employed on customer computer systems, Company employs cybersecurity measures to protect technology, data and intellectual property – although no such measures are invulnerable to hacking, other cyber intrusions or theft. The Company is primarily a services business and is not overly reliant on any company-owned intellectual property for the conduct of its business and provision of its services to customers. The Company has not suffered any known material cybersecurity intrusions during the fiscal quarter ended June 30, 2022.
| 43 |
China adopted a Data Security Law, effective September 1, 2021, and a Personal Information Protection Law, effective November 1, 2021, restricting certain data transfers from China, including data transfers to foreign governmental and judicial authorities. The extent of the restrictions under these laws will not be clear until guidance is issued, but the Company has not experienced any impact on its business since its operations and customers are primarily in China and Hong Kong SAR. Chinese agencies can and have initiated investigations of Chinese technology companies, mostly major companies, about possible data transfers from China to foreign governmental or judicial authorities, but the Company has not been the subject of any such investigations and is not a likely target for such investigations since it does not have any significant international or foreign operations. Company operations in Manila, Philippines are primarily local in nature as well.
As a Chinese-Hong Kong SAR based company with customers primarily located in China or Hong Kong SAR, the Company has not experienced any intellectual property rights issues or claims that have had an adverse material impact on the Company as of the fiscal quarter ended June 30, 2022. China and Hong Kong SAR both have governmental authorities to register and enforce intellectual property rights as well as a judicial system that adjudicates intellectual property disputes.
Labor. In the fiscal quarter ended June 30, 2022, the COVID-19 pandemic has not had a material adverse impact on Company operations sustaining needed labor to conduct existing projects. The emergence of new variants or subvariants of the COVID-19 virus and government responses to such new circumstances may change the impact of COVID-19 pandemic on our ability to staff our operations. While Company operations can be and have been to varying extents conducted remotely by staff and not in-house, the nature of the IT Business is that optimal operations continue to be achieved through personnel working in an office. The Company believes that as of the end of the fiscal quarter ended June 30, 2022, it has been able to maintain operational efficiency with available personnel and at a level necessary to meet obligations to customers with the staff working remotely and in-house. The ability of the Company to engage sufficient numbers of personnel in the future could be adversely impacted if COVID-19 pandemic has a new variant or subvariant virus that is not controlled in spread or severity of illness by then current, available medicines and vaccinations.
Climate Change and Regulation. The Company does not conduct operations in the U.S. or European Union (“EU”) and its customer base is primarily in Hong Kong, China and Manila, Philippines area. As such, operations are not impacted directly by U.S. and EU climate change legislation and regulations. The Company operations have not been materially impacted by Chinese or Hong Kong SAR or Philippine legislative or regulatory initiatives or requirements concerning climate change or environmental issues as of June 30, 2022. Hong Kong SAR has adopted a climate action plan calling for low carbon emissions office buildings by 2035. This plan has not adversely impacted the Company operations as of June 30, 2022. The plan has carbon neutrality goals implemented by 2050. China also has a legislative agenda to combat climate change, but steps taken in 2022 under the aspirational Chinese government carbon reduction plan have not adversely impacted the Company operations.
Russian-Ukraine Armed Conflict. The Company’s operations have not been materially affected by the armed conflict between Russia and the Ukraine. Beyond an overall potential impact on the future global economy and local economies in our primary business markets and resulting future impact on our business, Company is not aware of any potential future effects of the Russian-Ukrainian armed conflict on our business. We do not provide services or conduct operations in Russia or Ukraine and we do not rely on labor or contractors located in Russia or the Ukraine for our operations.
Other risk factors for our company accompanying the above risk factors and are set forth in our Annual Report on Form 10-K for the fiscal year end December 31, 2021 (“2021 Form 10-K) and other filings with the Commission.
These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
| 44 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors and no required disclosures not made on a Form 8-K filing or made in this report on Form 10-Q for the fiscal quarter ended June 30, 2022.
Zhen Hui, CPA in Hong Kong SAR, our public auditor for the audit report for our financial statements for fiscal year ended December 31, 2021, has been identified by the Public Company Accounting Oversight Board or “PCAOB” as being a public accounting firm located in a foreign jurisdiction and that the PCAOB cannot investigate or audit completely due to influence of a foreign authority (referred to as a “Listed Auditor”). Under the Holding Foreign Companies Accountable Act or “HFCAA”, and after filing its Annual Report on Form 10-K for fiscal year ended December 31, 2021, in April 2022, Company was provisionally identified by the SEC as a Commission Identified Issuer under HFCAA due to having a Listed Auditor for its 2021 fiscal year audit. Under the HFCAA, a public company that is a Commission Identified Issuer and for three consecutive annual fiscal periods has a Listed Auditor as the public auditor for its financial statements, commencing with fiscal year end 2021 for a public company with a December 31 fiscal year end, would be subject to an SEC trading ban on its securities in the U.S., including quotation on the over the counter markets, in early 2024.
