Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
This report contains “forward-looking
statements”. 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 also include expectations of future levels of business development and related spending, general and administrative
spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate
strategic opportunities available to us and effects as well as our ability to fund, and integrate and grow acquired business lines. 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. These risks and uncertainties include, but are not limited to those described in “Risk Factors” contained in the
Company’s reports filed with the SEC, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and subsequent
filings with the SEC.
Certain Terms
Except as otherwise
indicated by the context, references in this report to:
|
·
|
“Company,” “we,” “us”
and “our” are to the combined business of Value Exchange International, Inc., a Nevada corporation, and its consolidated subsidiaries;
|
|
·
|
“China,” “Chinese” and
“PRC,” refer to the People’s Republic of China;
|
|
·
|
“Renminbi” and “RMB”
refer to the legal currency of China;
|
|
·
|
“U.S. dollars,” “dollars”
and “$” refer to the legal currency of the United States;
|
|
·
|
“SEC” or “Commission”
refers to the United States Securities and Exchange Commission;
|
|
·
|
“Securities Act” refers to the Securities
Act of 1933, as amended; and
|
|
·
|
“Exchange Act” refers to the Securities
Exchange Act of 1934, as amended.
|
CORPORATE OVERVIEW
History of Value Exchange International, Inc.
Organization. We were incorporated in the
State of Nevada on June 26, 2007 under the name “China Soaring Inc.” We changed the Company's name to “Sino Payments,
Inc.” on November 26, 2008 and then further changed to the current name as “Value Exchange International, Inc.” in October
2016. Our Common Stock’s trading symbol changed at the same time from “SNPY” to “VEII.”.
Current Business Focus. We are a provider
of customer-centric solutions for the retail industry in China, Hong Kong SAR and Philippines. We intend to seek expansion of that territory
to other parts of Southeast Asia. By integrating market-leading Point-of-Sale/Point-of-Interaction (“POS/POI”), Merchandising,
Customer Relations Management or “CRM” and related rewards, Locational Based (Global Positioning System (“GPS”)
and Indoor Positioning System (“IPS”)) Marketing, Customer Analytics, Business Intelligence solutions, our products and services
are intended to provide retailers with 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 information
technology (“IT”) source for retailers who wanted 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. Our retail solutions are installed in an estimated 30%-40% of POS/POI-suitable retailers in Hong Kong
and Manila, Philippines, processing tens of millions of transactions a year. Company is headquartered in Hong Kong and with offices in
Shenzhen, Guangzhou, Shanghai, Beijing, China; Manila, Manila, Philippines; and Kuala Lumpur, Malaysia. The foregoing is referred to as
“IT Business”, which is our core business.
A standard element of the
strategic plan is to expand the business into new markets in Southeast Asia. A lack of adequate working capital and outside funding has,
in part, prevented the Company from implementing this expansion plan. The Company still intends to explore from time to time the expansion
of the business into new markets by acquisition or funding new operations in new markets. As such, we intend to seek expansion of our
current geographical markets to other parts of Southeast Asia by seeking new businesses and by possible acquisitions of existing businesses.
Seeking new business and expanding our markets will require adequate and affordable funding or working capital and beating competition
for the new business in those new markets. We may in the future, and we have historically been unable to, seek to obtain necessary funding
for acquisitions or expansion of business in new markets. Acquisitions will require finding suitable acquisitions that will agree to terms
and conditions acceptable to us and the successful integration of new businesses into our operations. We may be unable to win new business
or acquire any new businesses and, consequently, we may be unable to expand our geographical markets. We have not expanded into any new
markets by acquisition or otherwise during the fiscal year 2020 or in fiscal year 2021 to date and we may be unable to do so in 2021 or
beyond due to funding constraints and lack of viable, available acquisitions as well as the common obstacles to penetration of new foreign
markets.
The Company, through its operating
subsidiaries, is focusing and will focus on its IT Business, and seek to expand, if and when possible, its IT Business services to commercial
customers in PRC and Asia Pacific Region. This strategy is based upon our subjective business judgment that the IT Business presents more
opportunities for potential customer order in our core markets of Hong Kong SAR and China than the “IP Business” (as defined
below) and presents an industry segment that better suits our current technical capabilities, marketing capabilities and financial resources.
