As used in this Item 2, and unless the context otherwise indicates, references in this Form 10-Q Report to the terms "VEII" "the Company," "we," "our" and "us" refer toValue Exchange International, Inc. and its consolidated subsidiaries and "you" and "your" refers to readers of this Form 10-Q Report. 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 pandemic continues to be a threat to business and financial operations' condition and performance inChina and Hong Kong SAR, especially with the emergence of new variants of the virus and the need for ongoing vaccinations boosters. 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;
27
•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 ofChina and Hong Kong SAR that currently apply or become applicable to our business in the future and at the same time comply withU.S. laws and regulations and remain a public company with its common stock quoted on the OTC QB Venture Market. 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. 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 retailerswho 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 inHong Kong and with offices inShenzhen ,Guangzhou ,Shanghai ,Beijing, China ;Manila, Philippines ; andKuala 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 endedSeptember 30, 2022 .
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. 28 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 inAsia 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.
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. 29
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 endingSeptember 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. 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. 30
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"). InJanuary 2022 , VEI HKG set up a 100% subsidiary inShenzhen , PRC, in the name ofHaomeng Technology (Shenzhen) Co., Ltd. ("HTS"). 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 third quarter of 2022:
· Net revenue: Our net revenues were
increase of
· Gross profit: Gross profit for the nine months ended
revenues for the same period in 2021, a decrease of
· Profit from operations: Our loss from operations totaled
months ended
for the same period in 2021, a change of
· Net income: We had a net income of
30, 2022, compared to
$437,663 or 75.9%.
· Basic and diluted net income per share was
September 30, 2022 . 32
RESULTS OF OPERATIONS
Comparison of Three Months Ended
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars) Three Months Ended Three Months Ended September 30, 2022 September 30, 2021 As a As a percentage percentage of of US$ revenues US$ revenues NET REVENUES Service income 2,556,808 100 % 2,884,770 100 % COST OF SERVICES Cost of service income (2,302,012 ) (73.5 %) (2,224,718 ) (77.1 %) GROSS PROFIT 254,796 26.5 % 660,052 22.9 % Operating expenses: General and administrative expenses (517,726 ) (22.9 %)
(483,767 ) (16.8 %) Foreign exchange gain 21,980 6.9 % 7,516 0.3 % (LOSS) PROFIT FROM OPERATIONS (240,950 ) 10.5 % 183,801 6.4 % OTHER INCOME 74,241 2.9 % 67,291 2.3 % (LOSS) PROFIT BEFORE PROVISION FOR INCOME TAXES (166,709 ) 13.4 % 251,092 8.7 % INCOME TAXES CREDIT (EXPENSES) 27 0.0 % (162 ) 0.0 % NET (LOSS) INCOME (166,682 ) 13.4 % 250,930 8.7 % Net revenues. Net revenues were$2,556,808 for the three months endedSeptember 30, 2022 , as compared to$2,884,770 for the same period in 2021, a decrease of$327,962 or 11.4%. This decrease was primarily attributable to the decrease in our revenue from i) sales of hardware and consumables with revenues decreasing from$762,562 for the three months endedSeptember 30, 2021 to$223,104 for the three months endedSeptember 30, 2022 ; and ii) sales of systems development and integration with revenue decreasing from$56,314 for the three months endedSeptember 30, 2021 to$28,964 for the three months endedSeptember 30, 2022 ; offset by iii) sales of systems maintenance with revenues increasing from$2,065,894 for the three months endedSeptember 30, 2021 to$2,304,740 for the three months endedSeptember 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$2,302,012 or 90.0% of net revenues, for the three months endedSeptember 30, 2022 , as compared to$2,224,718 or 77.1% of net revenues, for the same period in 2021, an increase of$77,294 or 3.5%. The increase in cost of services was mainly attributable to the increase in our general operating overhead. Gross profit. Gross profit for the three months endedSeptember 30, 2022 was$254,796 or 10.0% of net revenues, as compared to$660,052 or 22.9% of net revenues, for the same period in 2021, a decrease of$405,256 or 61.4%. The decrease of gross profit was largely due to the decrease in net revenues, and 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 increased to$517,726 or 20.2% of net revenues, for the three months endedSeptember 30, 2022 , as compared to$483,767 or 16.8% of net revenues, for the same period in 2021, an increase of$33,959 or 7.0%. The reasons for the decrease was attributable to the decrease in depreciation and other administrative cost. (Loss) profit from operations. As a result of the above, our loss from operations totaled$240,950 for the three months endedSeptember 30, 2022 , as compared to profit from operations totaled$183,801 for the same period in
2021, a change of$424,751 . Income taxes credit (expenses).Income taxes credit totaled$27 during the three months endedSeptember 30, 2022 , as compared to Income taxes expenses totaled$162 for the same period in 2021, a change of$189 . Net (loss) income. As a result of the foregoing, we had a net loss of$166,682 for the three months endedSeptember 30, 2022 , compared to net profit of$250,930 for the same period in 2021, a change of$417,612 as a result of the factors described above.
