The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(In U.S. dollars, except for shares and per share data)
Note 1 - Organization and description of business
Value Exchange International, Inc. (“VEII” or the “Company”), formerly known as Sino Payments Inc., was incorporated in the State of Nevada on June 26, 2007. The Company’s principal business is to provide credit and debit card processing services to multinational retailers in Asia and the systems development and information technology business of Value Exchange Int’l (China) Limited (collectively, the “IT Business”).
On January 1, 2014, VEII received 100% of the issued and outstanding shares of in Value Exchange Int’l (China) Limited (“VEI CHN”) in exchange for i) newly issued 12,000,000 shares of VEII’s common stock to the majority stockholder of VEI CHN; and ii) 166,667 shares of our common stock held by VEI CHN to be transferred to the majority stockholder of VEI CHN (“Share Exchange”). This transaction resulted in the owners of VEI CHN obtaining a majority voting interest in VEII. The merger of VEI CHN into VEII, which has nominal net assets, resulted in VEI CHN having control of the combined entities.
For financial reporting purposes, the transaction represents a “reverse merger” rather than a business combination and VEII is deemed to be the accounting acquiree in the transaction. The transaction is being accounted for as a reverse merger and recapitalization. VEII is the legal acquirer but accounting acquiree for financial reporting purposes and VEI CHN is the acquired company but accounting acquirer. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the transaction will be those of VEI CHN and will be recorded at the historical cost basis of VEI CHN, and no goodwill will be recognized in this transaction. The consolidated financial statements after completion of the transaction will include the assets and liabilities of VEI CHN and VEII, and the historical operations of VEII and the combined operations of VEI CHN from the initial closing date of the transaction.
VEI CHN, formerly known as TAP Investments Group Limited, was incorporated on November 16, 2001 under the laws of Hong Kong SAR and changed its name to Value Exchange Int’l (China) Limited on May 13, 2013. VEI CHN is an investment holding company. The Company provides IT Business’ services and solutions to the retail sector through three operating subsidiaries located in Hong Kong SAR and the People’s Republic of China (“PRC”).
On September 2, 2008 VEI CHN established its first operating subsidiary, Value Exchange Int’l (Shanghai) Limited (“VEI SHG”) in Shanghai, PRC, under the laws of the PRC. VEI SHG engages in software development, trading and servicing of computer hardware and software activities.
On September 25, 2008, VEI CHN acquired its second operating subsidiary, TAP Services (HK) Limited in Hong Kong which subsequently changed its name to Value Exchange Int’l (Hong Kong) Limited (“VEI HKG”) on May 14, 2013. VEI HKG engages in software development, trading and servicing of computer hardware and software activities.
On May 14, 2013, VEI CHN further established another operating subsidiary, Ke Dao Solutions Limited in Hong Kong, which subsequently changed its name to Cucumbuy.com Limited (“CUCUMBUY”) on May 26, 2017. CUCUMBUY conducts consultancy services for IT Services and Solutions activities. On May 21, 2018, VEI CHN disposed of CUCUMBUY with consideration of HK$1. CUCUMBUY was not a material operation or asset of VEII and had no operations or revenues.
In January 2017, VEI CHN acquired 100% of the capital stock of TapServices, Inc., a corporation organized under the laws of the Republic of the Philippines (the “TSI”). TSI engages in software development, trading and servicing of computer hardware and software activities in Philippines. TSI is operated as a subsidiary of VEI CHN. Prior to and continuing after the acquisition, TSI relied on VEI CHN for provision of IT services.
As of December 31, 2018, the Company have four wholly owned subsidiaries.
F-7
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 2 - Accounting policies
Basis of presentation and principle of consolidation
The consolidated financial statements include all of the assets, liabilities, revenues, expenses and cash flows of entities in which the Company has a controlling interest (“subsidiaries”). Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.
Consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (accounting acquiree) (i.e. VEII) but as a continuation of the financial statements of the legal subsidiary (accounting acquirer) (i.e VEI CHN), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree).
The consolidated financial statements include the accounts of Value Exchange International, Inc., and the following subsidiaries:
1.
Value Exchange Int’l (China) Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong as a private company on November 16, 2001;
2.
Value Exchange Int’l (Shanghai) Limited, a wholly-owned subsidiary of the Company incorporated in Shanghai as a private company on September 2, 2008;
3.