| 45 |
Item 6. Exhibits
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
| (1) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Company with the Commission on April 13, 2021. |
| (2) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Company with SEC on Nov. 9, 2021. |
| (3) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Company with SEC on Nov. 9, 2021. |
| (4) | Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Company with SEC on Nov. 9, 2021. |
| (5) | Incorporated by reference to Exhibits 10.1, 10.2 and 10.3, respectively, to the Current Report on Form 8-K/A Amendment Number One filed by the Company with the SEC on July 29, 2022. |
| 46 |
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Value Exchange International, Inc. | ||
| August 15, 2022 | /s/ | Tan Seng Wee Kenneth |
| By: | Tan Seng Wee Kenneth | |
| Its: |
President and Director (Principal Executive Officer) | |
| August 15, 2022 | /s/ | Channing Au |
| By: | Channing Au | |
| Its: |
Chief Financial Officer (Principal Financial and Accounting Officer) | |
47
EXHIBIT 31.1
CERTIFICATION
I, Kenneth Tan, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Value Exchange International, Inc. for the six months ended June 30, 2022. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this interim report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this interim report is being prepared; |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Dated: August 15, 2022
/s/ Kenneth Tan
Kenneth Tan
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION
I, Channing Au, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Value Exchange International, Inc. for the six months ended June 30, 2022. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this interim report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this interim report is being prepared; |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Dated: August 15, 2022
/s/ Channing Au
Channing Au
Chief Financial Officer
(Principal financial and accounting officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Value Exchange International, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Kenneth Tan, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: August 15, 2022
/s/ Kenneth Tan
Kenneth Tan
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Value Exchange International, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Channing Au, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: August 15, 2022
/s/ Channing Au
Channing Au
Chief Financial Officer
(Principal financial and accounting officer)
CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, authorized | 100,000,000 | 100,000,000 |
| Preferred stock, par value (in dollars per share) | $ 0.00001 | $ 0.00001 |
| Preferred stock, outstanding | 0 | 0 |
| Preferred stock, issued | 0 | 0 |
| Common stock, authorized | 100,000,000 | 100,000,000 |
| Common stock, par value (in dollars per share) | $ 0.00001 | $ 0.00001 |
| Common stock, outstanding | 36,156,130 | 36,156,130 |
| Common stock, issued | 36,156,130 | 36,156,130 |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| NET REVENUES | ||||
| Service income | $ 2,589,850 | $ 2,389,995 | $ 5,181,034 | $ 4,593,767 |
| COST OF SERVICES | ||||
| Cost of service income | (1,903,601) | (1,818,946) | (4,154,661) | (3,285,178) |
| GROSS PROFIT | 686,249 | 571,049 | 1,026,373 | 1,308,589 |
| OPERATING EXPENSES: | ||||
| General and administrative expenses | (592,633) | (659,896) | (886,588) | (1,094,774) |
| Foreign exchange loss | 179,055 | (16,297) | 23,343 | (13,578) |
| PROFIT (LOSS) FROM OPERATIONS | 272,671 | (105,144) | 163,128 | 200,237 |
| OTHER INCOME (EXPENSES): | ||||
| Interest income | 97 | 226 | 298 | 391 |
| Interest expense | (2,687) | (2,687) | ||
| Finance cost | (2,661) | (4,055) | (6,031) | (8,363) |
| VAT refund | 39,453 | 26,017 | 62,272 | 28,230 |
| Management fee income | 40,095 | 54,170 | 83,137 | 100,496 |
| Others | 908 | (19,637) | 7,718 | 11,094 |
| Total other income (expenses), net | 75,205 | 56,721 | 144,707 | 131,848 |
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 347,876 | (48,423) | 307,835 | 332,085 |
| INCOME TAXES CREDIT (EXPENSES) | 26 | (2,464) | (2,162) | (6,361) |
| NET INCOME (LOSS) | 347,902 | (50,887) | 305,673 | 325,724 |
| OTHER COMPREHENSIVE INCOME: | ||||
| Foreign currency translation adjustments | (73,362) | (99,214) | (64,443) | (104,649) |
| 274,540 | (150,101) | 241,230 | 221,075 | |
| ATTRIBUTABLE TO: | ||||
| Equity holders of the Company | 285,456 | (159,974) | 223,383 | 210,444 |
| Non-controlling interests | $ (10,916) | $ 9,873 | $ 17,847 | $ 10,631 |
| Net income per share, basic and diluted | $ 0.01 | $ (0.00) | $ 0.01 | $ 0.01 |
| Weighted average number of shares outstanding | 36,156,130 | 35,361,686 | 36,156,130 | 32,508,908 |
Nature of Operations and Continuance of Business |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2022 | ||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| Nature of Operations and Continuance of Business |
Value Exchange International, Inc. (“VEII”, “Company”, “we” or “us”) was incorporated in the State of Nevada on June 26, 2007 under the name “China Soaring, Inc.”. The Company’s principal business, conducted through its operating subsidiaries, is to provide customer-centric solutions for the retail industry in China, Hong Kong SAR and Manila, Philippines. By integrating market-leading Point-of-Sale/Point-of-Interaction (“POS/POI”), Merchandising, Customer Relations Management or “CRM” and related rewards, Locational Based (Global Positing System (“GPS”) and Indoor Positioning System (“IPS”)) Marketing, Customer Analytics and Business Intelligence solutions, VEII provides retailers with the capability to offer a consistent shopping experience across all marketing and sales channels, enabling them to easily and effectively manage the customer lifecycle on a one-to-one basis. VEII promotes itself as a single information technology (“IT”) source for retailers who want to extend existing traditional transaction processing to multiple points of interaction, including the Internet, kiosks and wireless devices. VEII services are focused on helping retailers realize the full benefits of Customer Chain Management with its suite of solutions that focus on the customer, on employees, and the infrastructure that supports the selling channel. VEII’s retail solutions are installed in an estimated 30%-40% of POS/POI-suitable retailers in Hong Kong and Manila, Philippines, processing tens of millions of transactions a year. Company is headquartered in Hong Kong and with offices in Shenzhen, Guangzhou, Shanghai, Beijing, China; Manila, Philippines; and Kuala Lumpur, Malaysia.
