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EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - Value Exchange International, Inc.f10q063016_ex32z2.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - Value Exchange International, Inc.f10q063016_ex32z1.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - Value Exchange International, Inc.f10q063016_ex31z2.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - Value Exchange International, Inc.f10q063016_ex31z1.htm


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 June 30, 2016


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

For the transition period from __________ to __________


Commission file number: 000-53537


SINO Payments, 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.)

 


7/F., DartonTower

142 WaiYip Street, Kwun Tong

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)


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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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       .  No . X .


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

.       . (Do not check if a smaller reporting company)

Smaller reporting company

   X .


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, 2016, there were 29,656,130 shares of common stock issued and outstanding.




1



 

SINO Payments, Inc.

Quarterly Report on Form 10-Q

For the three months ending June 30, 2016


Table of Contents  

 

Page

PART I - FINANCIAL INFORMATION

 

 

 

Item 1.  Financial Statements

3

 

 

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

18

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

28

 

 

Item 4.  Controls and Procedures

28

 

 

PART II  - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

29

 

 

Item 1A. Risk Factors

29

 

 

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

29

 

 

Item 3. Defaults Upon Senior Securities

29

 

 

Item 4. Mine Safety Disclosures

29

 

 

Item 5. Other Information

29

 

 

Item 6. Exhibits

29

 

 

Signatures

30

 

 



2




PART 1 – FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


SINO PAYMENTS INC.


Consolidated Financial Statements

For the Three Months Ended June 30, 2016 and 2015


 

 

Page

Consolidated Balance Sheets (unaudited)

 

4

Consolidated Statements of Operations and Comprehensive Income (unaudited)

 

5

Consolidated Statements of Cash Flows (unaudited)

 

6

Notes to the Consolidated Financial Statements (unaudited)

 

7







3



SINO PAYMENTS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

June 30,

2016

 

December 31,

2015

 

US$

 

US$

ASSETS

(unaudited)

 

(audited)

CURRENT ASSETS

 

 

 

 

 

 Cash and cash equivalents

 

97,753

 

 

434,341

 Accounts receivable, less allowance for doubtful accounts

 

392,929

 

 

320,251

 Amounts due from related parties

 

616,154

 

 

747,676

 Other receivables and prepayments

 

106,827

 

 

89,878

 Deferred tax assets

 

42,311

 

 

42,311

Deposit paid for acquisition of investment

 

200,000

 

 

200,000

Total current assets

 

1,455,974

 

 

1,834,457

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

Plant and equipment, net

 

141,288

 

 

138,462

 

 

 

 

 

 

Total assets

 

1,597,262

 

 

1,972,919

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

 

149,065

 

 

28,136

Other payables and accrued liabilities

 

455,713

 

 

449,555

Deferred income

 

174,158

 

 

443,888

Amounts due to related parties

 

182,572

 

 

477,636

Total current liabilities

 

961,508

 

 

1,399,215

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

Deferred tax liabilities

 

4,629

 

 

4,629

 

 

 

 

 

 

Total liabilities

 

966,137

 

 

1,403,844

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Preferred stock, 100,000,000 shares authorized, $0.00001 par value; no shares issued and outstanding

 

-

 

 

-

Common stock, 100,000,000 shares authorized, $0.00001 par value; 29,656,130 and  29,656,130 shares issued and outstanding, respectively

 

297

 

 

297

Additional paid-in capital

 

690,589

 

 

690,589

Accumulated deficit

 

(20,997)

 

 

(84,866)

Accumulated other comprehensive loss

 

(38,764)

 

 

(36,945)

Total shareholders’ equity

 

631,125

 

 

569,075

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

1,597,262

 

 

1,972,919


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



4




SINO PAYMENTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


  

Three Months

 

Six Months

  

Ended June 30,

 

Ended June 30,

  

2016

 

 

2015

 

2016

 

 

2015

 

US$

(unaudited)

 

 

US$

 (unaudited)

 

US$

 (unaudited)

 

 

US$

 (unaudited)

NET REVENUES

 

 

 

 

 

 

 

 

 

   Service income

931,632

 

 

625,915

 

1,910,855

 

 

1,130,033

 

 

 

 

 

 

 

 

 

 

COST OF SERVICES

 

 

 

 

 

 

 

 

 

   Cost of service income

(584,280)

 

 

(500,803)

 

(1,359,756)

 

 

(1,033,469)

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

347,352

 

 

125,112

 

551,099

 

 

96,564

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

   General and administrative expenses

(242,143)

 

 

(315,177)

 

(491,007)

 

 

(531,005)

   Foreign exchange loss

(515)

 

 

(1,343)

 

(636)

 

 

(2,797)

INCOME (LOSS) FROM OPERATIONS

104,694

 

 

(191,408)

 

59,456

 

 

(437,238)

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES):

 

 

 

 

 

 

 

 

 

   Interest income

97

 

 

40

 

155

 

 

91

   Interest expense

(6,806)

 

 

(1,101)

 

(16,695)

 

 

(4,302)

   Redundancy cost

(80,715)

 

 

-

 

(80,715)

 

 

-

   VAT refund

38,148

 

 

-

 

54,169

 

 

-

   Management fee income

28,967

 

 

12,477

 

44,434

 

 

23,547

   Others

1

 

 

1,239

 

3,064

 

 

1,419

   Total other income (expenses), net

(20,308)

 

 

12,655

 

4,412

 

 

20,755

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

84,387

 

 

(178,753)

 

63,869

 

 

(416,483)

