QDM International Inc 10-Q for FY2025 Q3
QDM International Inc. (QDMI)
About this 10-Q
QDM International Inc filed this 10-Q on February 14, 2025, covering the quarter ended December 31, 2024 (FY2025 Q3).
Headline figures
Quarter ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.61M
- up 59.2% from $1.01M a year earlier
- Net income
- $706.62K
- up 267.8% from net income of $192.14K a year earlier
- Diluted EPS
- $0.00
- up 100.0% from $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from __________ to __________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
| N/A |
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001
Indicate
by check mark whether the registrant (1) has filed all 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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of February 14, 2025, there were
QDM INTERNATIONAL INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2024
TABLE OF CONTENTS
| Page | ||
| Cautionary Note Regarding Forward-Looking Statements | ii | |
| PART I – FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 21 |
| Item 4. | Controls and Procedures | 21 |
| PART II – OTHER INFORMATION | 22 | |
| Item 1. | Legal Proceedings | 22 |
| Item 1A. | Risk Factors | 22 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
| Item 3. | Defaults Upon Senior Securities | 22 |
| Item 4. | Mine Safety Disclosures | 22 |
| Item 5. | Other Information | 22 |
| Item 6. | Exhibits | 22 |
| SIGNATURES | 23 | |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”), including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
| ● | the impact of political uncertainty and social unrest in Hong Kong and laws, rules and regulations of the Chinese government aimed at addressing such unrest; |
| ● | the market for our services in Hong Kong and Mainland China; |
| ● | our expansion and other plans and opportunities; |
| ● | our future financial and operating results, including revenues, income, expenditures, cash balances and other financial items; |
| ● | current and future economic and political conditions in Hong Kong and Mainland China; |
| ● | the future growth of the Hong Kong insurance industry as a whole and the professional insurance intermediary sector in particular; |
| ● | our ability to attract customers, further enhance our brand recognition; |
| ● | our ability to hire and retain qualified management personnel and key employees in order to enable them to develop our business; |
| ● | changes in applicable laws or regulations in Hong Kong related to or that could impact our business; |
| ● | our management of business through a U.S. publicly-traded and reporting company; and |
| ● | other assumptions regarding or descriptions of potential future events or circumstances described in this Report underlying or relating to any forward-looking statements. |
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
ii
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
QDM INTERNATIONAL INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31 AND MARCH 31, 2024
| December 31, 2024 | March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Deferred offering cost | ||||||||
| Total current assets | ||||||||
| Right of use assets – operating lease | ||||||||
| Long-term prepaids | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable & accrued liabilities | $ | $ | ||||||
| Operating lease liabilities - current | ||||||||
| Income tax payable | ||||||||
| Due to related party | — | |||||||
| Total current liabilities | ||||||||
| Operating lease liabilities – non current | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| * | Retrospectively applied for effect of the forward stock split on April 5, 2024 |
See accompanying notes to condensed consolidated financial statements.
1
QDM INTERNATIONAL INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2024 AND 2023
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General & administrative expenses | $ | $ | $ | $ | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other (income) expenses | ||||||||||||||||
| Interest expenses | ||||||||||||||||
| Gain from disposition of subsidiaries | ( | ) | ( | ) | ||||||||||||
| Other income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other (income) expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Income before income taxes | ||||||||||||||||
| Current income tax expense | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income | ||||||||||||||||
| Currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||
| Earnings per share of common stock: | ||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||
| Weighted average basic & diluted shares outstanding: | ||||||||||||||||
| Preferred | ||||||||||||||||
| Common | ||||||||||||||||
| * | Retrospectively applied for effect of the forward stock split on April 5, 2024 |
See accompanying notes to condensed consolidated financial statements.
2
QDM INTERNATIONAL INC.
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2024 AND 2023
For the three months ended
| Preferred Stock | Common Stock | Treasury Stock | Preferred Stock Amount | Common Stock Amount | Treasury Amount | Additional Paid-in Capital | Subscription Receivable | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||||||||||||||
| Balance September 30, 2023 (Unaudited) | ( | ) | $ | | $ | | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | | $ | ||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Balance September 30, 2024 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2024 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
For the nine months ended
| Preferred Stock | Common Stock | Treasury Stock | Preferred Stock Amount | Common Stock Amount | Treasury Amount | Additional Paid-in Capital | Subscription Receivable | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Balance March 31, 2024 | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2024 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| * | Retrospectively applied for effect of the forward stock split on April 5, 2024 |
See accompanying notes to condensed consolidated financial statements.
