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 SDN 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. This subsidiary was disposed on August 21, 2017.
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 SDN 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 September 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 September 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 realizable value, effective for fiscal years beginning after December 15, 2016, 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 September 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 September 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 redemptions 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 September 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 September 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 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 September 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. The Company continues to assess
the impact this ASU, and related subsequent updates, will have on its consolidated financial statements. As of September 30, 2017,
the Company has not identified any material impact to its consolidated net income relating to this ASU.
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 $2,983,457 as of September 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, PREPAYMENTS AND OTHER CURRENTASSETS
|
Other receivables and other assets
consist of the following:
|
|
As of
September 30,
2017
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
|
Deposits (1)
|
|
$
|
10,884
|
|
|
$
|
19,497
|
|
|
Prepayments (2)
|
|
|
8,597
|
|
|
|
5,070
|
|
|
Others (3)
|
|
|
8,691
|
|
|
|
2,481
|
|
|
|
|
$
|
28,172
|
|
|
$
|
27,048
|
|
(1) Deposits
represented payments for rental, utilities, and construction funds to government department.
(2) Prepayments
mainly consists of prepayment for insurance and IT related fees.
(3) Others
mainly consists other miscellaneous payments.
On April 20, 2016, the Company
invested 958,000 Thai Baht or $27,539 to Vitaxel Corporation Thailand Co., Ltd., a company registered in Thailand, and hold 47.99%
shares of it. The long-term investment is accounted using the equity method.
Long-term investment consists
of the following:
|
|
As of
September 30,
2017
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
Long-term investment - In an associated company
|
|
$
|
27,539
|
|
|
$
|
27,539
|
|
Long-term investment - share of loss in investment in an associated company
|
|
|
(24,408
|
)
|
|
|
(25,716
|
)
|
Foreign currency translation adjustment
|
|
|
(3,131
|
)
|
|
|
(1,823
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
6.
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
Property, plant and equipment, net consist of the
following:
|
|
As of
September 30,
2017
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
26,774
|
|
|
$
|
30,476
|
|
Computer equipment
|
|
|
93,198
|
|
|
|
61,516
|
|
Furniture and fittings
|
|
|
7,648
|
|
|
|
7,131
|
|
Electrical & fitting
|
|
|
359
|
|
|
|
337
|
|
Motor vehicle
|
|
|
16,279
|
|
|
|
15,315
|
|
Software and website
|
|
|
11,100
|
|
|
|
7,544
|
|
Renovations
|
|
|
104,344
|
|
|
|
98,167
|
|
|
|
|
259,702
|
|
|
|
220,486
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(45,184
|
)
|
|
|
(25,817
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period/year
|
|
$
|
214,518
|
|
|
$
|
194,669
|
|
Depreciation expenses charged to the statements of operations for the period ended September 30, 2017
and September 30, 2016 were $19,367 (3 months $8,468) and $15,604 (3 months $5,820) respectively.
7.
|
ACCRUALS AND OTHER PAYABLES
|
Accruals and other payables consist
of the following:
|
|
As of
September 30,
2017
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
Provisions
|
|
$
|
29,219
|
|
|
$
|
21,243
|
|
Others (1)
|
|
|
631,385
|
|
|
|
425,244
|
|
Balance at end of period/year
|
|
$
|
660,604
|
|
|
$
|
446,487
|
|
(1) Other
payables mainly consist of members allocated redemption points and commission payable.
8.
|
RELATED PARTIES TRANSACTIONS
|
|
|
As of
September 30,
2017
|
|
|
As of
December 31,
2016
|
|
Amount of due from related parties
|
|
|
|
|
|
|
|
|
Beedo SDN BHD (1)
|
|
$
|
14,272
|
|
|
$
|
18,062
|
|
Ho Wah Genting Berhad
|
|
|
—
|
|
|
|
9,020
|
|
Ho Wah Genting Group Sdn Berhad
|
|
|
594
|
|
|
|
—
|
|
Balance at end of period/year
|
|
$
|
14,866
|
|
|
$
|
27,082
|
|
|
|
|
|
|
|
|
|
|
(1) 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
|
|
$
|
1,744
|
|
|
$
|
3,945
|
|
Balance at end of period/year
|
|
$
|
1,744
|
|
|
$
|
5,427
|
|
|
|
|
|
|
|
|
|
|
Amount of due from an associated company
|
|
|
|
|
|
|
|
|
Vitaxel Corporation (Thailand) Limited (4)
|
|
$
|
112,119
|
|
|
$
|
—
|
|
Balance at end of period/year
|
|
$
|
112,119
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Amount of due to related parties
|
|
|
|
|
|
|
|
|
Dato’ Lim Hui Boon (1)
|
|
$
|
64,442
|
|
|
$
|
—
|
|
Ho Wah Genting Group Sdn Berhad (2)
|
|
|
693,854
|
|
|
|
607,918
|
|
Ho Wah Genting Holiday Sdn Bhd (3)
|
|
|
2,025
|
|
|
|
8,087
|
|
Genting Highlands Taxi Services Sdn Bhd (4)
|
|
|
14,885
|
|
|
|
16,234
|
|
VSpark Malaysia Sdn Bhd
|
|
|
4,761
|
|
|
|
—
|
|
Grande Legacy Inc. (5)
|
|
|
748,032
|
|
|
|
—
|
|
Balance at end of period/year
|
|
$
|
1,527,999
|
|
|
$
|
632,239
|
|
|
(1)
|
As of September 30, 2017 and December 31, 2016, the amount
due to the President of the Company, Dato’ Lim Hui Boon was $64,442 and $0, respectively. These amounts were unsecured,
interest-free and repayable on demand.
|
|
(2)
|
The President of the Company, Dato’ Lim Hui Boon,
is also the Group President of Ho Wah Genting Group Sdn Bhd.
|
|
(3)
|
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.
|
|
(4)
|
A director of the Company, Lim Wee Kiat, is also a director
of Genting Highlands Taxi Services Sdn Bhd and of Vitaxel Sdn Bhd.
|
|
(5)
|
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 September 30, 2017 and $279,219 as of December 31, 2016.
The Company recognized an expense
of $127,728 pertaining for event, traveling and accommodation expenses during the three months (nine months $223,429) ended September
30, 2017, which was charged to its related company, Ho Wah Genting Holiday Sdn. Bhd.
The Company recognized an expense of rent totalling $60,790 of which $4,818 during the three months ended
September 30, 2017 was paid to its affiliate, Ho Wah Genting Berhad and $14,453 was paid to Malaysia-Beijing Travel Services Sdn
Bhd. The operating lease commitment to Ho Wah Genting Berhad as of September 30, 2017 was $24,088 and $14,453 to Malaysia-Beijing
Travel Services Sdn Bhd. The lease commitment are disclosed in note 9 COMMITMENTS AND CONTINGENCIES below under the heading Operation
Commitments.
The Company recognized an expense
of $9,678 pertaining for website maintenance expense during the three months (nine months $61,231) ended September 30, 2017, which
was charged by its related company, Beedo Sdn. Bhd.
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 September 30, 2017.
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 September 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 $60,789 and $90,527 for the period ended September 30, 2017 and 2016, respectively.