On January 1, 2014, VEII received 100% of the issued and outstanding shares of in Value Exchange Int’l (China) Limited (“VEI CHN”) in exchange for i) newly issued 12,000,000 shares of VEII’s common stock to the majority stockholder of VEI CHN; and ii) 166,667 shares of our common stock held by VEI CHN to be transferred to the majority stockholder of VEI CHN (“Share Exchange”). This transaction resulted in the owners of VEI CHN obtaining a majority voting interest in VEII. The merger of VEI CHN into VEII, which has nominal net assets, resulted in VEI CHN having control of the combined entities.
For financial reporting purposes, the transaction represents a "reverse merger" rather than a business combination and VEII is deemed to be the accounting acquiree in the transaction. The transaction is being accounted for as a reverse merger and recapitalization. VEII is the legal acquirer but accounting acquiree for financial reporting purposes and VEI CHN is the acquired company but accounting acquirer. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the transaction will be those of VEI CHN and will be recorded at the historical cost basis of VEI CHN, and no goodwill was recognized in this transaction. The consolidated financial statements after completion of the transaction includes the assets and liabilities of VEI CHN and VEII, and the historical operations of VEII and the combined operations of VEI CHN from the initial closing date of the transaction.
The Company provides IT Business’ services and solutions to the retail sector through three operating subsidiaries located in Hong Kong SAR and People’s Republic of China (“PRC”).
On September 2, 2008, VEI CHN established its first operating subsidiary, Value Exchange Int’l (Shanghai) Limited (“VEI SHG”) in Shanghai, PRC, under the laws of the PRC. VEI SHG engages in software development, trading and servicing of computer hardware and software activities.
On September 25, 2008, VEI CHN acquired its second operating subsidiary, TAP Services (HK) Limited in Hong Kong which subsequently changed its name to Value Exchange Int’l (Hong Kong) Limited (“VEI HKG”) on May 14, 2013. VEI HKG engages in software development, trading and servicing of computer hardware and software activities.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 14, 2013, VEI CHN further established another operating subsidiary, Ke Dao Solutions Limited in Hong Kong, which subsequently changed its name to Cumberbuy.com Limited (“CUMBERBUY”) on May 26, 2017. CUMBERBUY conducts consultancy services for IT Services and Solutions activities.
In January 2017, VEI CHN acquired 100% of the capital stock of TapServices, Inc., a corporation organized under the laws of the Republic of the Philippines (the “TSI”). TSI engages in software development, trading and servicing of computer hardware and software activities in Philippines. TSI is operated as a subsidiary of VEI CHN. Prior to and continuing after the acquisition, TSI relied on VEI CHN for provision of IT services.
In January 2019, VEI SHG established an operating subsidiary, Value Exchange Int’l (Hunan) Limited (“VEI HN”) in Hunan, PRC, under the laws of the PRC. VEI HN engages in IT service call-center activities.
In February 2020, VEI SHG established an operating subsidiary, Shanghai Zhaonan Hengan Information Technology Co., Limited (“SZH”) in Shanghai, PRC, under the laws of the PRC. SZH engages in IT services.
As of June 30, 2022, the Company held four wholly-owned subsidiaries, and two subsidiaries with 51% ownership. |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the financial statements of the Company and all its wholly-owned subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities were consolidated as of June 30, 2022:
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Preparing consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting 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 expenses during the reporting period. The more significant areas requiring using management’s estimates and assumptions relate to the collectability of its receivables, the fair value and accounting treatment of financial instruments, the valuation of long-lived assets and valuation of deferred tax liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates. In addition, different assumptions or circumstances could reasonably be expected to yield different results.
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of six months or less at the time of purchase to be cash equivalents. Cash includes cash on hand and demand deposits in accounts maintained with financial institutions or state-owned banks within the PRC and Hong Kong.
These interim unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
Receivables include trade accounts due from customers and other receivables such as cash advances to employees, utility deposits paid and advances to suppliers. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. As of June 30, 2022 and December 31, 2021, there was no allowance for uncollectible accounts receivable. Management believes that the remaining accounts receivable are collectable.
Inventories are valued at the lower of cost and net realizable value. Cost for inventories is determined using the “first-in, first-out” method.
Management reviews inventories for obsolescence or cost in excess of net realizable value periodically. The obsolescence, if any, is recorded as a provision against the inventory. The cost in excess of market value is written off and recorded as additional cost of sales.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred. Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
Intangibles with a definite life, including customer relationships and goodwill were recorded in connection with the acquisition of TSI. Intangible assets are amortized based on their estimated economic lives using the straight-line method with estimated lives as follows:
Goodwill represents the excess of the cost of acquisition over the fair value of net assets acquired. Goodwill is not amortized, but is instead tested for impairment annually.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant, and Equipment The Company evaluates long-lived assets, including equipment, for impairment at least once per year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets by comparing the asset's estimated fair value with its carrying value, based on cash flow methodology. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired and an impairment loss equal to an amount by which the carrying value exceeds the fair value of the asset is recognized.
Impairment of Goodwill The carrying value of goodwill is evaluated annually or more frequently if events or circumstances indicate that an impairment loss may have occurred. Such circumstances could include, but are not limited to, a significant adverse change in business climate, increased competition or other economic conditions. Under FASB Accounting Standard Codification (ASC) Topic 350 “Intangibles - Goodwill and Other”, goodwill is tested at a reporting unit level. The impairment test involves a two-step process. The first step involves comparing the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If this comparison indicates that a reporting unit’s estimated fair value is less than its carrying value, a second step is required. If applicable, the second step requires us to allocate the estimated fair value of the reporting unit to the estimated fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of the goodwill exceeds its fair value, the carrying value is written down by an amount equal to such excess.
