VALUE EXCHANGE INTERNATIONAL, INC. This report on Form 10-Q 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, our intention to
pursue and consummate strategic opportunities available to us and effects as
well as our ability to fund, and integrate and grow acquired business lines.
Business operations and financial condition may be materially and adversely
affected by any slowdown in regional and national economic growth, weakened
liquidity and financial condition of customers or other factors that Company
cannot foresee. Coronavirus COVID 19 continues to be a threat to business and
financial operations' condition and performance. Further, the Company being
identified by the
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
· "
· "Renminbi" and "RMB" refer to the legal currency of
· "
States;
· "SEC" or "Commission" refers to the
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
Organization.
We were incorporated in the
Current Business Focus.
We are a provider of customer-centric solutions for the retail industry in
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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
We believe that the IT Business often presents opportunities to expand a
provider's market reach or customer base by acquisitions of existing businesses
or operating assets. The Company's business strategy includes reviewing possible
acquisitions of existing businesses or operating assets in existing or adjacent
markets and to do so when and if such an acquisition appears to be compatible
and an enhancement of our core business lines and can be consummated with
available cash and other resources. Our ability to pursue and consummate
acquisitions may be limited, and has been limited, by available cash and other
resources and the perceived cost and burdens of acquiring and integrating the
target business or new operating assets into our operations. The availability of
funding and cash flow are the most significant limitations on our ability to
expand through acquisitions of businesses and assets - both in terms of money on
hand and ability to finance acquisitions. We have not expanded into any new
markets by acquisition or otherwise during the fiscal quarter ended
The Company, through its operating subsidiaries, is focusing and will focus on
its IT Business, and seek to expand its IT Business services to commercial
customers in PRC and
Initial Business Focus.
Our initial intended, primary business was to operate a credit card processing
and merchant-acquiring services company that provide credit card clearing
services to merchants and financial institutions in PRC. From inception, we
strove unsuccessfully to create and establish a proposed Global Processing
Platform concept to support the credit card processing services ("SinoPay GPP").
Specifically, the Company's IP business was to be a provider of Internet
Protocol ("IP") processing services in
With the acquisition of VEI CHN in 2014 shifted the primary business focus on our IT Business because IT Business provided a revenue generating business line and because of our strategic decision that IT Business presented a greater growth and profit potential than IP Business. Further, we believe that the SinoGPP system would require ongoing and potentially expensive marketing and sales effort as well as extensive technical upgrades and function enhancements due to the highly competitive market for Point Of Sale ("POS") systems and longer sales cycle for POS systems than IT Business project and consulting sales.
Smart Baggage Tag. Through a cooperative effort with another company, Company has the ability to market a smart baggage tag that allows consumers to track the location of their baggage through a smart phone or device using the smart baggage tag and related application. Efforts to promote the smart baggage tag were suspended due to impact of COVID-19 pandemic on air travel.
The prospects of the Smart Tag business as of the date of this Form 10-Q report are uncertain. The Company will have to determine if an expanded or sustained marketing effort for the Smart Tag is possible based on available resources and business priorities. The IT Business remains the focus of our business and funding.
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Industry Trends and Economic Conditions.
As used in this section, "IT Business" refers to the information, computer,
software and technology services and product industry in which we participate.
The IT Business in
A common problem in the IT Business is retaining skilled workers throughout the duration of a project. Due to the global nature of the IT Business and the growing demand for skilled IT Business workers, a skilled IT business worker can often readily find higher paying positions with competitors, whether local or foreign. While we have not experienced retention problems due primarily to our focus on smaller, shorter term IT business projects, we may experience retention of skilled worker problems if we grow our IT Business and undertake longer term, more complex IT business projects for customers.