Comparison of Nine Months Ended
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars) Nine Months Ended Nine Months Ended September 30, 2022 September 30, 2021 As a As a percentage percentage of of US$ revenues US$ revenues NET REVENUES Service income 7,737,842 100 % 7,478,537 100 % COST OF SERVICES Cost of service income (6,456,673 ) (83.4 %) (5,509,896 ) (73.7 %) GROSS PROFIT 1,281,169 16.6 % 1,968,641 26.3 % Operating expenses: General and administrative expenses (1,404,314 ) (18.1 %) (1,578,541 ) (21.1 %) Foreign exchange gain (loss) 45,323 0.6 % (6,062 ) (0.1 %) (LOSS) PROFIT FROM OPERATIONS (77,822 ) (1.0 %) 384,038 (21.2 %) OTHER INCOME 218,948 2.8 % 199,139 2.7 % INCOME BEFORE PROVISION FOR INCOME TAXES 141,126 1.8 % 583,177 7.8 % INCOME TAXES EXPENSES (2,135 ) (0.0 %)
(6,523 ) (0.1 %) NET INCOME 138,991 1.8 % 576,654 7.7 % 34 Net revenues. Net revenues were$7,737,842 for the nine months endedSeptember 30, 2022 , as compared to$7,478,537 for the same period in 2021, an increase of$259,305 or 3.5%. This increase was primarily attributable to the increase in our revenues from i) sales of systems maintenance with revenues increasing from$5,573,268 for the nine months endedSeptember 30, 2021 to$6,386,367 for the nine months endedSeptember 30, 2022 ; and ii) sales of systems development and integration with revenues increasing from$216,452 for the nine months endedSeptember 30, 2021 to$236,311 for the nine months endedSeptember 30, 2022 ; offset by iii) sales of hardware and consumables with revenue decreasing from$1,688,817 for the nine months endedSeptember 30, 2021 to$1,115,164 for the nine months endedSeptember 30, 2022 . 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$6,456,673 or 83.4% of net revenues, for the nine months endedSeptember 30, 2022 , as compared to$5,509,896 or 73.7% of net revenues, for the same period in 2021, an increase of$946,777 or 17.2%. 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 nine months endedSeptember 30, 2022 was$1,281,169 or 16.6% of net revenues, as compared to$1,968,641 or 26.3% of net revenues, for the same period in 2021, a decrease of$687,472 or 34.9%. 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$1,404,314 or 18.1% of net revenues, for the nine months endedSeptember 30, 2022 , as compared to$1,578,541 or 21.1% of net revenues, for the same period in 2021, a decrease of$174,227 or 11.0%. The primary reason for the decrease was attributable to the decrease in consultancy and professional fee, and other administrative cost.