Initial Business Focus. Our initial intended,
primary business was to operate a credit card processing and merchant-acquiring services company that provided credit card clearing services
to merchants and financial institutions in PRC (“IP Business”). The IP Business was to be based on our concept of an electronic
payment processing system known as “SinoPay GPP Platform”. The SinoPay GPP platform never became a viable revenue generating
operation and we have focused on the IT Business since the 2014 acquisition of VEI CHN. As previously reported, efforts to develop and
launch a new, updated e-payment platform in 2020 did not succeed due to lack of necessary funding and resulting cancellation of Company’s
51% equity stake in the venture. While the Company may seek to develop an electronic payment processing platform in the future, there
can be no assurance that the Company will make that effort or develop a viable electronic payment processing platform in the future. The
electronic payment processing industry is highly competitive and has major international companies as dominant competitors. Any effort
to develop a future electronic payment processing would be subject to adequate funding, which funding may not be attainable by a small
reporting company like the Company.
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 in 2020 due to impact of COVID-19 pandemic on air travel. Company will re-evaluate promotion of the
smart baggage tag to airports from time to time and when air travel returns to pre-COVID-19 pandemic levels, if ever. The prospects of
the Smart Tag business as of the date of this Form 10-Q report are uncertain. The Company will have to determine if an expanded or sustained
marketing effort for the Smart Tag is possible based on available resources and business priorities. The IT Business remains the focus
of our business and funding.
Industry Trends and Economic Conditions.
The IT Business in Hong Kong
and China is large and fragmented, comprised of thousands of competitors as well as being a highly competitive industry. A general trend
affecting our IT Business is the trend of increasing competition for skilled labor. With a global economy and foreign competitors seeking
to penetrate Hong Kong and China as markets as well as to tap into new pools of skilled workers in IT Business, we will undoubtedly face
increasing competition for skilled workers in IT Business in the Hong Kong and China markets. We may be unable to afford or effectively
compete for necessary skilled workers in Hong Kong, Philippines and China and, if we are unable to afford or effectively compete for necessary
skilled workers, our growth and ability to attain and sustain profit operations in the IT Business may fail. We have not experienced any
significant problems in recruiting necessary skilled workers in fiscal years 2020 or 2021 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 in Hong Kong or China or Manila, Philippines, respectively, and decreases during periods
of economic decline or uncertainty in Hong Kong, China or Manila, Philippines. In our global economy, and with PRC being still a principal
export economy, adverse economic conditions globally or in other regions can adversely impact economic conditions in Hong Kong, Philippines
or China. China has experienced a less dynamic growth in gross national product in the past year and this may reduce the willingness of
customers to spend on IT Business or IP Business.
The IT Business is global
and, with the growth of cloud computing, there is a growing capability and infrastructure for companies in a foreign nation to provide
IT Business to customers around the globe as a complement to cloud computing. We have not seen any significant impact of cloud computing
on our IT Business in fiscal years 2019 or fiscal year 2020 to date, but we perceive that the expansion of cloud computing coupled with
IT services and products could allow foreign companies to provide IT Business products and services to its cloud computing customers in
our Hong Kong and China core markets as well as in the Philippines. We may find it more difficult to compete for IT Business in Hong Kong
and China, and perhaps the Philippines, if customers of IT Business elect to have cloud computing companies manage, repair and enhance
IT Business products, software and systems. The growth of cloud computing coupled with IT Business products and services as an ancillary
component of the cloud computing menu of products and services could adversely impact our IT Business in Hong Kong and China markets as
well as the Philippines.
The nature of our IT Business
is such that our 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, and take advantage of cross-selling opportunities between the IT Business and IP Business. In the current economic
environment, we must provide our customers with service offerings that are appropriately priced, satisfy their needs, and provide them
with measurable business benefits. While we have recently experienced more demand for our IT Business products and services, we believe
that it is too early to determine if developments will translate into sustainable improvements in our pricing or margins in fiscal year
2021 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.
