Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to __________

Commission file number: 000-53537

Value Exchange International, Inc.

(Exact name of registrant as specified in its charter)


Nevada		26-3767331
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10/F, FT Life Tower, 18 Sheung Yuet Road,

Kowloon Bay, Kowloon, Hong Kong

(Address of principal executive offices) (Zip Code)

(852) 29504288

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

Trading

Symbol

Name of Each Exchange

on Which Registered

None

N/A

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, Emerging Growth Company or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	.¨	Accelerated filer ¨	.
Non-accelerated filer ¨		Smaller reporting company x
Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of June 30, 2024, there were 43,500,762 shares of common stock issued and outstanding.

1

FORM 10-Q

Value Exchange International, Inc.

INDEX

		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation		42

Item 3. Quantitative and Qualitative Disclosures About Market Risk		53

Item 4. Controls and Procedures		53

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		54

Item 1A. Risk Factors		54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		54

Item 3. Defaults Upon Senior Securities		54

Item 4. Mine Safety Disclosures		54

Item 5. Other Information		54

Item 6. Exhibits		55

Signatures		56

Please note that throughout this Quarterly Report on Form 10-Q ("Form 10-Q" or "report"), except as otherwise indicated by the context, references in this report to "Company", "we", "us" and "our" are references to Value Exchange International, Inc. and its wholly owned subsidiaries.

2

ITEM 1. FINANCIAL STATEMENTS

VALUE EXCHANGE INTERNATIONAL, INC.

Financial Statements


		Page
Consolidated Balance Sheets (unaudited)		4
Consolidated Statements of Operations (unaudited)		5
Consolidated Statements of Comprehensive Income (unaudited)		6
Consolidated Statements of Cash Flows (unaudited)		8
Notes to the Consolidated Financial Statements (unaudited)		9

3

VALUE EXCHANGE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

	March 31, 2024			December 31, 2023
	US$			US$
ASSETS	(unaudited)
CURRENT ASSETS
Cash		515,113			886,467
Accounts receivable, less allowance for credit losses		1,485,055			1,736,866
Amounts due from related parties		130,186			530,675
Other receivables and prepayments		768,803			623,408
Inventories		215,313			-
Total current assets		3,114,470			3,777,416

NON-CURRENT ASSETS
Plant and equipment, net		344,499			308,135
Goodwill		342,079			206,812
Operating lease right-of-use assets, net		1,244,569			926,630
Total non-current assets		1,931,147			1,441,577

Total assets		5,045,617			5,218,993


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable		1,109,781			1,615,653
Other payables and accrued liabilities		2,821,949			2,601,761
Deferred income		967,558			778,126
Amounts due to related parties		12,953			83,649
Operating lease liabilities, current		585,762			463,411
Loan from a related party		500,000			500,000
Current portion of finance lease liability		27,761			28,867
Short term bank loan from an affiliate		940,147			940,147
Total current liabilities		6,965,911			7,011,614

NON-CURRENT LIABILITIES
Deferred tax liabilities		4,855			4,889
Convertible loan from affiliates		352,389			1,061,282
Long term finance lease liability		6,795			13,056
Operating lease liabilities, non-current		653,816			457,982
Total non-current liabilities		1,017,855			1,537,209
Total liabilities		7,983,766			8,548,823

SHAREHOLDERS’ EQUITY (DEFICIT)
Common stock, 100,000,000 shares authorized, $0.00001 par value; 43,500,762 and 43,500,762 shares issued and outstanding, respectively		435			435
Additional paid-in capital		2,480,327			2,480,327
Statutory reserves		11,835			11,835
Accumulated deficit		(5,469,928	)		(5,859,193	)
Accumulated other comprehensive losses		(44,310	)		(63,063	)
Total shareholders’ equity (deficit)		(3,021,641	)		(3,429,659	)
Non-controlling interest		83,492			99,829
		(2,938,149	)		(3,329,830	)

Total liabilities and shareholders’ equity (deficit)		5,045,617			5,218,993

The accompanying notes are an integral part of these consolidated financial statements.

4

VALUE EXCHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
	US$			US$
	(unaudited)			(unaudited)
NET REVENUES
Service income		3,370,009			2,884,549

COST OF SERVICES
Cost of service income		(2,227,692	)		(2,502,728	)

GROSS PROFIT		1,142,317			381,821

OPERATING EXPENSES:
General and administrative expenses		(1,086,562	)		(731,977	)
Foreign exchange loss		(342,296	)		(87,886	)
TOTAL OPERATING EXPENSES		(1,428,858	)		(819,863	)

LOSS FROM OPERATIONS		(286,541	)		(438,042	)

OTHER INCOME (EXPENSES):
Interest income		531			438
Interest expense		(51,246	)		(29,632	)
Change in fair value of embedded derivatives		708,893			(34,752	)
Finance cost		(8,809	)		(4,239	)
VAT refund		11,140			485
Management fee income		-			32,475
Others		703			20,588
Total other income (expenses), net		661,212			(14,637	)

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		374,671			(452,679	)

INCOME TAXES EXPENSES		(241	)		(1,170	)
NET INCOME (LOSS)		374,430			(453,849	)

Less: Net loss attributable to the non-controlling interests		14,835			41,163

Net income (loss) attributable to the Company shareholders		389,265			(412,686	)

Net income (loss) per share, basic and diluted, attributable to the Company shareholders		0.01			(0.01	)

Weighted average number of shares outstanding		43,500,762			36,156,130

The accompanying notes are an integral part of these consolidated financial statements.

5

VALUE EXCHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023
		US$		US$
NET INCOME (LOSS)		374,430		(453,849	)

OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation adjustment		17,251		41,163

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX:		17,251		41,163

Comprehensive income (loss)		391,681		(412,686	)

Less: Comprehensive loss (income) attributable to the non- controlling interests		16,337		(10,258	)

Comprehensive income (loss) attributable to the Company shareholders		408,018		(422,944	)

The accompanying notes are an integral part of these consolidated financial statements.

6

VALUE EXCHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	The Company’s Shareholders
												Accumulated
												other
	Common stock				Additional		Retained earnings					comprehensive			Noncontrolling
	Share		Amount		paid-in capital		(accumulated deficit)			Statutory reserves		income			Interest			Total
January 1, 2023		36,156,130		362		1,340,524		849,471			11,835		(76,986	)		129,537			2,254,743
Net loss		-		-		-		(6,708,664	)		-		-			(26,247	)		(6,734,911	)
Conversion of debt to common shares		7,344,632		73		1,139,803		-			-		-			-			1,139,876
Foreign currency translation adjustment		-		-		-		-			-		13,923			(3,461	)		10,462
December 31, 2023		43,500,762		435		2,480,327		(5,859,193	)		11,835		(63,063	)		99,829			(3,329,830	)

January 1, 2024		43,500,762		435		2,480,327		(5,859,193	)		11,835		(63,063	)		99,829			(3,329,830	)
Net income		-		-		-		389,265			-		-			(14,835	)		374,430
Foreign currency translation adjustment		-		-		-		-			-		18,753			(1,502	)		17,251
March 31, 2024		43,500,762		435		2,480,327		(5,469,928	)		11,835		(44,310	)		83,492			(2,938,149	)

The accompanying notes are an integral part of these consolidated financial statements.

7

VALUE EXCHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
	US$			US$
	(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		374,430			(453,849	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		60,861			61,347
Amortization		160,900			109,362
Noncash operating lease expense		8,809			4,239
Change in fair value of embedded derivatives		(708,893	)		34,752
Deferred income taxes		(34	)		(702	)
Changes in operating assets and liabilities
Accounts receivable		491,023			(86,123	)
Other receivables and prepayments		(139,649	)		82,787
Amounts due from related parties		400,489			(107,566	)
Inventories		64,954			(4,026	)
Operating lease right-of-use assets		(487,156	)		(12,185	)
Accounts payable		(1,088,051	)		(161,476	)
Other payables and accrued liabilities		185,189			22,100
Deferred income		189,432			15,729
Amounts due to related parties		(175,488	)		(6,079	)
Operating lease liabilities		318,185			(92,191	)
Net cash used in operating activities		(344,999	)		(593,881	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment		(99,460	)		(71,694	)
Acquisition of a subsidiary		60,355			-
Net cash used in investing activities		(39,105	)		(71,694	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible loan		-			1,500,000
Repayment of finance lease liability		(7,130	)		(5,889	)
Repayment of bank loan from an affiliate		-			(501,117	)
Net cash (used in) provided by financing activities		(7,130	)		992,994

EFFECT OF EXCHANGE RATE ON CASH		19,880			99,877
(DECREASE) INCREASE IN CASH		(371,354	)		427,296
CASH, beginning of period		886,467			208,776
CASH, end of period		515,113			636,072

NON-CASH INVESTING AND FINANCING ACTIVITIES
ROU asset acquired with operating lease liability		253,834			-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes		(241	)		(1,170	)
Cash paid for interest expenses		(51,246	)		(29,632	)

The accompanying notes are an integral part of these consolidated financial statements.

8

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

Nature of Operations and Continuance of Business

Value Exchange International, Inc. ("VEII", "Company", "we" or "us") was incorporated in the State of Nevada on June 26, 2007. The Company’s principal business, conducted through its operating subsidiaries, is to provide customer-centric solutions for the retail industry in China, Hong Kong SAR and Manila, Philippines. By integrating market-leading Point-of-Sale/Point-of-Interaction ("POS/POI"), Merchandising, Customer Relations Management or "CRM" and related rewards, Locational Based (Global Positing System ("GPS") and Indoor Positioning System ("IPS")) Marketing, Customer Analytics and Business Intelligence solutions, VEII provides retailers with the capability to offer a consistent shopping experience across all marketing and sales channels, enabling them to easily and effectively manage the customer lifecycle on a one-to-one basis. VEII promotes itself as a single information technology ("IT") source for retailers who want to extend existing traditional transaction processing to multiple points of interaction, including the Internet, kiosks and wireless devices. VEII services are focused on helping retailers realize the full benefits of Customer Chain Management with its suite of solutions that focus on the customer, on employees, and the infrastructure that supports the selling channel. VEII’s retail solutions are installed in an estimated 30%-40% of POS/POI-suitable retailers in Hong Kong and Manila, Philippines, processing tens of millions of transactions a year. Company is headquartered in Hong Kong and with offices in Shenzhen, Guangzhou, Shanghai, Beijing, China; Manila, Philippines; and Kuala Lumpur, Malaysia.

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.

The Company provides IT Business’ services and solutions to the retail sector through three operating subsidiaries located in Hong Kong SAR and 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.

9

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 14, 2013, VEI CHN further established another operating subsidiary, Ke Dao Solutions Limited in Hong Kong, which subsequently changed its name to Cumberbuy.com Limited ("CUMBERBUY") on May 26, 2017. CUMBERBUY conducts consultancy services for IT Services and Solutions activities. On May 21, 2018, VEI CHN disposed of CUCUMBUY with consideration of HK$1.