3
QDM INTERNATIONAL INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2024 AND 2023
| December 31, 2024 |
December 31, 2023 |
|||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Gain from disposition of subsidiaries | ( |
) | ||||||
| Non-cash lease expenses | ( |
) | ||||||
| Changes in working capital: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Prepaid expenses | ( |
) | ( |
) | ||||
| Long-term prepaid expenses | ( |
) | ||||||
| Accounts payable & accrued liabilities | ( |
) | ||||||
| Income tax payable | ||||||||
| Due to a related party | ( |
) | ||||||
| Operating lease liabilities | ( |
) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( |
) | ||||||
| Disposition of subsidiaries | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ||||||
| Cash flows from financing activities: | ||||||||
| Net (repayment to) proceeds from related parties | ( |
) | ||||||
| Proceeds from Issuance of Series B preferred stock | ||||||||
| Payment for offering cost | ( |
) | ||||||
| Net cash (used in) provided by financing activities | ( |
) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( |
) | ||||||
| NET INCREASE IN CASH | ||||||||
| CASH, BEGINNING OF PERIOD | $ | $ | ||||||
| CASH, END OF PERIOD | ||||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Non-cash offset of subscription receivable with due to related party balance | ||||||||
| Issuance of Series B preferred stock to offset due to related party balance | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
4
QDM International Inc.
Notes
to Condensed Consolidated Financial Statements
December 31, 2024 and 2023
1. Organization and principal activities
QDM International Inc. (“QDM,” and collectively with its subsidiaries, the “Company”) was incorporated in Florida in March 2020 and is the successor to 24/7 Kid Doc, Inc. (“24/7 Kid”), which was incorporated in Florida in November 1998. The Company conducts its business through an indirectly wholly owned subsidiary, Hong Kong YeeTah Insurance Broker Limited (formerly known as YeeTah Insurance Consultant Limited, “YeeTah”), a licensed insurance brokerage company located in Hong Kong, China. YeeTah sells a wide range of insurance products, consisting of two major categories: (1) life and medical insurance, such as individual life insurance; and (2) general insurance, such as automobile insurance, commercial property insurance, liability insurance, homeowner insurance. In addition, as a Mandatory Provident Fund (“MPF”) Intermediary, YeeTah is also licensed to provide its customers with assistance on account opening and related services under the MPF and the Occupational Retirement Schemes Ordinance schemes (“ORSO”) in Hong Kong, both of which are retirement protection schemes set up for employees.
On
October 21, 2020, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with QDM Holdings
Limited, a BVI company (“QDM BVI”), and Huihe Zheng, the sole shareholder of QDM BVI (the “QDM BVI Shareholder”),
who is also the Company’s principal shareholder, Chairman and Chief Executive Officer, to acquire all the issued and outstanding
capital stock of QDM BVI in exchange for the issuance to the QDM BVI Shareholder
As a result of the consummation of the Share Exchange, the Company acquired all the issued and outstanding capital stock of QDM BVI and its subsidiaries, QDM Group Limited, a Hong Kong corporation and wholly owned subsidiary of QDM BVI (“QDM HK”) and YeeTah.
The Company was a shell company prior to the reverse acquisition which occurred as a result of the consummation of the transaction contemplated by the Share Exchange Agreement, and QDM BVI was a private operating company. The reverse acquisition by a non-operating public shell company of a private operating company typically results in the owners and management of the private company having actual or effective voting and operating control of the combined company. Therefore, the reverse acquisition is considered a capital transaction in substance. In other words, the transaction is a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell company accompanied by a recapitalization. Therefore, the Share Exchange was accounted for as a recapitalization and QDM BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of QDM BVI have been brought forward at their book value and no goodwill has been recognized.
5
Accordingly, the reverse acquisition has been treated as a corporate restructuring (reorganization) of entities under common control and thus the current capital structures of QDM BVI and its wholly-owned subsidiary QDM HK and the wholly-owned subsidiary of QDM HK, YeeTah, have been retrospectively presented in prior periods as if such structures existed at that time and in accordance with ASC 805-50-45-5.
As a result of the Share Exchange, the Company ceased to be a shell company.
On
November 3, 2021, the Company acquired
In 2022, 24/7 Kid was administratively dissolved with the State of Florida.
In
March 2023, the Company consummated a public offering of its common stock, par value $
On
March 28, 2024, the Company filed an Articles of Amendment to Articles of Incorporation of the Company (the “Amendment”)
with the Florida Department of State to (i) increase its authorized shares of common stock, par value $
As
a result of the 2024 Forward Stock Split, each issued and outstanding share of the Company’s common stock prior to the effective
time of the 2024 Forward Stock Spilt were split into
On April 4, 2024, the 2024 Forward Stock Split was approved and announced by the Financial Industry Regulatory Authority with an effective date on April 5, 2024.