A common competitive threat
to any IT companies is the emergence of new technologies or related services in demand by customers and the inability of IT companies
to access or afford those new technologies and perform the related services. Technological innovations pose a significant potential competitive
threat to smaller companies like the Company. Another common threat to small IT companies is larger IT companies engaging in predatory
pricing or marketing to eliminate competition for certain customers or markets. Smaller IT companies cannot generally afford to engage
in pricing competition with larger competitors.
We also face a possible competitive
threat from Cloud computing services, which we do not provide to customers (except through third party providers). Cloud computing services
can and do offer additional services to customers, which services can include the same IT Business services as our company. Cloud computing
companies could leverage their relationship with customers to persuade them to use the Cloud computing service for IT Business needs.
This leverage could pose a competitive threat to our IT Business. We lack the current financial and technical resources to compete in
the Cloud computing business.
COVID 19 Pandemic. Since
the beginning of 2020, the worldwide spread of the novel coronavirus (“COVID 19”) has been rapid and unprecedented. On
March 11, 2020, the World Health Organization declared COVID 19 a global pandemic. Efforts to control the spread of COVID 19 have led
governments and other authorities to impose restrictions which have resulted in business closures and disrupted global supply chains. In
addition to reductions in business levels, the altered marketplace environment has negatively impacted our freight mix and shipment profile.
The extent of the long term adverse effect of the COVID-19 pandemic on our business results is unknown and depends on future developments,
including the severity and duration of the pandemic.
COVID 19 pandemic affected
our primary operations in Hong Kong SAR, China and Manila, Philippines in first fiscal quarter of 2020 by forcing limited business travel,
remote work arrangements by personnel, customers suspending or reducing operations and use of third-party services and suspension or cancellations
of normal business activities by us and customers. While there has been a degree of easing restrictions on businesses in our main markets,
there are still restrictions on our and customers’ business activities and restrictions on travel. Further, the COVID 19 pandemic
may have a second wave of infections in the summer or fall of 2021, especially from new variants like the Delta variant of COVID 19, which
would probably impose a continuation or increase in restrictions of business, marketing and business development activities. The full
impact of COVID 19 pandemic and new variants of COVID 19 on our business may not be fully understood until the end of fiscal year or later
due to the risk of new variants of COVID 19 emerging that is vaccine resistant and, as such, capable of significant disruption of the
economies in our primary markets.
COVID 19 pandemic and variants
of COVID 19, especially Delta variant, may make funding of new and existing business from third party sources more difficult or impossible
for the Company due to demand for funding in 2020 and 2021 as well as the financial condition of the Company and its lack of hard assets
for collateral. There is uncertainty as to the full impact of Delta variant of COVID 19 on economies in our markets in the future, especially
when the full impact of Delta variant of COVID 19 on vaccinated persons and the possible emergence and then impact of future variants
of COVID 19 is uncertain as of the date of the filing of this Form 10-Q report.
Coronavirus Aid, Relief and
Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. Company has not sought and does not intend to seek
any assistance under the CARES Act as of the date of this Form 10-Q report. Our operations and personnel are not based in the U.S.
History of Value Exchange Int’l (China)
Limited
VEI CHN was first established
on November 16, 2001 in Hong Kong SAR with limited liability under the name of “Triversity Hong Kong Limited” and subsequently
changed its name to “Triversity (Asia Pacific) Limited” on April 24, 2002 and then further changed its name to “TAP
Investments Group Limited” on November 16, 2007. TAP Investments Group Limited changed to its current name as “Value Exchange
Int’l (China) Limited” on May 13, 2013.
VEI CHN is an investment holding
company with two subsidiaries established in Hong Kong SAR, namely TAP Services (HK) Limited which was incorporated on August 25, 2003
and acquired by VEI CHN on September 25, 2008, and subsequently changed to its current name as Value Exchange Int’l (Hong Kong)
Limited (“VEI HKG”) on May 13, 2013. VEI CHN set up a wholly-owned Foreign Enterprise (WOFE) in Shanghai, PRC, in September
2, 2008 in the name of Value Exchange Int’l (Shanghai) Limited (“VEI SHG”). In January 2019, VEI SHG set up a 51% subsidiary
in Hunan, PRC, in the name of Value Exchange Int’l (Hunan) Limited (“VEI HN”). In February 2020, VEI SHG set up a 51%
subsidiary in Shanghai, PRC, in the name of Shanghai Zhaonan Hengan Information Technology Co., Limited (“SZH”).
Principal business
Company’s primary operating
subsidiary is VEI CHN. The principal business of VEI CHN for more than 15 years is to provide the Information Technology Services and
Solutions (consisting of select services and solutions in computer software programming and integration, and computer systems, Internet
and information technology systems engineering, consulting, administration and maintenance, including e-commerce and payment processing)
to the Retail Sector, primarily to leading retailers in Hong Kong SAR, Macau SAR and PRC and as more fully described below. As is customary
in the industry, such services and solutions are provided by both company employees, contractors and consultants. The primary services
and products of the IT Business are:
|
a)
|
Systems maintenance and related service
|
VEI CHN Group provides development,
customization of software and hardware, enhancements thereto and maintenance services for installed POS system. VEI CHN Group markets,
sells and maintains its own brand POS software – edgePOS as well as third party brands (e.g. NCR / Retalix), which is one of the
leading POS software programs in the market. These software enhancements and programming can integrate with different IP systems.
Systems maintenance services
consist of: i) software maintenance service, including software patches and software code revisions; ii) installing, testing and implementing
software; iii) training of customer personnel for the use of software; and iv) technical support for software systems.
Other services include system
installation and implementation, including i) project planning; ii) analysis of customer information and business needs from a IT perspective
(“System Analysis”); iii) design of the entire system; iv) hardware and consumables selection advice and sales; and v) system
hardware maintenance. These services typically consist of customer projects for New Store Opening (“NSO”) and Install, Move,
Add and Change (“IMAC”) for retail, and ad-hoc custom system projects for other business sectors. Our primary focus is the
retail sector in Hong Kong SAR, PRC and Manila, Philippines.
|
b)
|
Systems development and integration
|
VEI CHN Group provides value-added
software, which integrates with customer owned or licensed software, and ad-hoc software development projects for other business sectors.
Besides use of proprietary, custom software code, VEI CHN services may from time to time license standard third party software programs.
Financial Performance Highlights
The following are some financial highlights for
the second quarter of 2021:
|
·
|
Net revenue: Our net revenues were $4,593,767
for the six months ended June 30, 2021, as compared to $12,436,674 for the same period in 2020, a decrease of $7,842,907 or 63.1%. We
are seeking to focus on higher profit margin work, which may result in lower gross and net revenues. We may be unable to be selective
about customer projects in terms of profit margin criteria.
|
|
·
|
Gross profit: Gross profit for the six months
ended June 30, 2021 was $1,308,589 or 28.5% of net revenues, as compared to $727,772 or 5.9% of net revenues for the same period in 2020,
an increase of $580,817 or 79.8%.
|
|
·
|
Income (loss) from operations: Our income from
operations totaled $200,237 for the six months ended June 30, 2021, as compared to loss from operations totaled $126,993 for the same
period in 2020, a change of $327,230.
|
|
·
|
Net income: We had a net income of $325,724 for
the six months ended June 30, 2021, compared to $56,720 for the same period in 2020, an increase of $269,004 or 474.3%.
|
|
·
|
Basic and diluted net income per share was $0.01
for the six months ended June 30, 2021.