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.

In January 2019, VEI SHG established an operating subsidiary, Value Exchange Int’l (Hunan) Limited ("VEI HN") in Hunan, PRC, under the laws of the PRC. VEI HN engages in IT service call-center activities.

In February 2020, VEI SHG established an operating subsidiary, Shanghai Zhaonan Hengan Information Technology Co., Limited ("SZH") in Shanghai, PRC, under the laws of the PRC. SZH engages in IT services.

In July 2021, VEI CHN established in an associate, Smart Reward Express Limited ("SRE") in Hong Kong. SRE is inactive since its establishment.

In January 2022, VEI HKG established an operating subsidiary, Haomeng Technology (Shenzhen) Co., Limited. ("HTS") in Shenzhen, PRC, under the laws of the PRC. HTS engages in IT services.

On January 2, 2024, VEI CHN acquired 100% of the capital stock of Value E Consultant International (M) Sdn. Bhd, a company established in Malaysia (the "Value E"). Value E engages in software development, trading and servicing of computer hardware and software activities in Malaysia. Value E is operated as a subsidiary of VEI CHN.

As of March 31, 2024, the Company held six wholly-owned subsidiaries, and two subsidiaries with 51% ownership. Company establishes operating subsidiaries when a perceived or actual opportunity for business is deemed to be most efficiently handled by a local operating subsidiary.

10

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.

Summary of Significant Accounting Policies

a)

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and include the financial statements of the Company and all its wholly-owned subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st. The following entities were consolidated as of March 31, 2024:

	Place of incorporation	Ownership percentage
Value Exchange International, Inc.	USA	Parent Company
Value Exchange Int’l (China) Limited	Hong Kong	100%
Value Exchange Int’l (Shanghai) Limited	PRC	100%
Value Exchange Int’l (Hong Kong) Limited	Hong Kong	100%
TapServices, Inc.	Philippines	100%
Value Exchange Int’l (Hunan) Limited	PRC	51%
Shanghai Zhaonan Hengan Information Technology Co., Ltd.	PRC	51%
Haomeng Technology (Shenzhen) Co., Limited	PRC	100%
Value E Consultant International (M) Sdn. Bhd	Malaysia	100%

b)

Going Concern

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company has an operating loss of $286,541 for the three months period ended March 31, 2024, has an accumulated deficit of $5,469,928 and has only cash reserves of $515,113 as of March 31, 2024. Management has evaluated the significance of the conditions in relation to the Company’s ability to meet its obligations and believes that its current cash balance along with its current operations will not provide sufficient capital to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon achieving sales growth, management of operating expenses and ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations.

The Company has relied on debt funding to pay for operating expenses and business development efforts in 2024 that were not covered by operating revenues. If the Company continues to incur operating losses as incurred within twelve months of filing date and does not significantly increase its cash reserves, and if the Company does not also receive additional funding from existing lenders or from other sources to provide the working capital needed to cover those continuing operating losses, then the Company would be forced to reduce its operating expenses and business development efforts and the issue of the Company as a going concern may arise. While the existing lenders of the Company and Company's majority shareholder are affiliated, there can be no assurance of additional debt or equity funding for the Company from the existing lenders or the majority shareholder. In considering our forecast for the next twelve months and the current cash and working capital as of the filing of this Form 10-Q, such matters create a substantial doubt regarding the Company’s ability to meet their financial needs and continue as a going concern.

These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

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VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

c)

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 as of 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.

d)

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.

e)

Interim Financial Statements

These interim unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

f)

Accounts receivable, other receivables, and current expected credit losses

Receivables include trade accounts due from customers and other receivables such as cash advances to employees, utility deposits paid and advances 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 credit losses is adequate. An estimate for credit losses 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 March 31, 2024 and December 31, 2023, allowance for uncollectible accounts receivable amounts to $155,301 and $155,301, respectively; and there was no allowance for uncollectible other receivables. Management believes that the remaining accounts receivable and other receivables are collectable.

The company evaluated the accounting standards update related to the Current Expected Credit Losses ("CECL") and adequate allowance for uncollectible accounts receivable have been made during 2024.

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VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

g)

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost for inventories is determined using the “first-in, first-out” method. Cost is defined as the cost to acquire products, cost of conversion and other related costs to bring inventory to present location and condition. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Management reviews inventories for obsolescence or cost in excess of net realizable value periodically. The obsolescence, if any, is recorded as a provision against the inventory. The cost in excess of market value is written off and recorded as additional cost of sales.

h)

Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred. Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

		Estimated Useful Life
Leasehold improvements		Lesser of lease term or the estimated useful lives of 5 years
Computer equipment		5 years
Computer software		5 years
Office furniture and equipment		5 years
Motor Vehicle		3 years
Building		5 years

i)

Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of net assets acquired. Goodwill is not amortized, but is instead tested for impairment annually.

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VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

j)

Impairment of long-lived assets

Property, Plant, and Equipment

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.

Impairment of Goodwill

The carrying value of goodwill is evaluated annually or more frequently if events or circumstances indicate that an impairment loss may have occurred. Such circumstances could include, but are not limited to, a significant adverse change in business climate, increased competition or other economic conditions. Under FASB Accounting Standard Codification (ASC) Topic 350 "Intangibles - Goodwill and Other", goodwill is tested at a reporting unit level. The impairment test involves a two-step process. The first step involves comparing the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If this comparison indicates that a reporting unit’s estimated fair value is less than its carrying value, a second step is required. If applicable, the second step requires us to allocate the estimated fair value of the reporting unit to the estimated fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of the goodwill exceeds its fair value, the carrying value is written down by an amount equal to such excess.

The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, and is subject to inherent uncertainties and subjectivity. Estimating a reporting unit’s discounted cash flows involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including sales, gross margin and selling, general and administrative rates, capital expenditures, cash flows and the selection of an appropriate discount rate. Projected sales, gross margin and selling, general and administrative expense rate assumptions and capital expenditures are based on our annual business plans and other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit directly resulting from the use of its assets in its operations. These estimates are based on the best information available to us as of the date of the impairment assessment.

14

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

k)

Fair value of financial instruments

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 following table represents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis as of:

March 31, 2024

Level 1

Level 2

Level 3

Total

US$

Liabilities:

Convertible loan and its fair value for the derivative portion (See Note 12)

-

352,389

December 31, 2023

Level 1

Level 2

Level 3

Total

US$

Liabilities:

Convertible loan and its fair value for the derivative portion (See Note 12)

-

1,061,282

As of March 31, 2024 and December 31, 2023, the fair values of the Company’s cash and cash equivalents, accounts receivable, inventory, accounts payable, other receivables and prepayments, other payables and accrued liabilities, and balances with related parties approximated the carrying values of these instruments presented in the Company’s consolidated balance sheets due to the short maturities of these instruments.

l)

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.

15

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

m)

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.

n)

Revenue recognition

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. We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606.

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 performance obligations.

Determining whether such products and services within a customer contract are considered distinct performance obligations that should be accounted for separately requires significant judgment. Accordingly, we review customer contracts to identify all separate promises to transfer goods and services that would be considered performance obligations. Judgment is also required in determining whether an option to acquire additional products and services within a customer contract represents a material right that the customer would not receive without entering into that contract.

The Company’s contracts often contain multiple performance obligations, which 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 performance obligations 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. If a contract contains multiple performance obligations, the Company accounts for each distinct performance obligation separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Any discounts or expected potential future price concessions are considered when determining the total transaction price.

16

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

We recognize revenue over time when there is a continuous transfer of control to our customer. When control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Based on the nature of the products and services provided in the contract, we use our judgment to determine if an input measure or output measure best depicts the transfer of control over time. If a contract does not meet the criteria for recognizing revenue over time, we recognize revenue at a point in time.

Revenues of maintenance services are recognized when the services are performed in accordance with the contract term. For maintenance service contracts, a time-elapsed output method is used to measure progress, and revenue is recognized straight-line over the term of the contract.

For services contracts, we typically satisfy our performance obligations as services are rendered and use a contract cost-based input method to measure progress. Contract costs include labor, material and allocable indirect expenses. Revenue is recognized proportionally as contract costs are incurred plus estimated fees.

Revenues of sale of software, if not bundled with other arrangements, are recognized when shipped and customer acceptance obtained at a point in time, if all other revenue recognition criteria are met. Costs associated with revenues are recognized when incurred.

Revenues are recorded net of value-added taxes, sales discounts and returns. There were no sales returns during the three months period ended March 31, 2024 and 2023.

	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023
	US$		US$
	(unaudited)		(unaudited)
NET REVENUES
Service income
- systems development and integration		54,115		14,359
- systems maintenance		2,616,667		2,490,154
- sales of hardware and consumables		699,227		380,036
		3,370,009		2,884,549

Billings in excess of revenues recognized are recorded as deferred revenue.

17

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

o)

Income taxes

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.

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.

p)

Lease accounting

The Company categorize leases at their inception as either operating or finance leases. Lease agreements cover certain office space, warehouse space, and vehicles. Most of these leases are operating leases; however, certain vehicles are leased under finance leases.

Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Finance leases are included in net property, current installments of long-term debt, and long-term debt in our consolidated balance sheets.

Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. As the Company’s leases generally do not provide an implicit discount rate, the Company uses the estimated collateralized incremental borrowing rate (i.e. 3%) based on information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the operating lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest and requires estimates and assumptions including credit rating, credit spread, and adjustments for the impact of collateral. The Company believes that this is the rate it would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term.

Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.

18

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

q)

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. No advertising and marketing expense for the three months ended March 31, 2024 and 2023.

r)

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 three months ended March 31, 2024 and 2023 were $11,942 and $18,746 respectively.

s)

Research and development costs

Research and development costs are expensed as incurred and are included in general and administrative expenses. No research and development costs for the three months ended March 31, 2024 and 2023.

t)

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 Chinese subsidiaries is RMB. The functional currency of the Philippine subsidiary is Peso. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the exchange rate as quoted by the Hong Kong Monetary Authority ("HKMA") at the end of the period. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Quarter ended	March 31, 2024	March 31, 2023
RMB : USD exchange rate	7.1822	6.8133
average period ended
HKD : USD exchange rate	7.800	7.800
average period ended
PESO : USD exchange rate	54.2137	53.5881
average period ended
MYR : USD exchange rate	4.7088	-
average period ended

Quarter ended	March 31, 2024	December 31, 2023
RMB : USD exchange rate	7.2316	7.1155
HKD : USD exchange rate	7.800	7.800
PESO : USD exchange rate	54.3554	53.9792
MYR : USD exchange rate	4.7187	-

19

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

u)

Stock-based Compensation

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

v)

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.

w)

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”.

20

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

x)

Recent accounting pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual periods beginning the year ended December 31, 2024, and for beginning January 1, 2025. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. We do not expect the adoption of this guidance to have a material impact 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.

21

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.

Accounts receivable

Accounts receivable consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024			December 31, 2023
	US$			US$
Accounts receivable		1,640,356			1,892,167
Allowance for credit losses		(155,301	)		(155,301	)
		1,485,055			1,736,866

All of the Company’s customers are located in the PRC, Hong Kong and Manila, Philippines. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for credit losses based on factors surrounding the credit risk of specific customers, historical trends, and other information. The change in accounts receivable for the period ended March 31, 2024 was primarily due to new billings of revenue recognition.

The following table presents changes in the balances of the company accounts receivable:

	December 31, 2023			Additions		Deductions			March 31, 2024
	US$			US$		US$			US$

Accounts receivable		1,892,167			3,376,571		(3,628,382	)		1,640,356
Allowance for credit losses		(155,301	)		-		-			(155,301	)
		1,736,866			3,376,571		(3,628,382	)		1,485,055

	December 31, 2022		Additions			Deductions			December 31, 2023
	US$		US$			US$			US$

Accounts receivable		1,133,058		11,967,888			(11,208,779	)		1,892,167
Allowance for credit losses		-		(155,301	)		-			(155,301	)
		1,133,058		11,812,587			(11,208,779	)		1,736,866

22

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.

Other receivables and prepayments

Other receivables and prepayments consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Deposits and prepaid expense		689,481		448,249
Others		79,322		175,159
		768,803		623,408

5.

Inventories

Inventories as of March 31, 2024 and December 31, 2023 consisted of the following:

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Finished goods		215,313		-

23

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.

Plant and equipment, net

Plant and equipment consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024			December 31, 2023
	US$			US$
	(unaudited)
Leasehold improvements		90,169			91,427
Office furniture and equipment		278,783			278,612
Computer equipment		425,064			423,666
Computer software		341,458			250,649
Motor Vehicle		215,184			216,119
Building		61,212			61,596
Total		1,411,870			1,322,069
Less: accumulated depreciation		(1,067,371	)		(1,013,934	)
Plant and equipment, net		344,499			308,135

Depreciation expense for the three months period ended March 31, 2024 and 2023 amounted to $60,861 and $61,347, respectively. For the three months period ended March 31, 2024 and 2023, no interest expense was capitalized into plant and equipment.

As of March 31, 2024 and December 31, 2023, the Company's motor vehicle was under finance lease arrangement with a net carrying amount $89,833 and $101,646 respectively.

7.

Goodwill

Goodwill consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Goodwill arising from acquisition of TSI		206,812		206,812
Goodwill arising from acquisition of Value E		135,267		-
		342,079		206,812

As of January 2, 2024, VEI CHN acquired 100% of the capital stock of Value E from shareholders of VALUE E, Ms. TSANG Po Yee Bella with 95% shares of interest and Mr. CHAI Li Chen with 5% shares of interest, for the consideration Malaysian ringgit (MYR) 100. Ms. TSANG Po Yee Bella is also a director of the Company. Upon completion of the acquisition, Value E is a wholly owned subsidiary of the Company. Value E engages in software development, trading and servicing of computer hardware and software activities in Malaysia. The Company is undergoing purchase price allocation valuation for the acquisition of Value E currently.

24

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.

Operating leases

We have entered into various non-cancelable operating lease agreements for certain of our offices. Our leases have original lease periods expiring between the remainder of 2024 and 2027. Many leases include option to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Operating lease right-of-use assets, net		1,244,569		926,630

The components of lease liabilities are as follows:

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Lease liabilities, current		585,762		463,411
Lease liabilities, non-current		653,816		457,982
Present value of lease liabilities		1,239,578		921,393

Total noncash operating lease expense for the three months period ended March 31, 2024 and 2023 amounted to $8,809 and $4,239 respectively. Principal payments on operating leases liability for the three months period ended March 31, 2024 and 2023 amounted to $164,059 and $112,651 respectively. Weighted-average remaining lease term is 1.72 years, and weighted-average discount rate is 3%.

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2023:

	March 31, 2024			December 31, 2023
	US$			US$
	(unaudited)
Year one		614,626			484,526
Year two		440,321			299,848
Year three		229,487			169,461
Total undiscounted cash flows		1,284,434			953,835
Less: Imputed interest		(44,856	)		(32,442	)
Present value of lease liabilities		1,239,578			921,393

25

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.

Finance lease liability

Finance lease liability consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024			December 31, 2023
	US$			US$
	(unaudited)
Long term finance lease liability		34,556			41,922
Less: Current portion of finance lease liability		(27,761	)		(28,868	)
		6,795			13,056

Current portion of finance lease liability		27,761			28,867
		27,761			28,867

As of March 31, 2024 and December 31, 2023, the above finance lease liability secured by property and equipment with net carrying amount of $89,833 and $101,646 respectively. Total finance lease cost for the three months period ended March 31, 2024 and 2023 amounted to $552 and $1,221 respectively. Principal payments on finance leases liability for the three months period ended March 31, 2024 and 2023 amounted to $7,130 and $5,889 respectively.

10.

Bank loan from an affiliate

Bank loan from an affiliate consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Short term bank loan from an affiliate		940,147		940,147

The Company and American Pacific Bancorp, Inc., a Texas corporation located in Houston, Texas, (“APB”) signed a Loan Agreement, Security Agreement and Revolving Credit Promissory Note (“Promissory Note”), each dated July 26, 2022 but fully executed and closed as of July 27, 2022, whereby APB will provide a $1 million secured revolving credit line to the Company (“APB Credit Line”). Loan Agreement, Security Agreement and Promissory Note may be referred to collectively as “Credit Line Documents”. The Credit Line Documents provide for a fixed 8% annual interest on sums advanced, two year maturity date for unpaid sums loaned and unpaid interest accrued thereon, and calendar quarterly payments of accrued interest on any sums advanced under Credit Line (interest payments commencing on September 30, 2022). The Credit Line is secured by a first, senior lien on all of the Company’s assets, with net carrying amount of $5,045,617. Credit Line advances may be used for general working capital.

APB is affiliated with Chan Heng Fai, a director and principal shareholder of the Company, by virtue of Mr. Chan’s equity ownership of parent company of APB and his service as the Executive Chairman of the parent company of APB. APB is also affiliated with the Company directors Lum Kan Fai, Robert Trapp and Mr. Lim Sheng Hon Danny since they are affiliated with Mr. Chan and certain of his affiliated companies by virtue of services as a director, officer or professional advisor to those affiliated companies. Further, Wong Shui Yeung, and Wong Tat Keung, who are deemed to be independent directors of the Company, are also independent directors of certain Mr. Chan's affiliated companies. (See Note 12 (iii))

26

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

Loan from a related party

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Loan from a related party		500,000		500,000

On September 28, 2023, the Company entered into a Loan Agreement and Promissory Note (collectively, the “Loan Agreement”) with Alset International Limited, a public Singapore corporation, (“AIL”) for an unsecured loan of Five Hundred Thousand U.S. Dollars and No Cents (USD$500,000.00) principal amount (“Principal”) to the Company. Principal accrues simple interest at Eight Percent (8%) per annum. Repayment of Principal and accrued interest thereon is to be made as follows:

(1) Principal will be paid in a single lump sum payment on or by the six (6) month anniversary of the effective date of the Loan Agreement, being September 28,2023, (being the “Maturity Date”); and

(2) Interest accrued on Principal shall be paid on the last business day on a calendar monthly basis with initial accrued Interest payments commencing on September 28, 2023.

Company has the right to prepay all or any portion of the Principal and Interest accrued on the Principal, without penalty, upon ten (10) days’ prior notice to AIL. The Principal was advanced in full by AIL on October 4, 2023.

Mr. Chan Heng Fai, a non-executive director of the Company, who is deemed the owner of 49.63% of the issued shares of Company’s Common Stock by virtue of 95,000 shares of Common Stock held by Mr. Chan, and the following share ownership of Company’s Common Stock by entities that Mr. Chan is deemed to control: 21,120,795 shares held by Hapi Metaverse Inc., 39,968 shares held by BMI Capital Partners International Limited, 18,512 shares held by Liquid Value Development Pte Ltd. and 313,154 shares held by Decentralized Sharing Systems, Inc.

AIL is a majority-owned subsidiary of Alset Inc., a Texas corporation, (“Alset”). Mr. Chan owns approximately 53.5% of the issued shares of common stock of Alset and Mr. Chan is the Chairman and Chief Executive Officer of Alset and AIL. Further, Wong Shui Yeung and Wong Tat Keung, who are independent directors of the Company, are also independent directors of Alset Inc.

Purpose of the Loan Agreement was to provide short term working capital to the Company.

No repayment of the principal and interest accrued made as of July 16, 2024.

27

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

Convertible loan from affiliates

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Convertible loan		352,389		1,061,282

The movement in the liability and derivative components of the convertible loan as of March 31, 2024 and December 31, 2023 are set out below:

	Convertible Loan 1 (i) (iii)				Convertible Loan 2 (ii) (iii)
	Liability component		Derivative component		Liability component		Derivative component			Total
	US$		US$		US$		US$			US$

December 31, 2023		9,548		14,898		172,286		864,550			1,061,282

Change in fair value of embedded Derivatives		1,082		3,363		2,455		(715,794	)		(708,893	)

March 31, 2024		10,630		18,261		174,741		148,756			352,389

(i) Movement of the components of the Convertible Loan 1:

	Liability component		Derivative component		Total

December 31, 2023		9,548		14,898		24,446

Change in fair value of embedded derivatives		1,082		3,363		4,446

March 31, 2024		10,630		18,261		28,892

VEII entered into a Convertible Credit Agreement, dated and effective as of January 27, 2023, (“2023 Credit Agreement 1”) with the following lenders: (1) Hapi Metaverse, Inc., a Delaware corporation, (“HMI”, and formerly named “GigWorld, Inc.”) and (2) New Energy CV Corporation (formerly, “American Wealth Mining Corp.”), a Nevada corporation, (“NECV”). HMI and NECV are also referred to individually as a “Lender” and collectively, as the “Lenders”.

28

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maximum Credit Line; Interest; Advances; Payment. The 2023 Credit Agreement 1 provides for a maximum credit line of One Million Five Hundred Thousand Dollars and No Cents ($1,500,000.00) (“Maximum Credit Line”) with simple interest accrued on any advances of the money under the 2023 Credit Agreement 1 at Eight Percent (8%) per annum. The principal amount of any advance of money (each being referred to as an “Advance”) under the 2023 Credit Agreement 1 is due in a lump sum, balloon payment on the third annual anniversary of the date of the Advance under the 2023 Credit Agreement 1 (“Advance Maturity Date 1”). Accrued and unpaid interest on any Advance is due and payable on a semi-annual basis with interest payments due on the last business day of June and last business day of December of each year. A Lender may demand that any portion or all of the unpaid principal amount of any Advance as well as accrued and unpaid interest thereon may be paid by shares of Company Common Stock in lieu of cash payment. Company must request Advances from the Lenders. Either Lender may elect to separately, fully fund the Advance, or both Lenders may jointly elect to fund the Advance based on Lenders’ agreement on the portion of the Advance to be funded by each Lender. Lenders may severally or jointly reject any request for an Advance and neither Lender has an obligation to fund any Advance under the 2023 Credit Agreement 1.

Use of Proceeds. Advances under the 2023 Credit Agreement 1 may be used to fund general working capital needs of the Company, which includes: expansion of existing business operations or business lines to new geographical markets in Asia or other geographical markets; for development of new business lines (whether in existing or new geographical markets); acquisition of assets or companies (whether in existing or new geographical markets); and payment of any sums due under the Credit Agreement.

Unsecured Debt Obligation. Any Advance will be an unsecured general debt obligation of the Company. Further, there are no personal guarantees under the 2023 Credit Agreement 1.

Events of Default. The following constitute an event of default under the 2023 Credit Agreement 1: (1) failure to make a payment of any Advance under the 2023 Credit Agreement 1 when due and payable and Company fails to cure such default within ten (10) days after receipt of a written notice from the Lender; (2) failure in the observance or performance of any non-monetary material covenant or agreement and Company fails to cure such default within thirty (30) days after written notice of default from the Lender; (3) failure of Company to comply with the obligations, terms, covenants or conditions of 2023 Credit Agreement 1, or breach by Company of any obligations, covenant, representation or warranty that is not cured within thirty (30) days from the receipt of a written notice from a Lender; (4) filing of a petition in bankruptcy or the commencement of any proceedings under any bankruptcy laws by or against Company, which filing or proceeding is not dismissed within sixty (60) days after the filing or commencement thereof, or if Company becomes insolvent; (5) petition is filed with a court to place the Company in receivership or similar status for benefit of creditors and appointment of a receiver is unvacated and unstayed for an aggregate of sixty (60) days; (6) for debts or judgments in excess of One Hundred Thousand Dollars and No Cents ($100,000.00) in face amount, a writ of execution or attachment or any similar process shall be issued or levied against all of the Company’s assets, or any judgment involving monetary damages shall be entered against the Company which shall become a lien on all of the Company’s assets and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within sixty (60) days after its entry or levy; or (7) Company ceases to carry on its primary business line for ninety (90) consecutive days. The remedy for any default that is not timely cured, if a cure period is allowed, is all sums due under the 2023 Credit Agreement 1 becoming immediately due and payable.

29

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Conversion Right. The 2023 Credit Agreement 1 grants the following conversion rights to each Lender. Each Advance shall be convertible, in whole or in part, into shares of Company Common Stock at the option of the Lender who made that Advance (being referred to as a “Conversion of Convertible Loan 1”), at any time and from time to time, at a price per share equal the “Conversion Price 1”. The Conversion Price 1 for a Conversion of Convertible Loan 1 shall be the average closing price of the Company Common Stock as quoted by the Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the Lender effecting the Conversion of Convertible Loan 1 if Bloomberg Financial Markets is not then reporting prices of the Company Common Stock), for the three (3) consecutive trading days prior to date of the Notice of Conversion. The Conversion Price 1 is not limited by a minimum price per share of Company Common Stock applicable to the Conversion of Convertible Loan 1. As such, if a Lender or Lenders loan a significant sum of money under the 2023 Credit Agreement 1 and then elect to convert all or most of the loaned amount into shares of Company Common Stock, the resulting issuance of shares of Common Stock could significantly dilute existing Company shareholders.

Conversion upon a Change in Control Transaction. In the event that prior to the time of repayment of any Advance under the 2023 Credit Agreement 1 that has not previously been converted into shares of Company Common Stock, the Company shall consummate a “Change in Control Transaction” (as defined below), then the total amount of Advances outstanding shall convert into shares of Company Common Stock at the Conversion Price 1. “Change in Control Transaction” will be deemed to exist if (1) there occurs any consolidation, merger or other business combination of the Company with or into any third party and the Company is not the surviving entity, or any other corporate reorganization or transaction or series of related transactions in which the voting stockholders of the Company prior to such event cease to own 50% or more of the voting power of the surviving entity after the transaction, or (2) in one or a series of related transactions, there is a sale or transfer of all or substantially all of the operating assets of the Company or all of its wholly-owned subsidiaries, determined on a consolidated basis, to a third party.

Conversion upon Breach of 2023 Credit Agreement 1. In the event that the Company breaches any provision of the 2023 Credit Agreement 1 and does not remedy that breach within thirty (30) days after receipt of a written demand from a Lender, then each of the Lenders may convert all or any portion of the unpaid amount of their respective Advance or Advances into shares of Company Common Stock at the Conversion Price 1.

Warrants. In the event that a Lender elects to convert any portion of an Advance under the 2023 Credit Agreement 1 into shares of Company Common Stock in lieu of cash payment in satisfaction of that Advance, then Company will issue to the Lender five (5) detachable warrants for each share of Company Common Stock issued in a Conversion of Convertible Loan 1 (“Warrants 1”). Each Warrant 1 will entitle the Lender to purchase one (1) share of Common Stock at a per-share exercise price equal to the Conversion Price 1. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant.

Conversion of Loan. On September 6, 2023, the Company received a Notice of Conversion from HMI to convert One Million Three Hundred Thousand Dollars ($1,300,000.00) of the principal amount loaned to the Company under the 2023 Credit Agreement 1 (“Converted Principal”) into shares of Company’s Common Stock. Under the terms of the 2023 Credit Agreement 1 and Notice of Conversion, HMI has demand rights for the conversion of outstanding debt into equity. On September 18, 2023, the Converted Principal resulted in issuance of 7,344,632 shares of Common Stock to HMI along with issuance of Warrants 1 to purchase a maximum of 36,723,160 shares of Common Stock (“Underlying Shares”) to HMI. Under the 2023 Credit Agreement, the conversion rate for the Conversion Shares is $0.1770 per share, and the Warrants 1 have an exercise price of $0.1770 per share and an exercise period of five (5) years from date of issuance of warrants. The Company was in favor of the conversion in order to end interest payments under the 2023 Credit Agreement 1 and thereby free up capital for operational expenses.

30

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2024, HMI has not stated when or if it will exercise any of the Warrants 1. The issuance of Conversion Shares, Warrants 1 and Underlying Shares was made in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”) and Rule 506(b) of Regulation D thereunder. The Conversion Shares and Warrants 1 are, and Underlying Shares will be if issued, “restricted securities” under Rule 144 of the Securities Act.

(ii) Movement of the components of the Convertible Loan 2:

	Liability component		Derivative component			Total

December 31, 2023		172,286		864,550			1,036,836

Change in fair value of embedded derivatives		2,455		(715,794	)		(713,339	)

March 31, 2024		174,741		148,756			323,497

On December 14, 2023, VEII entered into a Convertible Credit Agreement (“2023 Credit Agreement 2”) with HMI for an unsecured credit line in the maximum amount of One Million U.S. Dollars and No Cents (USD$1,000,000.00) (“Credit Limit”). Advances of the principal under the 2023 Credit Agreement 2 accrue simple interest at Eight Percent (8%) per annum. Each Advance under the 2023 Credit Agreement 2 and all accrued interest thereon may, at the election of HMI, or the Company, be: (1) repaid in cash; (2) converted into shares of the Company Common Stock; or (3) be repaid in a combination of cash and shares of the Company Common Stock. The principal amount of each Advance under the 2023 Credit Agreement 2 shall be due and payable on the third (3^rd) annual anniversary of the date that the Advance is received by the Company along with any unpaid interest accrued on the principal (the “Advance Maturity Date 2”). Prior to the Advance Maturity Date 2, unpaid interest accrued on any Advance shall be paid on the last business day of June and on the last business day of December of each year in which the Advance is outstanding and not converted into shares of Company Common Stock. Company may prepay any Advance under the 2023 Credit Agreement 2 and interests accrued thereon prior to Advance Maturity Date 2 without penalty or charge.

Use of Proceeds. The Company needed funding on an expedited basis and in place prior to 2024 in order to fund requirements for new and existing customer work and to pay for overall general operational expenses. HMI was the only known and identified funding source willing to provide the necessary funding on an expedited basis. Credit Line may be used for general working capital, including possible expansion of existing business operations or business lines to new geographical markets in Asia or other geographical markets; for development of new business lines (whether in existing or new geographical markets); acquisition of assets or companies (whether in existing or new geographical markets); and payment of any sums due under the 2023 Credit Agreement 2 or other loans.

Fee on Advances. The 2023 Credit Agreement 2 provided that each Advance incurs a 10% fee on the amount of the Advance (“Fee”), payable in cash or shares of Company’s Common Stock at the election of Company. Under a December 19, 2023 Amendment to the Credit Agreement, the Fee was amended to provide for a one-time $100,000 payment instead of 10% on an Advance, which amended Fee is payable at option of Company in either cash or shares of Company Common Stock within 30 days of December 19, 2023.

31

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Events of Default. The following constitute an event of default under the 2023 Credit Agreement 2: (1) failure to timely pay of any Advance when due and payable and the Company fails to cure such default within ten (10) days after receipt of a written notice of default from HMI or its authorized agent; (2) a default of any non-monetary material covenant or agreement in the 2023 Credit Agreement 2 that the Company does not remedy within thirty (30) days after receipt by the Company of a written notice of default from HMI or its authorized agent (or within such other longer time period as may be therein specifically provided in the written notice); (3) a breach of any other obligations, covenant, representation or warranty contained in the 2023 Credit Agreement 2 that is not cured within thirty (30) days from the receipt by the Company of a written notice from HMI or its authorized agents; (4) the filing of a petition in bankruptcy or the commencement of any proceedings under any bankruptcy laws by or against the Company, which filing or proceeding, is not dismissed within sixty (60) days after the filing or commencement thereof, or (5) if the Company becomes insolvent, the filing of a petition to a court for the entry of an order, judgment or decree approving a petition in an insolvency, liquidation or similar procedure and the petition shall remain unvacated or not removed for an aggregate of sixty (60) days (whether or not consecutive) from the first date of entry thereof or rejected by such court; (6) all or any part of the Company’s assets, or of any or all of the royalties, revenues, rents, issues or profits thereof, shall be appointed without the consent of the Company and such appointment shall remain unvacated and unstayed for an aggregate of sixty (60) days (whether or not consecutive); (7) entry of judgment or judgements in the aggregate in excess of One Hundred Thousand United States Dollars (US$100,000.00) in face amount, a writ of execution or attachment or any similar process shall be issued or levied against all of the Company’s assets, or any judgment involving monetary damages shall be entered against the Company which shall becomes a lien on all of the Company’s assets and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within sixty (60) days after its entry or levy; or (8) the Company ceases to conduct its primary business line for ninety (90) consecutive days.