2. Summary of significant accounting policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of December 31, 2024, and for the three and nine months ended December 31, 2024 and 2023. The results of operations for the three and nine months ended December 31, 2024 are not necessarily indicative of the operating results for the full year ending March 31, 2025 or any other period. These unaudited condensed consolidated financial statements have been derived from the accounting records of the Company and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended March 31, 2024, filed with the Securities and Exchange Commission (“SEC”) on July 1, 2024.
6
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with the U.S. GAAP requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses may be affected by the estimates that management is required to make. Actual results could differ from those estimates.
Foreign Currency and Foreign Currency Translation
The Company’s reporting currency is the United States Dollar (“US$” or “$”). The Company’s operations are principally conducted in Hong Kong where Hong Kong dollar is the functional currency. The functional currency of LGL is the Euro.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance sheet date. The resulting exchange differences are reported in the statements of operations and comprehensive loss.
The
exchanges rates used for translation from Hong Kong dollar to US$ was
The exchanges rates used for translation from Euro to US$ are as follows:
| October
4, 2023 | ||
| Year-end spot rate | EUR 1 = US$ | |
| Average rate for the period | EUR 1 = US$ |
Certain Risks and Concentration
The Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and receivables, and other assets. As of December 31, 2024, substantially all of the Company’s cash and cash equivalents were held in major financial institutions located in Hong Kong, which management considers to being of high credit quality.
Cash and Cash Equivalents
Cash and cash equivalents consist of petty cash on hand and cash held in banks, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use. The Company maintains all bank accounts in Hong Kong. Cash balances in bank accounts in Hong Kong are protected under Deposit Protection Scheme in accordance with the Deposit Protection Scheme Ordinance. The maximum protection is up to per depositor per Scheme member, including both principal and interest.
7
Accounts Receivable
Accounts receivable represents trade receivable and are recognized initially at fair value and subsequently adjusted for any allowance for expected credit loss.
The Company evaluates the expected credit loss of accounts receivable based on historical collection experience, the financial condition of its customers and assumptions for the future movement of different economic drivers and how these drivers will affect each other. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement with respect to a disputed receivable is reached for an amount that is less than the carrying value.
The Company historically did not have material bad debts in accounts receivable and management believed that there were no expected credit loss for doubtful accounts. There were no provision for credit loss for doubtful accounts for the three and nine months ended December 31, 2024 and 2023 and there was no allowance for credit loss as of December 31, 2024 and March 31, 2024.
Revenue Recognition
The Company generates revenue primarily by providing insurance brokerage services in Hong Kong. The Company sells insurance products underwritten by insurance companies operating in Hong Kong to its individual customers and is compensated for its services by commissions paid by insurance companies, typically based on a percentage of the premium paid by the insured.
ASC 606 provides for a five-step model for recognizing revenue from contracts with customers. These five steps include:
| (i) | Identify the contract | |
| (ii) | Identify performance obligations | |
| (iii) | Determine transaction price | |
| (iv) | Allocate transaction price | |
| (v) | Recognize revenue |
The Company enters into insurance brokerage contracts with customers (insurance companies). Performance obligation for these insurance brokerage contracts is to help insurance company customers to promote, coordinate and complete subscriptions of insurance policies offered by customers.
Under ASC 606, revenue is recognized when the customer obtains control of a good or service. A customer obtains control of a good or service if it has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The transfer of control of the Company’s brokerage services generally occurs at a point in time on the effective date of the associated insurance contract when the policy transfers to the customer. The insurance policy entered between the insurance company and the insured customer generally contains a cool-off period of one to two months. When the cool-off period elapses and the insured customer does not withdraw from the insurance policy, the policy becomes effective. Once the transfer of control of a service occurs, the Company has satisfied its insurance brokerage performance obligation and recognizes revenue.
8
Fair Value Measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value as follows:
| Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2: | Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities. | |
| Level 3: | Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, lease liabilities and due to related party. The carrying amounts of these financial instruments approximate their fair values due to the short-term nature of these instruments. For lease liabilities, fair value approximates their carrying value at the year end as the interest rates used to discount the host contracts approximate market rates.
The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring nor non-recurring basis as of December 31, 2024 and March 31, 2024.