|
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 2021 and 2020
The following tables set forth key components of our results of operations
for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
|
|
Three Months Ended
June 30, 2021
|
|
|
Three Months Ended
June 30, 2020
|
|
|
|
US$
|
|
|
As a
percentage
of
revenues
|
|
|
US$
|
|
|
As a
percentage
of
revenues
|
|
NET REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Service income
|
|
|
2,389,995
|
|
|
|
100%
|
|
|
|
4,233,763
|
|
|
|
100%
|
|
COST OF SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service income
|
|
|
(1,818,946
|
)
|
|
|
(76.1%
|
)
|
|
|
(3,994,147
|
)
|
|
|
(94.3%
|
)
|
GROSS PROFIT
|
|
|
571,049
|
|
|
|
23.9%
|
|
|
|
239,616
|
|
|
|
5.7%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(659,896
|
)
|
|
|
(27.6%
|
)
|
|
|
(419,250
|
)
|
|
|
(9.9%
|
)
|
Foreign exchange loss
|
|
|
(16,297
|
)
|
|
|
(0.7%
|
)
|
|
|
(845
|
)
|
|
|
(0.0%
|
)
|
LOSS FROM OPERATIONS
|
|
|
(105,144
|
)
|
|
|
(4.4%
|
)
|
|
|
(180,479
|
)
|
|
|
(4.3%
|
)
|
OTHER INCOME (EXPENSES)
|
|
|
56,721
|
|
|
|
2.4%
|
|
|
|
100,731
|
|
|
|
2.4%
|
|
LOSS BEFORE
PROVISION FOR INCOME TAXES
|
|
|
(48,423
|
)
|
|
|
(2.0%
|
)
|
|
|
(79,748
|
)
|
|
|
(1.9%
|
)
|
INCOME TAXES EXPENSES
|
|
|
(2,464
|
)
|
|
|
(0.1%
|
)
|
|
|
-
|
|
|
|
0.0%
|
|
NET LOSS
|
|
|
(50,887
|
)
|
|
|
(2.1%
|
)
|
|
|
(79,748
|
)
|
|
|
(1.9%
|
)
|
Net revenues. Net revenues were
$2,389,995 for the three months ended June 30, 2021, as compared to $4,233,763 for the same period in 2020, a decrease of $1,843,768 or
43.5%. This decrease was primarily attributable to the increase in our revenue from i) sales of systems maintenance with revenues increasing
from $1,881,849 for the three months ended June 30, 2020 to $1,898,908 for the three months ended June 30, 2021; ii) sales of hardware
and consumables with revenue increasing from $175,896 for the three months ended June 30, 2020 to $365,026 for the three months ended
June 30, 2021; offset by iii) sales of systems development and integration with revenues decreasing from $2,176,018 for the three months
ended June 30, 2020 to $126,061 for the three months ended June 30, 2021.
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
decreased to $1,818,946 or 76.1% of net revenues, for the three months ended June 30, 2021, as compared to $3,994,147 or 94.3% of net
revenues, for the same period in 2020, a decrease of $2,175,201 or 54.5%. The decrease in cost of services was mainly attributable to
the decrease in our cost of technical staff, contracting fees to suppliers and general operating overhead.
Gross profit. Gross profit for the
three months ended June 30, 2021 was $571,049 or 23.9% of net revenues, as compared to $239,616 or 5.7% of net revenues, for the same
period in 2020, an increase of $331,433 or 138.3%. The increase of gross profit was largely due to the decrease in cost of services, offset
by the decrease in net revenues in this period, as compared with the same period of 2020.
General and administrative expenses.
General and administrative expenses include the costs associated with staff and support personnel who manage our business activities,
office rental expenses, depreciation charge for fixed assets, and professional fees paid to third parties. General and administrative
expenses increased to $659,896 or 27.6% of net revenues, for the three months ended June 30, 2021, as compared to $419,250 or 9.9% of
net revenues, for the same period in 2020, an increase of $240,646 or 57.4%. The reasons for the increase was attributable to the increase
in amortization, and other administrative cost.
Loss from operations. As a result
of the above, our loss from operations totaled $105,144 for the three months ended June 30, 2021, as compared to $180,479 for the same
period in 2020, an decrease of $75,335 or 41.7%.
Income taxes expenses. Income
taxes expenses totaled $2,464 during the three months ended June 30, 2021, as compared to $0 for the same period in 2020, an increase
of $2,464.
Net Loss. As a result of the foregoing,
we had a net loss of $50,887 for the three months ended June 30, 2021, compared to $79,748 for the same period in 2020, a decrease of
$28,861 or 36.2%, as a result of the factors described above.
Comparison of Six Months Ended June 30, 2021 and 2020
The following tables set forth key components of our results of operations
for the periods indicated, both in dollars and as a percentage of net revenues.
