The accompanying notes are an integral part
of the consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
U.S. dollars)
(Unaudited)
1.
|
ORGANIZATION
AND BUSINESS
|
Vitaxel
Group Limited (formerly Albero, Corp., the “Company”), incorporated in Nevada, is engaged in direct selling industry
and online shopping platform primarily through its operating entities in Malaysia.
Vitaxel
SDN BHD (“Vitaxel”), was incorporated in Malaysia on August 10, 2012. The Company is primarily engaged in the direct
selling industry utilizing a multi-level marketing model with an emphasis on travel, entertainment and lifestyle products and
services.
Vitaxel
Online Mall SBN BHD (“Vionmall”), was incorporated in Malaysia on September 22, 2015. The Company is primarily in
developing online shopping platforms geared to Vitaxel and its members and the third party suppliers of products and services.
Vitaxel
Singapore PTE. Ltd. (“Vitaxel Singapore”) was incorporated in Singapore on February 16, 2016.
REVERSE
ACQUISITION
On
January 18, 2016, the Company completed and closed a share exchange (the “Share Exchange”) under a Share Exchange
Agreement (the “Share Exchange Agreement”) of the same date among us, Vitaxel SDN BHD, a Malaysian corporation (“Vitaxel”),
the shareholders of Vitaxel, Vitaxel Online Mall SBN BHD, a Malaysian corporation (“Vionmall”) and the shareholders
of Vionmall pursuant to which Vitaxel and Vionmall each became wholly owned subsidiaries of ours. In the Share Exchange, all of
the outstanding shares of Vitaxel and Vionmall were converted into shares of our Common Stock, as described in more detail below.
On
January 18, 2016, in connection with the Share Exchange and pursuant to the Split-Off Agreement, we transferred our pre-Share
Exchange assets and liabilities to our pre-Share Exchange majority stockholder, in exchange for the surrender by him and cancellation
of 3,000,000 shares of our Common Stock.
As
a result of the Share Exchange and Split-Off, we discontinued our pre-Share Exchange business and acquired the businesses of Vitaxel
and Vionmall, and will continue the existing business operations of Vitaxel and Vionmall as a publicly-traded company under the
name Vitaxel Group Limited.
In
accordance with “reverse acquisition” accounting treatment, our historical financial statements as of period ends,
and for periods ended, prior to the acquisition will be replaced with the historical financial statements of Vitaxel and Vionmall
prior to the Share Exchange in all future filings with the U.S. Securities and Exchange Commission, (the “SEC”).
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of presentation
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information article 8 of Regulation
S-X.
This
basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned,
and expenses and losses are recognized when incurred. The Company’s financial statements are expressed in U.S. dollars.
Fiscal
year end is December 31.
Use
of estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect certain 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 periods. Actual results could differ from those estimates.
Foreign
currency translation and transactions
The
functional currency of the Company is the Malaysian Ringgit (“MYR”) and reporting currency of the Company is United
States Dollar “USD”). The financial statements of the Company are translated into USD using the exchange rate as of
the balance sheet date for assets and liabilities and average exchange rate for the year for income and expense items. Translation
gains and losses are recorded in accumulated other comprehensive income or loss as a component of shareholders’ equity.
Cash
and cash equivalents
Cash
and cash equivalents consist of cash on hand and highly liquid investments, which are unrestricted from withdrawal or use, and
which have original maturities of three months or less when purchased.
Accounts
receivable
Accounts
receivable are recognized and carried at original invoiced amount less an allowance for any potential uncollectible amounts. An
estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.
The Company generally does not require collateral from its customers. For the period ended June 30, 2017 and for the year ended
December 31, 2016, the Company did not write off any accounts receivable as bad debts.
Fair
value of financial instruments
FASB
ASC 820, “Fair Value Measurement,” specifies a hierarchy of valuation techniques based upon whether the inputs to
those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent
sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:
Level
1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has
the ability to access.
Level
2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
Level
3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair
value measurements.