Property and Equipment
Property
and equipment are recorded at cost, less accumulated depreciation and impairment. Depreciation of property and equipment is calculated
on a straight-line basis, after consideration of expected useful lives and estimated residual values.
| Category | Depreciation rate | Estimated residual value | ||
| Office equipment | ||||
| Leasehold improvements |
Expenditures for maintenance and repairs are expensed as incurred. Gains and losses on disposals are the differences between net sales proceeds and carrying amount of the relevant assets and are recognized in the statements of operations and comprehensive loss.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the expected future undiscounted cash flows attributable to these assets. If it is determined that an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the assets exceeds the expected discounted cash flows arising from those assets.
There were impairment losses for the three and nine months ended December 31, 2024 and 2023.
9
Leases
Arrangements meeting the definition of a lease are classified as operating or finance leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.
In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Taxation
Current income taxes are provided on the basis of net profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, net operating loss carryforwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operations and comprehensive income in the period of the enactment of the change.
The Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Company has considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.
10
The
Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that the
position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition
threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater
than
Related party transactions
In
general, related parties exist when there is a relationship that offers the potential for transactions at less than arm’s-length,
favorable treatment, or the ability to influence the outcome of events different from that which might result in the absence of that
relationship. A related party may be any of the following: a) an affiliate, which is a party that directly or indirectly controls, is
controlled by, or is under common control with another party; b) a principle owner, owner of record or known beneficial owner of more
than
Earnings per share
Basic earnings per share is computed by dividing net income attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the period using the two-class method. Under the two-class method, net income is allocated between shares of common stock and other participating securities based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they are not obligated to share in the losses. Diluted earnings per share is calculated by dividing net income attributable to holders of common stock by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti-dilutive.
Recently Issued Accounting Standards
The Company has reviewed all the other recent accounting pronouncements issued to date of the issuance of these financial statements, and does not believe any of these pronouncements will have a material impact on the Company.
11
3. Equity
2024 Forward Stock Split
On
April 5, 2024, the Company effected a forward split of its issued and outstanding shares of common stock at a ratio of 10-for-1. As a
result of the 2024 Forward Stock Split, each issued and outstanding share of the Company’s common stock prior to the effective
time of the Forward Stock Spilt are split into ten shares of common stock and the total number of issued and outstanding shares of common
stock increases from
Preferred Stock
On
October 4, 2024, the Company filed an Articles of Amendment to Articles of Incorporation of the Company with the Florida Division of
Corporation to increase the Company’s authorized shares of Series B preferred stock, par value $
On
October 9, 2024, the Company entered into a securities subscription agreement (the “Securities Subscription Agreement”) with
Huihe Zheng, the Company’s Chief Executive Officer, President, and Chairman of the Board. Pursuant to the Securities Subscription
Agreement, the Company issued
The
Company’s authorized capital stock consists of
YeeTah
is a licensed insurance broker company in Hong Kong and subject to certain Hong Kong insurance broker requirements regarding its share
capital and net assets. As per the requirements, a licensed insurance broker company must at all times maintain a paid-up share capital
of not less than US$
4. Related Party Transaction
Related Parties
| Name of related parties | Relationship with the Company | |
| Huihe Zheng |
Related Party Transactions
| (i) | During the three and nine months ended December 31, 2024, Huihe Zheng advanced and $ | |
| (ii) | During the three and nine months ended December 31, 2024, the Company repaid $ | |
| (iii) | On October 9, 2024, the Company issued |
12
Due to Related Party Balance
The Company’s due to related party balance is as follows:
| December 31, 2024 |
March 31, 2024 |
|||||||
| US$ | US$ | |||||||
| Huihe Zheng | ||||||||
| Total | ||||||||
The due to related party balance is unsecured, interest-free and due on demand.
5. Income Taxes
Hong Kong
Under
the current Hong Kong Inland Revenue Ordinance, the Company’s Hong Kong subsidiaries are subject to a
BVI
Under the current laws of the BVI, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no BVI withholding tax will be imposed.
Cyprus
Under
the current laws of Cyprus, the Company’s Cyprus subsidiary is subject to a standard income tax rate of
13
US
Under
the current Florida state and US federal income tax, the Company does not need to pay income taxes as Florida state does not levy income
tax. The federal income tax is based on a flat rate of
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2024, the Company did not have any significant unrecognized uncertain tax positions.
6. Commitments and Contingencies
Other
than two office leases both with a lease term of
Operating lease
The
2022 Office Lease has a remaining lease term of the operating lease of
The
2023 Office Lease has a remaining lease term of the operating lease of
During
the three months ended December 31, 2024 and 2023, the operating lease expense recognized was $
During
the nine months ended December 31, 2024 and 2023, the operating lease expense recognized was $
Contingencies
The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matter will have a material adverse effect on its business, financial position, cash flows or results of operations taken as a whole. As of December 31, 2024, the Company is not a party to any material legal or administrative proceedings.