 

 

 

 

 

 

 

 

 

 

INCOME TAXES

-

 

 

-

 

-

 

 

-

NET INCOME (LOSS)

84,387

 

 

(178,753)

 

63,869

 

 

(416,483)

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME:

 

 

 

 

 

 

 

 

 

   Foreign currency translation adjustments

(3,429)

 

 

(7)

 

(1,819)

 

 

(404)

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

80,958

 

 

(178,760)

 

62,050

 

 

(416,887)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

0.00

 

 

(0.01)

 

0.00

 

 

(0.02)

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

29,656,130

 

 

28,558,653

 

29,656,130

 

 

27,762,216


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





5




SINO PAYMENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Six Months Ended

June 30,

2016

 

Six Months Ended

June 30,

2015

 

 

US$

 

 

US$

 

 

(unaudited)

 

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

63,869

 

 

(416,483)

Adjustments to reconcile net income (loss) to cash used in operating activities:

 

 

 

 

 

Depreciation

 

26,992

 

 

24,212

Loss on disposal of plant and equipment

 

323

 

 

1,531

 

 

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

Accounts receivable

 

(72,678)

 

 

76,791

Other receivables and prepayments

 

(16,949)

 

 

(32,543)

Amounts due from related parties

 

131,522

 

 

920,795

Accounts payable

 

120,929

 

 

(21,544)

Other payables and accrued liabilities

 

6,158

 

 

(806,259)

Deferred income

 

(269,730)

 

 

28,672

Amounts due to related parties

 

(115,577)

 

 

(100,969)

Net cash used in operating activities

 

(125,141)

 

 

(325,797)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchase of plant and equipment

 

(14,763)

 

 

(84,341)

Deposit paid for acquisition of investment

 

-

 

 

(200,000)

Net cash used in investing activities

 

(14,763)

 

 

(284,341)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Repayment of loan from a director

 

(179,487)

 

 

-

Issued share capitals

 

-

 

 

512,847

Subscription receivable

 

-

 

 

19,143

Net cash (used in) provided by financing activities

 

(179,487)

 

 

531,990

 

 

 

 

 

 

EFFECT OF EXCHANGE RATE ON CASH

 

(17,197)

 

 

(430)

DECREASE IN CASH

 

(336,588)

 

 

(78,578)

CASH, beginning of period

 

434,341

 

 

101,723

CASH, end of period

 

97,753

 

 

23,145

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

Cash paid for interest

 

(2,398)

 

 

(4,302)

Cash received for interest

 

155

 

 

91

 

 

 

 

 

 


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



6




SINO PAYMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.

Nature of Operations and Continuance of Business


Sino Payments, Inc. (“SNPY” or the “Company”) was incorporated in the State of Nevada on June 26, 2007. The Company’s principal business is to provide credit and debit card processing services to multinational retailers in Asia and the systems development and information technology business of Value Exchange Int’l (China) Limited (collectively, the “IT Business”).  As of the date of this Report, the Company is focused on the development of its IT Business.    The provision of credit and debit card processing services is ancillary to the IT Business and is not a current revenue source.


On January 1, 2014, SNPY 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 SNPY’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 SNPY. The merger of VEI CHN into SNPY, 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 SNPY is deemed to be the accounting acquiree in the transaction. The transaction is being accounted for as a reverse merger and recapitalization. SNPY 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 SNPY, and the historical operations of SNPY and the combined operations of VEI CHN from the initial closing date of the transaction.


VEI CHN, formerly known as TAP Investments Group Limited, was incorporated on November 16, 2001 under the laws of Hong Kong SAR and changed its name to Value Exchange Int’l (China) Limited on May 13, 2013. VEI CHN is an investment holding company. The Company provides IT Business’ services and solutions to the retail sector through three operating subsidiaries located in Hong Kong SAR and 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, the 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 SAR, which subsequently changed its name to Value Exchange Int’l (Hong Kong) Limited (“VEI HKG”) on May 14, 2013. VEI HKG engages in software development, trading and servicing of computer hardware and software activities.


On May 14, 2013, VEI CHN further established another operating subsidiary, Ke Dao Solutions Limited (“KDSL”) in Hong Kong SAR. KDSL conducts consultancy services for IT Services and Solutions activities.


As of June 30, 2016, all four subsidiaries are wholly-owned by the Company.


The primary market for the Company’s business is Hong Kong SAR with PRC as a secondary market.  Subject to adequate funding and cash flow, the Company may expand its business to other regions in Eastern Asia.  The TSI transaction is part of an effort to expand the Company’s market reach.


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, 2016:



7





  

 

Place of incorporation

 

Ownership percentage

Sino Payments, 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%

Ke Dao Solutions Limited

 

Hong Kong

 

100%


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 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.


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 advance to suppliers. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified. As of June 30, 2016 and December 31, 2015, there was no allowance for uncollectible accounts receivable. Management believes that the remaining accounts receivable are collectable.


f)

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



8




g)

Impairment of long-lived assets


The Company evaluates long-lived assets, including equipment, for impairment at least once per year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets by comparing the asset's estimated fair value with its carrying value, based on cash flow methodology. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired and an impairment loss equal to an amount by which the carrying value exceeds the fair value of the asset is recognized.


h)

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, 2016 and December 31, 2015.

 

i)

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.


j)

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.


k)

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.




9




The Company’s revenue is derived from three primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and (iii) sale of hardware and consumables during the service performed as stated above.