(All amounts, other than percentages, in U.S. dollars)
|
|
Six Months Ended
June 30, 2021
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
US$
|
|
|
As a
percentage
of
revenues
|
|
|
US$
|
|
|
As a
percentage
of
revenues
|
|
NET REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Service income
|
|
|
4,593,767
|
|
|
|
100%
|
|
|
|
12,436,674
|
|
|
|
100%
|
|
COST OF SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service income
|
|
|
(3,285,178
|
)
|
|
|
(71.5%
|
)
|
|
|
(11,708,902
|
)
|
|
|
(94.1%
|
)
|
GROSS PROFIT
|
|
|
1,308,589
|
|
|
|
28.5%
|
|
|
|
727,772
|
|
|
|
5.9%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(1,094,774
|
)
|
|
|
(23.8%
|
)
|
|
|
(858,141
|
)
|
|
|
(6.9%
|
)
|
Foreign exchange loss
|
|
|
(13,578
|
)
|
|
|
(0.3%
|
)
|
|
|
3,376
|
|
|
|
(0.0%
|
)
|
INCOME(LOSS) FROM OPERATIONS
|
|
|
200,237
|
|
|
|
4.4%
|
|
|
|
(126,993
|
)
|
|
|
(1.0%
|
)
|
OTHER INCOME (EXPENSES)
|
|
|
131,848
|
|
|
|
2.9%
|
|
|
|
177,575
|
|
|
|
1.4%
|
|
INCOME BEFORE PROVISION
FOR INCOME TAXES
|
|
|
332,085
|
|
|
|
7.2%
|
|
|
|
50,582
|
|
|
|
0.4%
|
|
INCOME TAXES (EXPENSES)
CREDIT
|
|
|
(6,361
|
)
|
|
|
(0.1%
|
)
|
|
|
6,138
|
|
|
|
0.0%
|
|
NET INCOME
|
|
|
325,724
|
|
|
|
7.1%
|
|
|
|
56,720
|
|
|
|
0.4%
|
|
Net revenues. Net revenues were
$4,593,767 for the six months ended June 30, 2021, as compared to $12,436,674 for the same period in 2020, a decrease of $7,842,907 or
63.1%. This decrease was primarily attributable to the increase in our revenues from i) sales of systems maintenance with revenues increasing
from $3,376,959 for the six months ended June 30, 2020 to $3,507,374 for the six months ended June 30, 2021; ii) sales of hardware and
consumables with revenues increasing from $673,632 for the six months ended June 30, 2020 to $926,255 for the six months ended June 30,
2021; offset by iii) sales of systems development and integration with revenue decreasing from $8,386,083 for the six months ended June
30, 2020 to $160,138 for the six months ended June 30, 2021.
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 decreased to
$3,285,178 or 71.5% of net revenues, for the six months ended June 30, 2021, as compared to $11,708,902 or 94.1% of net revenues, for
the same period in 2020, a decrease of $8,423,724 or 71.9%. The decrease in cost of services was mainly attributable to the decrease in
our cost of technical staff, and contracting fees to suppliers.
Gross profit. Gross profit for the
six months ended June 30, 2021 was $1,308,589 or 28.5% of net revenues, as compared to $727,772 or 5.9% of net revenues, for the same
period in 2020, an increase of $580,817 or 79.8%. The increase of gross profit was largely due to the decrease in cost of services, offset
by the decrease in net revenues in this period, as compared with the same period of 2020.
General and administrative expenses.
General and administrative expenses include the costs associated with staff and support personnel who manage our business activities,
office rental expenses, depreciation charge for fixed assets, and professional fees paid to third parties. General and administrative
expenses increased to $1,094,774 or 23.8% of net revenues, for the six months ended June 30, 2021, as compared to $858,141 or 6.9% of
net revenues, for the same period in 2020, an increase of $236,633 or 27.6%. The primary reason for the increase was attributable to the
increase in amortization and other administrative cost.
Income (loss) from operations. As a result of the above,
our income from operations totaled $200,237 for the six months ended June 30, 2021, as compared to loss from operations totaled $126,993
for the same period in 2020, a change of $327,230.
