UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
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 | ¨ |
| ¨ | 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 Securities Act of 1933:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| None | N/A | N/A |
As of November 15, 2023, 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 |
| Table of Contents | ||
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. Financial Statements | 3 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation | 32 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 43 | |
| Item 4. Controls and Procedures | 44 | |
| PART II - OTHER INFORMATION | ||
| Item 1. Legal Proceedings | 45 | |
| Item 1A. Risk Factors | 45 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 46 | |
| Item 3. Defaults Upon Senior Securities | 46 | |
| Item 4. Mine Safety Disclosures | 46 | |
| Item 5. Other Information | 46 | |
| Item 6. Exhibits | 47 | |
| Signatures | 48 | |
| 2 |
ITEM 1. FINANCIAL STATEMENTS
VALUE EXCHANGE INTERNATIONAL, INC.
Financial Statements
| Page | ||
| Consolidated Balance Sheets (unaudited) | 4 | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) | 5 | |
| Consolidated Statements of Shareholders’ Equity (unaudited) | 6 | |
| Consolidated Statements of Cash Flows (unaudited) | 7 | |
| Notes to the Consolidated Financial Statements (unaudited) | 8 |
| 3 |
VALUE EXCHANGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| ASSETS | (unaudited) | |||||||
| CURRENT ASSETS | ||||||||
| Cash | ||||||||
| Accounts receivable, less allowance for credit losses | ||||||||
| 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 | ||||||||
| Convertible loan | ||||||||
| Long term bank loan | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock, shares authorized, $ par value; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| (Accumulated deficit) 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 (LOSS)
| Three Months | Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | ||||||||||||||||
| COST OF SERVICES | ||||||||||||||||
| Cost of service income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING GAIN (EXPENSES): | ||||||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange gain | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of embedded derivatives | ( | ) | ( | ) | ||||||||||||
| Finance cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| VAT refund | ||||||||||||||||
| Management fee income | ||||||||||||||||
| Others | ||||||||||||||||
| Total other income (expenses), net | ( | ) | ( | ) | ||||||||||||
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME TAXES (EXPENSES) CREDIT | ( | ) | ( | ) | ( | ) | ||||||||||
| NET (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX: | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
| TOTAL OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX: | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: Comprehensive income attributable to the non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income (loss) attributable to the Company shareholders | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss) 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 SHAREHOLDERS' EQUITY
| Accumulated other | ||||||||||||||||||||||||||||||||
| Common stock | Additional | Retained earnings | Noncontrolling | comprehensive | ||||||||||||||||||||||||||||
| Share | Amount | paid-in capital | (accumulated deficit) | Statutory reserves | Interest | income | Total | |||||||||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||||||
| January 1, 2022 | ||||||||||||||||||||||||||||||||
| Net (loss) income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| September 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||
| January 1, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Net (loss) income | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Conversion of debt to common shares | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | |||||||||||||||||||||||||||||
| September 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
VALUE EXCHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | (unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | ( | ) | ||||||
| Adjustments to reconcile net (loss) income to cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Interest expenses | ||||||||
| Convertible loan interest expenses | ||||||||
| Operating lease interest expense | ||||||||
| Change in fair value of embedded derivatives | ||||||||
| 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 used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible loan | ||||||||
| Proceeds from bank loan | ||||||||
| Principal payments on operating leases | ( | ) | ( | ) | ||||
| Repayment of short term bank loan | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ||||||
| INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH, beginning of period | ||||||||
| CASH, end of period | ||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Conversion of convertible debt | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid for income taxes | ||||||||
| Cash paid for interest expenses | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
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 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 had 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 was 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 for financial reporting purposes. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the transaction are those of VEI CHN and are 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.
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.
| 8 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 14, 2013, VEI CHN 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.
In January 2022, VEI HKG established an operating subsidiary, Haomeng Technology (Shenzhen) Co., Limited. (“HTS”) in Shenzhen, PRC, under the laws of the PRC. HTS engages in IT services.
As of September 30, 2023, the Company held five wholly-owned subsidiaries, and two subsidiaries with 51% ownership. Company establishes operating subsidiaries when a perceived or actual opportunity for business is deemed to be most efficiently handled by a local operating subsidiary.
| 9 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 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 and majority 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 September 30, 2023:
| Place of incorporation | Ownership percentage | |||
| Parent Company | ||||
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| b) | Going Concern |
These financial statements have
been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be
substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be
necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going
concern. The Company had an operating loss of $
| c) | 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.
| 10 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| d) | 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. The Company does
| e) | 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.
| f) | 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 September 30, 2023 and December 31, 2022, there was
The company evaluated the accounting standards update related to the Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.
| g) | 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.
| 11 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| h) | 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 | |
| Computer equipment | ||
| Computer software | ||
| Office furniture and equipment | ||
| Motor Vehicle | ||
| Building |
| i) | 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.
| j) | 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.
| 12 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
| k) | Fair value of financial instruments |
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. |
| 13 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The following table represents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis as of:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Total | ||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Convertible loan and its fair value for the derivative portion (See Note 10) | ||||||||||||||||||||
| Warrants (See Note 10) | ||||||||||||||||||||
As of September 30, 2023 and December 31, 2022, the fair values of the Company’s cash and cash equivalents, accounts receivable, accounts payable, other receivables and prepayments, other payables and accrued liabilities, and balances with related parties approximated the carrying values of these instruments presented in the Company’s consolidated balance sheets due to the short maturities of these instruments.
| l) | 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.
| 14 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| m) | 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.
| n) | Revenue recognition |
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. We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606.
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 performance obligations.
Determining whether such products and services within a customer contract are considered distinct performance obligations that should be accounted for separately requires significant judgment. Accordingly, we review customer contracts to identify all separate promises to transfer goods and services that would be considered performance obligations. Judgment is also required in determining whether an option to acquire additional products and services within a customer contract represents a material right that the customer would not receive without entering into that contract.
The Company’s contracts often contain multiple performance obligations, which 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 performance obligations 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. If a contract contains multiple performance obligations, the Company accounts for each distinct performance obligation separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Any discounts or expected potential future price concessions are considered when determining the total transaction price.
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.
| 15 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 nine months period ended September 30, 2023 and 2022.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 income.
| 16 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| o) | 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.
| p) | Lease accounting |
The Company categorize leases at their inception as either operating or finance leases. Lease agreements cover certain office space, warehouse space, and vehicles. Most of these leases are operating leases; however, certain vehicles are leased under finance leases.
Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Finance leases are included in net property, current installments of long-term debt, and long-term debt in our consolidated balance sheets.
Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. As the Company’s leases generally do not provide an implicit discount rate, the Company uses the estimated collateralized incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the operating lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest and requires estimates and assumptions including credit rating, credit spread, and adjustments for the impact of collateral. The Company believes that this is the rate it would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term.
Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.
| 17 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| q) | 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 nine months ended September 30, 2023 and 2022 were insignificant.
| r) | 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 nine months ended September 30, 2023 and 2022 were insignificant.
| s) | 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 nine months ended September 30, 2023 and 2022 were insignificant.
| t) | 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 Renminbi (“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 | September 30, 2023 | September 30, 2022 | ||
| 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 | September 30, 2023 | September 30, 2022 | ||
| RMB : USD exchange rate nine months average period ended | ||||
| HKD : USD exchange rate nine months average period ended | ||||
| PESO : USD exchange rate nine months average period ended |
| Quarter ended | September 30, 2023 | December 31, 2022 | ||
| RMB : USD exchange rate | ||||
| HKD : USD exchange rate | ||||
| PESO : USD exchange rate |
| 18 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| u) | 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.
| v) | 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.
| w) | 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”.
| x) | Recent accounting pronouncements |
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.
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 September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| 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. The change in accounts receivable for the nine months period ended September 30, 2023 was primarily due to new billings of revenue recognition.
The following table presents changes in the balances of the company accounts receivable:
| December 31, 2022 | Additions | Deductions | September 30, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||
| Accounts receivable | ( | ) | ||||||||||||||
| December 31, 2021 | Additions | Deductions | December 31, 2022 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||
| Accounts receivable | ( | ) | ||||||||||||||
| 4. | Other receivables and prepayments |
Other receivables and prepayments consisted of the following as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Deposits and prepaid expense | ||||||||
| Others | ||||||||
| 20 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 5. | Inventories |
Inventories as of September 30, 2023 and December 31, 2022 consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Finished goods | ||||||||
| 6. | Plant and equipment, net |
Plant and equipment consisted of the following as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| 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 nine months
period ended September 30, 2023 and 2022 amounted to $
| 7. | Goodwill |
Goodwill consisted of the following as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Goodwill arising from acquisition of TSI | ||||||||
| 21 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 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 2023 and 2025. 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.
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Operating lease right-of-use assets, net | ||||||||
The components of lease liabilities are as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Lease liabilities, current | ||||||||
| Lease liabilities, non-current | ||||||||
| Present value of lease liabilities | ||||||||
Total lease cost for the nine months
period ended September 30, 2023 and 2022 amounted to $
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2023:
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Year one | ||||||||
| Year two | ||||||||
| Year three | ||||||||
| 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 consisted of the following as of September 30, 2023 and December 31, 2022:
September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Long term bank loan (i) | ||||||||
| Less: Current portion of long term bank loan (i) | ( | ) | ( | ) | ||||
| Short term bank loan (ii) | ||||||||
| Current portion of long term bank loan (i) | ||||||||
| (i) |
| (ii) |
APB is affiliated with Chan Heng Fai, a director and principal shareholder of the Company, by virtue of Mr. Chan’s equity ownership of parent company of APB and his service as the Executive Chairman of the parent company of APB. APB is also affiliated with the Company directors Lum Kan Fai, Robert Trapp, Wong Shui Yeung, and Wong Tat Keung since they are affiliated with Mr. Chan and certain of his affiliated companies by virtue of services as a director, officer or professional advisor to those affiliated companies.
| 23 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 10. | Convertible loan |
Movement of the components of the convertible loan
The movement in the liability and derivative components of the convertible loan as of September 30, 2023 and December 31, 2022 are set out below:
| Liability component | Derivative component | Total | ||||||||||
| January 1, 2023 | ||||||||||||
| Issuance of convertible loan | ||||||||||||
| Conversion | ( | ) | ( | ) | ||||||||
| Change in fair value of embedded derivatives | ||||||||||||
| Interest expenses | ||||||||||||
| September 30, 2023 | ||||||||||||
VEII entered into a Convertible Credit Agreement, dated and effective as of January 27, 2023, (“2023 Credit Agreement”) with the following lenders: (1) Hapi Metaverse, Inc., (formerly, “GigWorld, Inc.”), a Delaware corporation, (“HMI”) and (2) American Wealth Mining Corp., a Nevada corporation, (“AWMC”). HMI and AWMC are also referred to individually as a “Lender” and collectively, as the “Lenders.” AWMC changed its corporate name to “New Electric CV Corp.” in March 2023.