The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, and is subject to inherent uncertainties and subjectivity. Estimating a reporting unit’s discounted cash flows involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including sales, gross margin and selling, general and administrative rates, capital expenditures, cash flows and the selection of an appropriate discount rate. Projected sales, gross margin and selling, general and administrative expense rate assumptions and capital expenditures are based on our annual business plans and other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit directly resulting from the use of its assets in its operations. These estimates are based on the best information available to us as of the date of the impairment assessment.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company values its financial instruments as required by FASB ASC 320-12-65. The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The carrying values of the Company’s financial instruments; consisting of cash and cash equivalents, accounts receivable, accounts payable, other receivables and prepayments, other payables and accrued liabilities, balances with a related party, balances with related companies and amounts due to director approximate their fair values due to the short maturities of these instruments.
There was no asset or liability measured at fair value on a non-recurring basis as of June 30, 2022 and December 31, 2021.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net income or loss. Although certain changes in assets and liabilities are reported as separate components of the equity section of the consolidated balance sheet, such items, along with net income, are components of comprehensive income or loss. The components of other comprehensive income or loss consist of foreign currency translation adjustments.
The Company reports earnings per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured.
The Company’s revenue is derived from three primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and (iii) sale of hardware and consumables during the service performed as stated above.
Multiple-deliverable arrangements
The Company derives revenue from fixed-price sale contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses. In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s multiple-element contracts generally include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests at the Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered equipment and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services, and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result, the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements. In addition, the arrangement generally includes customer acceptance criteria that cannot be tested before installation and integration at the customer’s site. Accordingly, revenue recognition is deferred until customer acceptance, indicated by an acceptance certificate signed off by the customer.
Revenues of maintenance services are recognized when the services are performed in accordance with the contract term.
Revenues of sale of software, if not bundled with other arrangements, are recognized when shipped and customer acceptance obtained, if all other revenue recognition criteria are met. Costs associated with revenues are recognized when incurred.
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021.
Billings in excess of revenues recognized are recorded as deferred revenue.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company accounts for income taxes in accordance with the accounting standard issued by the Financial Accounting Standard Board (“FASB”) for income taxes. Under the asset and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The charge for taxation is based on the results for the reporting period as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
Under the accounting standard regarding accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the statements of income on a straight-line basis over the lease periods.
The Company expenses the cost of advertising as incurred in the period in which the advertisements and marketing activities are first run or over the life of the endorsement contract. Advertising and marketing expense for the six months ended June 30, 2022 and 2021 were insignificant.
Shipping and handling cost incurred to ship computer products to customers are included in selling expenses. Shipping and handling expenses for the six months ended June 30, 2022 and 2021 were insignificant.
Research and development costs are expensed as incurred and are included in general and administrative expenses. Research and development costs for the six months ended June 30, 2022 and 2021 were insignificant.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The functional currency and reporting currency of the Company is the U.S. Dollar. (“US$” or “$”). The functional currency of the Hong Kong subsidiaries is the Hong Kong Dollar. The functional currency of the PRC subsidiary is RMB. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the exchange rate as quoted by the Hong Kong Monetary Authority (“HKMA”) at the end of the period. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
The Company follows FASB ASC Subtopic 450-20, “Loss Contingencies” in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue from software development and maintenance services (but not by sub-services/product type or geographic area) and operating results of the Company and, as such, the Company has determined that the Company has one operating segment as defined by ASC Topic 280 “Segment Reporting”.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The ASU sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company intends to adopt this ASU in January 2022. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements and related disclosures.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard addresses the risks from the discontinuation of the London Interbank Offered Rate (LIBOR) and provides optional expedients and exceptions to contracts, hedging relationships and other transactions that reference LIBOR if certain criteria are met. This new guidance is effective and may be applied beginning March 12, 2020 through December 31, 2022. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by eliminating the requirement to separately account for an embedded conversion feature as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The new guidance provides temporary optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.
In August 2021, the FASB issued ASU No. 2021-06, “Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946).” The ASU includes Release No.33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. This update amends certain SEC disclosure guidance that is included in the accounting standards codification to reflect the SEC’s recent issuance of rules intended to modernize and streamline disclosure requirements, including updates to business acquisition and disposition significance tests used, the significance thresholds for proforma statement disclosures, the number of preceding years of financial statements required for disclosure, and other provisions in the SEC releases. The guidance is effective upon its addition to the FASB codification. The Company is assessing the impact of ASU No. 2021-06 but does not expect that it will have a material impact on its consolidated financial statements and related disclosures.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU addresses diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the standard is permitted, including adoption in an interim period. The adoption of this standard update is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||
| Accounts receivable |
Accounts receivable consisted of the following as of June 30, 2022 and December 31, 2021:
All of the Company’s customers are located in the PRC, Hong Kong and Manila, Philippines. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. |
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Other receivables and prepayments |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other receivables and prepayments |
Other receivables and prepayments consisted of the following as of June 30, 2022 and December 31, 2021:
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Inventories |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||
| Inventories |
Inventories as of June 30, 2022 and December 31, 2021 consisted of the following:
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Plant and equipment, net |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plant and equipment, net |
Plant and equipment consisted of the following as of June 30, 2022 and December 31, 2021:
Depreciation expense for the six months period ended June 30, 2022 and 2021 amounted to $110,157 and $72,398, respectively. For the six months period ended June 30, 2022 and 2021, no interest expense was capitalized into plant and equipment. |
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Goodwill |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||
| Goodwill |
Goodwill consisted of the following as of June 30, 2022 and December 31, 2021:
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Leases |
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases |
We have entered into various non-cancelable operating lease agreements for certain of our offices. Our leases have original lease periods expiring between the remainder of 2022 and 2024. Many leases include option to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease liabilities are as follows:
Total lease cost for the six months period ended June 30, 2022 and 2021 amounted to $6,031 and $8,363, respectively. Weighted-average remaining lease term is years, and weighted-average discount rate is 3%.