7. Subsequent Events
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2024 through the date of issuance of the financial statements and has determined that it does not have any other material subsequent events to disclose in these financial statements.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is based on, and should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report. Certain capitalized terms used but not defined in the below discussion and elsewhere in this Report have the meanings ascribed to them in the footnotes to the accompanying financial statements included as part of this Report.
Overview
From 2016 to 2020, we were a telemedicine company that provides Connect-a-Doc telemedicine kits to schools. Our services aimed to provide alternatives to schools that desire to provide a higher level of healthcare to their students but are unable to keep a full-time school nurse available. In 2020, this business was discontinued and we became a non-operating “shell” company until our acquisition of YeeTah, as more fully described below.
On October 21, 2020, we entered into the Share Exchange Agreement with QDM BVI, and Huihe Zheng, the sole shareholder of QDM BVI, who is also our principal shareholder and serves as our Chairman and Chief Executive Officer, to acquire all the issued and outstanding capital stock of QDM BVI in exchange for the issuance to Mr. Zheng 900,000 shares of Series C Preferred Stock, with each share of Series C Preferred Stock initially being convertible into 11 shares of our common stock, subject to certain adjustments and limitations. The Share Exchange closed on October 21, 2020.
As a result of the consummation of the Share Exchange, we acquired QDM BVI and its indirect subsidiary, YeeTah, an insurance brokerage company and assumed the business operations of QDM BVI and its subsidiaries. YeeTah is primarily engaged in marketing and sales of diversified insurance products, including property, life and social security insurance products, underwritten by insurance companies operating in Hong Kong to individual customers from Hong Kong SAR and Mainland China. In addition, as an MPF Intermediary, YeeTah is also licensed to provide its customers with assistance on account opening and related services under the MPF and the ORSO in Hong Kong, both of which are retirement protection schemes set up for employees.
Recent Developments
On October 4, 2024, we filed an Articles of Amendment to Articles of Incorporation of the Company with the Florida Division of Corporation to increase our authorized shares of Series B preferred stock, par value $0.0001 per share (the “Series B Shares”), from 2,000,000 shares to 10,000,000 shares, which became effective as of October 7, 2024. The foregoing amendment was approved by the Board, in accordance with our Articles of Incorporation and the Florida Business Corporation Act.
On October 9, 2024, we entered into a securities subscription agreement (the “Securities Subscription Agreement”) with Huihe Zheng, our Chief Executive Officer, President, and Chairman of the Board. Pursuant to the Securities Subscription Agreement, we issued 6,000,000 Series B Shares to Mr. Zheng at a purchase price of $0.10 per share, in exchange for the cancellation by Mr. Zheng of a portion of the currently outstanding principal amount of the debt owed by us to Mr. Zheng, in the amount of US$600,000, which was loaned by Mr. Zheng to us providing for our working capital and general corporate expenses. As a result of the issuance of Series B Shares to Mr. Zheng, Mr. Zheng beneficially owns 81.0% of the aggregate voting power of us as of the date of this Report.
15
Results of Operations
Three Months Ended December 31, 2024 and 2023
The following table presents an overview of our results of operations for the three months ended December 31, 2024 and 2023:
| For The Three Months Ended | For The Three Months Ended | |||||||
| December 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue | $ | 1,607,455 | 1,009,716 | |||||
| Cost of sales | 246,913 | 606,779 | ||||||
| Gross profit | 1,360,542 | 402,937 | ||||||
| Operating expenses: | ||||||||
| General & administrative expenses | 452,524 | 200,271 | ||||||
| Total operating expenses | 452,524 | 200,271 | ||||||
| Income from operations | 908,018 | 202,666 | ||||||
| Total other (income) expenses | 1,187 | (35,506 | ) | |||||
| Current income tax expenses | 200,216 | 46,033 | ||||||
| Net income | $ | 706,615 | $ | 192,139 | ||||
Revenue
Revenue increased by approximately $598,000, or 59.2%, for the three months ended December 31, 2024 as compared to the same period of 2023. The increase was mainly due to revenue from two new insurance company partners, with whom we did not cooperate in the same period of 2023, and who offered higher basic commission rates. However, the increase was partially offset by the decrease in revenue from one of the existing insurance company partners. A substantial portion of the revenue from this partner in the three months ended December 31, 2024, was derived from insurance renewal commissions, which are based on the renewal commission rate that is lower than the first-year commission rate.
