VALUE EXCHANGE INTERNATIONAL, INC. This report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include, without limitation, statements containing the words "believes," "anticipates," "expects," "intends," "projects," "will," "should," "may," "hopes" and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report include, but are not limited to, expectations of future levels of business development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us and effects as well as our ability to fund, and integrate and grow any acquired or new business operations. Business operations and financial condition may be materially and adversely affected by any slowdown in regional and national economic growth, weakened liquidity and financial condition of customers or other factors that Company cannot foresee. Coronavirus COVID 19 continues to be a threat to business and financial operations' condition and performance. Further, the Company being identified by theSecurities and Exchange Commission or "SEC" inApril 2022 as a Commission Identified Issuer under the Holding Foreign Companies Accountable Act or "HFCAA" may have an adverse impact on the public market for Company Common Stock and hinder ability of Company to raise working capital from investors or lenders. Forward-looking statements are subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. New risks and uncertainties emerge from time to time, and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The forward-looking statements made in this report on Form 10-Q relate only to events as of the date on which the statements are made and we undertake no obligation to update them to reflect events or circumstances after the date of this report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
These forward-looking statements include, but are not limited to, statements concerning the following:
•our ability to retain existing customers, acquire new customers, and expand our customer reach faced with limitations on marketing imposed by COVID 19 pandemic restrictions on travel and gatherings and limitations of available cash flow and funding; •our expectations regarding our future financial performance, including total revenue, gross profit/(loss), net income/(loss), adjusted gross profit/(loss), and adjusted EBITDA; •the impact of the COVID-19 pandemic and emerging variants and subvariants of that virus as well as governmental and private sector/customer responses thereto on our business and financial condition;
•the impact of any economic disruptions, including inflationary pressures, or on our business and financial condition;
•our ability to maintain our business model and improve our capital and marketing efficiency;
•our ability to maintain and enhance our brand and reputation in existing markets and new market niches;
•our ability to effectively manage any future growth of our business;
•our ability to raise additional capital as needed and on affordable terms and conditions as well as to prudently use existing funding;
•our ability to improve our product/service offerings, introduce new products/services and expand into additional markets or niches within existing markers through effective marketing and sales efforts;
•our ability to compete effectively with existing competitors and new market entrants in our industry;
•our ability to engage, retain and afford qualified personnel and contractors;
•our ability to protect our and any customer data and intellectual property and pay any costs associated therewith; and
•our ability to stay in compliance with laws and regulations of
27
These risks and uncertainties are reviewed and updated with eachSEC report and accompany, but are not limited to those described in "Risk Factors" contained in the Company's reports filed with theU.S. Securities and Exchange Commission , including the Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 and any amendments to that Form 10-K.
Unless the context otherwise indicates, references in this report to the terms
"VEII" "the Company," "we," "our" and "us" refer to
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 theState of Nevada onJune 26, 2007 under the name "China Soaring Inc. " We changed the Company's name to "Sino Payments, Inc. " onNovember 26, 2008 and then further changed to the current name as "Value Exchange International, Inc. " inOctober 2016 . Our Common Stock's trading symbol changed at the same time from "SNPY" to "VEII." Our common stock is quoted
on the OTCQB Venture Market. Current Business Focus.
We are a provider of customer-centric solutions for the retail industry in
By integrating market-leading Point-of-Sale/Point-of-Interaction ("POS/POI"),
Merchandising, Customer Relations Management or "CRM" and related rewards,
Locational Based (GPS & Indoor Positioning System ("IPS")) Marketing, Customer
Analytics, Business Intelligence solutions, our products and services are
intended to provide retailers with the capability to offer a consistent shopping
experience across all channels, enabling them to easily and effectively manage
the customer lifecycle on a one-to-one basis. We promote ourselves as a single
IT source for retailers who want to extend existing traditional transaction
processing to multiple points of interaction, including the Internet, kiosks and
wireless devices. Our products and services are focused on helping retailers
realize the full benefits of Customer Chain Management with its suite of
solutions that focus on the customer, on employees, and the infrastructure that
supports the selling channel. Company is headquartered in Hong Kong and with
offices in Shenzhen , Guangzhou , Shanghai , Beijing, China ; Manila, Philippines ;
and Kuala Lumpur, Malaysia .
