| Summary of Significant Accounting Policies | 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 June 30, 2022:
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 PRC 51 VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b) 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.
c) Cash and Cash Equivalents For purposes of the cash flow statements, the Company
considers all highly liquid investments with original maturities of six 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.
d) 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.
e) Accounts receivable and other receivables Receivables include trade accounts due from customers
and other receivables such as cash advances to employees, utility deposits paid and 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 doubtful accounts is adequate. An estimate for doubtful accounts
is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined
that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when
identified. As of June 30, 2022 and December 31, 2021, there was no allowance for uncollectible accounts receivable. Management believes
that the remaining accounts receivable are collectable.
f) 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. 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. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
g) 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
Computer equipment 5
Computer software 5
Office furniture and equipment 5
Motor Vehicle 3
Building 5
h) Goodwill and intangibles Intangibles with a definite life, including customer
relationships and goodwill were recorded in connection with the acquisition of TSI. Intangible assets are amortized based on their estimated
economic lives using the straight-line method with estimated lives as follows:
Estimated Economic Life
Customer relationship 3 years 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. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i) 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. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
j) Fair value of financial instruments The Company values its financial instruments as required
by FASB ASC 320-12-65. The estimated fair value amounts have been determined by the Company, using available market information or other
appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair
value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current
market exchange. ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring
fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s
own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level one — Quoted market prices in active markets for identical assets or liabilities;
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity
and reflect those assumptions that a market participant would use. Determining which category an asset or liability
falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The carrying values
of the Company’s financial instruments; consisting of cash and cash equivalents, accounts receivable, accounts payable, other receivables
and prepayments, other payables and accrued liabilities, balances with a related party, balances with related companies and amounts due
to director approximate their fair values due to the short maturities of these instruments. There was no asset or liability measured at fair
value on a non-recurring basis as of June 30, 2022 and December 31, 2021. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
k) 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.
l) 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.
m) Revenue recognition Sales revenue is recognized when all of the following
have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the
price is fixed or determinable, and (iv) the ability to collect is reasonably assured. The Company’s revenue is derived from three
primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software
licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and
(iii) sale of hardware and consumables during the service performed as stated above. Multiple-deliverable arrangements The Company derives revenue from fixed-price sale
contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications
specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses.
In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element
arrangement is separated into more than one unit of accounting if all of the following criteria are met:
– The delivered item(s) has value to the customer on a stand-alone basis;
– There is objective and reliable evidence of the fair value of the undelivered item(s); and
– If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered
item(s) is considered probable and substantially in the control of the Company. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s multiple-element contracts generally
include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests at the
Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered equipment
and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s
site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element
contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services,
and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result,
the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting
pursuant to ASC Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements. In addition, the arrangement generally includes
customer acceptance criteria that cannot be tested before installation and integration at the customer’s site. Accordingly, revenue
recognition is deferred until customer acceptance, indicated by an acceptance certificate signed off by the customer. Revenues of maintenance services are recognized when
the services are performed in accordance with the contract term. Revenues of sale of software, if not bundled with
other arrangements, are recognized when shipped and customer acceptance obtained, if all other revenue recognition criteria are met. Costs
associated with revenues are recognized when incurred. Revenues are recorded net of value-added taxes, sales
discounts and returns. There were no sales returns during the six months period ended June 30, 2022 and 2021.
Three Months Six Months
2022 2021 2022 2021
US$ US$ US$ US$
(unaudited) (unaudited) (unaudited) (unaudited)
NET REVENUES
Service income
- systems development and integration 119,318 126,061 207,347 160,138
- systems maintenance 2,160,438 1,898,908 4,081,627 3,507,374
- sales of hardware and consumables 310,094 365,026 892,060 926,255
2,589,850 2,389,995 5,181,034 4,593,767 Billings in excess of revenues recognized are recorded as deferred revenue. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
n) Income taxes The Company accounts for income taxes in accordance
with the accounting standard issued by the Financial Accounting Standard Board (“FASB”) for income taxes. Under the asset
and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. The charge for taxation is based on the results for the reporting period
as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date. The effect on deferred income taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred
tax asset will not be realized. Under the accounting standard regarding accounting
for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax
position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest
amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the period incurred.
o) Operating leases Leases where substantially all the rewards and risks
of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are
charged to the statements of income on a straight-line basis over the lease periods.
p) Advertising costs The Company expenses the cost of advertising as incurred
in the period in which the advertisements and marketing activities are first run or over the life of the endorsement contract. Advertising
and marketing expense for the six months ended June 30, 2022 and 2021 were insignificant.
q) 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 six months ended June 30, 2022 and 2021
were insignificant.
r) Research and development costs Research and development costs are expensed as incurred
and are included in general and administrative expenses. Research and development costs for the six months ended June 30, 2022 and 2021
were insignificant. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
s) Foreign currency translation The functional currency and reporting currency of
the Company is the U.S. Dollar. (“US$” or “$”). The functional currency of the Hong Kong subsidiaries is the Hong
Kong Dollar. The functional currency of the PRC subsidiary is RMB. Results of operations and cash flow are translated at average exchange
rates during the period, and assets and liabilities are translated at the exchange rate as quoted by the Hong Kong Monetary Authority
(“HKMA”) at the end of the period. Capital accounts are translated at their historical exchange rates when the capital transaction
occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains
and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.
Quarter ended June 30, 2022 June 30, 2021
RMB : USD exchange rate 6.5892 6.4806
three months average period ended
HKD : USD exchange rate 7.800 7.800
three months average period ended
PESO : USD exchange rate 52.4805 47.6357
three months average period ended
Quarter ended June 30, 2022 June 30, 2021
RMB : USD exchange rate 6.4641 6.4989
six months average period ended
HKD : USD exchange rate 7.800 7.800
six months average period ended
PESO : USD exchange rate 51.4498 47.6720
six months average period ended
Quarter ended June 30, 2022 December 31, 2021
RMB : USD exchange rate 6.6587 6.4838
HKD : USD exchange rate 7.800 7.800
PESO : USD exchange rate 54.7368 47.4164
t) 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.
u) 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. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
v) 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”.
w) Recent accounting pronouncements In June 2016, the FASB issued ASU 2016-13, “Financial
Instruments - Credit Losses.” The ASU sets forth a “current expected credit loss” model which requires the Company to
measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions,
and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses
on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was effective for fiscal
years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently,
the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company intends to adopt this
ASU in January 2022. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements
and related disclosures. In January 2020, the FASB issued Accounting Standards
Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and
Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic
321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options
in Topic 815. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, with early adoption permitted.
We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard addresses the
risks from the discontinuation of the London Interbank Offered Rate (LIBOR) and provides optional expedients and exceptions to contracts,
hedging relationships and other transactions that reference LIBOR if certain criteria are met. This new guidance is effective and may
be applied beginning March 12, 2020 through December 31, 2022. We do not expect the adoption of this guidance to have a material impact
on our consolidated financial statements. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In August 2020, the FASB issued ASU No. 2020-06,
Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible
instruments by eliminating the requirement to separately account for an embedded conversion feature as an equity component in certain
circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded
conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial
premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and
that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible
instruments. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope
exception. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those
fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the
use of either the modified retrospective or fully retrospective method of transition. We do not expect the adoption of this guidance to
have a material impact on our consolidated financial statements. In January 2021, the FASB issued ASU No. 2021-01,
“Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential accounting and financial reporting
burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank
offered rates to alternative reference rates. The new guidance provides temporary optional expedients and exceptions for applying U.S.
GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications,
hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of
the new standard as of the beginning of the reporting period when the election is made. Unlike other topics, the provisions of this update
are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company
is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect
an adoption date. In August 2021, the FASB issued ASU No. 2021-06,
“Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment
Companies (Topic 946).” The ASU includes Release No.33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses.
This update amends certain SEC disclosure guidance that is included in the accounting standards codification to reflect the SEC’s
recent issuance of rules intended to modernize and streamline disclosure requirements, including updates to business acquisition and disposition
significance tests used, the significance thresholds for proforma statement disclosures, the number of preceding years of financial statements
required for disclosure, and other provisions in the SEC releases. The guidance is effective upon its addition to the FASB codification.
The Company is assessing the impact of ASU No. 2021-06 but does not expect that it will have a material impact on its consolidated financial
statements and related disclosures. VALUE EXCHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In October 2021, the FASB issued ASU No. 2021-08,
“Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.”
The ASU addresses diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired
in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business
combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard is effective for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations
occurring on or after the effective date of the amendments. Early adoption of the standard is permitted, including adoption in an interim
period. The adoption of this standard update is not expected to have a material impact on the Company's consolidated financial statements
and related disclosures. 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. |