(Loss) profit from operations. As a result of the above, our loss from
operations totaled
Income tax expenses. Income taxes expenses totaled$2,135 during the nine months endedSeptember 30, 2022 , as compared to$6,523 for the same period in 2021, a decrease of$4,388 or 67.3%.
Net income. As a result of the foregoing, we had a net income of
Liquidity and Capital Resources
As of
Cash Flows (All amounts inU.S. dollars) Nine Months EndedSeptember 30, 2022 2021 US$ US$
Net cash used in operating activities (190,320 ) (207,283 ) Net cash used in investing activities (144,200 ) (30,288 ) Net cash provided by financing activities 273,964
237,731
Effect of exchange rate changes on cash and cash equivalents (29,729 ) (152,728 ) Net decrease in cash and cash equivalents (90,285 ) (152,568 ) Cash and cash equivalents at the beginning of period 289,398
523,337
Cash and cash equivalents at the end of period 199,113
370,769 35 Operating Activities Net cash used in operating activities was$190,320 for the nine months endedSeptember 30, 2022 , which was a decrease of$16,963 or 8.2% from net cash used in operating activities$207,283 for the same period of 2021. The change in net cash used in operating activities was mainly attributable to the following:
1) A change of Accounts receivable, Accounts payable increased our operating cash
balances by$51,964 , and$484,627 respectively; offset by;
2) Net income of
to$576,654 for the same period in 2021; and
3) A change of Other receivables, and prepayments, Amounts due from related
parties, and Other payables and accrued liabilities decreased our operating
cash balances by$229,454 ,$181,800 and$117,134 . Investing Activities Net cash used in investing activities was$144,200 for the nine months endedSeptember 30, 2022 , which was an increase of$113,912 or 376.1% from$30,288 in the same period in 2021. The decrease in net cash used in investing activities was attributable to cash used in the purchase of plant and equipment by$144,664 ; offset by interest received by$464 , during the nine months endedSeptember 30, 2022 . Financing Activities
Net cash provided by financing activities was$273,964 for the nine months endedSeptember 30, 2022 , which was an increase of$36,233 from$237,731 in the same period in 2021. The change in net cash provided by financing activities was attributable to the Process of bank loan by$537,349 ; offset by the Repayment of bank loan by$38,741 , Principal payments on finance leases by$220,464 , and Interest paid by$4,180 , during the nine months endedSeptember 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 ofSeptember 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 ) LimitedHong Kong
100%
TapServices, Inc. Philippines
100%
Haomeng Technology (Shenzhen) Co., Ltd. PRC
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 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.
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 nine months period endedSeptember 30, 2022 and 2021. Three Months Nine Months Ended September 30, Ended September 30, 2022 2021 2022 2021 US$ US$ US$ US$ (unaudited) (unaudited) (unaudited) (unaudited) NET REVENUES Service income
- systems development and integration 28,964 56,314 236,311 216,452 - systems maintenance 2,304,740 2,065,894 6,386,367 5,573,268 - sales of hardware and consumables 223,104 762,562
1,115,164 1,688,817 2,556,808 2,884,770 7,737,842 7,478,537
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. 39 Foreign currency translation The functional currency and reporting currency of the Company is theU.S. Dollar. ("US$" or "$"). The functional currency of theHong 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 theHong 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, 2022 September 30, 2021 RMB : USD exchange rate 6.8129 6.4874 three months average period ended HKD : USD exchange rate 7.800 7.800 three months average period ended PESO : USD exchange rate 55.9140 49.5606
three months average period ended
Quarter ended September 30, 2022 September 30, 2021 RMB : USD exchange rate 6.5805 6.4949 nine months average period ended HKD : USD exchange rate 7.800 7.800 nine months average period ended PESO : USD exchange rate 52.9091 48.3135
nine months average period ended
Quarter ended September 30, 2022 December 31, 2021 RMB : USD exchange rate 7.04836.4784 HKD : USD exchange rate 7.8007.800 PESO : USD exchange rate 58.4270 50.4854 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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