We believe that the IT Business often presents opportunities to expand a
provider's market reach or customer base by acquisitions of existing businesses
or operating assets. The Company's business strategy includes reviewing possible
acquisitions of existing businesses or operating assets in existing or adjacent
markets and to do so when and if such an acquisition appears to be compatible
and an enhancement of our core business lines and can be consummated with
available cash and other resources. Our ability to pursue and consummate
acquisitions may be limited, and has been limited, by available cash and other
resources and the perceived cost and burdens of acquiring and integrating the
target business or new operating assets into our operations. The availability of
funding and cash flow are the most significant limitations on our ability to
expand through acquisitions of businesses and assets - both in terms of money on
hand and ability to finance acquisitions. We have not expanded into any new
markets by acquisition or otherwise during the fiscal quarter ended June 30,
2022 .
28
The Company, through its operating subsidiaries, is focusing and will focus on its IT Business, and seek to expand its IT Business services to commercial customers in PRC andAsia 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 andChina than the "IP Business" (as defined below) and presents an industry segment that better suits our current technical capabilities, marketing capabilities and
financial resources.
Initial Business Focus.
Our initial intended, primary business was to operate a credit card processing
and merchant-acquiring services company that provide credit card clearing
services to merchants and financial institutions in PRC. From inception, we
strove unsuccessfully to create and establish a proposed Global Processing
Platform concept to support the credit card processing services ("SinoPay GPP").
Specifically, the Company's IP business was to be a provider of Internet
Protocol ("IP") processing services in Asia to bank card-accepting merchants
("IP Business"). The prior Company efforts to establish an IP Business failed
despite a prolonged effort.
With the acquisition of VEI CHN in 2014 shifted the primary business focus on
our IT Business because IT Business provided a revenue generating business line
and because of our strategic decision that IT Business presented a greater
growth and profit potential than IP Business. Further, we believe that the
SinoGPP system would require ongoing and potentially expensive marketing and
sales effort as well as extensive technical upgrades and function enhancements
due to the highly competitive market for Point Of Sale ("POS") systems and
longer sales cycle for POS systems than IT Business project and consulting
sales.
Smart Baggage Tag. Through a cooperative effort with another company, Company
has the ability to market a smart baggage tag that allows consumers to track the
location of their baggage through a smart phone or device using the smart
baggage tag and related application. Efforts to promote the smart baggage tag
were suspended due to impact of COVID-19 pandemic on air travel.
The prospects of the Smart Tag business as of the date of this Form 10-Q report
are uncertain. The Company will have to determine if an expanded or sustained
marketing effort for the Smart Tag is possible based on available resources and
business priorities. The IT Business remains the focus of our business and
funding.
Industry Trends and Economic Conditions.