Cost of sales
Cost of sales decreased by approximately $360,000, or 59.3%, for the three months ended December 31, 2024 as compared to the same period of 2023. The decrease was primarily due to lower referral fees paid. On May 22, 2024, the Hong Kong Insurance Authority issued a circular, which mandated, among other things, that referral fees for introducing clients should not be excessively high and should be consistent with the work the referrers provide. In compliance with this regulatory directive, and after discussion with our referrers, we lowered our referral fee rates, which resulted in the significant decrease in cost of sales.
Gross profit
Gross profit margin increased by approximately 44.7% for the three months ended December 31, 2024 as compared to the same period of 2023, which was in line with the significant decrease in cost of sales.
General and administrative expenses
General and administrative expenses generally are fixed and consist primarily of employee salaries, office rent, insurance costs, general office operating expenses (e.g., utilities, repairs and maintenance) and professional fees in engaging various service providers.
General and administrative expenses increased by approximately $252,000, or 126.0%, for the three months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to hiring of more employees and increase in professional fees paid to various service providers.
16
Other income (expenses)
Other income (expenses) decreased by approximately $37,000, or 103.3%, for the three months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to our recognition of gain from disposition of subsidiaries during the three months ended December 31, 2023, with no such income recognized during the same period in 2024.
Current income tax expenses
Current income tax expenses increased by approximately $154,000, or 334.9%, for the three months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to increase in profits in the three months ended December 31, 2024.
Net income
As a result of the factors described above, net income for the three months ended December 31, 2024 increased by approximately $514,000, or 267.8%, as compared to the same period of 2023.
Nine Months Ended December 31, 2024 and 2023
The following table presents an overview of our results of operations for the nine months ended December 31, 2024 and 2023:
| For The Nine Months Ended | For The Nine Months Ended | |||||||
| December 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue | $ | 3,606,392 | 5,446,729 | |||||
| Cost of sales | 594,355 | 3,366,496 | ||||||
| Gross profit | 3,012,037 | 2,080,233 | ||||||
| Operating expenses: | ||||||||
| General & administrative expenses | 975,065 | 478,838 | ||||||
| Total operating expenses | 975,065 | 478,838 | ||||||
| Income from operations | 2,036,972 | 1,601,395 | ||||||
| Total other income | (23,755 | ) | (68,026 | ) | ||||
| Current income tax expenses | 406,026 | 266,028 | ||||||
| Net income | $ | 1,654,701 | 1,403,393 | |||||
Revenue
Revenue decreased by approximately $1.8 million, or 33.8%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The decrease was mainly due to the decrease in revenue from one of the insurance company partners. In the nine months ended December 31, 2024, a substantial portion of the revenue from this partner was derived from insurance renewal commissions, which are based on the renewal commission rate that is lower than the first-year commission rate. During the same period, we increased our cooperation with other insurance company partners, who offered higher basic commission rates. The shift in focus on different partnership also contributed to the overall decrease in revenue from our top insurance company partner. Moreover, following the lift by Hong Kong government of the COVID-19 travel restrictions and quarantine requirements in January 2023, we experienced a rebound in business as cross-border travel resumes with mainland China after three years of restrictions. As a result, our revenue for the three months ended June 30, 2023 was significantly higher than the other periods. Our revenue subsequently stabilized. The average quarterly revenue for the subsequent periods was approximately $1.1 million.
17
Cost of sales
Cost of sales decreased by approximately $2.8 million, or 82.3%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The decrease was primarily due to lower referral fees paid as a result of adjustment of our referral fee rates according to regulatory directive from Hong Kong Insurance Authority.
Gross profit
Gross profit margin for the nine months ended December 31, 2024 increased by approximately 45.3% as compared to the same period of 2023, which was in line with the significant decrease in cost of sales.
General and administrative expenses
General and administrative expenses generally are fixed and consist primarily of employee salaries, office rent, insurance costs, general office operating expenses (e.g., utilities, repairs and maintenance) and professional fees paid to various service providers.
General and administrative expenses increased by approximately $496,000, or 103.6%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The increase is primarily due to hiring of more employees, and increase in professional fees paid various service providers.
Other income
Other income decreased by approximately $44,000, or 65.1%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The income was mainly attributable to the receipt of referral fees by introducing clients to other companies. The decrease in referral fee was due to a much lower referral commission rate for renewal premiums in 2024, while partially offset by a one-off referral fee paid by a trust company in July 2024. Moreover, we recognized gain from disposition of subsidiaries during the nine months ended December 31, 2023, with no such income recognized during the same period in 2024.