Multiple-deliverable arrangements


The Company derives revenue from fixed-price sale contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses. In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:


The delivered item(s) has value to the customer on a stand-alone basis;

There is objective and reliable evidence of the fair value of the undelivered item(s); and

If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company.


The Company’s multiple-element contracts generally include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests at the Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered equipment and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services, and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result, the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition Multiple-Element Arrangements. In addition, the arrangement generally includes customer acceptance criteria that cannot be tested before installation and integration at the customers 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, 2016 and 2015.


  

Three Months

Ended June 30,

 

Six Months

Ended June 30,

  

2016

 

 

2015

 

2016

 

 

2015

  

US$

 

 

US$

 

US$

 

 

US$

 

(unaudited)

 

 

(unaudited)

 

(unaudited)

 

 

(unaudited)

NET REVENUES

 

 

 

 

 

 

 

 

 

Service income

 

 

 

 

 

 

 

 

 

- systems development and integration

37,722

 

 

35,388

 

136,746

 

 

51,445

- systems maintenance

744,222

 

 

531,333

 

1,544,411

 

 

1,005,422

- sales of hardware and consumables

149,688

 

 

59,194

 

229,698

 

 

73,166

 

931,632

 

 

625,915

 

1,910,855

 

 

1,130,033


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



10




l)

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.


m)

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.


n)

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, 2016 and 2015 were insignificant.


o)

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, 2016 and 2015 were insignificant.


p)

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, 2016 and 2014 were insignificant.


q)

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.

 

The balance sheet amounts with the exception of equity were translated at RMB 6.7172 and RMB 6.2442 to US$1.00 at June 30, 2016 and December 31, 2015, respectively. The equity accounts were stated at their historical exchange rates. The average translation rates applied to the income and cash flow statement amounts for the three months period ended June 30, 2016 and 2015 were RMB 6.5791 and RMB 6.2449 to US$1.00, respectively. The average translation rates applied to the income and cash flow statement amounts for the six months period ended June 30, 2016 and 2015 were RMB 6.5801 and RMB 6.2627 to US$1.00, respectively.



11




r)

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.


s)

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.


t)

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”.


u)

Recent accounting pronouncements


In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.


The FASB has issued No. 2015-11“Topic 330, Inventory”, which aims to simplify the measurement of inventory by changing the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of this update. The amendments in this update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017.


The FASB has issued No. 2015-14 “Topic 606, Revenue from Contracts with Customers”, which aims to respond to stakeholders’ requests to defer the effective date of the guidance in Update 2014-09 and to consider feedback received through extensive outreach with preparers, practitioners, and users of financial statements. The amendments in this update defer the effective date of update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.


The FASB has issued No. 2015-15 “Subtopic 835-30, Interest - Imputation of Interest”: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. This amendment adds SEC paragraphs pursuant to the SEC Staff Announcement on June 18, 2015, Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements.

 



12




The FASB has issued No. 2015-16“Topic 805, Business Combinations”: Simplifying the Accounting for Measurement-Period Adjustments, which aims to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017.


The FASB has issued No. 2015-17 “Topic 740, Income Taxes”: Balance Sheet Classification of Deferred Taxes, which aims to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS). For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.


The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private companies, not-for-profit organizations, and employee benefit plans, the amendments are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.


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.

 

3.

Accounts receivable


Accounts receivable consisted of the following as of June 30, 2016 and December 31, 2015: 


 

 

June 30,

2016

 

December 31,

2015

 

 

US$

 

US$

 

 

 

(unaudited)

 

 

 

Accounts receivable

 

 

392,929

 

 

320,251

Allowance for doubtful accounts

 

 

-

 

 

-

 

 

 

392,929

 

 

320,251



All of the Company’s customers are located in the PRC and Hong Kong. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. 




13




4.

Other receivables and prepayments


Other receivables and prepayments consisted of the following as of June 30, 2016 and December 31, 2015:


 

 

June 30,

2016

 

December 31,

2015

 

 

US$

 

US$

 

 

 

(unaudited)

 

 

 

Deposits and prepaid expense

 

 

89,302

 

 

82,535

Others

 

 

17,525

 

 

7,343

 

 

 

106,827

 

 

89,878


5.

Plant and equipment, net


Plant and equipment consisted of the following as of June 30, 2016 and December 31, 2015:


 

 

June 30,

2016

 

December 31,

2015

 

 

US$

 

US$

 

 

 

(unaudited)

 

 

 

Leasehold improvements

 

 

47,459

 

 

35,042

Office furniture and equipment

 

 

55,357

 

 

50,246

Computer equipment

 

 

188,226

 

 

181,070

Computer software

 

 

159,132

 

 

155,997

Total

 

 

450,174

 

 

422,355

Less: accumulated depreciation

 

 

(308,886)

 

 

(283,893)

Plant and equipment, net

 

 

141,288

 

 

138,462

 

Depreciation expense for the six months period ended June 30, 2016 and 2015 amounted to $26,992 and $24,212, respectively.


For the six months period ended June 30, 2016 and 2015, no interest expense was capitalized into plant and equipment.


6.

Deposit for acquisition


On January 8, 2015, the Company intended to acquire 100% of the outstanding share capital of a related company, TAP Services Inc., Philippines (“TSI”) to expand its business in the Asia Pacific region. An investment deposit amounting to US$200,000 was paid to TSI in January 2015 as subscription of the Company’s shares of stock. Consummation of the transaction is subject to approval of the Company’s Board of Directors.