The IT Business inHong Kong andChina 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 penetrateHong Kong andChina 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 theHong Kong andChina markets. We may be unable to afford or effectively compete for necessary skilled workers inHong Kong ,Philippines andChina and, if we are unable to afford or effectively compete for necessary skilled workers, our growth and ability to attain and sustain profit operations in the IT Business may fail. We have not experienced any significant problems in recruiting necessary skilled workers in fiscal
years 2021 or 2022 to date. 29
A common problem in the IT Business is retaining skilled workers throughout the duration of a project. Due to the global nature of the IT Business and the growing demand for skilled IT Business workers, a skilled IT business worker can often readily find higher paying positions with competitors, whether local or foreign. While we have not experienced retention problems due primarily to our focus on smaller, shorter term IT business projects, we may experience retention of skilled worker problems if we grow our IT Business and undertake longer term, more complex IT business projects for customers. IT Business is often affected by general economic conditions in our markets and any decline in those conditions could adversely impact our business and financial performance. During periods of economic growth, customers general spend more for IT Business products and services. During periods of economic contraction or uncertainty, such spending generally decreases or is deferred. As such, the prospective business for our IT Business is generally greater during periods of economic growth or stability inHong Kong orChina orManila, Philippines , respectively, and decreases during periods of economic decline or uncertainty inHong Kong, China orManila, 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 inHong Kong ,Philippines orChina .China has experienced a less dynamic growth in gross national product in the past year and this may reduce the willingness of customers to spend on IT Business or IP Business. The IT Business is global and, with the growth of cloud computing, there is a growing capability and infrastructure for companies in a foreign nation to provide IT Business to customers around the globe as a complement to cloud computing. We have not seen any significant impact of cloud computing on our IT Business as of the fiscal quarter endingJune 30, 2022 , but we perceive that the expansion of cloud computing coupled with IT services and products could allow foreign companies to provide IT Business products and services to its cloud computing customers in ourHong Kong andChina core markets as well as inthe Philippines . We may find it more difficult to compete for IT Business inHong Kong andChina , and perhapsthe 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 inHong Kong andChina markets as well asthe Philippines . The nature of our IT Business is such that our most significant current asset is accounts receivable. Our most significant current liabilities are payroll related costs, which are generally paid either every two weeks or monthly. If the demand for our IT Business products and services increases, we may generally see an increase in our working capital needs, as we continue to pay our workers on a weekly or monthly basis while the related accounts receivable are outstanding for much longer than normal payment cycle, which may result in a decline in operating cash flows. Conversely, as the demand for our IT Business products and services declines, we may generally see a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level, resulting in a decline of our accounts receivable balance, with less of an effect on current liabilities due to the shorter cycle time of the payroll related items. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that a local or global economic downturn continued for an extended period. In order for us to attain sustained success in the near term, we must continue to maintain and grow our customer base, provide high-quality service and satisfy our existing clients. In the current economic environment, we must provide our customers with service offerings that are appropriately priced, satisfy their needs, and provide them with measurable business benefits. While we have recently experienced more demand for our IT Business products and services, we believe that it is too early to determine if developments will translate into sustainable improvements in our pricing or margins in fiscal year 2022 or over the longer term. The increasing need for cybersecurity products and technologies may be a future weakness of our business plan. We do not have a current cybersecurity product and service line beyond consultants engaged to provide cybersecurity services to customers and we have not current plans to develop a cybersecurity business line. Cybersecurity companies may have an advantage over our business model in the future in that cybersecurity companies could leverage their cybersecurity offerings to also sell IT Business services and products that compete with our IT Business products and services. 30 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. OnMarch 11, 2020 , theWorld Health Organization declared Covid 19 a global pandemic. Efforts to control the spread of Covid 19 have led governments and other authorities to impose restrictions which have resulted in business closures and disrupted global supply chains. In addition to reductions in business levels, the altered marketplace environment has negatively impacted our freight mix and shipment profile. The extent of the long term adverse effect of the COVID-19 pandemic on our business results is unknown and depends on future developments, including the severity and duration of the pandemic. Covid 19 pandemic affected our primary operations inHong Kong SAR andManila, Philippines in first fiscal quarter of 2020 by forcing limited business travel, remote work arrangements by personnel, customers suspending or reducing operations and use of third party services and suspension or cancellations of normal business activities by us and customers. While there has been a degree of easing restrictions on businesses, there are still restrictions on our and customers' business activities. The full impact of Covid 19 pandemic on our business may not be fully understood or realized from fiscal period to fiscal period in light of the emergence of new variants of the virus with differing potential impact on our business and economies of our primary markets. There remains the risk of new variants of Covid 19 emerging that are vaccine resistant and, as such, capable of significant disruption of the economies in our primary markets.
Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted
on
History of Value Exchange Int'l (
VEI CHN was first established onNovember 16, 2001 inHong Kong SAR with limited liability under the name of "Triversity Hong Kong Limited " and subsequently changed its name to "Triversity (Asia Pacific ) Limited" onApril 24, 2002 and then further changed its name to "TAP Investments Group Limited " onNovember 16, 2007 .TAP Investments Group Limited changed to its current name as "Value Exchange Int'l (China ) Limited" onMay 13, 2013 . VEI CHN is an investment holding company with two subsidiaries established inHong Kong SAR, namelyTAP Services (HK) Limited which was incorporated onAugust 25, 2003 and acquired by VEI CHN onSeptember 25, 2008 , and subsequently changed to its current name as Value Exchange Int'l (Hong Kong ) Limited ("VEI HKG") onMay 13, 2013 . VEI CHN set up a wholly-owned Foreign Enterprise (WOFE) inShanghai , PRC, inSeptember 2, 2008 in the name of Value Exchange Int'l (Shanghai ) Limited ("VEI SHG"). InJanuary 2019 , VEI SHG set up a 51% subsidiary inHunan , PRC, in the name of Value Exchange Int'l (Hunan ) Limited ("VEI HN"). InFebruary 2020 , VEI SHG set up a 51% subsidiary inShanghai , PRC, in the name ofShanghai Zhaonan Hengan Information Technology Co., Limited ("SZH"). 31 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 inHong Kong SAR, Macau SAR and PRC and as more fully described below. As is customary in the industry, such services and solutions are provided by both company employees, contractors and consultants. The primary services and products of the IT Business are:
a) Systems maintenance and related service
VEI CHN Group provides development, customization of software and hardware, enhancements thereto and maintenance services for installed POS system.VEI CHN Group markets, sells and maintains its own brand POS software - edgePOS as well as third party brands (e.g. NCR /Retalix ), which is one of the leading POS software programs in the market. These software enhancements and programming can integrate with different IP systems. Systems maintenance services consist of: i) software maintenance service, including software patches and software code revisions; ii) installing, testing and implementing software; iii) training of customer personnel for the use of software; and iv) technical support for software systems. Other services include system installation and implementation, including i) project planning; ii) analysis of customer information and business needs from a IT perspective ("System Analysis"); iii) design of the entire system; iv) hardware and consumables selection advice and sales; and v) system hardware maintenance. These services typically consist of customer projects forNew 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 inHong Kong SAR, PRC andManila, Philippines .
b) Systems development and integration
Financial Performance Highlights
The following are some financial highlights for the second quarter of 2022:
· Net revenue: Our net revenues were
2022, as compared to
$587,267 or 12.8%.
· Gross profit: Gross profit for the six months ended
1,026,373 or 19.8% of net revenues, as compared to
revenues for the same period in 2021, a decrease of$282,216 or 21.6%.
· Income from operations: Our income from operations totaled
months ended
2021, a decrease of
· Net income: We had a net income of
2022, compared to
or 6.2%.
· Basic and diluted net income per share was
30, 2022. 32 RESULTS OF OPERATIONS
Comparison of Three Months Ended
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021
As a As a
percentage percentage
of of
US$ revenues US$ revenues
NET REVENUES
Service income 2,589,850 100 % 2,389,995 100 %
COST OF SERVICES
Cost of service income (1,903,601 ) (73.5 %) (1,818,946 ) (76.1 %)
GROSS PROFIT 686,249 26.5 % 571,049 23.9 %
Operating expenses:
General and administrative expenses (592,633 ) (22.9 %) (659,896 ) (27.6 %) Foreign exchange loss 179,055 6.9 % (16,297 ) (0.7 %) PROFIT (LOSS) FROM OPERATIONS 272,671 10.5 % (105,144 ) (4.4 %) OTHER INCOME (EXPENSES) 75,205 2.9 % 56,721 2.4 % PROFIT (LOSS) BEFORE PROVISION FOR INCOME TAXES 347,876 13.4 % (48,423 ) (2.0 %) INCOME TAXES CREDIT (EXPENSES) 26 0.0 % (2,464 ) (0.1 %) NET INCOME (LOSS) 347,902 13.4 % (50,887 ) (2.1 %)