Current income tax expenses
Current income tax expenses increased by approximately $140,000, or 52.6%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to increase in profits in the nine months ended December 31, 2024.
Net income
As a result of the factors described above, net income for the nine months ended December 31, 2024 increased by approximately $251,000, or 17.9%, as compared to the same period of 2023.
Foreign Currency Translation
The Company’s reporting currency is the United States dollar (“US$”). The Company’s operations are principally conducted in Hong Kong where the Hong Kong dollar is the functional currency. The functional currency of LGL is the Euro.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance sheet date. The resulting exchange differences are reported in the statements of operations and comprehensive loss.
The exchanges rate used for translation from Hong Kong dollar to US$ was 7.8000, a pegged rate determined by the linked exchange rate system in Hong Kong. This pegged rate was used to translate Company’s balance sheets, income statement items and cash flow items for both the three and nine months ended December 31, 2024 and 2023, and the year ended March 31, 2024.
18
The exchanges rates used for translation from Euro to US$ are as follows:
| October
4, 2023 | ||
| Period-end spot rate | EUR 1 = US$1.0518 | |
| Average rate for the year | EUR 1 = US$1.0877 |
Liquidity and Capital Resources
Our working capital requirements mainly comprise of commissions paid to technical representatives and referral fees, operating lease payments and employee salaries. We have financed our operations primarily through cash generated by operating activities, equity financings and advances from our principal shareholder. QDM is a holding company and conducts substantially all of its operations through YeeTah, which is its only entity that has operating cash inflows. Our expenses are paid directly either by YeeTah or our principal shareholder.
YeeTah is a licensed insurance broker company in Hong Kong and subject to certain Hong Kong insurance broker requirements regarding its share capital and net assets. According to the requirements, a licensed insurance broker company must at all times maintain a paid-up share capital of not less than US$64,103 (HK$500,000) and net assets of not less than US$64,103 (HK$500,000), subject to the phase-in transitional arrangement applicable to specified insurance broker companies, including YeeTah, pursuant to which, YeeTah is required to maintain the amount of paid-up share capital and net assets of (i) not less than US$12,821 (HK$100,000) for the period from September 23, 2019 to December 31, 2021 and (ii) not less than US$38,462 (HK$300,000) for the period from January 1, 2022 to December 31, 2023. YeeTah was in compliance with the applicable minimum paid-up share capital and net assets requirements as of December 31, 2024.
There have been no cash and any asset transactions between us and our subsidiaries since the Share Exchange. As of December 31, 2024 and March 31, 2024, we had $5,937,744 and $5,158,223, respectively, in cash and cash equivalents, which primarily consisted of cash deposited in banks.
| Nine Months Ended December 31, 2024 | Nine Months Ended December 31, 2023 | |||||||
| Net cash provided by operating activities | $ | 1,500,242 | $ | 3,438,000 | ||||
| Net cash used in investing activities | — | (100,241 | ) | |||||
| Net cash (used in) provided by financing activities | (720,721 | ) | 267,557 | |||||
| Effect of Exchange rate changes on cash | — | (207 | ) | |||||
| Net increase in cash, cash equivalents | 779,521 | 3,605,109 | ||||||
| Cash and cash equivalents at beginning of period | 5,158,223 | 2,717,745 | ||||||
| Cash and cash equivalents at end of period | $ | 5,937,744 | $ | 6,322,854 | ||||
19
Operating Activities:
Net cash generated from operating activities was approximately $1.5 million for the nine months ended December 31, 2024, compared to net cash generated from operating activities of approximately $3.4 million for the same period in 2023, representing a decrease of approximately $1.9 million in the net cash inflow in operating activities. The decrease in net cash inflow in operating activities was due to the combined effect of (i) increase of net income of approximately $251,000 in the nine months ended December 31, 2024 as compared to the same period of 2023, and (ii) the following major working capital changes:
| (1) | Change in accounts receivable resulted in an approximately $149,000 cash outflow for the nine months ended December 31, 2024 compared to an approximately $217,000 cash inflow for the same period of 2023, which led to an approximately $366,000 increase in net cash outflow in operating activities. | |
| (2) | Change in accounts payable and accrued liabilities resulted in an approximately $367,000 cash outflow for the nine months ended December 31, 2024 compared to an approximately $1.7 million cash inflow for the same period of 2023, which led to an approximately $2.0 million decrease in net cash inflow from operating activities. | |
| (3) | Change in short-term and long-term prepaid expenses resulted in an approximately $75,000 cash outflow for the nine months ended December 31, 2024 compared to an approximately $111,000 cash outflow for the same period of 2023, which led to an approximately $36,000 decrease in net cash outflow from operating activities. During this period, the Company prepaid HK$1,000,000 (US$128,205) to a new contracted referrer for future referral fees payable to the referrer. As of December 31, 2024, the outstanding prepaid balance was HK$642,590 (US$82,383), and the management of the Company expected the prepaid amount would be fully credited against the referral fees payable to the referrer by the end of March 31, 2025. | |
| (4) | Change in income tax payable resulted in an approximately $406,000 cash inflow for the nine months ended December 31, 2024 compared to an approximately $266,000 cash inflow for the same period of 2023, which led to an approximately $140,000 increase in net cash inflow from operating activities. |
Investing Activities:
Net cash used in investing activities was nil for the nine months ended December 31, 2024 compared to net cash used in investing activities of approximately $100,000 for the same period of 2023. Net cash used in investing activities for the nine months ended December 31, 2023 was solely attributable to acquisitions of fixed assets and disposition of subsidiaries.