Conversion to Shares of Common Stock. HMI or Company may convert monies owed under any Advance regarding the 2023 Credit Agreement 2 into shares of Company Common Stock (“Conversion of Convertible Loan 2”). The price for conversion of an Advance under the 2023 Credit Agreement 2 and unpaid interest accrued thereon into shares of Common Stock shall be based on US$0.045 per share, which is an approximately twenty-five percent (25%) discount from the market closing price as of December 12, 2023 (the “Conversion Price 2”). No fractional shares may be issued in any Conversion of Convertible Loan 2. If HMI elects to effect a Conversion of Convertible Loan 2, it must deliver a Notice of Conversion to the Company that specifies the amount of the advance and accrued interest, if any, to be converted, and the date on which such conversion shall be effected (the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed received by the Company. Conversions shall reduce the amount advanced in an amount equal to the amount of the advance that is converted in a Conversion of Convertible Loan 2.

Conversion upon a Change in Control Transaction. In the event that the Company consummates a “Change in Control Transaction” (as defined below), then the total amount of Advances outstanding under the 2023 Credit Agreement 2, and not previously converted into shares of Company Common Stock, shall convert into shares of Company Common Stock at the Conversion Price 2 upon receipt of written notice from HMI to the Company. “Change in Control Transaction” will exist if (1) there occurs any consolidation, merger or other business combination of the Company with or into any third party and the Company is not the surviving entity, or any other corporate reorganization or transaction or series of related transactions in which in any of such events the voting stockholders of the Company prior to such event cease to own 50% or more of the voting power, or corresponding voting equity interests, of the surviving entity after the consummation of the transaction or transactions, or (2) in one or a series of related transactions, there is a sale or transfer of all or substantially all of the operating assets of the Company or substantially all of the Company’s operating and wholly-owned subsidiaries, determined on a consolidated basis, to a third party.

32

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Conversion upon Breach of 2023 Credit Agreement 2. In addition to on-demand, non-breach Conversion and a Change of Control Conversion, HMI may convert amounts owed under outstanding Advances if the Company breaches the 2023 Credit Agreement 2 and does not remedy that breach within thirty (30) days after receipt of a written demand from HMI, which demand shall describe the conversion breach event. Upon occurrence of a conversion breach event that is not timely remedied and receipt of a Notice of Conversion, the Company is required to convert the requested conversion amount of all outstanding amount of Advances not previously converted into shares of Company Common Stock within ten (10) days after receipt of the Notice of Conversion.

Warrants. In the event that HMI elects to convert any portion of an advance under the 2023 Credit Agreement 2 into shares of Company Common Stock, the Company is obligated to issue to HMI five (5) detachable warrants for each share of Company Common Stock issued in a Conversion of Convertible Loan 2 (“Warrants 2”) in addition to the shares of Company Common Stock issued in the Conversion of Convertible Loan 2. Each Warrant 2 will entitle HMI to purchase one (1) share of Company Common Stock at a per-share exercise price equal to the Conversion Price 2. The exercise period for each Warrant will be five (5) years from the date of issuance of the Warrant.

(iii) HMI owns 21,120,795 shares of Company Common Stock, which is approximately 48.55% of issued and outstanding shares of Company Common Stock (based on 43,500,762 shares issued and outstanding). On September 6, 2023, HMI converted $1,300,000 in debt owed by the Company into 7,344,632 shares of Company’s Common Stock at a price equivalent to $0.177 pursuant to 2023 Credit Agreement 1. HMI’s ownership of shares of Company Common Stock above does not include a total of 36,723,160 shares of Company Common Stock that HMI may purchase under Warrants 1 issued under the 2023 Credit Agreement 1. The terms of the Warrants 1 entitle the holder to purchase from the Company one (1) share of the Company Common Stock (as adjusted from time to time pursuant to the provisions of the Warrants 2) for each issued Warrant 1. The Warrants 1 are currently exercisable and expire on September 6, 2028.

If HMI exercised the Warrants 1 issued under the 2023 Credit Agreement 1 in full and purchased all 36,723,160 of the underlying shares of Company Common Stock, then HMI would own 57,843,955 shares of Company Common Stock or approximately 72.10% of the then issued and outstanding shares of Company Common Stock (based on the assumption of 80,223,922 shares of Company Common Stock then being issued and outstanding). Mr. Chan Heng Fai Ambrose, a director of the company, would, based on his control of HMI, also be a “shared” or joint owner of those shares of Company Common Stock. Mr. Chan controls HMI by virtue of his majority ownership of shares of common stock of Alset, a Commission-reporting company, which is the parent company of the HMI. Alset owns 99.693% of the issued and outstanding shares of HMI’s common stock. Mr. Chan owns approximately 53.5% of the issued shares of common stock of Alset. Mr. Chan is also the Chairman and Chief Executive Officer of Alset and Executive Chairman of the Board of Directors of HMI.

Mr. Chan is deemed to be the owner of 21,587,429 shares of Common Stock, which represents approximately 49.63% of the issued shares of Company’s Common Stock (based on 43,500,762 shares issued and outstanding), by virtue of: 95,000 shares of Company’s Common Stock held by Mr. Chan, and the following share ownership of Common Stock by entities that Mr. Chan is deemed to control: 21,120,795 shares held by HMI, 39,968 shares held by BMI Capital Partners International Limited, 18,512 shares held by LiquidValue Development Pte Ltd. And 313,154 shares held by Decentralized Sharing Systems, Inc. BMI Capital Partners International Limited is owned by AIL. AIL is a subsidiary of Alset. LiquidValue Development Pte Ltd. is a subsidiary of Alset. Decentralized Sharing Systems, Inc. is a subsidiary of DSS, Inc., a New York Stock Exchange listed company, (“DSS”). Mr. Chan is personally and through entities he controls, the largest shareholder of DSS. Mr. Chan is also the Chairman of the Board of Directors of DSS.

33

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mr. Chan, HMI, BMI Capital Partners International Limited, LiquidValue Development Pte Ltd. And Decentralized Sharing Systems, Inc. are referred to collectively below as “Affiliated Shareholders”.

As stated above, Mr. Chan controls the HMI by virtue of his control of Alset. Mr. Chan is also Executive Chairman of the Board of Directors of the HMI and a director of American Pacific Bancorp., another lender of the Company. Mr. Lum Kan Fai is Vice Chairman of the Board of Directors of HMI and has served in other management capacities with HMI. Lum Kan Fai is also President of Digital Group of DSS. Mr. Chan is Executive Chairman of the Board of Directors of DSS and owns approximately 58.3% of the issued and outstanding shares of DSS. Wong Shui Keung is a independent director of DSS.

Robert Trapp was a non-executive director of HMI and was a non-executive director of Alset. He also serves or has served as a non-executive director of several subsidiaries of Alset. Mr. Trapp is a non-executive director of Sharing Services Global Corporation, a Nevada corporation and Commission-reporting company, (“SSGC”). Mr. Chan is Executive Chairman of the Board of Directors of SSGC as well as the owner of 49.2% of issued and outstanding shares of SSGC common stock, which ownership position includes shares of SSGC common stock owned by DSS and Alset. Further, Mr. Trapp is a non-executive director of NECV. Mr. Chan controls NECV by virtue of his ownership of approximately 95.6% of issued shares of NECV common stock.

Wong Shui Yeung and Wong Tat Keung are independent directors of Alset, and also serves or has served as an independent director of several entities controlled or affiliated with Mr. Chan. Wong Shui Yeung and Wong Tat Keung serve as independent directors of AIL, a subsidiary of Alset. Wong Shui Keung is an independent director of DSS.

Wong Shui Yeung, Robert Trapp, and Wong Tat Keung also serve as members of the Company’s Audit Committee of the Board of Directors.

Mr. Lim Sheng Hon Danny currently serves as Senior Vice President and Executive Director of AIL. He also serves as an Executive Director of Alset, the parent company of AIL. Mr. Lim also works extensively with Mr. Chan on various business matters concerning AIL, Alset and DSS.

Potential Changes Control of Registrant. As of December 31, 2023, there is no agreement or arrangement between the Company and Mr. Chan or HMI concerning operational management, management decisions, business development or strategic plan of the Company and its subsidiaries; neither HMI nor Mr. Chan has directed or controlled the Company’s day-to-day operational management, management decisions, business development or strategic plan of the Company and its subsidiaries; and Mr. Chan’s involvement in the Company’s operational management, management decisions, business development and strategic planning of the Company and its subsidiaries has been limited to his performance of his duties as an outside director of the Company. Nonetheless, due to the actual and potential ownership of shares of Company Common Stock and Mr. Chan and his affiliates holding three of the nine board seats of the Company’s Board of Directors, Mr. Chan has the ability to significant influence corporate decisions and actions of the Company and its subsidiaries.

While Wong Shui Yeung and Wong Tat Keung are the independent directors of the Company, and Chan Heng Fai, Lum Fai Kai, Robert Trapp, and Lim Sheng Hon Danny have not directed or controlled daily operational management or decision making, or strategic and business development decisions of the Company, beyond input and guidance as non-executive directors, and while the Company is not aware of any agreement among Chan Heng Fai, Lum Fai Kai, Lim Sheng Hon Danny, Wong Shui Yeung, Robert Trapp, and Wong Tat Keung, or among these directors and the Affiliated Shareholders or lenders of the Company, to direct the operational management and strategic planning of the Company or its operating subsidiaries, the Affiliated Shareholders collectively control 49.6% of Company’s issued shares of Common Stock.

34

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Further, while the purpose of the Credit Agreement and January Credit Agreement are to provide necessary working capital to the Company, and the Credit Agreement and January Credit Agreement are not intended by the Company or Lenders to be a mechanism for effecting any change in control of the Company, HMI, as an Affiliated Shareholder, has the right to convert the Warrant 1 issued to HMI under the 2023 Credit Agreement 1 conversion into shares of Company Common Stock that would, if the Warrants 1 are fully exercised, result in ownership of approximately 72.10% of the then issued and outstanding shares of Company Common Stock (based on the assumption of 80,223,922 shares of Company Common Stock then being issued and outstanding). With the 2023 Credit Agreement 2, HMI could, assuming a Conversion of any significant amount of Advances made to the Company, into an ownership position of shares of Common Stock into more than 80% of the then issued and outstanding shares of Common Stock.

13.

Other payables and accrued liabilities

Other payables and accruals consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Accrual		1,365,764		1,133,800
Income taxes payable		46,185		57,961
Taxes penalty payable		1,410,000		1,410,000
		2,821,949		2,601,761

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.

35

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.

Deferred income

Deferred income consisted of the following as of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	US$		US$
	(unaudited)
Service fees received in advance		967,558		778,126

Billings in excess of revenues recognized are recorded as deferred revenue. The opening balance for the period ended March 31, 2024 and for the year ended December 31, 2023 amounted to $778,126 and $291,171 respectively.

15.

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.

36

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.