ASC
820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure
fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize
the use of observable inputs and minimize the use of unobservable inputs. As of June 30, 2017 and December 31, 2016, none of the
Company’s assets and liabilities was required to be reported at fair value on a recurring basis. Carrying values of non-derivative
financial instruments, including cash, accounts receivables, payables and accrued liabilities, approximate their fair values due
to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.
Inventories
Inventories
are stated at lower of cost or market, with cost determined on a weighted-average method, and not to exceed net realizable value.
The Company writes down its inventory balances for obsolete amounts estimated on an individual basis for the finished goods and
the raw material items with large amounts, and by a category basis for low value raw material items.
Long-term
investment
The
Company’s interests in associated companies are accounted for under equity method under U.S. GAAP. Under the equity method,
if the Company’s share of losses of an associated company equals or exceeds the amount of investment plus advances made
by the Company, the Company ordinarily discontinues including its share of losses and the investment is reported at nil value.
If the associated company subsequently reports net income, the Company will resume applying the equity method only after its share
of that net income equals the share of net losses not recognized during the period the equity method was suspended.
Property,
plant and equipment, net
Property,
plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over
the following estimated useful lives:
Office equipment
|
|
|
10
years
|
|
Furniture and fixtures
|
|
|
10
years
|
|
Leasehold improvement
|
|
|
10
years
|
|
Revenue
recognition
Product
sales − The Company generally recognizes revenue upon delivery and when both the title and risk and rewards pass to the
independent members or purchasers of the products. Product sales are recognized net of product returns, discounts and taxes. A
reserve for product returns is accrued based on historical experience. There was no deferred revenue accrued as of June 30, 2017
and December 31, 2016.
Membership
fee − The Company recognizes the membership fee revenue over the term of the membership, which is 12 months. The revenue
will not be recognized until the 14 days cooling-off period is expired. For the period ended June 30, 2017 and for the year ended
December 31, 2016, all membership fees were waived by the Company for promotion purpose.
Loyalty
program
The
Company operates loyalty program which allows customer to accumulate redemption points when they purchase products from the Company.
The redemption points can be used to purchase a selection of products at discounted price or redeem products.
The
Company allocates consideration received from the sale of goods to the goods sold and the redemption points issued that are expected
to be redeemed.
The
consideration allocated to the redemption points issued is measured at fair value of the redemption points. It is recognized as
a liability (deferred revenue) in the statement of financial position and recognized as revenue when the points are redeemed,
have expired or are no longer expected to be redeemed. The amount of revenue recognized is based on the number of points that
have been redeemed, relative to the number expected to redeem.
As
of June 30, 2017 and December 31, 2016, there was no such deferred revenue recorded.
Commission
expense
Commission
expense incurred by the Company is recognized as cost of revenue and as a liability (commission payable in the consolidated balance
sheet. Commission expense is not recoverable once recognized and is expensed as incurred.
Income
taxes
Current
income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized
when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the combined financial
statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a
portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are
individually classified as current and non-current based on their characteristics.
The
impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not
to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less
than a 50% likelihood of being sustained. Interest and penalties on income taxes are classified as a component of the provisions
for income taxes. The Company did not recognize any income tax due to uncertain tax positions or incur any interest and penalties
related to potential underpaid income tax expense as of June 30, 2017 and December 31, 2016.
Forward
Stock split
On
January 27, 2016, our Board of Directors declared a 1333-for-1 forward stock split of our outstanding common stock, par value
$0.000001 per share in the form of a dividend (the “Stock Split”) with a record date of February 8, 2016 (the “Record
Date”). On February 22, 2016, Financial Industry Regulatory Authority, Inc. (“FINRA”) notified us of its announcement
of the payment date of the Stock Split as February 23, 2016 (the “Payment Date”). On the Payment Date, as a result
of the Stock split, each holder of our common stock as of the Record Date received 1332 additional shares of our common stock
for each one share owned, rounded up to the nearest whole share. All common stock share amounts referenced in this Quarterly Report
give retroactive effect to the Stock Split.