Value Exchange Int’l (Hong Kong) Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong as a private company on August 25, 2003 and acquired by VEI CHN on September 25, 2008;
4.
TapServices, Inc., a wholly-owned subsidiary of the Company incorporated in Philippines as a private company on March 24, 2009 and acquired by VEI CHN on January 23, 2017.
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 wholly-owned subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The following entities were consolidated as of December 31, 2018:
|
|
Place of incorporation
|
|
Ownership percentage
|
|
|
|
|
2018
|
|
2017
|
Value Exchange International, Inc.
|
|
USA
|
|
Parent Company
|
|
Parent Company
|
Value Exchange Int’l (China) Limited
|
|
Hong Kong
|
|
100%
|
|
100%
|
Value Exchange Int’l (Shanghai) Limited
|
|
PRC
|
|
100%
|
|
100%
|
Value Exchange Int’l (Hong Kong) Limited
|
|
Hong Kong
|
|
100%
|
|
100%
|
Cucumbuy.com Limited
|
|
Hong Kong
|
|
-
|
|
100%
|
TapServices, Inc.
|
|
Philippines
|
|
100%
|
|
100%
|
F-8
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2018 AND 2017
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.
Cash and cash equivalents
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash includes cash on hand and demand deposits in accounts maintained with financial institutions or state owned banks within the PRC and Hong Kong.
Accounts receivable and other receivables
Receivables include trade accounts due from customers and other receivables such as cash advances to employees, utility deposits paid and advance to suppliers. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. As of December 31, 2018 and 2017, there was no allowance for uncollectible accounts receivable, respectively. Management believes that the remaining accounts receivable are collectable.
F-9
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
|
|
|
Lesser of lease term or the estimated useful lives of
|
Leasehold improvements
|
|
5 years
|
Computer equipment
|
|
5 years
|
Computer software
|
|
5 years
|
Office furniture and equipment
|
|
5 years
|
Motor Vehicle
|
|
3 years
|
Building
|
|
5 years
|
Impairment of long-lived assets
The Company evaluates long lived assets, including equipment, for impairment at least once per year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired and an impairment loss equal to an amount by which the carrying value exceeds the fair value of the asset is recognized.
Fair value of financial instruments
The Company values its financial instruments as required by FASB ASC 320-12-65. The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
|
Level one -
|
Quoted market prices in active markets for identical assets or liabilities;
|
|
Level two -
|
Inputs other than level one inputs that are either directly or indirectly observable; and
|
|
Level three -
|
Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
|
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The carrying values of the Company’s financial instruments; consisting of cash and cash equivalents, accounts receivable, accounts payable, other receivables and prepayments, other payables and accrued liabilities, balances with a related party, balances with related companies and amounts due to director approximate their fair values due to the short maturities of these instruments.
As of December 31, 2018, the Company’s financial instruments consist principally of cash, and amounts due to related parties. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
There was no asset or liability measured at fair value on a non-recurring basis as of December 31, 2018.
F-10
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Comprehensive income
U.S. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net income or loss. Although certain changes in assets and liabilities are reported as separate components of the equity section of the consolidated balance sheet, such items, along with net income, are components of comprehensive income or loss. The components of other comprehensive income or loss consist of foreign currency translation adjustments.
Earnings per share
The Company reports earnings per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
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.
F-11
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the years ended December 31, 2018 and 2017.
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
NET REVENUES
|
|
|
|
|
|
|
|
Service income
|
|
|
|
|
|
|
|
-
systems development and integration
|
|
|
235,718
|
|
|
|
253,652
|
-
systems maintenance
|
|
|
5,006,680
|
|
|
|
4,470,838
|
-
sales of hardware and consumables
|
|
|
2,730,633
|
|
|
|
1,731,210
|
|
|
|
7,973,031
|
|
|
|
6,455,700
|
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 year incurred.
Refer to Note 13 to the consolidated financial statements for further information regarding the components of the Company’s income tax.
Operating leases
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the statements of income on a straight-line basis over the lease periods.
Advertising costs
The Company expenses the cost of advertising as incurred in the period in which the advertisements and marketing activities are first run or over the life of the endorsement contract. Advertising and marketing expense for the years ended December 31, 2018 and 2017 were approximately $523 and $3,014, respectively.