At the date of this Report on Form 10-Q, this transaction is not yet completed pending the approval by the Philippine Securities & Exchange Commission of TSI’s increase in authorized capital stock. TSI is in the process of completing the requirements of the Philippine Securities & Exchange Commission. The closing of the transaction is subject to, among other things, the receipt of all necessary governmental and other consents. The parties to the transaction anticipate that the transaction will close, and TSI is expected to become a subsidiary of the Company in 2016, but the Company is not certain of completion in 2016.


7.

Other payables and accrued liabilities


Other payables and accruals consisted of the following as of June 30, 2016 and December 31, 2015:


 

 

June 30,

2016

 

December 31, 2015

 

 

US$

 

US$

 

 

 

(unaudited)

 

 

 

Accrual

 

 

423,169

 

 

408,491

Income taxes payable

 

 

32,544

 

 

41,064

 

 

 

455,713

 

 

449,555




14




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.


8.

Deferred income


Deferred income consisted of the following as of June 30, 2016 and December 31, 2015:


 

 

June 30,

2016

 

December 31, 2015

 

 

US$

 

US$

 

 

 

(unaudited)

 

 

 

Service fees received in advance

 

 

174,158

 

 

443,888






9.

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.



15



 

10.

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


 

June 30,

2016

 

December 31, 2015

 

 

US$

 

 

US$

 

 

(unaudited)

 

 

 

Due from related parties

 

 

 

 

 

Value Exchange International Limited (i)

 

478,844

 

 

550,531

TAP Services Inc., Philippines (ii)

 

135,461

 

 

197,145

TAP Technology (HK) Limited (iii)

 

1,849

 

 

-

 

 

616,154

 

 

747,676

 

 

 

 

 

 

Due to related parties

 

 

 

 

 

TAP Technology (HK) Limited (iii)

 

-

 

 

144,873

Mr. Edmund Yeung (iv)

 

172,572

 

 

332,763

Mr. Matthew Mecke (v)

 

5,000

 

 

-

Mr. Johan Pehrson (vi)

 

5,000

 

 

-

 

 

182,572

 

 

477,636


Related party transactions:


  

Three Months

Ended June 30,

 

Six Months

Ended June 30,

  

2016

 

 

2015

 

2016

 

 

2015

  

US$

 

 

US$

 

US$

 

 

US$

 

(unaudited)

 

 

(unaudited)

 

(unaudited)

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

Value Exchange International Limited (i)

 

 

 

 

 

 

 

 

 

Service income

-

 

 

-

 

-

 

 

13,462

Subcontracting fees

-

 

 

-

 

-

 

 

(43,829)

 

 

 

 

 

 

 

 

 

 

Rental expenses paid to

   TAP Technology (HK) Limited (iii)


-

 

 


(855)

 

-

 

 

(10,470)

 

 

 

 

 

 

 

 

 

 

Management fees received from

 

 

 

 

 

 

 

 

 

Value Exchange International Limited (i)

28,967

 

 

12,477

 

44,434

 

 

23,547


(i)

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


(ii)

This Company is managed by Mr. Benny Lee, a director of VEI SHG, the Company’s subsidiary in the PRC. 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 TAP Technology (HK) Limited, a company incorporated in Hong Kong. The balance is unsecured, interest free and repayable on demand.


(iv)

Mr. Edmund Yeung, a director of the Company. The balance included a loan from a director is unsecured, interest bearing at 12% per annum, and repayable on February 7, 2016 amount to US$172,572 as of June 30, 2016. The balance included accrued interest payable to Mr. Edmund Yeung of $26,547 as of June 30, 2016. As of the day of this report, no repayment has been made since 30 June 2016.



16




The remaining balance is unsecured, interest free and repayable on demand.


(v)

Mr. Matthew Mecke, a director of the Company. The balance is unsecured, interest free and repayable on demand.


(vi)

Mr. Johan Pehrson, a director of the Company. The balance is unsecured, interest free and repayable on demand.


11.

Subsequent events

 

On January 8, 2015, with Board approval, the Company intended to acquire 100% of the outstanding share capital of a related company, TAP Services Inc., Philippines (“TSI”) to expand its business in the Asia Pacific region. An investment deposit amounting to US$200,000 was paid to TSI in January 2015 as consideration to acquire such shares capital. At the date of these financial statements, this transaction is not yet completed pending the approval by the Philippine Securities & Exchange Commission of TSI’s increase in authorized capital stock. TSI is in the process of completing the requirements of the Philippine Securities & Exchange Commission. The closing of the transaction is subject to, among other things, the receipt of all necessary governmental and other consents. It is anticipated that the transaction will be completed in 2016, but the Company is not certain of completion in 2016.


The Company has evaluated all events or transactions that occurred through the date the consolidated financial statements were issued, and has determined that there were no material recognizable nor subsequent events or transactions which would require recognition or disclosure in the consolidated financial statements other than those disclosed in above and elsewhere in the consolidated financial statements.

 



17




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


This Report of Form 10-Q contains “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995, 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 on Form 10-Q include, but are not limited to, expectations of future levels investment in our core business capabilities, 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 integrate and grow acquired business lines. 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.


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 SINO Payments, 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,” “US$” and “$” 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 Sino Payments, Inc.


We were incorporated in the State of Nevada on June 26, 2007 under the name China Soaring Inc. On November 26, 2008, we changed the Company's name to Sino Payments, Inc. Our initial business was to operate a credit card processing and merchant-acquiring services company that provides credit card clearing services to merchants and financial institutions in PRC. Since inception, we have strived to implement our initial business plan, including the key step of creating our Global Processing Platform (“SinoPay GPP”) and establishing our website, www.sinopayments.com.  The initial business plan has been modified as indicated below.