Income tax (expenses) credit. Income
taxes expenses totaled $6,361 during the six months ended June 30, 2021, as compared to income taxes credit totaled $6,138 for the same
period in 2020, a change of $12,499.
Net income. As a result of the foregoing,
we had a net income of $325,724 for the six months ended June 30, 2021, compared to $56,720 for the same period in 2020, an increase of
$269,004 or 474.3%, as a result of the factors described above.
Liquidity and Capital Resources
As of June 30, 2021, we had cash and cash equivalents
of $519,698. The following table provides detailed information about our net cash flow for all financial statement periods presented in
this report.
Cash Flows
(All amounts in U.S. dollars)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
US$
|
|
|
US$
|
|
Net cash (used in) provided by operating activities
|
|
|
(334,977
|
)
|
|
|
792,820
|
|
Net cash used in investing activities
|
|
|
(27,046
|
)
|
|
|
(1,057
|
)
|
Net cash provided by (used in) financing activities
|
|
|
473,670
|
|
|
|
(221,986
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(115,286
|
)
|
|
|
(7,628
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3,639
|
)
|
|
|
562,149
|
|
Cash and cash equivalents at the beginning of period
|
|
|
523,337
|
|
|
|
234,089
|
|
Cash and cash equivalents at the end of period
|
|
|
519,698
|
|
|
|
796,238
|
|
Operating Activities
Net cash used in operating activities was $334,977
for the six months ended June 30, 2021, which was a change of $1,127,797 from net cash provided by operating activities $792,820 for the
same period of 2020. The change in net cash (used in) provided by operating activities was mainly attributable to the following:
|
1)
|
A change of Accounts receivable, Other receivables, deposit and prepayments, and Amounts due from related
parties increased our operating cash balances by $476,590, $157,209, and $363,905 respectively; offset by;
|
|
2)
|
Net income of $325,724 for the six months ended June 30, 2021, compared to $56,720 for the same period
in 2020; and
|
|
3)
|
A change of Accounts payable, Other payables and accrued liabilities, and Deferred income decreased our
operating cash balances by $1,452,197, $239,987 and $565,595.
|
Investing Activities
Net cash used in investing activities was $27,046
for the six months ended June 30, 2021, which was an increase of $25,989 or 2458.8% from $1,057 in the same period in 2020. The increase
in net cash used in investing activities was attributable to cash used in the purchase of plant and equipment by $27,437; offset by interest
received by $391, during the six months ended June 30, 2021.
Financing Activities
Net cash provided by financing activities was
$473,670 for the six months ended June 30, 2021, which was a change of $695,656 from net cash used in financing activities $221,986 in
the same period in 2020. The change in net cash provided by financing activities was attributable to the Proceeds from non-controlling
interests by $18,600, and Issued share capitals by $650,000; offset by repayment of bank loan by $19,204, Principal payments on finance
leases by $175,726, during the six months ended June 30, 2021.
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.
We would need to raise capital to fund any expansion of business into new markets.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our consolidated financial statements and accompanying
notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies
and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note 2 of the notes
to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals,
and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”),
and include the financial statements of the Company and all its subsidiaries that require consolidation. All material intercompany transactions
and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities
were consolidated as of June 30, 2021:
|
|
Place of incorporation
|
|
Ownership percentage
|
Value Exchange International, Inc.
|
|
USA
|
|
Parent Company
|
Value Exchange Int’l (China) Limited
|
|
Hong Kong
|
|
100%
|
Value Exchange Int’l (Shanghai) Limited
|
|
PRC
|
|
100%
|
Value Exchange Int’l (Hong Kong) Limited
|
|
Hong Kong
|
|
100%
|
TapServices, Inc.
|
|
Philippines
|
|
100%
|
Value Exchange Int’l (Hunan) Limited
|
|
PRC
|
|
51%
|
Shanghai Zhaonan Hengan Information
Technology Co., Ltd.
|
|
PRC
|
|
51%
|
Use of Estimates
Preparing consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant areas requiring using management’s estimates and assumptions relate to the collectability
of its receivables, the fair value and accounting treatment of financial instruments, the valuation of long-lived assets and valuation
of deferred tax liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates. In addition, different
assumptions or circumstances could reasonably be expected to yield different results.