Shipping and handling
Shipping and handling cost incurred to ship computer products to customers are included in selling expenses. Shipping and handling expenses for the years ended December 31, 2018 and 2017 were insignificant.
Research and development costs
Research and development costs are expensed as incurred and are included in general and administrative expenses. Research and development costs for the years ended December 31, 2018 and 2017 were insignificant.
F-12
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Foreign currency translation
The functional currency and reporting currency of the Company is the U.S. Dollar. (“US$” 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.
Year ended
|
|
December 31, 2018
|
|
December 31, 2017
|
RMB : USD exchange rate
|
|
6.5797
|
|
6.7518
|
Average period ended
|
|
|
|
|
HKD : USD exchange rate
|
|
7.800
|
|
7.800
|
Average period ended
|
|
|
|
|
PESO : USD exchange rate
|
|
51.1725
|
|
49.8403
|
Average period ended
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
December 31, 2018
|
|
December 31, 2017
|
RMB : USD exchange rate
|
|
6.8505
|
|
6.5060
|
HKD : USD exchange rate
|
|
7.800
|
|
7.800
|
PESO : USD exchange rate
|
|
51.4851
|
|
49.8403
|
Commitments and contingencies
The Company follows FASB ASC Subtopic 450-20, “Loss Contingencies” in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Segment Reporting
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue from software development and maintenance services (but not by sub-services/product type or geographic area) and operating results of the Company and, as such, the Company has determined that the Company has one operating segment as defined by ASC Topic 280 “Segment Reporting”.
F-13
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Recent accounting pronouncements
In February 2016, FASB issued ASU 2016-02 (Topic 842), Leases, which requires that a lessee should recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expenses for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the method of adoption and the impact ASU 2016-02 will have on our consolidated financial statements, but expect that most existing operating lease commitments will be recognized as operating lease obligations and right-of-use assets as a result of adoption.
In June 2016, FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will be effective on January 1, 2020. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a group is required to recognize an allowance based on its estimate of expected credit loss. We are currently evaluating the impact of this new guidance on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company currently intends to adopt this guidance for the fiscal year beginning January 1, 2020, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company does not currently have any recorded goodwill.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features. II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This ASU affects all entities that issue financial instruments (for example, warrants or convertible instruments) that include down round features. Part I of this ASU relates to the recognition, measurement, and earnings per share of certain freestanding equity-classified financial instruments that include down round features affect entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share, while in Part II does not have an accounting effect. We are in the process of evaluating the impact of this accounting standard update on our consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
F-14
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 3 - Accounts receivable
Accounts receivable as of December 31, 2018 and 2017 consisted of the following:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Accounts receivable
|
|
|
590,688
|
|
|
|
972,789
|
Allowance for doubtful accounts
|
|
|
(15,648)
|
|
|
|
(3,911)
|
|
|
|
575,040
|
|
|
|
968,878
|
During the years ended December 31, 2018 and 2017, the Company did not have delinquent accounts receivable to write-off.
All of the Company’s customers are located in the PRC, Hong Kong and Philippines. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.
Note 4 - Other receivables and prepayments
Other receivables and prepayments as of December 31, 2018 and 2017 consisted of the following:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Prepaid expense
|
|
|
50,650
|
|
|
|
62,948
|
Rental deposits
|
|
|
66,270
|
|
|
|
85,355
|
Others
|
|
|
31,863
|
|
|
|
165,304
|
|
|
|
148,783
|
|
|
|
313,607
|
Note 5 -
Inventories
Inventories as of December 31, 2018 and 2017 consisted of the following:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Finished goods
|
|
|
140,604
|
|
|
|
21,489
|
F-15
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 6 – Plant and equipment, net
Plant and equipment consisted of the following as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Leasehold improvements
|
|
|
108,542
|
|
|
|
145,399
|
Computer equipment
|
|
|
404,448
|
|
|
|
254,040
|
Computer software
|
|
|
160,668
|
|
|
|
162,172
|
Office furniture and equipment
|
|
|
144,078
|
|
|
|
92,318
|
Motor Vehicle
|
|
|
154,159
|
|
|
|
155,536
|
Building
|
|
|
64,288
|
|
|
|
66,212
|
Total
|
|
|
1,036,183
|
|
|
|
875,677
|
Less: accumulated depreciation
|
|
|
(609,910)
|
|
|
|
(505,909)
|
Plant and equipment, net
|
|
|
426,273
|
|
|
|
369,768
|
Depreciation expense for the years ended December 31, 2018 and 2017 amounted to $132,964 and $108,208, respectively. For the years ended December 31, 2018 and 2017, no interest expense was capitalized into plant and equipment.