IT Business is often affected by general economic conditions in our markets and
any decline in those conditions could adversely impact our business and
financial performance. During periods of economic growth, customers general
spend more for IT Business products and services. During periods of economic
contraction or uncertainty, such spending generally decreases or is deferred. As
such, the prospective business for our IT Business is generally greater during
periods of economic growth or stability in
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 2021 or fiscal year 2022 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
The nature of our IT Business is such that our most significant current asset is accounts receivable. Our most significant current liabilities are payroll related costs, which are generally paid either every two weeks or monthly. If the demand for our IT Business products and services increases, we may generally see an increase in our working capital needs, as we continue to pay our workers on a weekly or monthly basis while the related accounts receivable are outstanding for much longer than normal payment cycle, which may result in a decline in operating cash flows. Conversely, as the demand for our IT Business products and services declines, we may generally see a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level, resulting in a decline of our accounts receivable balance, with less of an effect on current liabilities due to the shorter cycle time of the payroll related items. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that a local or global economic downturn continued for an extended period.
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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 cross-selling opportunities between the IT Business and IP 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 2022 or over the longer term.
The increasing need for cybersecurity products and technologies may be a future weakness of our business plan. We do not have a current cybersecurity product and service line beyond consultants engaged to provide cybersecurity services to customers and we have not current plans to develop a cybersecurity business line. Cybersecurity companies may have an advantage over our business model in the future in that cybersecurity companies could leverage their cybersecurity offerings to also sell IT Business services and products that compete with our IT Business products and services.
We also face a possible competitive threat from Cloud computing services, which we do not provide to customers (except through third party providers). Cloud computing services can and do offer additional services to customers, which services can include the same IT Business services as our company. Cloud computing companies could leverage their relationship with customers to persuade them to use the Cloud computing service for IT Business needs. This leverage could pose a competitive threat to our IT Business. We lack the current financial and technical resources to compete in the Cloud computing business.
Covid 19 Pandemic. Since the beginning of 2020, the worldwide spread of the
novel coronavirus ("Covid 19") has been rapid and unprecedented. On
Covid 19 pandemic affected our primary operations in
Covid 19 pandemic may make funding of new and existing business or operations from third party sources more difficult due to increased demand from businesses that may be restoring suspended operations or experiencing increased demand as consumer demand rebounds in their markets, or the general economic uncertainty and increased risks of funding or financing created by surges in new variants of the Covid 19 pandemic's virus.
Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted
on
History of Value Exchange Int'l. (
VEI CHN was first established on
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VEI CHN is an investment holding company with two subsidiaries established in
Principal business
Company's primary operating subsidiary is VEI CHN. The principal business of VEI
CHN for more than 15 years is to provide the Information Technology Services and
Solutions (consisting of select services and solutions in computer software
programming and integration, and computer systems, Internet and information
technology systems engineering, consulting, administration and maintenance,
including e-commerce and payment processing) to the Retail Sector, primarily to
leading retailers in
a) Systems maintenance and related service
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
b) Systems development and integration
Financial Performance Highlights
The following are some financial highlights for the first quarter of 2022:
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· Net revenue: Our net revenues were
31, 2022, as compared to$2,203,772 for the same period in 2021, an increase of$387,412 or 17.6%.
· Gross profit: Gross profit for the three months ended
$340,124 or 13.1% of net revenues, as compared to$737,540 or 33.5% of net revenues for the same period in 2021, a decrease of$397,416 or 53.9%.
· (Loss) profit from operations: Our loss from operations totaled
the three months endedMarch 31, 2022 , as compared to profit from operations totaled$305,381 for the same period in 2021, a change of$414,924 .
· Net (loss) income: We had a net income of
March 31, 2022 , compared to$376,611 for the same period in 2021, a change of$418,840 or 111.2%.
· Basic and diluted net income per share was
March 31, 2022 . 32 RESULTS OF OPERATIONS
Comparison of Three Months Ended
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
Three months ended March 31, Change
2022 2021
US$ US$ US$ %
NET REVENUES
Service income 2,591,184 2,203,772 387,412 17.6%
COST OF SERVICES
Cost of service income (2,251,060) (1,466,232 ) (784,828) 53.5%
GROSS PROFIT 340,124 737,540 (397,416) (53.9%)
Operating expenses:
General and administrative
expenses (293,955) (434,878 ) 140,923 (32.4%)
Foreign exchange gain (loss) (155,712) 2,719 (158,431) (5826.8%)
(LOSS) INCOME FROM
OPERATIONS (109,543) 305,381 (414,924) (135.9%)
OTHER INCOME (EXPENSES) 69,502 75,127 (5,625) (7.5%)
(LOSS) INCOME BEFORE
PROVISION FOR INCOME
TAXES (40,041) 380,508 (420,549) (110.5%)
INCOME TAXES EXPENSES (2,188) (3,897) 1,709 (43.9%)
NET (LOSS) INCOME (42,229) 376,611 (418,840) (111.2%)
Net revenues. Net revenues were
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
Gross profit. Gross profit for the three months ended
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General and administrative expenses. General and administrative expenses include
the costs associated with staff and support personnel
(Loss) profit from operations. As a result of the above, our loss from
operations totaled
Income taxes expenses. Income taxes expenses totaled
Net (loss) income. As a result of the foregoing, we had a net loss of
Liquidity and Capital Resources
As of
Cash Flows
(All amounts in U.S. dollars)
Three Months Ended
March 31,
2022 2021
US$ US$
Net cash provided by (used in) operating
activities 14,893 (180,716)
Net cash used in investing activities (59,938) (2,751)
Net cash used in financing activities (26,252) (80,312)
Effect of exchange rate changes on cash and cash
equivalents 6,449 (6,025)
Net decrease in cash and cash equivalents (64,848) (269,804)
Cash and cash equivalents at the beginning of
period 289,398 523,337
Cash and cash equivalents at the end of period 224,550 253,533
Operating Activities
Net cash used in operating activities was
1) A change of Accounts receivable, and Accounts payable increased our operating
cash balances by $44,169 and $680,181 respectively; offset by
2) Net loss of
income of $376,611 for the same period in 2021; and
3) A change of Amounts due from related parties, and Other payables and accrued
liabilities decreased our operating cash balances by
34 Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash used in financing activities was
Future Financings
We believe that our cash on hand and cash flow from operations will meet our expected capital expenditure and working capital requirements for the next 12 months. However, we may in the future require additional cash resources due to changes in business conditions, implementation of our strategy to expand our production capacity, sales, marketing and branding activities or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our consolidated financial statements and accompanying notes have been prepared
in accordance with
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
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Place of incorporation Ownership percentage
Value Exchange International, Inc. USA Parent Company
Value Exchange Int'l (China) 100%
Limited Hong Kong
Value Exchange Int'l (Shanghai) 100%
Limited PRC
Value Exchange Int'l (Hong Kong) 100%
Limited Hong Kong
TapServices, Inc. Philippines 100%
Value Exchange Int'l (Hunan) 51%
Limited PRC
Shanghai Zhaonan Hengan
Information
Technology Co., Ltd. PRC 51%
Use of Estimates
Preparing consolidated financial statements in conformity with
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
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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.
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the three months period endedMarch 31, 2022 and 2021. Three Months Three Months Ended March 31, Ended March 31, 2022 2021 US$ US$ (unaudited) (unaudited) NET REVENUES Service income - systems development and integration 88,029 34,077 - systems maintenance 1,921,189 1,608,466 - sales of hardware and consumables 581,966 561,229 2,591,184 2,203,772 37
Billings in excess of revenues recognized are recorded as deferred revenue.
Income taxes
The Company accounts for income taxes in accordance with the accounting standard issued by the Financial Accounting Standard Board ("FASB") for income taxes. Under the asset and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The charge for taxation is based on the results for the reporting period as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
Under the accounting standard regarding accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
Foreign currency translation
The functional currency and reporting currency of the Company is the
Quarter ended March 31, 2022 March 31, 2021 RMB : USD exchange rate 6.3468 6.5152 average period ended HKD : USD exchange rate 7.800 7.800 average period ended PESO : USD exchange rate 50.4854 47.7064 average period ended Quarter ended March 31, 2022 December 31, 2021 RMB : USD exchange rate 6.32486.5864 HKD : USD exchange rate 7.8007.800 PESO : USD exchange rate 50.4854 47.7064 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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