As of the date of this Report on Form 10-Q, we seek to help clients improve their business systems and information technology or “IT” effectiveness. Specifically the Company’s business is in part to be a provider of Internet Protocol (“IP”) processing services in Asia to bank card-accepting merchants (“IP Business”). We market our services to local merchants with regional retail locations across Asia Pacific as potential customers of their IP and related credit card and debit card processing systems. We offer interoperability through what is envisioned as a highly efficient infrastructure and perceived exceptional knowledge of the IP processing market through our SinoPay GPP platform. The SinoPay GPP system facilitates the processing of all major credit card types (Visa/MC/AMEX/Diners/Discover/JCB) and will be integrated with China UnionPay to provide processing of UnionPay Debit cards in Hong Kong SAR and PRC.  When and if has sufficient resources available for expansion of the IP Business, SINO intends to deploy the SinoPay GPP platform throughout Asia with a focus on PRC, Hong Kong SAR, Thailand, Philippines, Malaysia, Korea, and Japan.


As of the date of this Report on Form 10-Q, we still have not implemented any IP Business to any customer.  While we have a functioning SinoPay GPP system product for sale, we have yet to sell any SinoPay GPP system to a customer as of the date of this Report on Form 10-Q.  We will continue to promote the SinoPay GPP system, but our primary focus is on growing our IT Business because of our strategic decision that IT Business presents greater growth and profit potential than IP Business in the short term. Further, we believe that the SinoPay GPP system will require ongoing and potentially expensive marketing and sales effort due to the highly competitive market for Point of Sale (“POS”) systems and longer sales cycle for POS systems than IT Business project and consulting sales. Due to the cost of market penetration for the SinoPay GPP, we may suspend or reduce promotion of the SinoPay GPP from time to time in order to enhance our focus on the IT Business.



18




Industry Trends and Economic Conditions


The IT Business in Hong Kong SAR and PRC 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 SAR and PRC 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 SAR and PRC markets.  We may be unable to afford or effectively compete for necessary skilled workers in Hong Kong SAR and PRC 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 year 2015 or in year 2016 to date.


A common problem in the IT Business is retaining skilled workers throughout the duration of a project or contract.  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.  While we have not experienced retention problems due primarily to our focus on smaller, shorter term IT business projects and contracts, 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.


IT Business is often affected by general economic conditions.  During periods of economic growth, customers tend to spend more for IT Business products and services.  During periods of economic contraction or uncertainty, such spending is expected to decrease or to be deferred.   As such, the prospective business for our IT Business is generally greater during periods of economic growth or stability in Hong Kong SAR or PRC and decreases during periods of economic decline or stagnant growth, or any economic uncertainty, in Hong Kong SAR and PRC.


The IT Business is global and 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 growth in cloud computing.  We have not seen any significant impact of cloud computing on our IT Business in fiscal year 2015 or 2016 to date, but we perceive that the expansion of cloud computing could allow foreign customers to provide IT Business products and services to its cloud computing customers in our Hong Kong SAR and PRC core market.   We find it more difficult to compete for IT Business in Hong Kong SAR and PRC 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 SAR and PRC markets.


The nature of our IT Business is such that our most significant current asset is accounts receivable.  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. This results 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. Overall outcome will be 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 remain successful in the near term, we must continue to maintain and grow our customer base, provide high-quality service and satisfaction to our existing clients, and take advantage of cross-selling opportunities within and between the IT Business and IP Business. In the current economic environment, we must offer our customers with services that are appropriately priced, satisfy their needs, and provide them with measurable business benefits. While we have recently experienced higher 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 for fiscal year 2016 and over the longer term.


The increasing need for cybersecurity products and technologies may be a future weakness of our business plan.  We currently do not have a cybersecurity product and service line beyond consultants engaged to provide cybersecurity services. 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.



19




Share Exchange


On January 1, 2014, we received 100% of the issued and outstanding shares of in VEI CHN in exchange for i) newly issued 12,000,000 shares of our 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 the Company. The merger of VEI CHN into the Company, which had nominal net assets, results in VEI CHN having control of the combined entity.


For financial reporting purposes, the transaction represents a "reverse merger" rather than a business combination and the Company is deemed to be the accounting acquiree in the transaction. The transaction is being accounted for as a reverse merger and recapitalization. The Company 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 the Company, and the historical operations of the Company and the combined operations of VEI CHN from the initial closing date of the transaction.


History of Value Exchange Int’l (China) Limited


VEI CHN was first established on November 16, 2001 in Hong Kong SAR with limited liability under the name of Triversity Hong Kong Limited and subsequently changed its name to Triversity (Asia Pacific) Limited on April 24, 2002 and then further changed its name to TAP Investments Group Limited on November 16, 2007.  TAP Investments Group Limited changed to its current name as Value Exchange Int’l (China) Limited on May 13, 2013.


VEI CHN is an investment holding company with two subsidiaries established in Hong Kong SAR, 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 Ke Dao Solutions Limited (“KDSL”), which was incorporated on May 14, 2013.  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”).


Principal business


The principal business of VEI CHN for more than 15 years is to provide the Information Technology Services and Solutions (consisting of select services and solutions in computer software programming and integration,  and computer systems, Internet and information technology systems engineering, consulting, administration and maintenance, including e-commerce and payment processing) to the Retail Sector (“IT Business”), primarily to leading 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:

 

a)

Systems maintenance and related service


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


Systems maintenance services consist of: i) software maintenance services, 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 a 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 market and focus is the retail sector in Hong Kong SAR and PRC.



20




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 the use of proprietary, custom software code, our services may from time to time license standard third party software programs.


With the completion of the Share Exchange and throughout fiscal year 2015 and 2016, we are focusing and will focus its business in IT Business, and seek to expand its 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 orders in our core markets of Hong Kong SAR and PRC than the IP Business and presents an industry segment that better suits our current technical capabilities, marketing capabilities and financial resources.


With respect to the IP Business, the Company will seek to implement its IP Business and related credit card and debit card processing systems as part of and enhancement for the IT Business to the Retail Sector. There has been no significant integration of the businesses in fiscal year 2016 and there is no deadline for such integration, which will occur as and when the Company can afford to and deems it propitious to integrate operations.


Financial Performance Highlights


The following are some financial highlights for the second fiscal quarter of 2016:


·

Net revenue: Our net revenues were $931,632 for the three months ended June 30, 2016, as compared to $625,915 for the same period in 2015, an increase of $305,717 or 48.8%.

·

Gross profit: Gross profit for the three months ended June 30, 2016 was $347,353 or 37.3% of net revenues, as compared to $125,112 or 20.0% of net revenues, for the same period in 2015, an increase of $222,241 or 177.6%.

·

Income (loss) from operations: Our income from operations totaled $104,695 for the three months ended June 30, 2016, as compared to loss from operations totaled $191,408 for the same period in 2015, a change of $296,103.

·

Net income (loss): We had a net income of $84,387 for the three months ended June 30, 2016, compared to net loss of $178,753 for the same period in 2015.

·

Basic and diluted net loss per share was $0.00 for the three months ended June 30, 2016.



21




RESULTS OF OPERATIONS


Comparison of Three Months Ended June 30, 2016 and 2015


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

June 30, 2016

 

 

Three Months Ended

June 30, 2015

 

US$

 

As a

percentage

of

revenues

 

US$

 

As a

percentage

of

revenues

NET REVENUES

 

 

 

 

 

 

 

 

 

 

Service income

 

931,632

 

 

100%

 

 

625,915

 

100%

COST OF SERVICES

 

 

 

 

 

 

 

 

 

 

Cost of service income

 

(584,279)

 

 

(62.7%)

 

 

(500,803)

 

(80.0%)

GROSS PROFIT

 

347,353

 

 

37.3%

 

 

125,112

 

20.0%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(242,143)

 

 

(26.0%)

 

 

(315,177)

 

(50.4%)

Foreign exchange loss

 

(515)

 

 

(0.1%)

 

 

(1,343)

 

(0.2%)

INCOME (LOSS) FROM OPERATIONS

 

104,695

 

 

11.2%

 

 

(191,408)

 

(30.6%)

OTHER INCOME (EXPENSES)

 

(20,308)

 

 

(2.1%)

 

 

12,655

 

2.0%

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

 

84,387

 

 

9.1%

 

 

(178,753)

 

(28.6%)

INCOME TAXES

 

-

 

 

-

 

 

-

 

-

NET INCOME (LOSS)

 

84,387

 

 

9.1%

 

 

(178,753)

 

(28.6%)


Net revenues. Net revenues were $931,632 for the three months ended June 30, 2016, as compared to $625,915 for the same period in 2015, an increase of $305,717 or 48.8%. This increase was primarily attributable to the increase in our revenue from i) systems maintenance with revenues increasing from $531,333 for the three months ended June 30, 2015 to $744,222 for the three months ended June 30, 2016; ii) systems development and integration with revenue increasing from $35,388 for the three months ended June 30, 2015 to $37,722 for the three months ended June 30, 2016; and iii)  sales of hardware and consumables with revenues increasing from $59,194 for the three months ended June 30, 2015 to $149,688  for the three months ended June 30, 2016.


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 $584,279 or 62.7% of net revenues, for the three months ended June 30, 2016, as compared to $500,803 or 80.0% of net revenues, for the same period in 2015, a decrease of $83,476 or 16.7%. The increase in cost of services was mainly attributable to the increase in contracting fees to suppliers, and our cost of technical staff and overhead.


Gross profit. Gross profit for the three months ended June 30, 2016 was $347,353 or 37.3% of net revenues, as compared to $125,112 or 20.0% of net revenues, for the same period in 2015, an increase of $222,241 or 177.6%. The increase of gross profit was largely due to the increase in net revenues, offset by the increase in cost of services in this period, as compared with the same period of 2015.


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 decreased to $242,143 or 26.0% of net revenues, for the three months ended June 30, 2016, as compared to $315,177 or 50.4% of net revenues, for the same period in 2015, a decrease of $73,034 or 23.2%. The primary reason for the decrease was attributable to a decrease in staff cost.


Income (loss) from operations. As a result of the above, our loss from operations totaled $104,695 for the three months ended June 30, 2016, as compared to loss from operations totaled $191,408 for the same period in 2015, a change of $296,103.


Income taxes. No provision for income taxes has been made for the three months ended June 30, 2016 and 2015.



22




Net income (loss). As a result of the foregoing, we had a net income of $84,387 for the three months ended June 30, 2016, compared to net loss of $178,753 for the same period in 2015, as a result of the factors described above.