Net revenues. Net revenues were$2,589,850 for the three months endedJune 30, 2022 , as compared to$2,389,995 for the same period in 2021, an increase of$199,855 or 8.4%. This increase was primarily attributable to the increase in our revenue from i) sales of systems maintenance with revenues increasing from$1,898,908 for the three months endedJune 30, 2021 to$2,160,438 for the three months endedJune 30, 2022 ; offset by ii) sales of hardware and consumables with revenue decreasing from$365,026 for the three months endedJune 30, 2021 to$310,094 for the three months endedJune 30, 2022 ; iii) sales of systems development and integration with revenues decreasing from$126,061 for the three months endedJune 30, 2021 to$119,318 for the three months endedJune 30, 2022 . Cost of services. Our cost of services is primarily comprised of our costs of technical staff, contracting fees to suppliers and general operating overhead. Our cost of services increased to$1,903,601 or 73.5% of net revenues, for the three months endedJune 30, 2022 , as compared to$1,818,946 or 76.1% of net revenues, for the same period in 2021, an increase of$84,655 or 4.7%. The increase in cost of services was mainly attributable to the increase in our cost of technical staff, and general operating overhead. Gross profit. Gross profit for the three months endedJune 30, 2022 was$686,249 or 26.5% of net revenues, as compared to$571,049 or 23.9% of net revenues, for the same period in 2021, an increase of$115,200 or 20.2%. The increase of gross profit was largely due to the increase in net revenues, offset by the increase in cost of services in this period, as compared with the same period of 2021. 33 General and administrative expenses. General and administrative expenses include the costs associated with staff and support personnelwho manage our business activities, office rental expenses, depreciation charge for fixed assets, and professional fees paid to third parties. General and administrative expenses decreased to$592,633 or 22.9% of net revenues, for the three months endedJune 30, 2022 , as compared to$659,896 or 27.6% of net revenues, for the same period in 2021, a decrease of$67,263 or 10.2%. The reasons for the decrease was attributable to the decrease in staff cost, consultancy and professional fee and other administrative cost.
Profit (loss) from operations. As a result of the above, our profit from
operations totaled
Income taxes credit (expenses).Income taxes credit totaled$26 during the three months endedJune 30, 2022 , as compared to Income taxes expenses totaled$2,464 for the same period in 2021, a change of$2,490 . Net income (loss). As a result of the foregoing, we had a net income of$347,902 for the three months endedJune 30, 2022 , compared to net loss of$50,887 for the same period in 2021, a change of$398,789 as a result of the factors described above.
Comparison of Six Months Ended
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021
As a As a
percentage percentage
of of
US$ revenues US$ revenues
NET REVENUES
Service income 5,181,034 100 % 4,593,767 100 %
COST OF SERVICES
Cost of service income (4,154,661 ) (80.2 %) (3,285,178 ) (71.5 %)
GROSS PROFIT 1,026,373 19.8 % 1,308,589 28.5 %
Operating expenses:
General and administrative expenses (886,588 ) (17.1 %) (1,094,774 ) (23.8 %)
Foreign exchange loss 23,343 0.5 % (13,578 ) (0.3 %)
PROFIT FROM OPERATIONS 163,128 3.1 % 200,237 4.4 %
OTHER INCOME (EXPENSES) 144,707 2.8 % 131,848 2.9 %
INCOME BEFORE PROVISION
FOR INCOME TAXES 307,835 5.9 % 332,085 7.2 %
INCOME TAXES EXPENSES (2,162 ) (0.0 %) (6,361 ) (0.1 %) NET INCOME 305,673 5.9 % 325,724 7.1 % Net revenues. Net revenues were$5,181,034 for the six months endedJune 30, 2022 , as compared to$4,593,767 for the same period in 2021, an increase of$587,267 or 12.8%. This increase was primarily attributable to the increase in our revenues from i) sales of systems maintenance with revenues increasing from$3,507,374 for the six months endedJune 30, 2021 to$4,081,627 for the six months endedJune 30, 2022 ; ii) sales of systems development and integration with revenues increasing from$160,138 for the six months endedJune 30, 2021 to$207,347 for the six months endedJune 30, 2022 ; offset by iii) sales of hardware and consumables with revenue decreasing from$926,255 for the six months endedJune 30, 2021 to$892,060 for the six months endedJune 30, 2022 . 34