Reverse
Stock split
On
May 25, 2017, the Board of Directors of Vitaxel Group Limited (“Vitaxel”) authorized and approved an amendment (the
“Amendment”) to Vitaxel’s Amended and Restated Articles of Incorporation, which authorized a one hundred-to-one
reverse stock split (the “Reverse Split”) of Vitaxel’s outstanding common stock, par value $0.000001 per share,
with a record date of June 12, 2017 (the “Record Date”).
As
of the effective date of the Reverse Split, every 100 outstanding shares of the Company’s common stock automatically became
one share of common stock. The Company’s authorized shares of common stock were reduced in proportion to the reverse split
ratio, from 7,000,000,000 shares of authorized common stock prior to the effective date to 70,000,000 shares of authorized common
stock on the effective date, and from 100,000,000 shares of authorized preferred stock prior to the effective date to 1,000,000
shares of authorized preferred stock on the effective date. Additionally, as part of the Reverse Split, the par value of both
the Company’s common stock and its preferred stock was increased from $0.000001 per share to $0.0001 per share. Immediately
prior to the Reverse Split the Company had 5,408,754,000 common shares issued and outstanding and had approximately 54,087,540
common shares issued and outstanding immediately after the Reverse Split.
We
expect that the Reverse Stock Split will (i) increase the marketability and liquidity of our common stock; (ii) address
-
liquidity
of our common stock; (iii) address the reluctance of brokerage firms and institutional investors to
recommend
lower priced stocks to their clients or to hold in their own portfolios; and (iv) enable us to maintain the quotation of our common
stock on the OTC Markets, Inc. QB Tier.
Separately,
on May 30, 2017, the Board of Directors of Vitaxel authorized and approved a related increase in the par value of Vitaxel
common
stock from $0.000001 to $0.0001.
On
June 13, 2017, Vitaxel received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate
the Reverse Split at the open of business on June 15, 2017.
Comprehensive
loss
Comprehensive
loss includes net loss and cumulative foreign currency translation adjustments and is reported in the Combined Statement of Comprehensive
Loss.
Loss
per share
The
loss per share is computed using the weighted average number of shares outstanding during the fiscal years. For the period ended
June 30, 2017 and for the year ended December 31, 2016, there was no dilutive effect due to net loss.
Related
party transactions
A
related party is generally defined as:
(i)
any person that holds the Company’s securities including such person’s immediate families,
(ii)
the Company’s management,
(iii)
someone that directly or indirectly controls, is controlled by or is under common control with the Company, or
(iv)
anyone who can significantly influence the financial and operating decisions of the Company.
A
transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related
parties.
Recently
issued accounting pronouncements
Revenue
Recognition:
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments
in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit
entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after
December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as
of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
Financial
instrument:
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted.
Accordingly, the standard is effective for us on September 1, 2018. We are currently evaluating the impact that the standard will
have on our consolidated financial statements.
Leases:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance
on lease amendments to the FASB Accounting Standard Codification. This ASU will be effective for us beginning in May 1, 2019.
We are currently in the process of evaluating the impact of the adoption of ASU 2016-2 on our consolidated financial statements.
The
Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact
on our financial position or results of operations.
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company
has incurred losses since its inception resulting in an accumulated deficit of $2,697,919 as of June 30, 2017. The ability to
continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the
necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become
due. These combined financial statements do not include any adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The
Company expects to finance operations primarily through cash flow from revenue and capital contributions from principal shareholders.
In the event that we require additional funding to finance the growth of the Company’s current and expected future operations
as well as to achieve our strategic objectives, our principal shareholders have indicated the intent and ability to provide additional
equity financing.
These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation
as a going concern is dependent on our ability to meet obligations as they become due and to obtain additional equity or alternative
financing required to fund operations until sufficient sources of recurring revenues can be generated. There can be no assurance
that the Company will be successful in its plans described above or in attracting equity or alternative financing on acceptable
terms, or if at all. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
4.
|
OTHER
RECEIVABLES AND OTHER ASSETS
|
Other
receivables and other assets consist of the following:
|
|
As
of
June 30,
2017
|
|
|
As
of
December 31,
2016
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
45,028
|
|
|
$
|
19,497
|
|
Other receivables
|
|
|
6,481
|
|
|
|
2,481
|
|
|
|
|
51,509
|
|
|
|
21,978
|
|
(1)
Deposits represented payments for rental, utilities, and construction funds to government department.