Comparison of Six Months Ended June 30, 2016 and 2015


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)


 

Six Months Ended

June 30, 2016

 

Six Months Ended

June 30, 2015

 

US$

 

As a

Percentage

 of

revenues

 

US$

 

As a

percentage

of

revenues

NET REVENUES

 

 

 

 

 

 

 

 

 

 

Service income

 

1,910,855

 

 

100%

 

 

1,130,033

 

100%

COST OF SERVICES

 

 

 

 

 

 

 

 

 

 

Cost of service income

 

(1,359,755)

 

 

(71.2%)

 

 

(1,033,469)

 

(91.5%)

GROSS PROFIT

 

551,100

 

 

28.8%

 

 

96,564

 

8.5%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(491,007)

 

 

(25.7%)

 

 

(531,005)

 

(47.0%)

Foreign exchange loss

 

(636)

 

 

(0.0%)

 

 

(2,797)

 

(0.2%)

INCOME (LOSS) FROM OPERATIONS

 

59,457

 

 

3.1%

 

 

(437,238)

 

(38.7%)

OTHER INCOME (EXPENSES)

 

4,412

 

 

0.2%

 

 

20,755

 

1.8%

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

 

63,869

 

 

3.3%

 

 

(416,483)

 

(36.9%)

INCOME TAXES

 

-

 

 

-

 

 

-

 

-

NET INCOME (LOSS)

 

63,869

 

 

3.3%

 

 

(416,483)

 

(36.9%)


Net revenues. Net revenues were $1,910,855 for the six months ended June 30, 2016, as compared to $1,130,033 for the same period in 2015, an increase of $780,822 or 69.1%. This increase was primarily attributable to the increase in our revenues from i) systems maintenance with revenues increasing from $1,005,422 for the six months ended June 30, 2015 to $1,544,411 for the six months ended June 30, 2016; ii) systems development and integration with revenues increasing from $51,445 for the six months ended June 30, 2015 to $136,746 for the six months ended June 30, 2016; and iii)  sales of hardware and consumables with revenue increasing from $73,166 for the six months ended June 30, 2015 to $229,698 for the six months ended June 30, 2016.


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 increased to $1,359,755 or 71.2% of net revenues, for the six months ended June 30, 2016, as compared to $1,033,469 or 91.5% of net revenues, for the same period in 2015, an increase of $326,286 or 31.6%. The increase in cost of services was mainly attributable to the increase in contracting fees to suppliers, and our cost of technical staff and overhead.


Gross profit. Gross profit for the six months ended June 30, 2016 was $551,100 or 28.8% of net revenues, as compared to $96,564, or 8.5% of net revenues, for the same period in 2015, an increase of $454,536 or 470.7%. The increase of gross profit was largely due to the increase in net revenues, offset by the increase in cost of services in this period, as compared with the same period of 2015.


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 decreased to $491,007 or 25.7% of net revenues, for the six months ended June 30, 2016, as compared to $531,005 or 47.0% of net revenues, for the same period in 2015, a decrease of $39,998 or 7.5%. The primary reason for the decrease was attributable to a decrease in staff cost.


Income (loss) from operations. As a result of the above, our income from operations totaled $59,457 for the six months ended June 30, 2016, as compared to loss from operations totaled $437,238 for the same period in 2015, a change of $496,695.


Income tax. No provision for income taxes has been made for the six months ended June 30, 2016 and 2015.



23




Net income (loss). As a result of the foregoing, we had a net income of $63,869 for the six months ended June 30, 2016, compared to net income of $416,483 for the same period in 2015, as a result of the factors described above.


Liquidity and Capital Resources


As of June 30, 2016, we had cash and cash equivalents of $97,753.  The following table provides detailed information about our net cash flow for all financial periods presented in this report.


Cash Flows

(All amounts in U.S. dollars)


 

 

Six Months Ended

 

 

June 30,

 

 

2016

 

2015

 

 

US$

 

US$

Net cash used in operating activities

 

(125,141)

 

(325,797)

Net cash used in investing activities

 

(14,763)

 

(284,341)

Net cash (used in) provided by financing activities

 

(179,487)

 

531,990

Effect of exchange rate changes on cash and cash equivalents

 

(17,197)

 

(430)

Net decrease in cash and cash equivalents

 

(336,588)

 

(78,578)

Cash and cash equivalents at the beginning of period

 

434,341

 

101,723

Cash and cash equivalents at the end of period

 

97,753

 

23,145


Operating Activities


Net cash used in operating activities was $125,141for the six months ended June 30, 2016, which was a decrease of $200,656 or 61.6% from $325,797 for the same period of 2015. The decrease in net cash used in operating activities was mainly attributable to the following:


1)

Net income of $63,869 for the six months ended June 30, 2016, compared to net loss of $416,483 for the same period in 2015; and


2)

A change of accounts payable and other payables and accrued liabilities increased our operating cash balances by $142,473 and $812,417 respectively; offset by


3)

A change of accounts receivable, amounts due from related parties, and deferred income decreased our operating cash balances by $149,469, $789,273, and $298,402 respectively.


Investing Activities


Net cash used in investing activities was $14,763 for the six months ended June 30, 2016, which was a decrease of $269,578 or 94.8% from $284,341 in the same period in 2015. The decrease in net cash used in investing activities was attributable to the purchase of plant and equipment by $14,763 during the six months ended June 30, 2016.


Financing Activities


Net cash used in financing activities was $179,487 for the six months ended June 30, 2016, which was a change of $711,477 from net cash provided by financing activities of $210,826 in the same period in 2015. The change in net cash (used in) provided by financing activities was attributable to the repayment of loan from a director by $179,487 during the six months ended June 30, 2016.