Cost of services. Our cost of services is primarily comprised of our costs of technical staff, contracting fees to suppliers and overhead. Our cost of services increased to$4,154,661 or 80.2% of net revenues, for the six months endedJune 30, 2022 , as compared to$3,285,178 or 71.5% of net revenues, for the same period in 2021, an increase of$869,483 or 26.5%. The increase in cost of services was mainly attributable to the increase in our cost of technical staff, and contracting fees to suppliers. Gross profit. Gross profit for the six months endedJune 30, 2022 was$1,026,373 or 19.8% of net revenues, as compared to$1,308,589 or 28.5% of net revenues, for the same period in 2021, a decrease of$282,216 or 21.6%. The decrease of gross profit was largely due to the increase in cost of services, offset by the increase in net revenues in this period, as compared with the same period of 2021. General and administrative expenses. General and administrative expenses include the costs associated with staff and support personnelwho manage our business activities, office rental expenses, depreciation charge for fixed assets, and professional fees paid to third parties. General and administrative expenses decreased to$886,588 or 17.1% of net revenues, for the six months endedJune 30, 2022 , as compared to$1,094,774 or 23.8% of net revenues, for the same period in 2021, a decrease of$208,186 or 19.0%. The primary reason for the decrease was attributable to the decrease in consultancy and professional fee, and other administrative cost. Profit from operations. As a result of the above, our profit from operations totaled$163,128 for the six months endedJune 30, 2022 , as compared to profit from operations totaled$200,237 for the same period in 2021, a decrease of$37,109 or 18.5%.
Income tax expenses. Income taxes expenses totaled
Net income. As a result of the foregoing, we had a net income of$305,673 for the six months endedJune 30, 2022 , compared to$325,724 for the same period in 2021, a decrease of$20,051 or 6.2%, as a result of the factors described above.
Liquidity and Capital Resources
As ofJune 30, 2022 , we had cash and cash equivalents of$114,348 . The following table provides detailed information about our net cash flow for all financial statement periods presented in this report. Cash Flows (All amounts in U.S. dollars) Six Months Ended June 30, 2022 2021 US$ US$ Net cash provided by (used in) operating activities 74,290 (334,977 ) Net cash used in investing activities (58,840 ) (27,046 ) Net cash (used in) provided by financing activities (139,562 )
473,670
Effect of exchange rate changes on cash and cash equivalents (50,938 ) (115,286 ) Net decrease in cash and cash equivalents (175,050 ) (3,639 ) Cash and cash equivalents at the beginning of period 289,398
523,337
Cash and cash equivalents at the end of period 114,348
519,698 35 Operating Activities Net cash provided by operating activities was$74,290 for the six months endedJune 30, 2022 , which was a change of$409,267 from net cash used in operating activities$334,977 for the same period of 2021. The change in net cash provided by (used in) operating activities was mainly attributable to the following:
1) A change of Accounts payable, Deferred income and Inventory increased our
operating cash balances by
offset by;
2) Net income of
3) A change of Accounts receivable, and Amounts due from related parties
decreased our operating cash balances by $678,807 and $177,372 .
Investing Activities
Net cash used in investing activities was $58,840 for the six months ended June
30, 2022 , which was an increase of $31,794 or 117.6% from $27,046 in the same
period in 2021. The increase in net cash used in investing activities was
attributable to cash used in the purchase of plant and equipment by $59,138 ;
offset by interest received by $298 , during the six months ended June 30, 2022 .
Financing Activities
Net cash used in financing activities was$139,562 for the six months endedJune 30, 2022 , which was a change of$613,232 from net cash provided by financing activities$473,670 in the same period in 2021. The change in net cash used in financing activities was attributable to the Repayment of bank loan by$25,871 , Principal payments on finance leases by$145,751 , and Interest paid by$2,687 ; offset by Process of bank loan by$34,747 , during the six months ended June
30, 2022. Future Financings We believe that our cash on hand and cash flow from operations will meet our expected capital expenditure and working capital requirements for the next 12 months. However, we may in the future require additional cash resources due to changes in business conditions, implementation of our strategy to expand our production capacity, sales, marketing and branding activities or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 36 Critical Accounting Policies Our consolidated financial statements and accompanying notes have been prepared in accordance withUnited States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity withU.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 inthe 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 isDecember 31st . The following entities were consolidated as ofJune 30, 2022 : Place of incorporation Ownership percentage Value Exchange International, Inc. USA Parent
Company
Value Exchange Int'l (China ) Limited Hong Kong 100% Value Exchange Int'l (Shanghai ) Limited PRC 100% Value Exchange Int'l (Hong Kong ) Limited Hong Kong 100% TapServices, Inc. Philippines 100% Value Exchange Int'l (Hunan ) Limited PRC 51% Shanghai Zhaonan Hengan Information Technology Co., Ltd. PRC 51% Use of Estimates Preparing consolidated financial statements in conformity withU.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. 37 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 termor the estimated useful lives of
5 years
Computer equipment 5 years
Computer software 5 yearsOffice 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.
38 Revenues of sale of software, if not bundled with other arrangements, are recognized when shipped and customer acceptance obtained, if all other revenue recognition criteria are met. Costs associated with revenues are recognized
when incurred. Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the six months period endedJune 30, 2022 and 2021. Three Months Six Months Ended June 30, Ended June 30, 2022 2021 2022 2021 US$ US$ US$ US$ (unaudited) (unaudited) (unaudited) (unaudited) NET REVENUES Service income
- systems development and integration 119,318 126,061 207,347 160,138 - systems maintenance 2,160,438 1,898,908 4,081,627 3,507,374 - sales of hardware and consumables 310,094 365,026
892,060 926,255
2,589,850 2,389,995 5,181,034 4,593,767
Billings in excess of revenues recognized are recorded as deferred revenue.
Income taxes
The Company accounts for income taxes in accordance with the accounting standard
issued by the Financial Accounting Standard Board ("FASB") for income taxes.
Under the asset and liability method as required by this accounting standard,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The charge for taxation is based on
the results for the reporting period as adjusted for items which are
non-assessable or disallowed. It is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date. The effect on
deferred income taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recognized if
it is more likely than not that some portion, or all of, a deferred tax asset
will not be realized.
Under the accounting standard regarding accounting for uncertainty in income
taxes, a tax position is recognized as a benefit only if it is "more likely than
not" that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the "more likely than not" test, no tax benefit is
recorded. Penalties and interest incurred related to underpayment of income tax
are classified as income tax expense in the period incurred.
Foreign currency translation
The functional currency and reporting currency of the Company is the U.S.
Dollar. ("US$" or "$"). The functional currency of the Hong Kong subsidiaries is
the Hong Kong Dollar. The functional currency of the PRC subsidiary is RMB.
Results of operations and cash flow are translated at average exchange rates
during the period, and assets and liabilities are translated at the exchange
rate as quoted by the Hong Kong Monetary Authority ("HKMA") at the end of the
period. Capital accounts are translated at their historical exchange rates when
the capital transaction occurred. Translation adjustments resulting from this
process are included in accumulated other comprehensive income. Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.
39
Quarter ended June 30, 2022 June 30, 2021
RMB : USD exchange rate 6.5892 6.4806
three months average period ended
HKD : USD exchange rate 7.800 7.800
three months average period ended
PESO : USD exchange rate 52.4805 47.6357
three months average period ended
Quarter ended June 30, 2022 June 30, 2021 RMB : USD exchange rate 6.4641 6.4989 six months average period ended HKD : USD exchange rate 7.800 7.800 six months average period ended PESO : USD exchange rate 51.4498 47.6720
six months average period ended
Quarter ended June 30, 2022 December 31, 2021 RMB : USD exchange rate 6.65876.4838 HKD : USD exchange rate 7.8007.800 PESO : USD exchange rate 54.7368 47.4164 Stock-based Compensation The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
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