(2)
Others mainly consists other miscellaneous payments.
On
October 5, 2016, the Company invested 958,000 Thai Baht or $27,539 to Vitaxel Corporation Thailand Co., Ltd., a company registered
in Thailand, and holds 47.99% shares of it. The long-term investment is accounted using the equity method.
Long-term
investment consists of the following:
|
|
As
of
June 30,
2017
|
|
|
As
of
December 31,
2016
|
|
Long-term
investment -cost
|
|
$
|
27,539
|
|
|
$
|
27,539
|
|
Long-term
investment -share of loss in investment in an associated company
|
|
|
(25,716
|
)
|
|
|
(25,716
|
)
|
Foreign
currency translation adjustment
|
|
|
(1,823
|
)
|
|
|
(1,823
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
6.
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
Property,
plant and equipment, net consist of the following:
|
|
As of
June 30,
2017
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
26,275
|
|
|
$
|
30,476
|
|
Computer equipment
|
|
|
72,537
|
|
|
|
61,516
|
|
Furniture and fittings
|
|
|
7,514
|
|
|
|
7,131
|
|
Electrical & fitting
|
|
|
353
|
|
|
|
337
|
|
Motor vehicle
|
|
|
15,995
|
|
|
|
15,315
|
|
Software and website
|
|
|
10,906
|
|
|
|
7,544
|
|
Renovations
|
|
|
102,523
|
|
|
|
98,167
|
|
|
|
|
236,103
|
|
|
|
220,486
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(38,033
|
)
|
|
|
(25,817
|
)
|
Balance at end of period/year
|
|
$
|
198,070
|
|
|
$
|
194,669
|
|
Depreciation
expenses charged to the statements of operations for the period ended June, 2017 and December, 2016 were $10,899 (3 months $5,449)
and $5,000 (3 months $1,250 and 6 months $2,500) respectively.
7.
|
ACCRUALS
AND OTHER PAYABLES
|
Accruals
and other payables consist of the following:
|
|
As of
June 30,
2017
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
Provisions
|
|
$
|
92,841
|
|
|
$
|
21,243
|
|
Others
|
|
|
601,259
|
|
|
|
425,244
|
|
Balance at end of period/year
|
|
$
|
694,100
|
|
|
$
|
446,487
|
|
8.
|
RELATED
PARTIES TRANSCTIONS
|
|
|
As of
June 30,
2017
|
|
|
As of
December 31,
2016
|
|
Amount of due from related parties
|
|
|
|
|
|
|
|
|
Beedo SDN BHD
|
|
$
|
27,895
|
|
|
$
|
18,062
|
|
Ho Wah Genting Berhad
|
|
|
4,890
|
|
|
|
9,020
|
|
Ho Wah Genting Group Sdn Berhad
|
|
|
247
|
|
|
|
—
|
|
Balance at end of period/year
|
|
$
|
33,032
|
|
|
$
|
27,082
|
|
Beedo
SDN BHD was a subsidiary of related company Ho Wah Genting Group SDN BHD from June 25, 2015 to August 12, 2016.
Amount of due from director
|
|
|
|
|
|
|
Lim Wee Kiat
|
|
$
|
—
|
|
|
$
|
1,482
|
|
Leong Yee Ming
|
|
$
|
—
|
|
|
$
|
3,945
|
|
Balance at end of period/year
|
|
$
|
—
|
|
|
$
|
5,427
|
|
Amount
of due from an associated company
|
|
|
|
|
|
|
|
Vitaxel
Corporation (Thailand) Limited
|
|
$
|
117,156
|
|
|
$
|
—
|
|
Balance
at end of period/year
|
|
$
|
117,156
|
|
|
$
|
—
|
|
|
|
As of
June 30,
2017
|
|
|
As of
December 31,
2016
|
|
Amount of due to related parties
|
|
|
|
|
|
|
|
|
Ho Wah Genting Group Sdn Berhad
|
|
$
|
856,694
|
|
|
$
|
607,918
|
|
Ho Wah Genting Holiday Sdn Bhd
|
|
|
3,792
|
|
|
|
8,087
|
|
Genting Highlands Taxi Services SDN BHD
|
|
|
16,953
|
|
|
|
16,234
|
|
Vitaxel Sdn Bhd
|
|
|
17,548
|
|
|
|
—
|
|
Grande Legacy Inc.