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 business operations, 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 and performance. 



24




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 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, 2016:



  

 

Place of incorporation

 

Ownership percentage

Sino Payments, 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%

Ke Dao Solutions Limited

 

Hong Kong

 

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




25




Revenue recognition


Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured.


The Company’s revenue is derived from three primary sources: (i) professional services for systems development and integration, including procurement of related hardware and software licenses on behalf of customers, if required; (ii) professional services for system maintenance normally for a period of one year; and (iii) sale of hardware and consumables during the service performed as stated above.


Multiple-deliverable arrangements


The Company derives revenue from fixed-price sale contracts with customers that may provide for the Company to procure hardware and software licenses with varied performance specifications specific to each customer and provide the technical services for systems development and integration of the hardware and software licenses. In instances where the contract price is inclusive of the technical services, the sale contracts include multiple deliverables. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:


The delivered item(s) has value to the customer on a stand-alone basis;

There is objective and reliable evidence of the fair value of the undelivered item(s); and

If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company.


The Company’s multiple-element contracts generally include customer-acceptance provisions which provide for the Company to carry out installation, test runs and performance tests at the Company’s cost until the systems as a whole can meet the performance specifications stated in the contracts. The delivered equipment and software licenses have no standalone value to the customer until they are installed, integrated and tested at the customer’s site by the Company in accordance with the performance specifications specific to each customer. In addition, under these multiple-element contracts, the Company has not sold the equipment and software licenses separately from the installation, integration and testing services, and hence there is no objective and reliable evidence of the fair value for each deliverable included in the arrangement. As a result, the equipment and the technical services for installation, integration and testing of the equipment are considered a single unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition Multiple-Element Arrangements. In addition, the arrangement generally includes customer acceptance criteria that cannot be tested before installation and integration at the customers 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, 2016 and 2015.


  

 

Three Months

Ended June 30,

 

Six Months

Ended June 30,

  

 

2016

 

 

2015

 

2016

 

 

2015

  

 

US$

 

 

US$

 

US$

 

 

US$

 

 

(unaudited)

 

 

(unaudited)

 

(unaudited)

 

 

(unaudited)

NET REVENUES

 

 

 

 

 

 

 

 

 

 

Service income

 

 

 

 

 

 

 

 

 

 

- systems development and integration

 

37,722

 

 

35,388

 

136,746

 

 

51,445

- systems maintenance

 

744,222

 

 

531,333

 

1,544,411

 

 

1,005,422

- sales of hardware and consumables

 

149,688

 

 

59,194

 

229,698

 

 

73,166

 

 

931,632

 

 

625,915

 

1,910,855

 

 

1,130,033


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



26




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.


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.

 

The balance sheet amounts with the exception of equity were translated at RMB 6.7172 and RMB 6.2442 to $1.00 at June 30, 2016 and December 31, 2015, respectively. The equity accounts were stated at their historical exchange rates. The average translation rates applied to the income and cash flow statement amounts for the three months period ended June 30, 2016 and 2015 were RMB 6.5791 and RMB 6.2449 to $1.00, respectively. The average translation rates applied to the income and cash flow statement amounts for the six months period ended June 30, 2016 and 2015 were RMB 6.5801 and RMB 6.2627 to $1.00, respectively.


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.



27




Item 3.  Quantitative and Qualitative Disclosures About Market Risk


Not Applicable.


Item 4.  Controls and Procedures


Evaluation of Disclosure Controls and Procedures


At the end of the period covered by this Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our President and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (ii) accumulated and communicated to our management, including Company’s President and Chief Financial Officer, or officers performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Our internal control over financial reporting is not effective based on those criteria due to the following:


There is a lack of proper segregation of functions, duties and responsibilities with respect to our cash and control over the related disbursements due to our limited staff and accounting personnel.  Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with administrative and financial matters, and will appoint additional personnel in this area.  


There is a lack of effective controls over financial statement disclosure.  Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in the financial statements.  Management is working to correct these deficiencies and ensure that all permanent file documents are maintained in a working file which becomes an essential component of the financial closing process.


Changes in internal control over financial reporting


There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




28




PART II - OTHER INFORMATION


Item 1.  Legal Proceedings


From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.


Item 1A.  Risk Factors


There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2015.


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


None.


Item 3.  Defaults Upon Senior Securities


None.


Item 4.  Mine Safety Disclosures


Not Applicable.


Item 5.  Other Information


None.


Item 6.  Exhibits


Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.


 

 

 

Exhibit No.

 

Title of Document 

31.1

 

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

31.2

 

Certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

32.1

 

Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

Certification of the Principal Financial and Accounting Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Schema Document

101.CAL

 

XBRL Calculation Linkbase Document

101.LAB

 

XBRL Label Linkbase Document

101.PRE

 

XBRL Presentation Linkbase Document

101.DEF

 

XBRL Definition Linkbase Document



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Interactive data files pursuant to Rule 405 of Regulation S-T.  Filed with this Report on Form 10-Q for SINO Payments, Inc. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or Section 12 of the Securities Act, or for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under those sections.


SIGNATURES


In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

 

SINO Payments, Inc.

 

 

 

 

 

August 5, 2016

/s/ 

Kenneth Tan

 

 

By:

Kenneth Tan

 

 

Its: 

President and Director

(Principal Executive Officer)

 

 

 

 

 

August 5, 2016

/s/ 

Channing Au

 

 

By:

Channing Au

 

 

Its: 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 







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