Plant and equipment
Plant and equipment is stated at cost less accumulated
depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred.
Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the
straight-line method for substantially all assets with estimated lives as follows:
|
|
Estimated Useful Life
|
Leasehold improvements
|
|
Lesser of lease term or the estimated
useful lives of
5 years
|
Computer equipment
|
|
5 years
|
Computer software
|
|
5 years
|
Office furniture and equipment
|
|
5 years
|
Motor Vehicle
|
|
3 years
|
Building
|
|
5 years
|
Revenue recognition
Sales revenue is recognized when all of the following
have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the
price is fixed or determinable, and (iv) the ability to collect is reasonably assured.
The Company’s revenue is derived from three
primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software
licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and
(iii) sale of hardware and consumables during the service performed as stated above.
Multiple-deliverable arrangements
The Company derives revenue from fixed-price sale
contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications
specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses.
In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element
arrangement is separated into more than one unit of accounting if all of the following criteria are met:
|
–
|
The delivered item(s) has value to the customer on a stand-alone basis;
|
|
–
|
There is objective and reliable evidence of the fair value of the undelivered item(s); and
|
|
–
|
If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance
of the undelivered item(s) is considered probable and substantially in the control of the Company.
|
The Company’s multiple-element contracts
generally include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests
at the Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered
equipment and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s
site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element
contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services,
and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result,
the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting
pursuant to ASC Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements. In addition, the arrangement generally includes
customer acceptance criteria that cannot be tested before installation and integration at the customer’s site. Accordingly, revenue
recognition is deferred until customer acceptance, indicated by an acceptance certificate signed off by the customer.
Revenues of maintenance services are recognized
when the services are performed in accordance with the contract term.
Revenues of sale of software, if not bundled with
other arrangements, are recognized when shipped and customer acceptance obtained, if all other revenue recognition criteria are met. Costs
associated with revenues are recognized when incurred.
Revenues are recorded net of value-added taxes, sales discounts and
returns. There were no sales returns during the six months period ended June 30, 2021 and 2020.
|
|
Three Months
Ended June 30,
|
|
|
Six Months
Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- systems development and integration
|
|
|
126,061
|
|
|
|
2,176,018
|
|
|
|
160,138
|
|
|
|
8,386,083
|
|
- systems maintenance
|
|
|
1,898,908
|
|
|
|
1,881,849
|
|
|
|
3,507,374
|
|
|
|
3,376,959
|
|
- sales of hardware and consumables
|
|
|
365,026
|
|
|
|
175,896
|
|
|
|
926,255
|
|
|
|
673,632
|
|
|
|
|
2,389,995
|
|
|
|
4,233,763
|
|
|
|
4,593,767
|
|
|
|
12,436,674
|
|
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.
Quarter ended
|
|
June 30, 2021
|
|
June 30, 2020
|
RMB : USD exchange rate
|
|
6.4806
|
|
7.1432
|
three months average period ended
|
|
|
|
|
HKD : USD exchange rate
|
|
7.800
|
|
7.800
|
three months average period ended
|
|
|
|
|
PESO : USD exchange rate
|
|
47.6357
|
|
50.1608
|
three months average period ended
|
|
|
|
|
Quarter ended
|
|
June 30, 2021
|
|
June 30, 2020
|
RMB : USD exchange rate
|
|
6.4989
|
|
7.0762
|
six months average period ended
|
|
|
|
|
HKD : USD exchange rate
|
|
7.800
|
|
7.800
|
six months average period ended
|
|
|
|
|
PESO : USD exchange rate
|
|
47.6720
|
|
50.2410
|
six months average period ended
|
|
|
|
|
Quarter ended
|
|
June 30, 2021
|
|
December 31, 2020
|
RMB : USD exchange rate
|
|
6.4838
|
|
7.1158
|
HKD : USD exchange rate
|
|
7.800
|
|
7.800
|
PESO : USD exchange rate
|
|
47.4164
|
|
50.1608
|
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.