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022:
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Bank loan |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loan |
Bank loan and accruals consisted of the following as of June 30, 2022 and December 31, 2021:
As of June 30, 2022 and December 31, 2021, the above bank loan secured by property and equipment with net carrying amount of $41,972 and $38,959 respectively. |
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Other payables and accrued liabilities |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other payables and accrued liabilities |
Other payables and accruals consisted of the following as of June 30, 2022 and December 31, 2021:
Accrual mainly represents salary payables and fringe and social security accruals. According to the prevailing laws and regulations of the PRC, all eligible employees of the Company’s subsidiaries are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Company’s subsidiaries are required to accrue for these benefits based on certain percentages of the qualified employees’ salaries. The Company’s subsidiary is required to make contributions to the plans out of the amounts accrued.
The Company’s subsidiaries incorporated in Hong Kong manage a defined contribution Mandatory Provident Fund (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. The Company is required to contribute 5% of the monthly salaries for all Hong Kong based employees to the MPF Scheme up to a maximum statutory limit. |
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Deferred income |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Revenue Recognition and Deferred Revenue [Abstract] | ||||||||||||||||||||||||||||||||||||||||
| Deferred income |
Deferred income consisted of the following as of June 30, 2022 and December 31, 2021:
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Statutory reserves |
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Jun. 30, 2022 | |||||||||||||
| Extractive Industries [Abstract] | |||||||||||||
| Statutory reserves |
Statutory reserves
The laws and regulations of the PRC require that before an enterprise distributes profits to its owners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the Board of Directors after the statutory reserves.
As stipulated by the Company Law of the PRC, as applicable to Chinese companies with foreign ownership, net income after taxation can only be distributed as dividends after appropriation has been made for the following:
The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any. It may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital. |
Related party and shareholder transactions |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related party and shareholder transactions |
Other than disclosed elsewhere in these financial statements, the Company also had the following related party balances and transactions:
Related party balances
Related party transactions
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation |
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the financial statements of the Company and all its wholly-owned subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities were consolidated as of June 30, 2022:
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| Use of Estimates |
Preparing consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting 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 expenses during the reporting period. The more significant areas requiring using management’s estimates and assumptions relate to the collectability of its receivables, the fair value and accounting treatment of financial instruments, the valuation of long-lived assets and valuation of deferred tax liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates. In addition, different assumptions or circumstances could reasonably be expected to yield different results. |
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| Cash and Cash Equivalents |
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of six months or less at the time of purchase to be cash equivalents. Cash includes cash on hand and demand deposits in accounts maintained with financial institutions or state-owned banks within the PRC and Hong Kong. |
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| Interim Financial Statements |
These interim unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. |
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| Accounts receivable and other receivables |
Receivables include trade accounts due from customers and other receivables such as cash advances to employees, utility deposits paid and advances to suppliers. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. As of June 30, 2022 and December 31, 2021, there was no allowance for uncollectible accounts receivable. Management believes that the remaining accounts receivable are collectable. |
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| Inventories |
Inventories are valued at the lower of cost and net realizable value. Cost for inventories is determined using the “first-in, first-out” method.
Management reviews inventories for obsolescence or cost in excess of net realizable value periodically. The obsolescence, if any, is recorded as a provision against the inventory. The cost in excess of market value is written off and recorded as additional cost of sales. |
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| Plant and equipment |
Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred. Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
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| Goodwill and intangibles |
Intangibles with a definite life, including customer relationships and goodwill were recorded in connection with the acquisition of TSI. Intangible assets are amortized based on their estimated economic lives using the straight-line method with estimated lives as follows:
Goodwill represents the excess of the cost of acquisition over the fair value of net assets acquired. Goodwill is not amortized, but is instead tested for impairment annually. |
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| Impairment of long-lived assets |
Property, Plant, and Equipment The Company evaluates long-lived assets, including equipment, for impairment at least once per year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets by comparing the asset's estimated fair value with its carrying value, based on cash flow methodology. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired and an impairment loss equal to an amount by which the carrying value exceeds the fair value of the asset is recognized.
Impairment of Goodwill The carrying value of goodwill is evaluated annually or more frequently if events or circumstances indicate that an impairment loss may have occurred. Such circumstances could include, but are not limited to, a significant adverse change in business climate, increased competition or other economic conditions. Under FASB Accounting Standard Codification (ASC) Topic 350 “Intangibles - Goodwill and Other”, goodwill is tested at a reporting unit level. The impairment test involves a two-step process. The first step involves comparing the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If this comparison indicates that a reporting unit’s estimated fair value is less than its carrying value, a second step is required. If applicable, the second step requires us to allocate the estimated fair value of the reporting unit to the estimated fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of the goodwill exceeds its fair value, the carrying value is written down by an amount equal to such excess.