As of December 31, 2018 and 2017, the Company’s motor vehicle was under finance lease arrangement with a net carrying amount nil and $26,697 respectively.
Note 7 – Acquisition of a subsidiary
On January 25, 2017, VEII entered into a Stock Purchase Agreement, dated January 23, 2017, (“Agreement”) with VEI CHN (the “Purchaser”), a wholly owned subsidiary of the Company, TSI and the sole shareholder of TSI’s issued and outstanding shares of capital stock, who is a resident and citizen of the Philippines (“Seller”). The Agreement was approved by the Board of Directors of the Company and Purchaser at separate board of directors meetings held on January 23, 2017 in Hong Kong SAR. TSI signed the Agreement on January 23, 2017.
As of 26 January 2017, VEII received written consents from 9 beneficial owners of an aggregate of 16,095,324 shares of Company Common Stock, $0.00001 par value, (“Common Stock”), which shares represent 54.27% of the aggregate voting power of the Common Stock as of a record date of January 23, 2017 and which written consents approved the Agreement. With the receipt of these written consents, the Agreement has been signed by all of the parties to the Agreement and approved by all corporate parties’ board of directors and shareholders.
Under the Agreement, the Purchaser acquired 1,250 shares of TSI Common Stock held by the Seller, constituting all of the issued and outstanding shares of TSI Common Stock, for a purchase price of Two Thousand Six Hundred and Thirty-Six United States Dollars (US$2,636.00), and is receiving Eighty Eight Thousand and Forty Four (88,044) shares of TSI Common Stock from TSI for a purchase price of Two Hundred Thousand Dollars and No Cents ($200,000.00).
The purchase price for the 1,250 shares of TSI Common Stock was funded from cash on hand and the purchase price for the Eighty Eight Thousand and Forty Four (88,044) shares of TSI Common Stock was funded by a January 2015 good faith earnest money deposit from the Company.
Upon consummation of the Agreement, TSI is operated as a wholly owned subsidiary of the Purchaser, which Purchaser is a wholly owned subsidiary of the Company.
The Agreement contained usual and customary indemnification provisions.
F-16
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 8 – Goodwill
Goodwill consisted of the following as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Goodwill arising from acquisition of TSI (Note 7)
|
|
|
206,812
|
|
|
|
206,812
|
Note 9 – Intangible Assets
Intangible Assets consisted of the following as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Customer relationship
|
|
|
200,641
|
|
|
|
200,641
|
Less: accumulated amortization
|
|
|
(133,761)
|
|
|
|
(66,880)
|
|
|
|
66,880
|
|
|
|
133,761
|
Amortization expense for the year ended December 31, 2018 and 2017 amounted to $66,881 and 66,880, respectively. The amortization expense was included in general and administrative expenses.
Note 10 – Bank loan
Bank loan and accruals consisted of the following as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Long term bank loan
|
|
|
-
|
|
|
|
24,578
|
Less: Current portion of long term bank loan
|
|
|
-
|
|
|
|
(22,652)
|
|
|
|
-
|
|
|
|
1,926
|
Short term bank loan
|
|
|
1,926
|
|
|
|
9,230
|
Current portion of long term bank loan
|
|
|
-
|
|
|
|
22,652
|
|
|
|
1,926
|
|
|
|
31,882
|
As of December 31, 2018 and 2017, the above bank loan secured by property and equipment with net carrying amount of nil and $26,697 respectively.
F-17
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 11 – Other payables and accrued liabilities
Other payables and accruals consisted of the following as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Accrual
|
|
|
619,300
|
|
|
|
516,907
|
Accrued redundancy cost
|
|
|
-
|
|
|
|
72,980
|
Income taxes payable
|
|
|
18,264
|
|
|
|
151,322
|
|
|
|
637,564
|
|
|
|
741,209
|
Accrual mainly represents salary payables and fringe and social security accruals. According to the prevailing laws and regulations of the PRC, all eligible employees of the Company’s subsidiary are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Company’s subsidiary is required to accrue for these benefits based on certain percentages of the qualified employees’ salaries. The Company’s subsidiary is required to make contributions to the plans out of the amounts accrued.
The Company’s subsidiaries incorporated in Hong Kong manage a defined contribution Mandatory Provident Fund (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. The Company is required to contribute 5% of the monthly salaries for all Hong Kong based employees to the MPF Scheme up to a maximum statutory limit.
Note 12 – Deferred income
Deferred income consisted of the following as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
US$
|
|
|
US$
|
Service fees received in advance
|
|
|
571,541
|
|
|
|
200,267
|
F-18
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 13 - Income taxes
Income is subject to tax in the various countries in which the company operates.
The Company is subject to United States tax at a tax rate of 21%. No provision for income taxes in the United States has been made as the Company had no income taxable in the United States.
The Company’s Hong Kong subsidiaries are subject to Hong Kong Profits Tax at 16.5% of the estimated assessable profit. The Income Tax Laws in Hong Kong exempts income tax for dividends distributed to its shareholders. Accordingly, no deferred tax liability was recognized for the undistributed earnings of the Company and its Hong Kong subsidiaries.
The Company’s Philippine subsidiary is subject to Philippine Statutory Corporate Income Tax at 30%.
The Company’s PRC subsidiary in the PRC is subject to PRC Enterprise Income Tax at 25%.
The Income Tax Laws in PRC also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside PRC for distribution of earnings generated after January 1, 2008. Under the Income Tax Laws, the distribution of earnings generated prior to January 1, 2008 is exempt from the withholding tax. As the Company’s subsidiary located in the PRC that are available for distribution to the Company of approximately $0 at December 31, 2017 are considered to be indefinitely reinvested, and accordingly, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to the Company. As of December 31, 2018, the Company’s subsidiary located in the PRC that are available for distribution to the Company of approximately $0.
The Company’s income tax expense consisted of:
|
|
Year ended December 31,
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
|
US$
|
Current income tax
|
|
|
11,583
|
|
|
|
46,368
|
Deferred income tax
|
|
|
(22,204)
|
|
|
|
(54,165)
|
Income tax credit
|
|
|
(10,621)
|
|
|
|
(7,797)
|
A reconciliation of the income tax expense / (credit) applicable to income before tax using the applicable statutory rates for the jurisdictions in which the Company and its subsidiaries operated to the tax expense / (credit) at the effective tax rates are as follows:
|
|
Year ended December 31,
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
|
US$
|
Pre-tax income
|
|
|
194,537
|
|
|
|
63,137
|
|
|
|
|
|
|
|
|
U.S. federal corporate income tax rate
|
|
|
34%
|
|
|
|
34%
|
Philippine corporate income tax rate
|
|
|
30%
|
|
|
|
30%
|
P.R.C. corporate income tax rate
|
|
|
25%
|
|
|
|
25%
|
Hong Kong corporate income tax rate
|
|
|
16.5%
|
|
|
|
16.5%
|
|
|
|
|
|
|
|
|
Current tax computed at various jurisdiction rate
|
|
|
11,583
|
|
|
|
46,368
|
Deferred tax computed at various jurisdiction rate
|
|
|
(22,204)
|
|
|
|
(54,165)
|
Effective income taxes
|
|
|
(10,621)
|
|
|
|
(7,797)
|
F-19
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred income tax assets and liabilities are as follows:
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
|
US$
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
Tax losses
|
|
|
40,762
|
|
|
|
32,668
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
Allowances in excess of the related amortization
|
|
|
20,399
|
|
|
|
42,604
|
Note 14 – Statutory reserves
Statutory reserves
The laws and regulations of the PRC require that before an enterprise distributes profits to its owners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the Board of Directors after the statutory reserves.
As stipulated by the Company Law of the PRC, as applicable to Chinese companies with foreign ownership, net income after taxation can only be distributed as dividends after appropriation has been made for the following:
1.
Making up cumulative prior years’ losses, if any;
2.
Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the company’s registered capital; and;
3.
Allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting.
The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any. It may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.