|
|
|
181,533
|
|
|
|
—
|
|
Dato’ Lim Hui Boon
|
|
|
61,423
|
|
|
|
|
|
Balance at end of period/year
|
|
$
|
1,137,943
|
|
|
$
|
632,239
|
|
As
of June 30, 2017 and December 31, 2016, the amount due to the President of the Company, Dato’ Lim Hui Boon was $61,423 and
$0, respectively. These amounts were unsecured, interest-free and repayable on demand.
The
President of the Company, Dato’ Lim Hui Boon, is also the Group President of Ho Wah Genting Group Sdn Bhd.
A
former director of the Company, Lim Chun Hoo, is also a director of Ho Wah Genting Holiday Sdn Bhd.
On
March 31, 2017, Lim Chun Hoo resigned from the Company.
A
director of the Company, Lim Wee Kiat, is also a director of Genting Highlands Taxi Services SDN BHD and of Vitaxel SDN BHD.
A
director of the Company, Leong Yee Ming, is also a director of Grande Legacy Inc.
The
amount due to the Company’s associated company, Vitaxel Corp. (Thailand) Ltd., was $0 as of June 30, 2017 and $279,219 as
of December 31, 2016.
The
Company recognized an expense of $19,760 pertaining for event, traveling and accommodation expenses during the three months ended
June 30, 2017, which was charged to its related company, Ho Wah Genting Holiday Sdn. Bhd.
The
Company recognized an expense of rent totalling $44,532 of which $4,818 during the three months ended June 30, 2017 was paid to
its affiliate, Ho Wah Genting Berhad and $9,635 was paid to Malaysia-Beijing Travel Services Sdn Bhd. The operating lease commitment
to Ho Wah Genting Berhad as of June 30, 2017 was $9,635 and $19,271 to Malaysia-Beijing Travel Services Sdn Bhd. The lease commitment
are disclosed in note 13 COMMITMENTS AND CONTINGENCIES below under the heading Operation Commitments.
The
Company recognized an expense of $5,014 pertaining for website maintenance expense during the three months (six months $51,553)
ended June 30, 2017, which was charged by its related company, Beedo Sdn. Bhd.
The
Company recognized an income of $1,417 pertaining for royalties during three months ended June 30, 2017 which was paid by its
associated company, Vitaxel Corp. (Thailand) Limited.
9.
|
COMMITMENTS
AND CONTINGENCIES
|
Capital
Commitments
The
Company engaged a third party to develop an operation software with the total contract amount of $48,069 as of June 30, 2016.
Operation
Commitments
The
total future minimum lease payments under the non-cancellable operating lease with respect to the office and the dormitory, as
well as hardware trading platform as of June 30, 2017 are payable as follows:
Year ending December 31, 2017
|
|
|
90,810
|
|
Year ending December 31, 2018
|
|
|
22,122
|
|
Total
|
|
$
|
112,932
|
|
Rental
expense of the Company was $62,722 (3 months $31,361) and $4,260 (3 months $2,130) for the periods ended June 30, 2017 and 2016,
respectively.
On
August 21, 2017 Vitaxel Sdn Bhd disposed of Vitaxel Singapore PTE. Ltd. at cost for SGD1.00. Vitaxel Singapore PTE. Ltd. has not
been involved in any operations since acquisition.
On
August 21, 2017, the Board of Directors of the Company appointed Mr. Lim Wee Kiat to serve as the Company’s Chief Financial
Officer and principal financial officer, to serve until his successor is apointed. Mr. Lim is also currently the Chairman of the
Board of the Company and Secretary.