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

	March 31, 2024			December 31, 2023
	US$			US$
	(unaudited)
Due from related parties
Value Exchange International Limited (i)		2,361,150			2,401,994
Cucumbuy.com Limited (ii)		80,769			-
SmartMyWays Co., Limited (iii)		79,146			40,098
Retail Intelligent Unit Limited (iv)		28,846			-
TAP Technology (HK) Limited (v)		79,893			73,481
Value Exchange International (Taiwan) Co, Ltd (vi)		27,927			11,972
Value E Consultant International (M) Sdn. Bhd (vii)		-			530,675
		2,657,731			3,058,220
Allowance for amounts due from related parties		(2,527,545	)		(2,527,545	)
		130,186			530,675

Due to a related party
Cucumbuy.com Limited (ii)		-			17,961
Retail Intelligent Unit Limited (iv)		-			36,795
SA-Network Limited (viii)		10,802			10,784
Value X International Pte. Ltd (ix)		1,510			10,014
Smart Reward Express Limited (x)		641			641
Hapi Retail Company Limited (xi)		-			7,454
		12,953			83,649

37

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related party transactions:

	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
	US$			US$
	(unaudited)			(unaudited)
Service income received from
Cucumbuy.com Limited (ii)		107,023			-
SmartMyWays Co., Limited (iii)		51,244			-
Retail Intelligent Unit Limited (iv)		73,333			-
TAP Technology (HK) Limited (v)		12,821			-
Value Exchange International (Taiwan) Co, Ltd (vi)		-			13,917

Subcontracting fees paid to
Value Exchange International Limited (i)		(56,228	)		(262,125	)
Cucumbuy.com Limited (ii)		(46,154	)		(53,846	)
SmartMyWays Co., Limited (iii)		(42,308	)		(46,154	)
Retail Intelligent Unit Limited (iv)		(23,077	)		(38,462	)
TAP Technology (HK) Limited (v)		(19,231	)		(27,523	)
Value Exchange International (Taiwan) Co, Ltd (vi)		(372	)		(5,516	)
Value E Consultant International (M) Sdn. Bhd (vii)		-			(41,450	)
SA-Network Limited (viii)		(96,380	)		(39,070	)
Value X International Pte. Ltd (ix)		(21,534	)		-

Management fees received from
Value Exchange International Limited (i)		-			20,167
Cucumbuy.com Limited (ii)		-			3,077
SmartMyWays Co., Limited (iii)		-			3,077
Retail Intelligent Unit Limited (iv)		-			3,077
TAP Technology (HK) Limited (v)		-			3,077

(i)

Mr. Kenneth Tan and Ms. Bella Tsang, directors of the Company, are shareholders and a directors of Value Exchange International Limited, a company incorporated in Hong Kong. The balance is unsecured, interest free and repayable on demand.

(ii)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of Cucumbuy.com Limited, a company incorporated in Hong Kong. The balance is unsecured, interest free and repayable on demand.

(iii)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of SmartMyWays Co., Limited, a company incorporated in Hong Kong. Mr. Kenneth Tan, a director of the Company, is a director of SmartMyWays Co., Limited. The balance is unsecured, interest free and repayable on demand.

(iv)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of Retail Intelligent Unit Limited, a company incorporated in Hong Kong. Mr. Kenneth Tan, a director of the Company, is a director of Retail Intelligent Unit Limited. The balance is unsecured, interest free and repayable on demand.

38

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(v)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of TAP Technology (HK) Limited, a company incorporated in Hong Kong. The balance is unsecured, interest free and repayable on demand.

(vi)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of Value Exchange International (Taiwan) Co, Ltd, a company incorporated in Taiwan. The balance is unsecured, interest free and repayable on demand.

(vii)

Ms. Bella Tsang, a director of the Company, is a shareholder of Value E Consultant International (M) Sdn. Bhd, a company incorporated in Malaysia. The balance is unsecured, interest free and repayable on demand.

(viii)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of SA-Network Limited, a company incorporated in England and Wales. The balance is unsecured, interest free and repayable on demand.

(ix)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of ValueX International Pte. Ltd., a company incorporated in Singapore. The balance is unsecured, interest free and repayable on demand.

(x)

VEI CHN owns 50% shares of Smart Reward Express Limited, an inactive company incorporated in Hong Kong; and Mr. Chan Heng Fai, Mr. Lum Kan Fai and Ms. Bella Tsang, directors of the Company, are directors of Smart Reward Express Limited. The balance is unsecured, interest free and repayable on demand.

(xi)

Ms. Bella Tsang, a director of the Company, is a shareholder and a director of Hapi Retail Company Limited, a company incorporated in Canada. The balance is unsecured, interest free and repayable on demand.

17.

Subsequent events

On July 15, 2024, VEII entered into a Convertible Credit Agreement (“2024 Credit Agreement”) with HMI for an unsecured credit line in the maximum amount of One Hundred and Ten Thousand U.S. Dollars and No Cents (USD$110,000.00) (“2024 Credit Line”). Advances of the principal under the 2024 Credit Agreement accrue simple interest at Eight Percent (8%) per annum. Each Advance under the 2024 Credit Agreement and all accrued interest thereon may, at the election of HMI, or the Company, be: (1) repaid in cash; (2) converted into shares of the Company Common Stock; or (3) be repaid in a combination of cash and shares of the Company Common Stock. The principal amount of each Advance under the 2024 Credit Agreement shall be due and payable on the third (3rd) annual anniversary of the date that the Advance is received by the Company along with any unpaid interest accrued on the principal (the “Advance Maturity Date 3”). Prior to the Advance Maturity Date 3, unpaid interest accrued on any Advance shall be paid on the last business day of June and on the last business day of December of each year in which the Advance is outstanding and not converted into shares of Company Common Stock. Company may prepay any Advance under the 2024 Credit Agreement and interests accrued thereon prior to Advance Maturity Date 3 without penalty or charge.

Use of Proceeds. The Company needed funding on an expedited basis in order to fund requirements for new and existing customer work and to pay for overall general operational expenses. HMI was the only known and identified funding source willing to provide the necessary funding on an expedited basis. Credit Line may be used for general working capital, including possible expansion of existing business operations or business lines to new geographical markets in Asia or other geographical markets; for development of new business lines (whether in existing or new geographical markets); acquisition of assets or companies (whether in existing or new geographical markets); and payment of any sums due under the 2024 Credit Agreement or other loans.

39

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Events of Default. The following constitute an event of default under the 2024 Credit Agreement: (1) failure to timely pay of any Advance when due and payable and the Company fails to cure such default within ten (10) days after receipt of a written notice of default from HMI or its authorized agent; (2) a default of any non-monetary material covenant or agreement in the 2024 Credit Agreement that the Company does not remedy within thirty (30) days after receipt by the Company of a written notice of default from HMI or its authorized agent (or within such other longer time period as may be therein specifically provided in the written notice); (3) a breach of any other obligations, covenant, representation or warranty contained in the 2024 Credit Agreement that is not cured within thirty (30) days from the receipt by the Company of a written notice from HMI or its authorized agents; (4) the filing of a petition in bankruptcy or the commencement of any proceedings under any bankruptcy laws by or against the Company, which filing or proceeding, is not dismissed within sixty (60) days after the filing or commencement thereof, or (5) if the Company becomes insolvent, the filing of a petition to a court for the entry of an order, judgment or decree approving a petition in an insolvency, liquidation or similar procedure and the petition shall remain unvacated or not removed for an aggregate of sixty (60) days (whether or not consecutive) from the first date of entry thereof or rejected by such court; (6) all or any part of the Company’s assets, or of any or all of the royalties, revenues, rents, issues or profits thereof, shall be appointed without the consent of the Company and such appointment shall remain unvacated and unstayed for an aggregate of sixty (60) days (whether or not consecutive); (7) entry of judgment or judgements in the aggregate in excess of One Hundred Thousand United States Dollars (US$100,000.00) in face amount, a writ of execution or attachment or any similar process shall be issued or levied against all of the Company’s assets, or any judgment involving monetary damages shall be entered against the Company which shall becomes a lien on all of the Company’s assets and such execution, attachment or similar process or judgment is not released, bonded, satisfied, vacated or stayed within sixty (60) days after its entry or levy; or (8) the Company ceases to conduct its primary business line for ninety (90) consecutive days.

Conversion to Shares of Common Stock. HMI or Company may convert monies owed under any Advance regarding the 2024 Credit Agreement into shares of Company Common Stock (“Conversion of Convertible Loan 3”). The price for conversion of an Advance under the 2024 Credit Agreement and unpaid interest accrued thereon into shares of Common Stock shall be based on US$0.06 per share, which is based on VEII’s Volume-Weighted Average Price as of 8 July 2024 (the “Conversion Price 3”). No fractional shares may be issued in any Conversion of Convertible Loan 3. If HMI elects to effect a Conversion of Convertible Loan 3, it must deliver a Notice of Conversion to the Company that specifies the amount of the advance and accrued interest, if any, to be converted, and the date on which such conversion shall be effected (the “Conversion Date 3”). If no Conversion Date 3 is specified in a Notice of Conversion, the Conversion Date 3 shall be the date that such Notice of Conversion is deemed received by the Company. Conversions shall reduce the amount advanced in an amount equal to the amount of the advance that is converted in a Conversion of Convertible Loan 3.

Conversion upon a Change in Control Transaction. In the event that the Company consummates a “Change in Control Transaction” (as defined below), then the total amount of Advances outstanding under the 2024 Credit Agreement, and not previously converted into shares of Company Common Stock, shall convert into shares of Company Common Stock at the Conversion Price 3 upon receipt of written notice from HMI to the Company. “Change in Control Transaction” will exist if (1) there occurs any consolidation, merger or other business combination of the Company with or into any third party and the Company is not the surviving entity, or any other corporate reorganization or transaction or series of related transactions in which in any of such events the voting stockholders of the Company prior to such event cease to own 50% or more of the voting power, or corresponding voting equity interests, of the surviving entity after the consummation of the transaction or transactions, or (2) in one or a series of related transactions, there is a sale or transfer of all or substantially all of the operating assets of the Company or substantially all of the Company’s operating and wholly-owned subsidiaries, determined on a consolidated basis, to a third party.

40

VALUE EXCHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Conversion upon Breach of 2024 Credit Agreement. In addition to on-demand, non-breach Conversion and a Change of Control Conversion, HMI may convert amounts owed under outstanding Advances if the Company breaches the 2024 Credit Agreement and does not remedy that breach within thirty (30) days after receipt of a written demand from HMI, which such demand shall describe the conversion breach event. Upon occurrence of a conversion breach event that is not timely remedied and receipt of a Notice of Conversion, the Company is required to convert the requested conversion amount of all outstanding amount of Advances not previously converted into shares of Company Common Stock within ten (10) days after receipt of the Notice of Conversion.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act, as amended. These forward-looking statements include, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “intends,” “projects,” “will,” “should,” “may,” “hopes” and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report include, but are not limited to, expectations of future levels of business development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us and effects as well as our ability to fund, and integrate and grow acquired business lines. Business operations and financial condition may be materially and adversely affected by any slowdown in regional and national economic growth, weakened liquidity and financial condition of customers or other factors that Company cannot foresee. Forward-looking statements are subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to those described in “Risk Factors” contained in the Company’s reports filed with the U.S. Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and any amendments to that Form 10-K.

Certain Terms

Except as otherwise indicated by the context, references in this report to:

·

“Company,” “we,” “us” and “our” are to the combined business of Value Exchange International, Inc., a Nevada corporation, and its consolidated subsidiaries;

·

“China,” “Chinese” and “PRC,” refer to the People’s Republic of China;

·

“Renminbi” and “RMB” refer to the legal currency of China;

·

“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States;

·

“SEC” or “Commission” refers to the United States Securities and Exchange Commission;

·

“Securities Act” refers to the Securities Act of 1933, as amended; and

·

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

CORPORATE OVERVIEW

History of Value Exchange International, Inc.

Organization.

We were incorporated in the State of Nevada on June 26, 2007. Our Common Stock’s trading symbol is “VEII.” Our common stock was quoted on the OTCQB Venture Market until July 1, 2024. Due to failure to file the Form 10-K and Form 10-Q by July 1, 2024, the OTC Markets Group downgraded the Common Stock to Pink Sheets Limited Information as of July 2, 2024.

Current Business Focus.

We are a provider of customer-centric technology solutions for the retail industry in Hong Kong SAR and certain regions of China, Philippines and Malaysia.

By integrating market-leading Point-of-Sale/Point-of-Interaction (“POS/POI”), Merchandising, Customer Relations Management or “CRM” and related rewards, Locational Based (GPS & Indoor Positioning System (“IPS”)) Marketing, Customer Analytics, Business Intelligence solutions, our products and services are intended to provide retailers with the capability to offer a consistent shopping experience across all channels, enabling them to easily and effectively manage the customer lifecycle on a one-to-one basis. We promote ourselves as a single IT source for retailers who want to extend existing traditional transaction processing to multiple points of interaction, including the Internet, kiosks and wireless devices. Our products and services are focused on helping retailers realize the full benefits of Customer Chain Management with its suite of solutions that focus on the customer, on employees, and the infrastructure that supports the selling channel. Company is headquartered in Hong Kong and with offices in Shenzhen, Guangzhou, Shanghai, Beijing, China; Manila, Philippines; and Kuala Lumpur, Malaysia.

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We believe that the IT Business often presents opportunities to expand a provider’s market reach or customer base by acquisitions of existing businesses or operating assets. The Company’s business strategy includes reviewing possible acquisitions of existing businesses or operating assets in existing or adjacent markets and to do so when and if such an acquisition appears to be compatible and an enhancement of our core business lines and can be consummated with available cash and other resources. Our ability to pursue and consummate acquisitions may be limited, and has been limited, by available cash for mergers and acquisitions and other resources and the perceived cost and burdens of acquiring and integrating the target business or new operating assets into our operations. The availability of funding and cash flow are the most significant limitations on our ability to expand through acquisitions of businesses and assets – both in terms of money on hand and ability to finance acquisitions, but the estimated business hurdles in successfully penetrating a new market is also a factor in deciding whether to proceed with that expansion. The limited liquidity and bid price of our Common Stock in the public stock market also hampers our ability to use shares of Common Stock as attractive consideration to target companies in a merger or acquisition. We have not expanded into any new markets by acquisition or otherwise during the fiscal quarter ended March 31, 2024.

The Company, through its operating subsidiaries, is focusing and will focus on its IT Business, and continue to seek to expand its IT Business services to commercial customers in PRC and Asia Pacific Region. This strategy is based upon our subjective business judgment that the IT Business presents more opportunities for potential customer order in our core markets of Hong Kong SAR and China than the “IP Business” (as defined below) and presents an industry segment that better suits our current technical capabilities, marketing capabilities and financial resources.

Initial Business Focus.

Our initial intended, primary business was to operate a credit card processing and merchant-acquiring services company that provide credit card clearing services to merchants and financial institutions in PRC. From inception, we strove unsuccessfully to create and establish a proposed Global Processing Platform concept to support the credit card processing services (“SinoPay GPP”). Specifically, the Company’s Internet Protocol business was to be a provider of Internet Protocol (“IP”) processing services in Asia to bank card-accepting merchants (“IP Business”). The Company efforts to establish a viable IP Business did not succeed.

The acquisition of VEI CHN in 2014 shifted the primary business focus to the IT Business. Company believes that the IT Business provided a more readily attainable revenue generating business line and greater growth and profit potential than IP Business. VEI CHN was acquired in a stock-for-stock exchange (“VEI CHN Share Exchange”).

Industry Trends and Economic Conditions.

The IT Business in Hong Kong and China is large and fragmented, comprised of thousands of competitors as well as being a highly competitive industry. A general trend affecting our IT Business is the trend of increasing competition for skilled labor. With a global economy and foreign competitors seeking to penetrate Hong Kong and China as markets as well as to tap into new pools of skilled workers in IT Business, we will undoubtedly face increasing competition for skilled workers in IT Business in the Hong Kong and China markets. We may be unable to afford or effectively compete for necessary skilled workers in Hong Kong, Philippines and China and, if we are unable to afford or effectively compete for necessary skilled workers, our growth and ability to attain and sustain profit operations in the IT Business may fail. We have not experienced any significant problems in recruiting necessary skilled workers in fiscal years 2023 or 2024 to date.

Another common problem in the IT Business is retaining skilled workers throughout the duration of a project. Due to the global nature of the IT Business and the growing demand for skilled IT Business workers, a skilled IT business worker can often readily find higher paying positions with competitors, whether local or foreign. Further, unlike some competitors, the Company has not offered the stock-based incentive compensation to employees that is attractive to prospective technology workers. While we have not experienced retention problems due primarily to our focus on smaller, shorter term IT business projects, we may experience retention of skilled worker problems if we grow our IT Business and undertake longer term, more complex IT business projects for customers.

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IT Business is often affected by general economic conditions in our markets and any decline in those conditions could adversely impact our business and financial performance. During periods of economic growth, customers generally spend more for IT Business products and services. During periods of economic contraction or uncertainty, such spending generally decreases or is deferred. As such, the prospective business for our IT Business is generally greater during periods of economic growth or stability in Hong Kong or China or Manila, Philippines, respectively, and decreases during periods of economic decline or uncertainty in Hong Kong, China or Manila, Philippines. In our global economy, and with PRC being still a principal export economy, adverse economic conditions globally or in other regions can adversely impact economic conditions in Hong Kong or China. China has experienced a less dynamic growth in gross national product in the past year and this may reduce the willingness of customers to spend on IT Business.

The IT Business is global and, with the growth of cloud computing, there is a growing capability and infrastructure for companies in a foreign nation to provide IT Business to customers around the globe as a complement to cloud computing. We have not seen any significant impact of cloud computing on our IT Business in fiscal years 2023 or fiscal year 2024 to date, but we perceive that the expansion of cloud computing coupled with IT services and products could allow foreign companies to provide IT Business products and services to its cloud computing customers in our Hong Kong and China core markets as well as in the Philippines. We may find it more difficult to compete for IT Business in Hong Kong and China, and perhaps the Philippines, if customers of IT Business elect to have cloud computing companies manage, repair and enhance IT Business products, software and systems. The growth of cloud computing coupled with IT Business products and services as an ancillary component of the cloud computing menu of products and services could adversely impact our IT Business in Hong Kong and China markets as well as the Philippines.

The nature of our IT Business is such that our accounts receivable is significant current asset. Our most significant current liabilities are payroll related costs, which are generally paid either every two weeks or monthly. If the demand for our IT Business products and services increases, we may generally see an increase in our working capital needs, as we continue to pay our workers on a weekly or monthly basis while the related accounts receivable are outstanding for much longer than normal payment cycle, which may result in a decline in operating cash flows. Conversely, as the demand for our IT Business products and services declines, we may generally see a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level, resulting in a decline of our accounts receivable balance, with less of an effect on current liabilities due to the shorter cycle time of the payroll related items. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that a local or global economic downturn continued for an extended period.

In order for us to attain sustained success in the near term, we must continue to maintain and grow our customer base, provide high-quality service and satisfy our existing clients, and take advantage of opportunities in the IT Business. In the current economic environment, we must provide our customers with service offerings that are appropriately priced, satisfy their needs, and provide them with measurable business benefits. While we have recently experienced more demand for our IT Business products and services, we believe that it is too early to determine if developments will translate into sustainable improvements in our pricing or margins in fiscal year 2024 or over the longer term.

The increasing need for cybersecurity products and technologies may be a future weakness of our business plan. We do not have a current cybersecurity product and service business line beyond consultants engaged to provide cybersecurity services to customers and we have not current plans to develop a cybersecurity business line. Cybersecurity companies may have an advantage over our business model in the future in that cybersecurity companies could leverage their cybersecurity offerings to also sell IT Business services and products that compete with our IT Business products and services.

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We face competition from competitors in our primary markets, which competitors possess greater name recognition, assets, personnel, sales and financial resources. These entities may be able to respond more quickly to changing market conditions by developing new products and services that meet customer requirements or are otherwise superior to our products and services and may be able to more effectively market their products than we can because they have significantly greater financial, technical and marketing resources than we do. They may also be able to devote greater resources than we can to the development, promotion and sale of their services and products. To the extent that we are unable to successfully compete against existing and future competitors, our business, operating results and financial condition would be materially adversely affected.

History of Value Exchange Int’l. (China) Limited

VEI CHN was first established on November 16, 2001 in Hong Kong as a limited liability company. VEI CHN is a holding company with two subsidiaries established in Hong Kong, namely TAP Services (HK) Limited which was incorporated on August 25, 2003 and acquired by VEI CHN on September 25, 2008, and subsequently changed to its current name as Value Exchange Int’l (Hong Kong) Limited (“VEI HKG”) on May 13, 2013, and Cucumbuy.com Limited (“CUCUMBUY”), which was incorporated on May 14, 2013 and disposed on May 21, 2018 with consideration of HK$1. VEI CHN also set up a Wholly-owned Foreign Enterprise (WOFE) in Shanghai, PRC, in September 2, 2008 in the name of Value Exchange Int’l (Shanghai) Limited (“VEI SHG”). In January 2017, VEI CHN acquired TapServices, Inc., a corporation organized under the laws of the Republic of the Philippines (the “TSI”). Prior to acquisition of TSI, the Company provided extensive consulting services to TSI and, from such relationship, the Company was familiar with TSI operations. In January 2019, VEI SHG completed the setup procedures of a subsidiary with 51% ownership in Hunan, PRC, in the name of Value Exchange Int’l (Hunan) Limited (“VEI HN”). In February 2020, VEI SHG completed the setup procedures of a subsidiary with 51% ownership in Shanghai, PRC, in the name of Shanghai Zhaonan Hengan Information Technology Co., Limited (“SZH”). In January 2022, VEI HKG completed the setup procedures of a subsidiary with 100% ownership in Shenzhen, PRC, in the name of Haomeng Technology (Shenzhen) Co., Limited. (“HTS”). ). On January 2, 2024, VEI CHN acquired Value E Consultant International (M) Sdn. Bhd, a company established in Malaysia (the “Value E”). Prior to acquisition of Value E, the Company provided extensive services to Value E and, from such relationship, the Company was familiar with Value E operations.

Principal business

VEII is a holding company for its operating subsidiaries. VEI CHN operations are the primary operations of the Company. The principal business of VEI CHN for more than 20 years is to provide the IT Business (consisting of select services and solutions in computer software programming and integration, and computer systems, Internet and information technology systems engineering, consulting, administration, installation and maintenance, including e-commerce and payment processing) to the Retail Sector, primarily to retailers in Hong Kong SAR, Macau SAR and PRC and as more fully described below. As is customary in the industry, such services and solutions are provided by both company employees, contractors and consultants. The primary services and products of the IT Business are:

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a)

Systems maintenance and related service

VEI CHN Group provides development and customization of software and hardware, enhancements thereto and maintenance services for installed POS system. VEI CHN Group markets, sells and maintains its own brand POS software – edgePOS as well as third party brands (e.g. NCR / Retalix), which is one of the leading POS software programs in the Chinese-Hong Kong market. These software enhancements and programming can integrate with different IP systems.

Systems maintenance services consist of: i) software maintenance service, including software patches and software code revisions; ii) installing, testing and implementing software; iii) training of customer personnel for the use of software; and iv) technical support for software systems.

Other services include system installation and implementation, including i) project planning; ii) analysis of customer information and business needs from an IT perspective (“System Analysis”); iii) design of the entire system; iv) hardware and consumables selection advice and sales; and v) system hardware maintenance. These services typically consist of customer projects for New Store Opening (“NSO”) and Install, Move, Add and Change (“IMAC”) for retail, and ad-hoc custom system projects for other business sectors. Our primary focus is the retail sector in Hong Kong, PRC, Philippines and Malaysia.

b)

Systems development and integration

VEI CHN Group provides value-added software, which integrates with customer owned or licensed software, and ad-hoc software development projects for other business sectors. Besides use of proprietary, custom software code, our services may from time to time license standard third party software programs.

Financial Performance Highlights

The following are some financial highlights for the first quarter of 2024:

·

Net revenue: Our net revenues were $3,370,009 for the three months ended March 31, 2024, as compared to $2,884,549 for the same period in 2023, an increase of $485,460 or 16.8%.

·

Gross profit: Gross profit for the three months ended March 31, 2024 was $1,142,317 or 33.9% of net revenues, as compared to $381,821 or 13.2% of net revenues for the same period in 2023, an increase of $760,496 or 199.2%.

·

Loss from operations: Our loss from operations totaled $286,541for the three months ended March 31, 2024, as compared to $438,042 for the same period in 2023, a decrease of $151,501 or 34.6%.

·

Net income: We had a net income of $374,430 for the three months ended March 31, 2024, as compared to net loss totaled $453,849 for the same period in 2023, a change of $828,279.

·

Basic and diluted net income (loss) per share was $0.01 for the three months ended March 31, 2024, respectively.

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RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 2024 and 2023

The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.

(All amounts, other than percentages, in U.S. dollars)

	Three months ended March 31,						Change
	2024			2023
	US$			US$			US$			%
NET REVENUES
Service income		3,370,009			2,884,549			485,460			16.8
COST OF SERVICES
Cost of service income		(2,227,692	)		(2,502,728	)		275,036			11.0
GROSS PROFIT		1,142,317			381,821			760,496			199.2
Operating expenses:
General and administrative expenses		(1,086,562	)		(731,977	)		(354,585	)		48.4
Foreign exchange gain (loss)		(342,296	)		(87,886	)		(254,410	)		289.5
LOSS FROM OPERATIONS		(286,541	)		(438,042	)		151,501			(34.6	)
OTHER INCOME (EXPENSES)		661,212			(14,637	)		675,849			(4,617.4	)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		374,671			(452,679	)		827,350			(182.8	)
INCOME TAXES EXPENSES		(241	)		(1,170	)		929			(79.4	)
NET INCOME (LOSS)		374,430			(453,849	)		828,279			(182.5	)

Net revenues. Net revenues were $3,370,009 for the three months ended March 31, 2024, as compared to $2,884,549 for the same period in 2023, an increase of $485,460 or 16.8%. The increase was primarily attributable to the increase in our revenue from i) systems maintenance with revenue increasing from $2,490,154 for the three months ended March 31, 2023 to $2,616,667 for the three months ended March 31, 2024; ii) systems development and integration with revenue increasing from $14,359 for the three months ended March 31, 2023 to $54,115 for the three months ended March 31, 2024; and iii) sales of hardware and consumables with revenue increasing from $380,036 for the three months ended March 31, 2023 to $699,227 for the three months ended March 31, 2024.

Cost of services. Our cost of services is primarily comprised of our costs of technical staff, contracting fees to suppliers and overhead. Our cost of services decreased to $2,227,692 or 66.1% of net revenues, for the three months ended March 31, 2024, as compared to $2,502,728 or 86.8% of net revenues, for the same period in 2023, a decrease of $275,036 or 11.0%. The decrease in cost of services was mainly attributable to the decrease in our contracting fees to suppliers.

Gross profit. Gross profit for the three months ended March 31, 2024 was $1,142,317 or 33.9% of net revenues, as compared to $381,821 or 13.2% of net revenues, for the same period in 2023, an increase of $760,496 or 199.2%. The increase of gross profit was largely due to the increase in net revenues, and the decrease in cost of services compared to the same period of 2023.

General and administrative expenses. General and administrative expenses include the costs associated with staff and support personnel who manage our business activities, office rental expenses, depreciation charge for fixed assets, and professional fees paid to third parties. General and administrative expenses increased to $1,086,562 or 32.2% of net revenues, for the three months ended March 31, 2024, as compared to $731,977 or 25.4% of net revenues, for the same period in 2023, an increase of $354,585 or 48.4%. The primary reason for the increase was attributable to the increase in audit fee, staff costs and other administrative costs.

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Loss from operations. As a result of the above, our loss from operations totaled $286,541 for the three months ended March 31, 2024, as compared to $438,042 for the same period in 2023, a decrease of $151,501 or 34.6%.

Income taxes expenses. Income taxes expenses totaled $241 or 0.007% of net revenues for the three months ended March 31, 2024, as compared to $1,170 or 0.04% for the same period in 2023, a decrease of $929 or 79.4%. The decrease was primarily attributable to the movement in profit tax paid for the three months ended March 31, 2024.

Net income (loss). As a result of the foregoing, we had a net income of $374,430 for the three months ended March 31, 2024, compared to a net loss totaled $453,849 for the same period in 2023, a change of $828,279 or 182.5%, as a result of the factors described above.

Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $515,113. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report.

Cash Flows

(All amounts in U.S. dollars)

	Three Months Ended
	March 31,
	2024			2023
	US$			US$
Net cash used in operating activities		(344,999	)		(460,311	)
Net cash used in investing activities		(39,105	)		(71,256	)
Net cash (used in) provided by financing activities		(7,130	)		858,986
Effect of exchange rate changes on cash and cash equivalents		19,880			99,877
Net (decrease) increase in cash and cash equivalents		(371,354	)		427,296
Cash and cash equivalents at the beginning of period		886,467			208,776
Cash and cash equivalents at the end of period		515,113			636,072

Operating Activities

Net cash used in operating activities was $344,999 for the three months ended March 31, 2024, which was a change of $115,312 from $460,311 for the same period of 2023. The change in net cash used in operating activities was mainly attributable to the following:

1)

A change of Accounts receivable, Amounts due from related parties, and Other payables and accrued liabilities increased our operating cash balances by $577,146, $508,055 and $163,089 respectively; offset by

2)

Net income of $374,430 for the three months ended March 31, 2024, compared to net loss of $453,849 for the same period in 2023; and

3)

A change of Accounts payable, Other receivables and prepayments, and Amounts due to related parties decreased our operating cash balances by $926,575, $222,436 and $169,409.

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Investing Activities

Net cash used in investing activities was $39,105 for the three months ended March 31, 2024, which was an increase of $32,589 or 45.5% from $71,694 in the same period in 2023. The decrease in net cash used in investing activities was attributable to cash used in the purchase of plant and equipment by $99,460; offset by cash received during acquisition of a subsidiary by $60,355, during the three months ended March 31, 2024.

Financing Activities

Net cash used in financing activities was $7,130 for the three months ended March 31, 2024, which was a change of $1,000,124 from net cash provided by financing activities $992,994 in the same period in 2023. The change in net cash used in financing activities was attributable to the Repayment of finance lease liability by $7,130 during the three months ended March 31, 2024.

Future Financings

We believe that our cash on hand and cash flow from operations will meet our expected capital expenditure and working capital requirements for the next 12 months. However, we may in the future require additional cash resources due to changes in business conditions, implementation of our strategy to expand our production capacity, sales, marketing and branding activities or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note 2 of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the financial statements of the Company and all its subsidiaries that require consolidation. All material intercompany transactions and balances have been eliminated in the consolidation. The Company’s fiscal year end is December 31st.

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The following entities were consolidated as of March 31, 2024:

	Place of incorporation	Ownership percentage
Value Exchange International, Inc.	USA	Parent Company
Value Exchange Int’l (China) Limited	Hong Kong	100%
Value Exchange Int’l (Shanghai) Limited	PRC	100%
Value Exchange Int’l (Hong Kong) Limited	Hong Kong	100%
TapServices, Inc.	Philippines	100%
Value Exchange Int’l (Hunan) Limited	PRC	51%
Shanghai Zhaonan Hengan Information Technology Co., Ltd.	PRC	51%
Haomeng Technology (Shenzhen) Co., Limited	PRC	100%
Value E Consultant International (M) Sdn. Bhd	Malaysia	100%

Use of Estimates

Preparing consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring using management’s estimates and assumptions relate to the collectability of its receivables, the fair value and accounting treatment of financial instruments, the valuation of long-lived assets and valuation of deferred tax liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates. In addition, different assumptions or circumstances could reasonably be expected to yield different results.

Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Expenditures for maintenance and repairs are charged to earnings as incurred. Major additions are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

		Estimated Useful Life
Leasehold improvements		Lesser of lease term or the estimated useful lives of 5 years
Computer equipment		5 years
Computer software		5 years
Office furniture and equipment		5 years
Motor Vehicle		3 years
Building		5 years

Revenue recognition

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. We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606.

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