Note 15 – Related party and shareholder transactions
Other than disclosed elsewhere in these financial statements, the Company also had the following related party balances and transactions:
Related party balances
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
|
US$
|
Due from a related party
|
|
|
|
|
|
|
|
Value Exchange International Limited (i)
|
|
|
607,126
|
|
|
|
310,418
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
|
|
|
|
|
Mr. Edmund Yeung (ii)
|
|
|
81,821
|
|
|
|
136,120
|
Mr. Matthew Mecke (iii)
|
|
|
2,500
|
|
|
|
2,500
|
Mr. Johan Pehrson (vi)
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
86,821
|
|
|
|
141,120
|
F-20
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Related party transactions:
|
|
Year end December 31,
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
|
US$
|
Subcontracting fees paid to
|
|
|
|
|
|
|
|
Value Exchange International Limited (i)
|
|
|
(50,526)
|
|
|
|
(217,949)
|
|
|
|
|
|
|
|
|
Interest expenses payable to
|
|
|
|
|
|
|
|
Mr. Edmund Yeung (ii)
|
|
|
(6,982)
|
|
|
|
(9,999)
|
|
|
|
|
|
|
|
|
Management fees received from
|
|
|
|
|
|
|
|
Value Exchange International Limited (i)
|
|
|
139,369
|
|
|
|
66,659
|
(i)
Mr. Kenneth Tan, a director of the Company, is a shareholder and a director of Value Exchange International Limited, a company incorporated in Hong Kong. The balance is unsecured, interest free and repayable on demand.
(ii)
Mr. Edmund Yeung is a director of the Company. The balance included a loan from a director is unsecured, interest bearing at 12% per annum, and repayable on February 7, 2016 amount to US$32,051 as of December 31, 2018 (2017: US$ 83,333). As of the day of this report, no repayment has been made since December 31, 2018.
(iii)
Mr. Matthew Mecke is a director of the Company. The balance is unsecured, interest free and repayable on demand.
(iv)
Mr. Johan Pehrson is a director of the Company. The balance is unsecured, interest free and repayable on demand.
Note 16 - Commitments
The Company’s contractual obligations primarily consist of operating lease obligations. The following table sets forth a breakdown of the contractual obligations as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
US$
|
|
Operating lease commitment
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
344,177
|
|
|
|
311,381
|
|
2 – 5 years
|
|
|
394,404
|
|
|
|
327,913
|
|
|
|
|
738,581
|
|
|
|
639,294
|
|
F-21
VALUE EXCHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 17 - Concentration of risks
The Company’s operations are carried out in the PRC and in Hong Kong through the Company’s operating subsidiaries located in PRC and Hong Kong SAR. Its operations in the PRC and Hong Kong SAR are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in government policies regarding laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company provides unsecured credit terms for sales to certain customers. As a result, there are credit risks with the accounts receivable balances. The Company constantly re-evaluates the credit worthiness of customers buying on credit and maintains an allowance for doubtful accounts.
The following individual customer accounted for 10% or more of the Company’s revenues for the years ended December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
Aisino Wincor Nixdorf Retail & Banking Systems
(Shanghai) Co., Ltd. Company
|
|
26.4%
|
|
|
26.7%
|
Wuhan Watson’s Personal Care Stores Co., Limited
|
|
24.4%
|
|
|
15.6%
|
Fujitsu Hong Kong Limited
|
|
14.2%
|
|
|
15%
|
Wincor Nixdorf (Hong Kong) Limited
|
|
9.4%
|
|
|
11.4%
|
Individual customer accounts receivable that represented 10% or more of total accounts receivable as of December 31, 2018 and 2017 were as follows:
|
|
Percentage of accounts receivable as of December 31,
|
|
|
2018
|
|
|
2017
|
Wuhan Watson’s Personal Care Stores Co., Limited
|
|
18.5%
|
|
|
-
|
Fujitsu Hong Kong Limited
|
|
19.8%
|
|
|
42.8%
|
Wincor Nixdorf (Hong Kong) Limited
|
|
15.2%
|
|
|
9.9%
|
Aisino Wincor Nixdorf Retail & Banking Systems
(Shanghai) Co., Ltd. Company
|
|
13.3%
|
|
|
10.1%
|
Robinsons Retail Group
|
|
11.6%
|
|
|
8.1%
|
F-22