The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, and is subject to inherent uncertainties and subjectivity. Estimating a reporting unit’s discounted cash flows involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including sales, gross margin and selling, general and administrative rates, capital expenditures, cash flows and the selection of an appropriate discount rate. Projected sales, gross margin and selling, general and administrative expense rate assumptions and capital expenditures are based on our annual business plans and other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit directly resulting from the use of its assets in its operations. These estimates are based on the best information available to us as of the date of the impairment assessment. |
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| Fair value of financial instruments |
The Company values its financial instruments as required by FASB ASC 320-12-65. The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The carrying values of the Company’s financial instruments; consisting of cash and cash equivalents, accounts receivable, accounts payable, other receivables and prepayments, other payables and accrued liabilities, balances with a related party, balances with related companies and amounts due to director approximate their fair values due to the short maturities of these instruments.
There was no asset or liability measured at fair value on a non-recurring basis as of June 30, 2022 and December 31, 2021. |
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| Comprehensive income |
U.S. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net income or loss. Although certain changes in assets and liabilities are reported as separate components of the equity section of the consolidated balance sheet, such items, along with net income, are components of comprehensive income or loss. The components of other comprehensive income or loss consist of foreign currency translation adjustments. |
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| Earnings per share |
The Company reports earnings per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. |
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| Revenue recognition |
Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured.
The Company’s revenue is derived from three primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and (iii) sale of hardware and consumables during the service performed as stated above.
Multiple-deliverable arrangements
The Company derives revenue from fixed-price sale contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses. In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s multiple-element contracts generally include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests at the Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered equipment and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services, and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result, the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements. In addition, the arrangement generally includes customer acceptance criteria that cannot be tested before installation and integration at the customer’s site. Accordingly, revenue recognition is deferred until customer acceptance, indicated by an acceptance certificate signed off by the customer.
Revenues of maintenance services are recognized when the services are performed in accordance with the contract term.
Revenues of sale of software, if not bundled with other arrangements, are recognized when shipped and customer acceptance obtained, if all other revenue recognition criteria are met. Costs associated with revenues are recognized when incurred.
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021.
Billings in excess of revenues recognized are recorded as deferred revenue. |
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| Income taxes |
The Company accounts for income taxes in accordance with the accounting standard issued by the Financial Accounting Standard Board (“FASB”) for income taxes. Under the asset and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The charge for taxation is based on the results for the reporting period as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
Under the accounting standard regarding accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. |
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| Revenue Recognition Leases, Operating [Policy Text Block] |
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the statements of income on a straight-line basis over the lease periods. |
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| Advertising costs |
The Company expenses the cost of advertising as incurred in the period in which the advertisements and marketing activities are first run or over the life of the endorsement contract. Advertising and marketing expense for the six months ended June 30, 2022 and 2021 were insignificant. |
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| Shipping and handling |
Shipping and handling cost incurred to ship computer products to customers are included in selling expenses. Shipping and handling expenses for the six months ended June 30, 2022 and 2021 were insignificant. |
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| Research and development costs |
Research and development costs are expensed as incurred and are included in general and administrative expenses. Research and development costs for the six months ended June 30, 2022 and 2021 were insignificant. |
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| Foreign currency translation |
The functional currency and reporting currency of the Company is the U.S. Dollar. (“US$” or “$”). The functional currency of the Hong Kong subsidiaries is the Hong Kong Dollar. The functional currency of the PRC subsidiary is RMB. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the exchange rate as quoted by the Hong Kong Monetary Authority (“HKMA”) at the end of the period. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
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| Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. |
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| Commitments and contingencies |
The Company follows FASB ASC Subtopic 450-20, “Loss Contingencies” in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred. |
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| Segment Reporting |
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue from software development and maintenance services (but not by sub-services/product type or geographic area) and operating results of the Company and, as such, the Company has determined that the Company has one operating segment as defined by ASC Topic 280 “Segment Reporting”. |
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| Recent accounting pronouncements |
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The ASU sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company intends to adopt this ASU in January 2022. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements and related disclosures.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard addresses the risks from the discontinuation of the London Interbank Offered Rate (LIBOR) and provides optional expedients and exceptions to contracts, hedging relationships and other transactions that reference LIBOR if certain criteria are met. This new guidance is effective and may be applied beginning March 12, 2020 through December 31, 2022. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by eliminating the requirement to separately account for an embedded conversion feature as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The new guidance provides temporary optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.
In August 2021, the FASB issued ASU No. 2021-06, “Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946).” The ASU includes Release No.33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. This update amends certain SEC disclosure guidance that is included in the accounting standards codification to reflect the SEC’s recent issuance of rules intended to modernize and streamline disclosure requirements, including updates to business acquisition and disposition significance tests used, the significance thresholds for proforma statement disclosures, the number of preceding years of financial statements required for disclosure, and other provisions in the SEC releases. The guidance is effective upon its addition to the FASB codification. The Company is assessing the impact of ASU No. 2021-06 but does not expect that it will have a material impact on its consolidated financial statements and related disclosures.
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU addresses diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the standard is permitted, including adoption in an interim period. The adoption of this standard update is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption. |
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the financial statements of the Company and all its wholly-owned subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities were consolidated as of June 30, 2022: | The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the financial statements of the Company and all its wholly-owned subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities were consolidated as of June 30, 2022:
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| estimated lives as follows: | Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred. Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
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| Intangibles with a definite life, including customer relationships and goodwill were recorded in connection with the acquisition of TSI. Intangible assets are amortized based on their estimated economic lives using the straight-line method with estimated lives as follows: | Intangibles with a definite life, including customer relationships and goodwill were recorded in connection with the acquisition of TSI. Intangible assets are amortized based on their estimated economic lives using the straight-line method with estimated lives as follows:
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| Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021. | Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021.
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| Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. | The functional currency and reporting currency of the Company is the U.S. Dollar. (“US$” or “$”). The functional currency of the Hong Kong subsidiaries is the Hong Kong Dollar. The functional currency of the PRC subsidiary is RMB. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the exchange rate as quoted by the Hong Kong Monetary Authority (“HKMA”) at the end of the period. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
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Accounts receivable (Tables) |
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| Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Receivable | Accounts receivable consisted of the following as of June 30, 2022 and December 31, 2021:
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Other receivables and prepayments (Tables) |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Receivables and Prepayments | Other receivables and prepayments consisted of the following as of June 30, 2022 and December 31, 2021:
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Inventories (Tables) |
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| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Inventories as of June 30, 2022 and December 31, 2021 consisted of the following:
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Plant and equipment, net (Tables) |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plant and equipment consisted of the following as of June 30, 2022 and December 31, 2021: | Plant and equipment consisted of the following as of June 30, 2022 and December 31, 2021:
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Goodwill (Tables) |
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Goodwil | Goodwill consisted of the following as of June 30, 2022 and December 31, 2021:
|
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Leases (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. | We have entered into various non-cancelable operating lease agreements for certain of our offices. Our leases have original lease periods expiring between the remainder of 2022 and 2024. Many leases include option to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
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| The components of lease liabilities are as follows: | The components of lease liabilities are as follows:
|
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| The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022: | The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022:
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Bank loan (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Bank Loan | Bank loan and accruals consisted of the following as of June 30, 2022 and December 31, 2021:
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Other payables and accrued liabilities (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Payables and Accrued Liabilities | Other payables and accruals consisted of the following as of June 30, 2022 and December 31, 2021:
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Deferred income (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Revenue Recognition and Deferred Revenue [Abstract] | |||||||||||||||||||||||||||||||||||||
| Deferred income consisted of the following as of June 30, 2022 and December 31, 2021: | Deferred income consisted of the following as of June 30, 2022 and December 31, 2021:
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Related party and shareholder transactions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other than disclosed elsewhere in these financial statements, the Company also had the following related party balances and transactions: | Other than disclosed elsewhere in these financial statements, the Company also had the following related party balances and transactions:
Related party balances
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| Related party transactions | Related party transactions
VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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Nature of Operations and Continuance of Business (Details Narrative) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jan. 31, 2017 |
|
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | ||
| Entity Incorporation, State or Country Code | NV | |
| Entity Incorporation, Date of Incorporation | Jun. 26, 2007 | |
| Tap Services Inc [Member] | ||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | ||
| Ownership percentage | 51.00% | 100.00% |
Intangibles with a definite life, including customer relationships and goodwill were recorded in connection with the acquisition of TSI. Intangible assets are amortized based on their estimated economic lives using the straight-line method with estimated (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Customer Relationships [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated Economic Life | 3 years |
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021. (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Revenues | $ 2,589,850 | $ 2,389,995 | $ 5,181,034 | $ 4,593,767 |
| Systems Development And Integration [Member] | ||||
| Revenues | 119,318 | 126,061 | 207,347 | 160,138 |
| Systems Maintenance [Member] | ||||
| Revenues | 2,160,438 | 1,898,908 | 4,081,627 | 3,507,374 |
| Sales Of Hardware And Consumables [Member] | ||||
| Revenues | $ 310,094 | $ 365,026 | $ 892,060 | $ 926,255 |
Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currenc (Details) |
6 Months Ended | 12 Months Ended | |
|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| China, Yuan Renminbi | |||
| Exchange Rate Average Period | 6.5892 | 6.4806 | |
| Exchange Rate Average Period | 6.4641 | 6.4989 | |
| PESO : USD exchange rate | 6.6587 | 6.4838 | |
| Hong Kong, Dollars | |||
| Exchange Rate Average Period | 7.800 | 7.800 | |
| Exchange Rate Average Period | 7.800 | 7.800 | |
| PESO : USD exchange rate | 7.800 | 7.800 | |
| Philippines, Pesos | |||
| Exchange Rate Average Period | 52.4805 | 47.6357 | |
| Exchange Rate Average Period | 51.4498 | 47.6720 | |
| PESO : USD exchange rate | 54.7368 | 47.4164 | |
Schedule of Accounts Receivable (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Credit Loss [Abstract] | ||
| Accounts receivable | $ 1,712,975 | $ 858,617 |
Schedule of Other Receivables and Prepayments (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Receivables [Abstract] | ||
| Deposits and prepaid expense | $ 295,478 | $ 220,946 |
| Others | 40,665 | 93,704 |
| Total other receivables and prepayments | $ 336,143 | $ 314,650 |
Schedule of Inventories (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Finished goods | $ 232,262 | $ 389,259 |
Plant and equipment consisted of the following as of June 30, 2022 and December 31, 2021: (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 1,218,084 | $ 1,217,197 |
| Less: accumulated depreciation | (740,990) | (669,267) |
| Plant and equipment, net | 477,094 | 547,930 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 77,583 | 81,274 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 267,962 | 285,653 |
| Computer Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 364,363 | 364,740 |
| Computer Software [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 267,843 | 279,985 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 179,506 | 140,102 |
| Building [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 60,827 | $ 65,443 |
Plant and equipment, net (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation | $ 0 | $ 0 | $ 110,157 | $ 72,398 |
Schedule of Goodwil (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Goodwill arising from acquisition of TSI | $ 206,812 | $ 206,812 |
We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Leases [Abstract] | ||
| Operating lease right-of-use assets, net | $ 375,601 | $ 437,822 |
The components of lease liabilities are as follows: (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Leases [Abstract] | ||
| Lease liabilities, current | $ 274,462 | $ 258,647 |
| Lease liabilities, non-current | 111,528 | 152,533 |
| Present value of lease liabilities | $ 385,990 | $ 411,180 |
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022: (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Leases [Abstract] | ||
| Year one | $ 281,890 | $ 266,924 |
| Year two | 112,488 | 152,183 |
| Year three | 2,483 | |
| Year four | ||
| Thereafter | ||
| Total undiscounted cash flows | 394,378 | 421,590 |
| Less: Imputed interest | (8,388) | (10,410) |
| Present value of lease liabilities | $ 385,990 | $ 411,180 |
Leases (Details Narrative) |
6 Months Ended | |
|---|---|---|
|
Jun. 30, 2022
USD ($)
|
Jun. 30, 2021
USD ($)
|
|
| Leases [Abstract] | ||
| Total operating lease cost | $ 6,031 | $ 8,363 |
| Weighted average lease | 1 year 3 months 19 days | |
| Weighted-average discount rate | 0.03 | |
Schedule of Bank Loan (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Long term bank loan | $ 84,527 | $ 76,478 |
| Less: Current portion of long term bank loan | (55,437) | (39,143) |
| 29,090 | 37,335 | |
| Current portion of long term bank loan | $ 55,437 | $ 39,143 |
Bank loan (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Debt Disclosure [Abstract] | ||
| Bank collateral | bank loan secured by property and equipment | |
| Bank loan secured | $ 41,972 | $ 38,959 |
Schedule of Other Payables and Accrued Liabilities (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrual | $ 729,829 | $ 878,532 |
| Income taxes payable | 117,194 | 86,856 |
| Total other payables and accrued liabilities | $ 847,023 | $ 965,388 |
Deferred income consisted of the following as of June 30, 2022 and December 31, 2021: (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Revenue Recognition and Deferred Revenue [Abstract] | ||
| Service fees received in advance | $ 779,394 | $ 236,612 |
Statutory reserves (Details Narrative) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Remaining reserve percent | 25.00% |
| Minimum [Member] | |
| Banking Regulation, Maximum Payout Ratio | 0.10 |
| Maximum [Member] | |
| Banking Regulation, Maximum Payout Ratio | 0.50 |
Other than disclosed elsewhere in these financial statements, the Company also had the following related party balances and transactions: (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | $ 2,026,141 | $ 1,642,488 | ||||||||||||||
| Total Due from related parties | [1] | 2,026,141 | 1,642,488 | |||||||||||||
| Value Exchange International Limited I [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | [1] | 1,828,112 | 1,369,968 | |||||||||||||
| Cucumbuy Com Limited Ii [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | [2] | 10,015 | 2,564 | |||||||||||||
| Smartmyways Co Limited Iii [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | [3] | 76,923 | 61,539 | |||||||||||||
| Retail Intelligent Unit Limited Iv [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | [4] | 30,769 | 24,615 | |||||||||||||
| Appmyways Co Limited V [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | [5] | 80,322 | 159,643 | |||||||||||||
| Tap Technology Hk Limited Vi [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | [6] | 2,629 | 24,159 | |||||||||||||
| Mr Johan Pehrson [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due from Related Parties | [6] | 2,500 | ||||||||||||||
| Mr Johan Pehrson Vii [Member] | ||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||
| Due to Related Parties | [7] | $ 2,629 | $ 2,500 | |||||||||||||
| ||||||||||||||||
Related party transactions (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|||||||||||||||
| Value Exchange International Limited [Member] | ||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||
| Service income received | [1] | $ 214,771 | $ 426,240 | |||||||||||||||
| Subcontracting fees payable | [1] | (18,986) | (43,692) | (86,911) | (43,692) | |||||||||||||
| Management fees received | [1] | 13,941 | 26,733 | 29,868 | 46,906 | |||||||||||||
| App My Ways Co Limited [Member] | ||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||
| Service income received | [2] | 27 | 31,207 | 24,937 | ||||||||||||||
| Cucumbuycom Limited [Member] | ||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||
| Subcontracting fees payable | [3] | (3,846) | (7,692) | |||||||||||||||
| Management fees received | [3] | 7,692 | 7,692 | 15,385 | 15,385 | |||||||||||||
| T A P Technology H K Limited [Member] | ||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||
| Subcontracting fees payable | [4] | (27,523) | (41,682) | (55,046) | (41,682) | |||||||||||||
| Management fees received | [4] | 7,692 | 7,692 | 15,385 | 15,385 | |||||||||||||
| Value E Consultant International Sdn Bhd [Member] | ||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||
| Subcontracting fees payable | [5] | (7,028) | (7,028) | (16,747) | ||||||||||||||
| Smart My Ways Co Limited [Member] | ||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||
| Management fees received | [6] | 7,692 | 7,692 | 15,385 | 15,385 | |||||||||||||
| Retail Intelligent Unit Limited [Member] | ||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||
| Management fees received | [7] | $ 3,077 | $ 3,077 | $ 6,154 | $ 6,154 | |||||||||||||
| ||||||||||||||||||