Maximum Credit Line; Interest; Advances;
Payment. The 2023 Credit Agreement provides for a maximum credit line of One Million Five Hundred Thousand Dollars and No Cents ($1,500,000.00)
(“Maximum Credit Line”) with simple interest accrued on any advances of the money under the 2023 Credit Agreement at Eight
Percent (
Use of Proceeds. Advances may be used to fund general working capital needs of the Company, which includes: expansion of existing business operations or business lines to new geographical markets in Asia or other geographical markets; for development of new business lines (whether in existing or new geographical markets); acquisition of assets or companies (whether in existing or new geographical markets); and payment of any sums due under the Credit Agreement.
Unsecured Debt Obligation. Any Advance will be an unsecured general debt obligation of the Company. Further, there are no personal guarantees under the 2023 Credit Agreement.
| 24 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Events of Default. The following constitute an event of default under the 2023 Credit Agreement: (1) failure to make a payment of any Advance when due and payable and Company fails to cure such default within ten (10) days after receipt of a written notice from the Lender; (2) failure in the observance or performance of any non-monetary material covenant or agreement and Company fails to cure such default within thirty (30) days after written notice of default from the Lender; (3) failure of Company to comply with the obligations, terms, covenants or conditions of 2023 Credit Agreement, or breach by Company of any obligations, covenant, representation or warranty that is not cured within thirty (30) days from the receipt of a written notice from a Lender; (4) filing of a petition in bankruptcy or the commencement of any proceedings under any bankruptcy laws by or against Company, which filing or proceeding is not dismissed within sixty (60) days after the filing or commencement thereof, or if Company becomes insolvent; (5) petition is filed with a court to place the Company in receivership or similar status for benefit of creditors and appointment of a receiver is unvacated and unstayed for an aggregate of sixty (60) days; (6) for debts or judgments in excess of One Hundred Thousand Dollars and No Cents ($100,000.00) in face amount, a writ of execution or attachment or any similar process shall be issued or levied against all of the Company’s assets, or any judgment involving monetary damages shall be entered against the Company which shall become a lien on all of the Company’s assets and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within sixty (60) days after its entry or levy; or (7) Company ceases to carry on its primary business line for ninety (90) consecutive days. The remedy for any default that is not timely cured, if a cure period is allowed, is all sums due under the 2023 Credit Agreement becoming immediately due and payable.
Conversion Right. The 2023 Credit Agreement grants the following conversion rights to each Lender. Optional Conversion. Each Advance shall be convertible, in whole or in part, into shares of Company Common Stock at the option of the Lender who made that Advance (being referred to as a “Conversion”), at any time and from time to time, at a price per share equal the “Conversion Price”. The Conversion Price for a Conversion shall be the average closing price of the Company Common Stock as quoted by the Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the Lender effecting the Conversion if Bloomberg Financial Markets is not then reporting prices of the Company Common Stock), for the three (3) consecutive trading days prior to date of the Notice of Conversion. The Conversion Price is not limited by a minimum price per share of Company Common Stock applicable to the Conversion. As such, if a Lender or Lenders loan a significant sum of money under the 2023 Credit Agreement and then elect to convert all or most of the loaned amount into shares of Company Common Stock, the resulting issuance of shares of Common Stock could significantly dilute existing Company shareholders.
Conversion upon a Change in Control Transaction. In the event that prior to the time of repayment of any Advance that has not previously been converted into shares of Company Common Stock, the Company shall consummate a “Change in Control Transaction” (as defined below), then the total amount of Advances outstanding shall convert into shares of Company Common Stock at the Conversion Price. “Change in Control Transaction” will be deemed to exist if (1) there occurs any consolidation, merger or other business combination of the Company with or into any a third party and the Company is not the surviving entity, or any other corporate reorganization or transaction or series of related transactions in which the voting stockholders of the Company prior to such event cease to own 50% or more of the voting power of the surviving entity after the transaction, or (2) in one or a series of related transactions, there is a sale or transfer of all or substantially all of the operating assets of the Company or all of its wholly-owned subsidiaries, determined on a consolidated basis, to a third party.
| 25 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Conversion upon Breach of this Agreement. In the event that the Company breaches any provision of the 2023 Credit Agreement and does not remedy that breach within thirty (30) days after receipt of a written demand from a Lender, then each of the Lenders may convert all or any portion of the unpaid amount of their respective Advance or Advances into shares of Company Common Stock at the Conversion Price.
Warrants. In the event that a Lender elects to convert any portion of an Advance into shares of Company Common Stock in lieu of cash payment in satisfaction of that Advance, then Company will issue to the Lender five (5) detachable warrants for each share of Company Common Stock issued in a Conversion (“Warrants”). Each Warrant will entitle the Lender to purchase one (1) share of Common Stock (“Warrant Shares”) at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant.
Chan Heng Fai is deemed to control HMI by virtue of his majority ownership of stock of the parent company of HMI’s primary shareholder, Alset International Inc. (“AIL”). AIL owns approximately 99.69% of HMI issued shares of common stock. Further, Mr. Chan is the Chairman and Chief Executive Officer of AIL and he is also the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., which is the majority stockholder of AIL. Mr. Chan also serves as HMI’s Executive Chairman of the HMI’s Board of Directors since December 1, 2017, and he served as a HMI director since October 23, 2014. Previously, Mr. Chan served as HMI’s Acting Chief Executive Officer. Lum Kan Fai, a director of the Company, serves as a Vice Chairman of HMI and served as HMI’s chief executive officer, president and chief technology officer.
Mr. Chan also controls AWMC by virtue of his ownership of approximately 95.6% of issued shares of AWMC common stock. Robert H. Trapp, a director of the Company, is also a director of AWMC.
Potential Change of Control. While the purpose of the 2023 Credit Agreement is to provide necessary working capital to the Company and 2023 Credit Agreement is not intended by the Company or Lenders to be a mechanism for effecting any change in control of the Company, if a Lenders or Lenders loan a significant sum under the 2023 Credit Agreement and then elects to convert those sums into shares of Company Common Stock as well as exercise Warrants issued with those shares, then a Lender or the Lenders, either separately or in combination with shares of Company Common Stock held by affiliates, or upon conversion of debt and exercise of Warrants, could attain more than 50% of the issued shares of Company Common Stock and thereby attain voting control of the Company. Since the Conversion Price does not have a floor or minimum per share price, any decrease in the market price of the Company Common Stock will increase the number of shares that a Lender could receive in a Conversion and the exercise of Warrants. See “Conversion of Loan” and Item 15 Loan from related parties below.
While the conversion provision of the 2023 Credit Agreement and potential issuance of Warrants under the 2023 Credit Agreement are not intended to be anti-takeover provisions by the Company, those provisions of the 2023 Credit Agreement may operate to discourage any bidder from seeking to acquire or control the Company due to the percentage ownership of Company Common Stock and Warrants by, as well as debt obligations owed by the Company to, affiliates of Mr. Chan.
Conversion of Loan. On September 6, 2023, the Company
received a Notice of Conversion from HMI to convert One Million Three Hundred Thousand Dollars ($1,300,000.00) of the principal amount
loaned to the Company under the 2023 Credit Agreement (“Converted Principal”) into shares of Company’s Common Stock.
Under the terms of the 2023 Credit Agreement and Notice of Conversion, HMI has demand rights for the conversion of outstanding debt into
equity. On September 18, 2023, the Converted Principal resulted in issuance of shares of Common Stock to HMI along with issuance
of Warrants to purchase a maximum of
| 26 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of the date of the filing of this Quarterly Report on Form 10-Q, HMI has not stated when or if it will exercise any of the Warrants. The issuance of Conversion Shares, Warrants and Underlying Shares was made in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”) and Rule 506(b) of Regulation D thereunder. The Conversion Shares and Warrants are, and Underlying Shares will be if issued, “restricted securities” under Rule 144 of the Securities Act.
| 11. | Other payables and accrued liabilities |
Other payables and accruals consisted of the following as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | 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.
Expenses on staff welfare benefits and MPF Scheme for the nine months period ended September 30, 2023 and 2022 amounted to $ and $, respectively.
| 27 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 12. | Deferred income |
Deferred income consisted of the following as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| US$ | US$ | |||||||
| (unaudited) | ||||||||
| Service fees received in advance | ||||||||
The change in deferred income for the nine months period ended September 30, 2023 was primarily due to new billings in advance of revenue recognition.
The following table presents changes in the balances of the company deferred income:
| December 31, 2022 | Additions | Deductions | September 30, 2023 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||
| Deferred income | ( | ) | ||||||||||||||
| December 31, 2021 | Additions | Deductions | December 31, 2022 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Deferred income | ( | ) | ||||||||||||||
| 13. | 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
| 28 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 14. | 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
| September 30, 2023 | December 31, 2022 | |||||||
| 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) | ||||||||
| Value Exchange International (Taiwan) Co, Ltd (vii) | ||||||||
| Due to a related party | ||||||||
| SA-Network Limited (viii) | ||||||||
| Smart Reward Express Limited (ix) | ||||||||
| Value E Consultant International (M) Sdn. Bhd (x) | ||||||||
Related party transactions
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Service income received from | ||||||||||||||||
| Value Exchange International Limited (i) | ||||||||||||||||
| AppMyWays Co., Limited (v) | ||||||||||||||||
| Value Exchange International (Taiwan) Co, Ltd (vii) | ||||||||||||||||
| Subcontracting fees payable to | ||||||||||||||||
| Value Exchange International Limited (i) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cucumbuy.com Limited (ii) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| SmartMyWays Co., Limited (iii) | ( | ) | ( | ) | ||||||||||||
| Retail Intelligent Unit Limited (iv) | ( | ) | ( | ) | ||||||||||||
| TAP Technology (HK) Limited (vi) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Value Exchange International (Taiwan) Co, Ltd (vii) | ( | ) | ||||||||||||||
| SA-Network Limited (viii) | ( | ) | ( | ) | ||||||||||||
| Value E Consultant International (M) Sdn. Bhd (x) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Value X International Pte. Ltd (xi) | ( | ) | ( | ) | ||||||||||||
| 29 |
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 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) |
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| (vi) |
| (vii) |
| (viii) |
| (ix) |
| (x) |
| (xi) |
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VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 15. | Loan from related parties |
On September 28, 2023, the Company entered into a
Loan Agreement and Promissory Note (collectively, the “Loan Agreement”) with Alset International Limited, a public Singapore
corporation, (“Alset International”) for an unsecured loan of Five Hundred Thousand U.S. Dollars and No Cents (USD$
(1) Principal will be paid in a single lump sum payment on or by the six (6) month anniversary of the effective date of the Loan Agreement, being September 28,2023, (being the “Maturity Date”); and
(2) Interest accrued on Principal shall be paid on the last business day on a calendar monthly basis with initial accrued Interest payments commencing on September 28, 2023.
Company has the right to prepay all or any portion of the Principal and Interest accrued on the Principal, without penalty, upon ten (10) days’ prior notice to Alset International. The Principal was advanced in full by Alset International on October 4, 2023.
Mr. Chan Heng Fai, a non-executive director of the
Company, who is deemed the owner of
Alset International is a majority-owned subsidiary
of Alset Inc., a Texas corporation, (“Alset”). Mr. Chan owns approximately
Company directors Chan Heng Fai, Wong Shui Yeung and Wong Tat Heung recused themselves from the vote of the Company’s Board of Directors on approval of the Loan Agreement and transactions contemplated under the Loan Agreement.
Purpose of the Loan Agreement was to provide short term working capital to the Company.
| 16. | Subsequent event |
The Company has evaluated all subsequent events and transactions through November 14, 2023, the date that the consolidated financial statements were available to be issued and noted no subsequent events requiring financial statement recognition or disclosure.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This report on Form 10-Q (“report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act, 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 to fund operations, our intention to pursue and consummate strategic opportunities available to us, our ability to fund any strategic opportunities as well as existing operations, our ability to efficiently integrate and grow any new or acquired business lines, and impact of regulation and economic conditions. 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. While the level of Coronavirus COVID 19 or “COVID 19” infections in Hong Kong and PRC in the fiscal quarter ending September 30, 2023 did not disrupt normal operations, the possibility of new vaccine resistant strains of the virus emerging in the future continues to be a potential future risk to future business and financial operations. 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. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent Company’s estimates and assumptions only as of the date of this report. These risks and uncertainties include, 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, 2022 and any amendments to that Form 10-K.
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 Peoples’ 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. Our Common Stock’s trading symbol is “VEII.” Our common stock is quoted on the OTCQB Venture Market.
Current Business Focus.
We are a provider of customer-centric technology solutions for the retail industry in Hong Kong SAR and certain regions of China 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 (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; and Manila, Philippines.
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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 for mergers and acquisitions 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, but the estimated business hurdles in successfully penetrating a new market is also a factor in deciding whether to proceed with that expansion. The limited liquidity and bid price of our Common Stock in the public stock market also hampers our ability to use shares of Common Stock as attractive consideration to target companies in a merger or acquisition. We have not expanded into any new markets by acquisition or otherwise during the fiscal quarter ended September 30, 2023.
The Company, through its operating subsidiaries, is focusing and will focus on its IT Business, and continue to 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 Internet Protocol business was to be a provider of Internet Protocol (“IP”) processing services in Asia to bank card-accepting merchants (“IP Business”). The Company efforts to establish a viable IP Business did not succeed.
The acquisition of VEI CHN in 2014 shifted the primary business focus to the IT Business. Company believes that the IT Business provided a more readily attainable revenue generating business line and greater growth and profit potential than IP Business. VEI CHN was acquired in a stock-for-stock exchange (“VEI CHN Share Exchange”).
Smart Baggage Tag. Through a cooperative effort with another company, Company has the ability to market and sell 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 in 2021 and 2022 due to impact of COVID-19 pandemic on air travel. There are no current plans to make any dedicated marketing effort for expanding the market for or sales of the smart baggage tags in 2023.
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 2022 or 2023 to date.
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Another 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. Further, unlike some competitors, the Company has not offered the stock-based incentive compensation to employees that is attractive to prospective technology workers. 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 generally 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 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.
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 in fiscal years 2022 or fiscal year 2023 to date, 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 accounts receivable is significant current asset. 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, and take advantage of opportunities in the IT Business. 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 2023 or over the longer term.
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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 business 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.
We face competition from competitors in our primary markets, which competitors possess greater name recognition, assets, personnel, sales and financial resources. These entities may be able to respond more quickly to changing market conditions by developing new products and services that meet customer requirements or are otherwise superior to our products and services and may be able to more effectively market their products than we can because they have significantly greater financial, technical and marketing resources than we do. They may also be able to devote greater resources than we can to the development, promotion and sale of their services and products. To the extent that we are unable to successfully compete against existing and future competitors, our business, operating results and financial condition would be materially adversely affected.
Regulatory Compliance Costs. As a U.S. public company with operations in Hong Kong, PRC and Philippines, we are subject to U.S. and foreign laws and regulation. The need to comply with laws and regulations in these jurisdictions may impose additional operating expenses or restrictions on our business operations. Due to the potential threat of delisting of our Common Stock under the Holding Foreign Companies Accountable Act (“HFCAA”) as a Commission Identified Issuer under Commission HFCAA-related rules, the Company transitioned from a Hong Kong-based public auditor to a U.S.-based U.S. auditor on May 25, 2023. The additional audit cost resulting from that transition is estimated, as of the date of this filing of the report, to be $133,120 for audit services for fiscal year 2023. Further, continuing political and economic tensions between the U.S. and PRC may result in other laws or regulations that increase the cost of regulatory compliance for the Company. As of the fiscal quarter ended September 30, 2023, the Company has been able to fund regulatory costs.
COVID 19 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, which restrictions occurred at times in 2021 and 2022. During the fiscal quarter ending September 30, 2023, COVID 19 did not disrupt our normal business operations in Hong Kong SAR and China. While there has been an easing restrictions on businesses in 2023, especially in Hong Kong, the uncertainty about new variants of COVID 19 virus emerging, especially variants that are not affected by current vaccines, creates an ongoing uncertainty about the future impact of COVID 19 that cannot be projected.
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”). In January 2022, VEI HKG completed the setup procedures of a subsidiary with 100% ownership in Shenzhen, PRC, in the name of Haomeng Technology (Shenzhen) Co., Limited. (“HTS”).
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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 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 and 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 Chinese-Hong Kong 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, 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 third quarter of 2023:
| · | Net revenue: Our net revenues were $8,695,412 for the nine months ended September 30, 2023, as compared to $7,737,842 for the same period in 2022, an increase of $957,570 or 12.4%. |
| · | Gross profit: Gross profit for the nine months ended September 30, 2023 was $1,501,790 or 17.3% of net revenues, as compared to $1,281,169 or 16.6% of net revenues for the same period in 2022, an increase of $220,621 or 17.2%. |
| · | Loss from operations: Our loss from operations totaled $991,883 for the nine months ended September 30, 2023, as compared to $77,822 for the same period in 2022, an increase of $914,061 or 1174.6%. |
| · | Net (loss) income: We had a net loss of $1,121,719 for the nine months ended September 30, 2023, compared to net income $138,991 for the same period in 2022, a change of $1,260,710. |
| · | Basic and diluted net loss per share was $0.03 for the nine months ended September 30, 2023. |
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RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2023 and 2022
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
| Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | |||||||||||||||
| US$ | As a percentage of revenues | US$ | As a percentage of revenues | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | 2,960,825 | 100 | % | 2,556,808 | 100 | % | ||||||||||
| COST OF SERVICES | ||||||||||||||||
| Cost of service income | (2,326,079 | ) | (78.6 | %) | (2,302,012 | ) | (90.0 | %) | ||||||||
| GROSS PROFIT | 634,746 | 21.4 | % | 254,796 | 10.0 | % | ||||||||||
| Operating gain (expenses): | ||||||||||||||||
| General and administrative expenses | (886,442 | ) | (29.9 | %) | (517,726 | ) | (20.3 | %) | ||||||||
| Foreign exchange gain | 17,545 | 0.6 | % | 21,980 | 0.9 | % | ||||||||||
| LOSS FROM OPERATIONS | (234,151 | ) | (7.9 | %) | (240,950 | ) | (9.4 | %) | ||||||||
| OTHER INCOME (EXPENSES) | (88,670 | ) | (3.0 | %) | 74,241 | 2.9 | % | |||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (322,821 | ) | (10.9 | %) | (166,709 | ) | (6.5 | %) | ||||||||
| INCOME TAXES (EXPENSES) CREDIT | (4,134 | ) | (0.1 | %) | 27 | 0.0 | % | |||||||||
| NET LOSS | (326,955 | ) | (11.0 | %) | (166,682 | ) | (6.5 | %) | ||||||||
Net revenues. Net revenues were $2,960,825 for the three months ended September 30, 2023, as compared to $2,556,808 for the same period in 2022, an increase of $404,017 or 15.8%. This increase was primarily attributable to the increase in our revenue from i) sales of systems maintenance with revenues increasing from $2,304,740 for the three months ended September 30, 2022 to $2,380,304 for the three months ended September 30, 2023; ii) sales of hardware and consumables with revenue increasing from $223,104 for the three months ended September 30, 2022 to $512,244 for the three months ended September 30, 2023; and iii) sales of systems development and integration with revenues increasing from $28,964 for the three months ended September 30, 2022 to $68,277 for the three months ended September 30, 2023.
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 $2,326,079 or 78.6% of net revenues, for the three months ended September 30, 2023, as compared to $2,302,012 or 90.0% of net revenues, for the same period in 2022, an increase of $24,067 or 1.0%. The increase in cost of services was mainly attributable to the increase in our cost of contracting fees to suppliers.
Gross profit. Gross profit for the three months ended September 30, 2023 was $634,746 or 21.4% of net revenues, as compared to $254,796 or 10.0% of net revenues, for the same period in 2022, an increase of $379,950 or 149.1%. 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 2022.
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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 increased to $886,442 or 29.9% of net revenues, for the three months ended September 30, 2023, as compared to $517,726 or 20.2% of net revenues, for the same period in 2022, an increase of $368,716 or 71.2%. The primary reason for the increase was attributable to the increase in staff cost, audit fee, consultancy and professional fee, and other administrative cost.
Loss from operations. As a result of the above, our loss from operations totaled $234,151 for the three months ended September 30, 2023, as compared to $240,950 for the same period in 2022, a decrease of $6,799 or 2.8%.
Income taxes (expenses) credit. Income taxes expenses totaled $4,134 during the three months ended September 30, 2023, as compared to income taxes credit totaled $27 for the same period in 2022, a change of $4,161.
Net loss. As a result of the foregoing, we had net loss of $326,955 for the three months ended September 30, 2023, compared to $166,682 for the same period in 2022, an increase of $160,273 as a result of the factors described above.
Comparison of Nine Months Ended September 30, 2023 and 2022
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
| Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||||||||||
| US$ | As a percentage of revenues | US$ | As a percentage of revenues | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | 8,695,412 | 100 | % | 7,737,842 | 100 | % | ||||||||||
| COST OF SERVICES | ||||||||||||||||
| Cost of service income | (7,193,622 | ) | (82.7 | %) | (6,456,673 | ) | (83.4 | %) | ||||||||
| GROSS PROFIT | 1,501,790 | 17.3 | % | 1,281,169 | 16.6 | % | ||||||||||
| Operating gain (expenses): | ||||||||||||||||
| General and administrative expenses | (2,494,488 | ) | (28.7 | %) | (1,404,314 | ) | (18.1 | %) | ||||||||
| Foreign exchange gain | 815 | 0.0 | % | 45,323 | 0.6 | % | ||||||||||
| LOSS FROM OPERATIONS | (991,883 | ) | (11.4 | %) | (77,822 | ) | (1.0 | %) | ||||||||
| OTHER INCOME (EXPENSES) | (124,566 | ) | (1.4 | %) | 218,948 | 2.8 | % | |||||||||
| (LOSS) PROFIT BEFORE PROVISION FOR INCOME TAXES | (1,116,449 | ) | (12.8 | %) | 141,126 | 1.8 | % | |||||||||
| INCOME TAXES EXPENSES | (5,270 | ) | (0.1 | %) | (2,135 | ) | (0.0 | %) | ||||||||
| NET (LOSS) INCOME | (1,121,719 | ) | (12.9 | %) | 138,991 | 1.8 | % | |||||||||
Net revenues. Net revenues were $8,695,412 for the nine months ended September 30, 2023, as compared to $7,737,842 for the same period in 2022, an increase of $957,570 or 12.4%. This increase was primarily attributable to the increase in our revenues from i) sales of systems maintenance with revenues increasing from $6,386,367 for the nine months ended September 30, 2022 to $7,049,784 for the nine months ended September 30, 2023; ii) sales of hardware and consumables with revenue increasing from $1,115,164 for the nine months ended September 30, 2022 to $1,464,435 for the nine months ended September 30, 2023; offset by iii) sales of systems development and integration with revenues decreasing from $236,311 for the nine months ended September 30, 2022 to $181,193 for the nine months ended September 30, 2023.
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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 $7,193,622 or 82.7% of net revenues, for the nine months ended September 30, 2023, as compared to $6,456,673 or 83.4% of net revenues, for the same period in 2022, an increase of $736,949 or 11.4%. The increase in cost of services was mainly attributable to the increase in our cost of contracting fees to suppliers.
Gross profit. Gross profit for the nine months ended September 30, 2023 was $1,501,790 or 17.3% of net revenues, as compared to $1,281,169 or 16.6% of net revenues, for the same period in 2022, an increase of $220,621 or 17.2%. 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 2022.
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 increased to $2,494,488 or 28.7% of net revenues, for the nine months ended September 30, 2023, as compared to $1,404,314 or 18.1% of net revenues, for the same period in 2022, an increase of $1,090,174 or 77.6%. The primary reason for the increase was attributable to the increase in staff cost, audit fee, consultancy and professional fee, and other administrative cost.
Loss from operations. As a result of the above, our loss from operations totaled $991,883 for the nine months ended September 30, 2023, as compared to $77,822 for the same period in 2022, an increase of $914,061 or 1174.6%.
Income tax expenses. Income taxes expenses totaled $5,270 during the nine months ended September 30, 2023, as compared to $2,135 for the same period in 2022, an increase of $3,135 or 146.8%.
Net (loss) income. As a result of the foregoing, we had net loss of $1,121,719 for the nine months ended September 30, 2023, compared to net income $138,991 for the same period in 2022, a change of $1,260,710, as a result of the factors described above.
Liquidity and Capital Resources
As of September 30, 2023, we had cash and cash equivalents of $234,724. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report.
Cash Flows
(All amounts in U.S. dollars)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| US$ | US$ | |||||||
| Net cash used in operating activities | (999,864 | ) | (194,036 | ) | ||||
| Net cash used in investing activities | (30,911 | ) | (144,664 | ) | ||||
| Net cash provided by financing activities | 1,039,184 | 278,144 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 17,539 | (29,729 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 25,948 | (90,285 | ) | |||||
| Cash and cash equivalents at the beginning of period | 208,776 | 289,398 | ||||||
| Cash and cash equivalents at the end of period | 234,724 | 199,113 | ||||||
| 39 |
Operating Activities
Net cash used in operating activities was $999,864 for the nine months ended September 30, 2023, which was an increase of $805,828 or 415.3% from $194,036 for the same period of 2022. The increase in net cash used in operating activities was mainly attributable to the following:
| 1) | Net loss of $1,121,719 for the nine months ended September 30, 2023, compared to net income $138,991 for the same period in 2022; and |
| 2) | A change of Amounts due from related parties, Other payables and accrued liabilities and Deferred income decreased our operating cash balances by $365,041, $483,518 and $262,332; offset by |
| 3) | A change of Accounts receivable, and Other receivables increased our operating cash balances by $345,851, and $356,008 respectively. |
Investing Activities
Net cash used in investing activities was $30,911 for the nine months ended September 30, 2023, which was a decrease of $113,753 or 78.6% from $144,664 in the same period in 2022. The decrease in net cash used in investing activities was attributable to cash used in the purchase of plant and equipment by $30,911 during the nine months ended September 30, 2023; compare to the purchase of plant and equipment by $144,664 during the nine months ended September 30, 2022.
Financing Activities
Net cash provided by financing activities was $1,039,184 for the nine months ended September 30, 2023, which was an increase of $761,040 or 273.6% from $278,144 in the same period in 2022. The increase in net cash provided by financing activities was attributable to proceeds of convertible loan by $1,500,000, and proceeds of bank loan by $450,000, and offset by repayment of bank loan by $542,579, principal payments on operating leases by $368,237, during the nine months ended September 30, 2023; compare to the proceeds of bank loan by $537,349, and offset by repayment of bank loan by $38,741, principal payments on finance leases by $220,464, during the nine months ended September 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 growth 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.
| 40 |
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 September 30, 2023:
| 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% | ||
| Haomeng Technology (Shenzhen) Co., Limited | PRC | 100% |
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.
| 41 |
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.
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.
| 42 |
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the nine months period ended September 30, 2023 and 2022.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| NET REVENUES | ||||||||||||||||
| Service income | ||||||||||||||||
| - systems development and integration | 68,277 | 28,964 | 181,193 | 236,311 | ||||||||||||
| - systems maintenance | 2,380,304 | 2,304,740 | 7,049,784 | 6,386,367 | ||||||||||||
| - sales of hardware and consumables | 512,244 | 223,104 | 1,464,435 | 1,115,164 | ||||||||||||
| 2,960,825 | 2,556,808 | 8,695,412 | 7,737,842 | |||||||||||||
Billings in excess of revenues recognized are recorded as deferred income.
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.
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.
Company adopted a 2022 Equity Incentive Plan in 2022, but has not granted or issued any stock based incentive compensation under this plan as of the date of filing this Form 10-Q report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
| 43 |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and Procedures.
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of September 30, 2023, to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the third quarter of 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 44 |
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
On May 25, 2023, the Company ended the engagement of Zhen Hui Certified Public Accountants, a Hong Kong SAR based public accounting firm, as the Company’s independent registered public accounting firm. The Audit Committee of the Board of Directors of the Company approved the ending of the engagement of Zhen Hui as public auditors. On May 25, 2023, the Company’s Board of Directors ratified the appointment of Grassi & Co. CPAs P.C., based in New York, New York, as the Company’s new independent registered public accounting firm, effective as of May 25, 2023. With the appointment of a U.S. based public accounting firm to audit the Company, the Company does not believe that it is subject to the HFCAA as of the date of the filing of this Form 10-Q report. The Company has ongoing disclosure obligations about its status as a Commission Identified Issuer in fiscal year 2022, including the filing of a Form SPDSCL-HFCAA-GOV.
Risks related to doing business in PRC and Hong Kong. Most of our operating subsidiaries are located in PRC or Hong Kong. As such, our company and operating subsidiaries in PRC or Hong Kong can be affected by: (1) changes in PRC or Hong Kong laws, regulations, or economic policies, or changes in the enforcement of those laws, regulations, policies; (2) uncertainties with respect to the interpretation and enforcement of PRC or Hong Kong laws, regulations and policies, which may be subject to change from time to time with little or no advance notice, and the risk that the PRC government may intervene or influence our PRC or Hong Kong operations at any time, which could result in a material change in our operations or cause the value of our securities to decline; (3) changes in political, business, economic or trade relations between the United States and PRC or Hong Kong; (4) fluctuation in the value of the Renminbi; (5) potential limitation on our ability to utilize our cash balances effectively, including making funds held by our PRC-based subsidiaries unavailable for use outside of mainland PRC, due to interventions in or the imposition of restrictions and limitations by the PRC government on currency conversion and payments of foreign currency and RMB outside of PRC or Hong Kong; (6) difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in PRC or Hong Kong against the Company or members of its management; (7) potential fines and other legal or administrative sanctions for failure to comply with PRC or Hong Kong regulations regarding our employee equity incentive plans or any other benefit or retirement plans; (8) possible restrictions on our ability to make loans or additional capital contributions to our PRC or Hong Kong subsidiaries due to PRC or Hong Kong regulation of loans to, and direct investment in, PRC or Hong Kong entities by offshore holding companies and governmental control of currency conversion; (9) difficulties in pursuing growth through acquisitions due to PRC or Hong Kong regulations regarding acquisitions, and (10) changes in PRC or Hong Kong laws or regulations that could limit or hinder our ability to offer securities to investors. Further, the United States government, especially Congress, may impose statutory or regulatory restrictions on U.S. public companies with operations in PRC or Hong Kong and those statutory or regulatory restrictions may reduce our company’s ability to conduct its operations as a U.S. public holding company with PRC or Hong Kong subsidiaries, or may cause the value of our publicly traded securities or other securities to significantly decline.
Other risk factors for our company are set forth in our Annual Report on Form 10-K for the fiscal year end December 31, 2022 (“2022 Form 10-K) and other filings with the Commission. The risks described in Part I, Item 1A, "Risk Factors" in our 2022 Form 10-K could materially and adversely affect our business, financial condition and results of operations, and the trading price of our Common Stock could decline. 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. Except as noted with respect to the HFCAA’s applicability to the Company, the “Risk Factors” section of the 2022 Form 10-K, as amended, remains current in all material respects.
| 45 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 18, 2023, Company issued 7,344,632 shares of Common Stock to HMI along with issuance of Warrants to purchase a maximum of 36,723,160 shares of Common Stock to HMI, which issuance was made upon conversion of the Loan Agreement (See “Conversion of Loan” at page 26 above). Issuance was made in reliance under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D under the Securities Act. The Warrants have not been exercised as of the date of the filing of this Quarterly Report on Form 10-Q. The issuance was made in connection with converting One Million Three Hundred Thousand Dollars and No Cents ($1,300,000.00) of debt owed under the Loan Agreement into the shares of Common Stock and Warrants.
Mr. Chan Heng Fai, a non-executive director of the Company, who is deemed the owner of 49.63% of the issued shares of Company’s Common Stock by virtue of 95,000 shares of Common Stock held by Mr. Chan, and the following share ownership of Company’s Common Stock by entities that Mr. Chan is deemed to control: 21,120,795 shares held by Hapi Metaverse Inc., 39,968 shares held by BMI Capital Partners International Limited, 18,512 shares held by Liquid Value Development Pte Ltd. and 313,154 shares held by Decentralized Sharing Systems, Inc. With the issuance of the Warrants to HMI, HMI and the other affiliates of Mr. Chan have the ability to attain voting control of the Company upon conversion of any substantial portion of the Warrants. Further, the Company’s current lenders are affiliates of Mr. Chan. As such, Mr. Chan may be deemed a control person of the Company. As of the date of the filing of this Quarterly Report on Form 10-Q, Mr. Chan has not exercised control over the operational or strategic management of the Company and its wholly owned subsidiaries, beyond performance of his customary duties as a non-executive director or the Company, but the Company has been reliant upon loans from lenders affiliated with Mr. Chan for third party funding and Mr. Chan and his affiliates have, with the Warrants issued to HMI, the ability to attain voting control of the Company. There is no known agreement between Mr. Chan, the Company’s lenders, and affiliated companies that own shares of Company Common Stock to cooperate in controlling or influencing the operational and strategic management of the Company.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Insider Trading Arrangements
During the three months ended September 30, 2023, none of the officers (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
| 46 |
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 Exhibit 10.1 to the Current Report on Form 8-K filed by the Company with the SEC on February 2, 2023. |
| (6) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company with the SEC on February 2, 2023. |
| (7) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed by the Company with the SEC on July 29, 2022 |
| (8) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K/A filed by the Company with the SEC on July 29, 2022 |
| (9) | Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K/A filed by the Company with the SEC on July 29, 2022 |
| 47 |
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. | |||
| November 15, 2023 | /s/ | Tan Seng Wee Kenneth | |
| By: | Tan Seng Wee Kenneth | ||
| Its: |
President and Director (Principal Executive Officer) |
||
| November 15, 2023 | /s/ | Channing Au | |
| By: | Channing Au | ||
| Its: |
Chief Financial Officer (Principal Financial and Accounting Officer) |
||
48
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. |
| 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 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(s) 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 control 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 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; and |
| 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 (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Dated: November 15, 2023
/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. |
| 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 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(s) 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 control 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 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; and |
| 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 (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Dated: November 15, 2023
/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 September 30, 2023, 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: November 15, 2023
/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 September 30, 2023, 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: November 15, 2023
/s/ Channing Au
Channing Au
Chief Financial Officer
(Principal financial and accounting officer)
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, shares authorized | 500,000,000 | 500,000,000 |
| Common stock, par value per share | $ 0.00001 | $ 0.00001 |
| Common stock, shares issued | 43,500,762 | 36,156,130 |
| Common stock, shares outstanding | 43,500,762 | 36,156,130 |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| NET REVENUES | ||||
| Service income | $ 2,960,825 | $ 2,556,808 | $ 8,695,412 | $ 7,737,842 |
| COST OF SERVICES | ||||
| Cost of service income | (2,326,079) | (2,302,012) | (7,193,622) | (6,456,673) |
| GROSS PROFIT | 634,746 | 254,796 | 1,501,790 | 1,281,169 |
| OPERATING GAIN (EXPENSES): | ||||
| General and administrative expenses | (886,442) | (517,726) | (2,494,488) | (1,404,314) |
| Foreign exchange gain | 17,545 | 21,980 | 815 | 45,323 |
| LOSS FROM OPERATIONS | (234,151) | (240,950) | (991,883) | (77,822) |
| OTHER INCOME (EXPENSES): | ||||
| Interest income | 107 | 166 | 703 | 464 |
| Interest expense | (74,851) | (1,493) | (120,032) | (4,180) |
| Change in fair value of embedded derivatives | (27,164) | (61,916) | ||
| Finance cost | (5,057) | (8,105) | (13,614) | (14,136) |
| VAT refund | 3,845 | 29,854 | 4,316 | 92,126 |
| Management fee income | 8,410 | 51,452 | 36,286 | 134,589 |
| Others | 6,040 | 2,367 | 29,691 | 10,085 |
| Total other income (expenses), net | (88,670) | 74,241 | (124,566) | 218,948 |
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | (322,821) | (166,709) | (1,116,449) | 141,126 |
| INCOME TAXES (EXPENSES) CREDIT | (4,134) | 27 | (5,270) | (2,135) |
| NET (LOSS) INCOME | (326,955) | (166,682) | (1,121,719) | 138,991 |
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX: | ||||
| Foreign currency translation adjustments | (5,863) | (44,542) | 8,997 | (114,615) |
| TOTAL OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX: | (5,863) | (44,542) | 8,997 | (114,615) |
| COMPREHENSIVE (LOSS) INCOME | (332,818) | (211,224) | (1,112,722) | 24,376 |
| Less: Comprehensive income attributable to the non-controlling interests | (16,084) | (2,705) | (2,497) | (14,922) |
| Comprehensive income (loss) attributable to the Company shareholders | $ (348,902) | $ (213,929) | $ (1,115,219) | $ 9,454 |
| Net (loss) income per share, basic | $ (0.01) | $ (0.00) | $ (0.03) | $ 0.00 |
| Net (loss) income per share, diluted | $ (0.01) | $ (0.00) | $ (0.03) | $ 0.00 |
| Weighted average number of shares outstanding, basic | 37,124,653 | 36,156,130 | 36,478,971 | 36,156,130 |
| Weighted average number of shares outstanding, diluted | 37,124,653 | 36,156,130 | 36,478,971 | 36,156,130 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Statutory Reserves [Member] |
Noncontrolling Interest [Member] |
AOCI Attributable to Parent [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2021 | $ 362 | $ 1,340,524 | $ 867,770 | $ 11,835 | $ 117,803 | $ 8,822 | $ 2,347,116 |
| Beginning balance, shares at Dec. 31, 2021 | 36,156,130 | ||||||
| Net (loss) income | 110,872 | 28,119 | 138,991 | ||||
| Foreign currency translation adjustment | (13,197) | (101,418) | (114,615) | ||||
| Ending balance, value at Sep. 30, 2022 | $ 362 | 1,340,524 | 978,642 | 11,835 | 132,725 | (92,596) | 2,371,492 |
| Ending balance, shares at Sep. 30, 2022 | 36,156,130 | ||||||
| Beginning balance, value at Dec. 31, 2022 | $ 362 | 1,340,524 | 849,471 | 11,835 | 129,537 | (76,986) | 2,254,743 |
| Beginning balance, shares at Dec. 31, 2022 | 36,156,130 | ||||||
| Net (loss) income | (1,130,758) | 9,039 | (1,121,719) | ||||
| Conversion of debt to common shares | $ 73 | 1,180,368 | 1,180,441 | ||||
| Conversion of debt to common shares, shares | 7,344,632 | ||||||
| Foreign currency translation adjustment | (6,542) | 15,539 | 8,997 | ||||
| Ending balance, value at Sep. 30, 2023 | $ 435 | $ 2,520,892 | $ (281,287) | $ 11,835 | $ 132,034 | $ (61,447) | $ 2,322,462 |
| Ending balance, shares at Sep. 30, 2023 | 43,500,762 |
Nature of Operations and Continuance of Business |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 30, 2023 | ||||
| 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. 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 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 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 had 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 was 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 for financial reporting purposes. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the transaction are those of VEI CHN and are 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.
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.
On May 14, 2013, VEI CHN 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.
In January 2022, VEI HKG established an operating subsidiary, Haomeng Technology (Shenzhen) Co., Limited. (“HTS”) in Shenzhen, PRC, under the laws of the PRC. HTS engages in IT services.
As of September 30, 2023, the Company held five wholly-owned subsidiaries, and two subsidiaries with 51% ownership. Company establishes operating subsidiaries when a perceived or actual opportunity for business is deemed to be most efficiently handled by a local operating subsidiary. |
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 and majority 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 September 30, 2023:
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company had an operating loss of $991,883 for the nine months ended September 30, 2023, and has cash reserves of $234,724 as of September 30, 2023. The Company has relied on debt funding to pay for operating expenses and business development efforts in 2023 that were not covered by operating revenues. If the Company continues to incur operating losses as incurred in the first nine months of fiscal year 2023 and does not significantly increase its cash reserves, and if the Company does not also receive additional funding from existing lenders or from other sources to provide the working capital needed to cover those continuing operating losses, then the Company would be forced to reduce its operating expenses and business development efforts and the issue of the Company as a going concern may arise. While the existing lenders of the Company and Company's majority shareholder are affiliated, there can be no assurance of additional debt or equity funding for the Company from the existing lenders or the majority shareholder.
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. The Company does not have any cash equivalents at September 30, 2023 or December 31, 2022.
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 September 30, 2023 and December 31, 2022, there was no allowance for uncollectible accounts receivable. Management believes that the remaining accounts receivable are collectable.
The company evaluated the accounting standards update related to the Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.
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.
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.
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.
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 following table represents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis as of:
As of September 30, 2023 and December 31, 2022, the fair values of the Company’s cash and cash equivalents, accounts receivable, accounts payable, other receivables and prepayments, other payables and accrued liabilities, and balances with related parties approximated the carrying values of these instruments presented in the Company’s consolidated balance sheets due to the short maturities of these instruments.
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.
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. We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606.
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 performance obligations.
Determining whether such products and services within a customer contract are considered distinct performance obligations that should be accounted for separately requires significant judgment. Accordingly, we review customer contracts to identify all separate promises to transfer goods and services that would be considered performance obligations. Judgment is also required in determining whether an option to acquire additional products and services within a customer contract represents a material right that the customer would not receive without entering into that contract.
The Company’s contracts often contain multiple performance obligations, which 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 performance obligations 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. If a contract contains multiple performance obligations, the Company accounts for each distinct performance obligation separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Any discounts or expected potential future price concessions are considered when determining the total transaction price.
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 nine months period ended September 30, 2023 and 2022.
Billings in excess of revenues recognized are recorded as deferred income.
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.
The Company categorize leases at their inception as either operating or finance leases. Lease agreements cover certain office space, warehouse space, and vehicles. Most of these leases are operating leases; however, certain vehicles are leased under finance leases.
Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Finance leases are included in net property, current installments of long-term debt, and long-term debt in our consolidated balance sheets.
Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. As the Company’s leases generally do not provide an implicit discount rate, the Company uses the estimated collateralized incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the operating lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest and requires estimates and assumptions including credit rating, credit spread, and adjustments for the impact of collateral. The Company believes that this is the rate it would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term.
Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.
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 nine months ended September 30, 2023 and 2022 were insignificant.
Shipping and handling cost incurred to ship computer products to customers are included in selling expenses. Shipping and handling expenses for the nine months ended September 30, 2023 and 2022 were insignificant.
Research and development costs are expensed as incurred and are included in general and administrative expenses. Research and development costs for the nine months ended September 30, 2023 and 2022 were insignificant.
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 Renminbi (“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.
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 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.
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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Accounts receivable |
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| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts receivable |
Accounts receivable consisted of the following as of September 30, 2023 and December 31, 2022:
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. The change in accounts receivable for the nine months period ended September 30, 2023 was primarily due to new billings of revenue recognition.
The following table presents changes in the balances of the company accounts receivable:
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Other receivables and prepayments |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other receivables and prepayments |
Other receivables and prepayments consisted of the following as of September 30, 2023 and December 31, 2022:
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Inventories |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories |
Inventories as of September 30, 2023 and December 31, 2022 consisted of the following:
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Plant and equipment, net |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plant and equipment, net |
Plant and equipment consisted of the following as of September 30, 2023 and December 31, 2022:
Depreciation expense for the nine months period ended September 30, 2023 and 2022 amounted to $176,538 and $157,057, respectively. For the nine months period ended September 30, 2023 and 2022, no interest expense was capitalized into plant and equipment. |
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Goodwill |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill |
Goodwill consisted of the following as of September 30, 2023 and December 31, 2022:
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Leases |
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| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 2023 and 2025. 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.
The components of lease liabilities are as follows:
Total lease cost for the nine months period ended September 30, 2023 and 2022 amounted to $381,851 and $234,600, respectively. Weighted-average remaining lease term is 1.75 years, and weighted-average discount rate is 3%.
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2023:
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Bank loan |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bank loan |
Bank loan consisted of the following as of September 30, 2023 and December 31, 2022:
APB is affiliated with Chan Heng Fai, a director and principal shareholder of the Company, by virtue of Mr. Chan’s equity ownership of parent company of APB and his service as the Executive Chairman of the parent company of APB. APB is also affiliated with the Company directors Lum Kan Fai, Robert Trapp, Wong Shui Yeung, and Wong Tat Keung since they are affiliated with Mr. Chan and certain of his affiliated companies by virtue of services as a director, officer or professional advisor to those affiliated companies. |
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Convertible loan |
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| Convertible loan |
Movement of the components of the convertible loan
The movement in the liability and derivative components of the convertible loan as of September 30, 2023 and December 31, 2022 are set out below:
VEII entered into a Convertible Credit Agreement, dated and effective as of January 27, 2023, (“2023 Credit Agreement”) with the following lenders: (1) Hapi Metaverse, Inc., (formerly, “GigWorld, Inc.”), a Delaware corporation, (“HMI”) and (2) American Wealth Mining Corp., a Nevada corporation, (“AWMC”). HMI and AWMC are also referred to individually as a “Lender” and collectively, as the “Lenders.” AWMC changed its corporate name to “New Electric CV Corp.” in March 2023.
Maximum Credit Line; Interest; Advances; Payment. The 2023 Credit Agreement provides for a maximum credit line of One Million Five Hundred Thousand Dollars and No Cents ($1,500,000.00) (“Maximum Credit Line”) with simple interest accrued on any advances of the money under the 2023 Credit Agreement at Eight Percent (8%) per annum. The principal amount of any advance of money under the 2023 Credit Agreement (each being referred to as an “Advance”) is due in a lump sum, balloon payment on the third annual anniversary of the date of the Advance (“Advance Maturity Date”). Accrued and unpaid interest on any Advance is due and payable on a semi-annual basis with interest payments due on the last business day of June and last business day of December of each year. A Lender may demand that any portion or all of the unpaid principal amount of any Advance as well as accrued and unpaid interest thereon may be paid by shares of Company Common Stock in lieu of cash payment. Company must request Advances from the Lenders. Either Lender may elect to separately, fully fund the Advance, or both Lenders may jointly elect to fund the Advance based on Lenders’ agreement on the portion of the Advance to be funded by each Lender. Lenders may severally or jointly reject any request for an Advance and neither Lender has an obligation to fund any Advance under the 2023 Credit Agreement.
Use of Proceeds. Advances may be used to fund general working capital needs of the Company, which includes: expansion of existing business operations or business lines to new geographical markets in Asia or other geographical markets; for development of new business lines (whether in existing or new geographical markets); acquisition of assets or companies (whether in existing or new geographical markets); and payment of any sums due under the Credit Agreement.
Unsecured Debt Obligation. Any Advance will be an unsecured general debt obligation of the Company. Further, there are no personal guarantees under the 2023 Credit Agreement.
Events of Default. The following constitute an event of default under the 2023 Credit Agreement: (1) failure to make a payment of any Advance when due and payable and Company fails to cure such default within ten (10) days after receipt of a written notice from the Lender; (2) failure in the observance or performance of any non-monetary material covenant or agreement and Company fails to cure such default within thirty (30) days after written notice of default from the Lender; (3) failure of Company to comply with the obligations, terms, covenants or conditions of 2023 Credit Agreement, or breach by Company of any obligations, covenant, representation or warranty that is not cured within thirty (30) days from the receipt of a written notice from a Lender; (4) filing of a petition in bankruptcy or the commencement of any proceedings under any bankruptcy laws by or against Company, which filing or proceeding is not dismissed within sixty (60) days after the filing or commencement thereof, or if Company becomes insolvent; (5) petition is filed with a court to place the Company in receivership or similar status for benefit of creditors and appointment of a receiver is unvacated and unstayed for an aggregate of sixty (60) days; (6) for debts or judgments in excess of One Hundred Thousand Dollars and No Cents ($100,000.00) in face amount, a writ of execution or attachment or any similar process shall be issued or levied against all of the Company’s assets, or any judgment involving monetary damages shall be entered against the Company which shall become a lien on all of the Company’s assets and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within sixty (60) days after its entry or levy; or (7) Company ceases to carry on its primary business line for ninety (90) consecutive days. The remedy for any default that is not timely cured, if a cure period is allowed, is all sums due under the 2023 Credit Agreement becoming immediately due and payable.
Conversion Right. The 2023 Credit Agreement grants the following conversion rights to each Lender. Optional Conversion. Each Advance shall be convertible, in whole or in part, into shares of Company Common Stock at the option of the Lender who made that Advance (being referred to as a “Conversion”), at any time and from time to time, at a price per share equal the “Conversion Price”. The Conversion Price for a Conversion shall be the average closing price of the Company Common Stock as quoted by the Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the Lender effecting the Conversion if Bloomberg Financial Markets is not then reporting prices of the Company Common Stock), for the three (3) consecutive trading days prior to date of the Notice of Conversion. The Conversion Price is not limited by a minimum price per share of Company Common Stock applicable to the Conversion. As such, if a Lender or Lenders loan a significant sum of money under the 2023 Credit Agreement and then elect to convert all or most of the loaned amount into shares of Company Common Stock, the resulting issuance of shares of Common Stock could significantly dilute existing Company shareholders.
Conversion upon a Change in Control Transaction. In the event that prior to the time of repayment of any Advance that has not previously been converted into shares of Company Common Stock, the Company shall consummate a “Change in Control Transaction” (as defined below), then the total amount of Advances outstanding shall convert into shares of Company Common Stock at the Conversion Price. “Change in Control Transaction” will be deemed to exist if (1) there occurs any consolidation, merger or other business combination of the Company with or into any a third party and the Company is not the surviving entity, or any other corporate reorganization or transaction or series of related transactions in which the voting stockholders of the Company prior to such event cease to own 50% or more of the voting power of the surviving entity after the transaction, or (2) in one or a series of related transactions, there is a sale or transfer of all or substantially all of the operating assets of the Company or all of its wholly-owned subsidiaries, determined on a consolidated basis, to a third party.
Conversion upon Breach of this Agreement. In the event that the Company breaches any provision of the 2023 Credit Agreement and does not remedy that breach within thirty (30) days after receipt of a written demand from a Lender, then each of the Lenders may convert all or any portion of the unpaid amount of their respective Advance or Advances into shares of Company Common Stock at the Conversion Price.
Warrants. In the event that a Lender elects to convert any portion of an Advance into shares of Company Common Stock in lieu of cash payment in satisfaction of that Advance, then Company will issue to the Lender five (5) detachable warrants for each share of Company Common Stock issued in a Conversion (“Warrants”). Each Warrant will entitle the Lender to purchase one (1) share of Common Stock (“Warrant Shares”) at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant.
Chan Heng Fai is deemed to control HMI by virtue of his majority ownership of stock of the parent company of HMI’s primary shareholder, Alset International Inc. (“AIL”). AIL owns approximately 99.69% of HMI issued shares of common stock. Further, Mr. Chan is the Chairman and Chief Executive Officer of AIL and he is also the Chairman, Chief Executive Officer and largest stockholder of Alset Inc., which is the majority stockholder of AIL. Mr. Chan also serves as HMI’s Executive Chairman of the HMI’s Board of Directors since December 1, 2017, and he served as a HMI director since October 23, 2014. Previously, Mr. Chan served as HMI’s Acting Chief Executive Officer. Lum Kan Fai, a director of the Company, serves as a Vice Chairman of HMI and served as HMI’s chief executive officer, president and chief technology officer.
Mr. Chan also controls AWMC by virtue of his ownership of approximately 95.6% of issued shares of AWMC common stock. Robert H. Trapp, a director of the Company, is also a director of AWMC.
Potential Change of Control. While the purpose of the 2023 Credit Agreement is to provide necessary working capital to the Company and 2023 Credit Agreement is not intended by the Company or Lenders to be a mechanism for effecting any change in control of the Company, if a Lenders or Lenders loan a significant sum under the 2023 Credit Agreement and then elects to convert those sums into shares of Company Common Stock as well as exercise Warrants issued with those shares, then a Lender or the Lenders, either separately or in combination with shares of Company Common Stock held by affiliates, or upon conversion of debt and exercise of Warrants, could attain more than 50% of the issued shares of Company Common Stock and thereby attain voting control of the Company. Since the Conversion Price does not have a floor or minimum per share price, any decrease in the market price of the Company Common Stock will increase the number of shares that a Lender could receive in a Conversion and the exercise of Warrants. See “Conversion of Loan” and Item 15 Loan from related parties below.
While the conversion provision of the 2023 Credit Agreement and potential issuance of Warrants under the 2023 Credit Agreement are not intended to be anti-takeover provisions by the Company, those provisions of the 2023 Credit Agreement may operate to discourage any bidder from seeking to acquire or control the Company due to the percentage ownership of Company Common Stock and Warrants by, as well as debt obligations owed by the Company to, affiliates of Mr. Chan.
Conversion of Loan. On September 6, 2023, the Company received a Notice of Conversion from HMI to convert One Million Three Hundred Thousand Dollars ($1,300,000.00) of the principal amount loaned to the Company under the 2023 Credit Agreement (“Converted Principal”) into shares of Company’s Common Stock. Under the terms of the 2023 Credit Agreement and Notice of Conversion, HMI has demand rights for the conversion of outstanding debt into equity. On September 18, 2023, the Converted Principal resulted in issuance of shares of Common Stock to HMI along with issuance of Warrants to purchase a maximum of 36,723,160 shares of Common Stock (“Underlying Shares”) to HMI. Under the 2023 Credit Agreement, the conversion rate for the Conversion Shares is $0.1770 per share, and the Warrants have an exercise price of $0.1770 per share and an exercise period of five (5) years from date of issuance of warrants. The Company was in favor of the conversion in order to end interest payments under the 2023 Credit Agreement and thereby free up capital for operational expenses.
As of the date of the filing of this Quarterly Report on Form 10-Q, HMI has not stated when or if it will exercise any of the Warrants. The issuance of Conversion Shares, Warrants and Underlying Shares was made in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”) and Rule 506(b) of Regulation D thereunder. The Conversion Shares and Warrants are, and Underlying Shares will be if issued, “restricted securities” under Rule 144 of the Securities Act. |
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Other payables and accrued liabilities |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other payables and accrued liabilities |
Other payables and accruals consisted of the following as of September 30, 2023 and December 31, 2022:
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.
Expenses on staff welfare benefits and MPF Scheme for the nine months period ended September 30, 2023 and 2022 amounted to $ and $, respectively.
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Deferred income |
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| Deferred Income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred income |
Deferred income consisted of the following as of September 30, 2023 and December 31, 2022:
The change in deferred income for the nine months period ended September 30, 2023 was primarily due to new billings in advance of revenue recognition.
The following table presents changes in the balances of the company deferred income:
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Statutory reserves |
9 Months Ended | ||||||||||||
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| 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
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Loan from related parties |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 30, 2023 | ||||
| Loan From Related Parties | ||||
| Loan from related parties |
On September 28, 2023, the Company entered into a Loan Agreement and Promissory Note (collectively, the “Loan Agreement”) with Alset International Limited, a public Singapore corporation, (“Alset International”) for an unsecured loan of Five Hundred Thousand U.S. Dollars and No Cents (USD$500,000.00) principal amount (“Principal”) to the Company. Principal accrues simple interest at Eight Percent (8%) per annum. Repayment of Principal and accrued interest thereon is to be made as follows:
(1) Principal will be paid in a single lump sum payment on or by the six (6) month anniversary of the effective date of the Loan Agreement, being September 28,2023, (being the “Maturity Date”); and
(2) Interest accrued on Principal shall be paid on the last business day on a calendar monthly basis with initial accrued Interest payments commencing on September 28, 2023.
Company has the right to prepay all or any portion of the Principal and Interest accrued on the Principal, without penalty, upon ten (10) days’ prior notice to Alset International. The Principal was advanced in full by Alset International on October 4, 2023.
Mr. Chan Heng Fai, a non-executive director of the Company, who is deemed the owner of 49.63% of the issued shares of Company’s Common Stock by virtue of shares of Common Stock held by Mr. Chan, and the following share ownership of Company’s Common Stock by entities that Mr. Chan is deemed to control: shares held by Hapi Metaverse Inc., shares held by BMI Capital Partners International Limited, shares held by Liquid Value Development Pte Ltd. and shares held by Decentralized Sharing Systems, Inc.
Alset International is a majority-owned subsidiary of Alset Inc., a Texas corporation, (“Alset”). Mr. Chan owns approximately 53.3% of the issued shares of common stock of Alset and Mr. Chan is the Chairman and Chief Executive Officer of Alset and Alset International. Further, Wong Shui Yeung and Wong Tat Keung, who are directors of the Company, are also directors of Alset Inc.
Company directors Chan Heng Fai, Wong Shui Yeung and Wong Tat Heung recused themselves from the vote of the Company’s Board of Directors on approval of the Loan Agreement and transactions contemplated under the Loan Agreement.
Purpose of the Loan Agreement was to provide short term working capital to the Company. |
Subsequent event |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 30, 2023 | ||||
| Subsequent Events [Abstract] | ||||
| Subsequent event |
The Company has evaluated all subsequent events and transactions through November 14, 2023, the date that the consolidated financial statements were available to be issued and noted no subsequent events requiring financial statement recognition or disclosure. |
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 and majority 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 September 30, 2023:
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| Going Concern |
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company had an operating loss of $991,883 for the nine months ended September 30, 2023, and has cash reserves of $234,724 as of September 30, 2023. The Company has relied on debt funding to pay for operating expenses and business development efforts in 2023 that were not covered by operating revenues. If the Company continues to incur operating losses as incurred in the first nine months of fiscal year 2023 and does not significantly increase its cash reserves, and if the Company does not also receive additional funding from existing lenders or from other sources to provide the working capital needed to cover those continuing operating losses, then the Company would be forced to reduce its operating expenses and business development efforts and the issue of the Company as a going concern may arise. While the existing lenders of the Company and Company's majority shareholder are affiliated, there can be no assurance of additional debt or equity funding for the Company from the existing lenders or the majority shareholder. |
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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. The Company does not have any cash equivalents at September 30, 2023 or December 31, 2022. |
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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 September 30, 2023 and December 31, 2022, there was no allowance for uncollectible accounts receivable. Management believes that the remaining accounts receivable are collectable.
The company evaluated the accounting standards update related to the Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company. |
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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 |
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 following table represents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis as of:
As of September 30, 2023 and December 31, 2022, the fair values of the Company’s cash and cash equivalents, accounts receivable, accounts payable, other receivables and prepayments, other payables and accrued liabilities, and balances with related parties approximated the carrying values of these instruments presented in the Company’s consolidated balance sheets due to the short maturities of these instruments. |
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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 |
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. We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606.
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 performance obligations.
Determining whether such products and services within a customer contract are considered distinct performance obligations that should be accounted for separately requires significant judgment. Accordingly, we review customer contracts to identify all separate promises to transfer goods and services that would be considered performance obligations. Judgment is also required in determining whether an option to acquire additional products and services within a customer contract represents a material right that the customer would not receive without entering into that contract.
The Company’s contracts often contain multiple performance obligations, which 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 performance obligations 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. If a contract contains multiple performance obligations, the Company accounts for each distinct performance obligation separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Any discounts or expected potential future price concessions are considered when determining the total transaction price.
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 nine months period ended September 30, 2023 and 2022.
Billings in excess of revenues recognized are recorded as deferred income. |
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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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| Lease accounting |
The Company categorize leases at their inception as either operating or finance leases. Lease agreements cover certain office space, warehouse space, and vehicles. Most of these leases are operating leases; however, certain vehicles are leased under finance leases.
Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Finance leases are included in net property, current installments of long-term debt, and long-term debt in our consolidated balance sheets.
Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. As the Company’s leases generally do not provide an implicit discount rate, the Company uses the estimated collateralized incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the operating lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest and requires estimates and assumptions including credit rating, credit spread, and adjustments for the impact of collateral. The Company believes that this is the rate it would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term.
Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property. |
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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 nine months ended September 30, 2023 and 2022 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 nine months ended September 30, 2023 and 2022 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 nine months ended September 30, 2023 and 2022 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 Renminbi (“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 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.
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] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consolidated entities |
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| Schedule of estimated use full life of plant and equipment |
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| Schedule of estimated use full life of goodwill and intangibles |
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| Schedule of measured at fair value on a recurring basis |
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| Schedule of revenue record |
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| Schedule of foreign currency translation |
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Accounts receivable (Tables) |
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| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accounts receivable |
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| Schedule of changes in accounts receivable |
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Other receivables and prepayments (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of other receivables and prepayments |
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Inventories (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventories |
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Plant and equipment, net (Tables) |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of plant and equipment |
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Goodwill (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of goodwill |
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Leases (Tables) |
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| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of operating lease agreements |
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| Schedule of components of lease liabilities |
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| Schedule of maturities of lease liabilities |
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Bank loan (Tables) |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of bank loan |
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Convertible loan (Tables) |
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| Convertible Loan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of convertible debt |
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Other payables and accrued liabilities (Tables) |
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| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of other payables and accrued liabilities |
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Deferred income (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of deferred income |
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| Schedule of changes in deferred income |
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Related party and shareholder transactions (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of related party balances |
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| Schedule of related party transaction |
|
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Nature of Operations and Continuance of Business (Details Narrative) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
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 | 100.00% |
Summary of Significant Accounting Policies (Details 2) |
Sep. 30, 2023 |
|---|---|
| Customer Relationships [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Finite-Lived Intangible Asset, Useful Life | 3 years |
Summary of Significant Accounting Policies (Details 4) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Product Information [Line Items] | ||||
| Revenues | $ 2,960,825 | $ 2,556,808 | $ 8,695,412 | $ 7,737,842 |
| Systems Development And Integration [Member] | ||||
| Product Information [Line Items] | ||||
| Revenues | 68,277 | 28,964 | 181,193 | 236,311 |
| Systems Maintenance [Member] | ||||
| Product Information [Line Items] | ||||
| Revenues | 2,380,304 | 2,304,740 | 7,049,784 | 6,386,367 |
| Sales Of Hardware And Consumables [Member] | ||||
| Product Information [Line Items] | ||||
| Revenues | $ 512,244 | $ 223,104 | $ 1,464,435 | $ 1,115,164 |
Summary of Significant Accounting Policies (Details 5) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
| China, Yuan Renminbi | |||||
| Exchange rate average period | 7.2308 | 6.8129 | 7.0075 | 6.5805 | |
| USD exchange rate | 7.2632 | 7.0483 | |||
| Hong Kong, Dollars | |||||
| Exchange rate average period | 7.800 | 7.800 | 7.800 | 7.800 | |
| USD exchange rate | 7.800 | 7.800 | |||
| Philippines, Pesos | |||||
| Exchange rate average period | 54.0664 | 55.9140 | 53.8659 | 52.9091 | |
| USD exchange rate | 54.7368 | 58.4270 | |||
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
| Accounting Policies [Abstract] | |||||
| Operating loss | $ 234,151 | $ 240,950 | $ 991,883 | $ 77,822 | |
| Cash reserves | 234,724 | 234,724 | $ 208,776 | ||
| Cash equivalents | 0 | 0 | 0 | ||
| Allowance for uncollectible accounts receivable | $ 0 | $ 0 | $ 0 | ||
Accounts receivable (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Credit Loss [Abstract] | |||
| Accounts receivable | $ 1,463,901 | $ 1,133,058 | $ 858,617 |
Accounts receivable (Details 1) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Credit Loss [Abstract] | |||
| Accounts receivable | $ 1,463,901 | $ 1,133,058 | $ 858,617 |
| Accounts receivable Additions | 8,321,916 | 10,711,439 | |
| Accounts receivable Deductions | $ (7,991,073) | $ (10,436,998) |
Other receivables and prepayments (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Receivables [Abstract] | ||
| Deposits and prepaid expense | $ 588,056 | $ 256,355 |
| Others | 399,864 | 216,494 |
| Other receivables and prepayments | $ 987,920 | $ 472,849 |
Inventories (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Finished goods | $ 273,386 | $ 225,662 |
Plant and equipment, net (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property, Plant and Equipment, Gross | $ 1,292,155 | $ 1,295,785 |
| Less: accumulated depreciation | (948,269) | (796,288) |
| Plant and equipment, net | 343,886 | 499,497 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property, Plant and Equipment, Gross | 89,716 | 93,099 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property, Plant and Equipment, Gross | 266,498 | 271,964 |
| Computer Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property, Plant and Equipment, Gross | 414,851 | 398,549 |
| Computer Software [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property, Plant and Equipment, Gross | 245,550 | 257,943 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property, Plant and Equipment, Gross | 214,713 | 213,403 |
| Building [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property, Plant and Equipment, Gross | $ 60,827 | $ 60,827 |
Plant and equipment, net (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 176,538 | $ 157,057 |
| Interest expense | $ 0 | $ 0 |
Goodwill (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Goodwill arising from acquisition of TSI | $ 206,812 | $ 206,812 |
Leases (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| Operating lease right-of-use assets, net | $ 1,015,248 | $ 555,069 |
Leases (Details 1) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| Lease liabilities, current | $ 479,696 | $ 423,490 |
| Lease liabilities, non-current | 524,709 | 117,592 |
| Present value of lease liabilities | $ 1,004,405 | $ 541,082 |
Leases (Details 2) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| Year one | $ 518,376 | $ 380,757 |
| Year two | 295,772 | 132,685 |
| Year three | 228,269 | 38,070 |
| Total undiscounted cash flows | 1,042,417 | 551,512 |
| Less: Imputed interest | (38,012) | (10,430) |
| Present value of lease liabilities | $ 1,004,405 | $ 541,082 |
Leases (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Leases | ||
| Total lease cost | $ 381,851 | $ 234,600 |
| Weighted-average remaining lease term | 1 year 9 months | |
| Weighted-average discount rate | 3.00% | |
Bank loan (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|||||
|---|---|---|---|---|---|---|---|
| Debt Disclosure [Abstract] | |||||||
| Long term bank loan (i) | [1] | $ 48,541 | $ 70,027 | ||||
| Less: Current portion of long term bank loan (i) | [1] | (28,140) | (27,378) | ||||
| Total (Long term) | 20,401 | 42,649 | |||||
| Short term bank loan (ii) | 940,147 | [2] | 1,012,110 | ||||
| Current portion of long term bank loan (i) | [1] | 28,140 | 27,378 | ||||
| Total | $ 968,287 | $ 1,039,488 | |||||
| |||||||
Convertible loan (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Short-Term Debt [Line Items] | ||||
| Beginning balance | ||||
| Issuance of convertible loan | 1,500,000 | |||
| Conversion | (1,180,441) | |||
| Change in fair value of embedded derivatives | $ 27,164 | 61,916 | ||
| Interest expenses | 65,024 | |||
| Ending balance | 446,499 | 446,499 | ||
| Liability Component [Member] | ||||
| Short-Term Debt [Line Items] | ||||
| Beginning balance | ||||
| Issuance of convertible loan | 172,789 | |||
| Conversion | 27,091 | |||
| Change in fair value of embedded derivatives | ||||
| Interest expenses | 65,024 | |||
| Ending balance | 264,904 | 264,904 | ||
| Derivative Component [Member] | ||||
| Short-Term Debt [Line Items] | ||||
| Beginning balance | ||||
| Issuance of convertible loan | 1,327,211 | |||
| Conversion | (1,207,532) | |||
| Change in fair value of embedded derivatives | 61,916 | |||
| Interest expenses | ||||
| Ending balance | $ 181,595 | $ 181,595 | ||
Convertible loan (Details Narrative) - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 06, 2022 |
Sep. 30, 2023 |
|
| HMI [Member] | ||
| Line of Credit Facility [Line Items] | ||
| Number of shares converted | 7,344,632 | |
| Maximum number of warrants to purchase | 36,723,160 | |
| Conversion rate | $ 0.1770 | |
| Exercise price | $ 0.1770 | |
| Term | 5 years | |
| Maximum Credit Line [Member] | ||
| Line of Credit Facility [Line Items] | ||
| Interest rate | 8.00% |
Other payables and accrued liabilities (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrual | $ 956,966 | $ 652,424 |
| Income taxes payable | 37,998 | 29,140 |
| Total other payables and accrued liabilities | $ 994,964 | $ 681,564 |
Other payables and accrued liabilities (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Payables and Accruals [Abstract] | ||
| Expenses on staff welfare benefits and MPF Scheme | $ 943,384 | $ 775,030 |
Deferred income (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Deferred Income | ||
| Service fees received in advance | $ 568,719 | $ 291,171 |
Deferred income (Details 1) - USD ($) |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Deferred Income | |||
| Deferred income | $ 568,719 | $ 291,171 | $ 236,612 |
| Deferred income Additions | 2,763,993 | 3,600,335 | |
| Deferred income Deductions | $ (2,486,445) | $ (3,545,776) |
Statutory reserves (Details Narrative) |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Remaining reserve percent | 25.00% |
| Minimum [Member] | |
| Banking regulation, maximum payout ratio | 10.00% |
| Maximum [Member] | |
| Banking regulation, maximum payout ratio | 50.00% |
Related party and shareholder transactions (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | $ 2,672,219 | $ 2,400,028 | ||||||||||||||||||||
| Due to a related party | 37,344 | 16,918 | ||||||||||||||||||||
| Value Exchange International Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | [1] | 2,393,457 | 2,058,267 | |||||||||||||||||||
| Cucumbuy.com Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | [2] | 18,536 | 33,333 | |||||||||||||||||||
| SmartMyWays Co., Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | [3] | 57,898 | 92,308 | |||||||||||||||||||
| Retail Intelligent Unit Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | [4] | 9,744 | 36,923 | |||||||||||||||||||
| AppMyWays Co., Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | [5] | 96,709 | 86,776 | |||||||||||||||||||
| TAP Technology (HK) Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | [6] | 77,349 | 54,928 | |||||||||||||||||||
| Value Exchange International (Taiwan) Co, Ltd [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due from related parties | [7] | 18,526 | 37,493 | |||||||||||||||||||
| SA-Network Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due to a related party | [8] | 22,392 | 16,918 | |||||||||||||||||||
| Smart Reward Express Limited [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due to a related party | [9] | 641 | ||||||||||||||||||||
| Value E Consultant International M Sdn Bhd X [Member] | ||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||
| Due to a related party | [10] | $ 14,311 | ||||||||||||||||||||
| ||||||||||||||||||||||
Related party and shareholder transactions (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|||||||||||||||||||||
| Value Exchange International Limited [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Service income received | [1] | $ 52,446 | $ 120,699 | $ 154,122 | $ 546,938 | |||||||||||||||||||
| Subcontracting fees payable | [1] | (133,080) | (207,748) | (650,455) | (294,659) | |||||||||||||||||||
| Management fees received | [1] | 8,410 | 25,298 | 36,286 | 55,166 | |||||||||||||||||||
| AppMyWays Co., Limited [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Service income received | [2] | 30,654 | ||||||||||||||||||||||
| Value Exchange International (Taiwan) Co, Ltd [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Service income received | [3] | 13,917 | ||||||||||||||||||||||
| Subcontracting fees payable | [3] | (36,714) | ||||||||||||||||||||||
| Cucumbuy.com Limited [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Subcontracting fees payable | [4] | (53,846) | (3,846) | (161,538) | (11,538) | |||||||||||||||||||
| Management fees received | [4] | 7,692 | 23,077 | |||||||||||||||||||||
| SmartMyWays Co., Limited [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Subcontracting fees payable | [5] | (46,154) | (138,462) | |||||||||||||||||||||
| Management fees received | [5] | 7,692 | 23,077 | |||||||||||||||||||||
| Retail Intelligent Unit Limited [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Subcontracting fees payable | [6] | (38,462) | (115,385) | |||||||||||||||||||||
| Management fees received | [6] | 3,077 | 9,231 | |||||||||||||||||||||
| TAP Technology (HK) Limited [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Subcontracting fees payable | [7] | (3,846) | (27,523) | (35,215) | (82,569) | |||||||||||||||||||
| Management fees received | [7] | 7,692 | 23,077 | |||||||||||||||||||||
| SA-Network Limited [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Subcontracting fees payable | [8] | (92,412) | (182,384) | |||||||||||||||||||||
| Value E Consultant International (M) Sdn. Bhd [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Subcontracting fees payable | [9] | (64,527) | (10,064) | (143,474) | (17,092) | |||||||||||||||||||
| Value X International Pte [Member] | ||||||||||||||||||||||||
| Related Party Transaction [Line Items] | ||||||||||||||||||||||||
| Subcontracting fees payable | [10] | $ (8,034) | $ (8,034) | |||||||||||||||||||||
| ||||||||||||||||||||||||
Loan from related parties (Details Narrative) - Loan Agreement [Member] |
1 Months Ended |
|---|---|
|
Sep. 28, 2023
USD ($)
shares
| |
| Alset International [Member] | |
| Ownership interest | 49.63% |
| Shares issued | 95,000 |
| Alset International [Member] | Chan Heng Fai [Member] | |
| Ownership interest | 53.30% |
| Hapi Metaverse [Member] | Chan Heng Fai [Member] | |
| Shares issued | 21,120,795 |
| B M I Capital Partners International [Member] | Chan Heng Fai [Member] | |
| Shares issued | 39,968 |
| Liquid Value Development Pte Ltd [Member] | Chan Heng Fai [Member] | |
| Shares issued | 18,512 |
| Decentralized Sharing Systems [Member] | Chan Heng Fai [Member] | |
| Shares issued | 313,154 |
| Alset International [Member] | |
| Unsecured loan | $ | $ 500,000.00 |
| Interest rate | 8.00% |
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