Financing Activities:
For the nine months ended December 31, 2024, net cash used in financing activities was approximately $721,000, which was derived from the net repayment to related parties of approximately $683,000 and payment for offering cost of approximately $38,000.
For the nine months ended December 31, 2023, net cash provided by financing activities was approximately $268,000, which was fully derived from the proceeds borrowed from related parties.
Material Commitments
We have no material commitments for the next twelve months.
We had two office lease agreements and our lease commitments as of December 31, 2024 are summarized as follows:
Operating lease
| 2022 Office Lease | 2023 Office Lease | Total | ||||||||||
| 2025 | $ | 3,514 | $ | 88,744 | $ | 92,258 | ||||||
| 2026 | — | 28,627 | 28,627 | |||||||||
| Total future minimum lease payments | $ | 3,514 | $ | 117,371 | $ | 120,885 | ||||||
| Less: imputed interest | (14 | ) | (8,113 | ) | (8,127 | ) | ||||||
| Total operating lease liability | $ | 3,500 | $ | 109,258 | $ | 112,758 | ||||||
| Less: operating lease liability – current | 3,500 | 81,225 | 84,725 | |||||||||
| Total operating lease liability – non-current | $ | — | $ | 28,033 | $ | 28,033 | ||||||
20
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases their estimates on historical experience and on various other factors that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.
While our significant accounting policies are more fully described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements, we believe that there were no critical accounting policies and estimates that affect the preparation of financial statements.
Off-balance Sheet Commitments and Arrangements
As of December 31, 2024, the Company did not have any material off-balance sheet arrangements that had or were reasonably likely to have any effect on their respective financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of September 30, 2024 due to the material weakness in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) lack of proper segregation of duties and risk assessment process; (ii) lack of formal documentation in internal controls over financial reporting; and (iii) lack of independent directors and an audit committee. We have hired a qualified Chief Financial Officer who has extensive experience and expertise in US GAAP and SEC reporting requirements. We will continue to devote resources to remediate the aforementioned material weaknesses, as we grow and such resources required for implementing proper internal controls for financial reporting are available.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
21
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to any material legal or administrative proceedings. We may from time to time be subject to legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
Item 1A. Risk Factors.
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, as of the date of this Report, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on July 1, 2024. Any of the previously disclosed risk factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
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.
Trading Arrangements
During the quarterly period ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Report:
| * | Filed herewith. |
| ** | Furnished herewith. |
22
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| QDM International Inc. | ||
| Date: February 14, 2025 | By: | /s/ Huihe Zheng |
| Name: | Huihe Zheng | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: February 14, 2025 | By: | /s/ Wei Li |
| Name: | Wei Li | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
23
Exhibit 31.1
CERTIFICATION
OF THE
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Huihe Zheng, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of QDM International Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the board of directors: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 14, 2025 | By: | /s/ Huihe Zheng |
| Huihe Zheng | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
OF THE
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)
UNDER THESECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Wei Li, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of QDM International Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant and its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the board of directors: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 14, 2025 | By: | /s/ Wei Li |
| Wei Li | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION
OF THE
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of QDM International Inc.(the “Company”) on Form 10-Q for the quarterly period ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Huihe Zheng, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
| Date: February 14, 2025 | By: | /s/ Huihe Zheng |
| Huihe Zheng | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION
OF THE
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of QDM International Inc.(the “Company”) on Form 10-Q for the quarterly period ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wei Li, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
| Date: February 14, 2025 | By: | /s/ Wei Li |
| Wei Li | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |