QDM International Inc 10-Q for FY2024 Q3
QDM International Inc. (QDMI)
About this 10-Q
QDM International Inc filed this 10-Q on February 14, 2024, covering the quarter ended December 31, 2023 (FY2024 Q3).
Headline figures
Quarter ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.01M
- up 4097.2% from $24.06K a year earlier
- Net income
- $192.14K
- compared with a net loss of $69.07K a year earlier
- Diluted EPS
- $0.01
- compared with -$0.33 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.
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of February 13, 2024, there were
QDM INTERNATIONAL INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2023
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 | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 |
| Item 4. | Controls and Procedures | 19 |
| PART II – OTHER INFORMATION | 20 | |
| Item 1. | Legal Proceedings | 20 |
| Item 1A. | Risk Factors | 20 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3. | Defaults Upon Senior Securities | 20 |
| Item 4. | Mine Safety Disclosures | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 20 |
| SIGNATURES | 21 | |
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 public health epidemics, including the COVID-19 in Mainland China, Hong Kong and the rest of the world, on the market we operate in and our business, results of operations and financial condition; | |
| ● | 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 and further enhance our brand recognition; | |
| ● | our ability to hire and retain qualified management personnel and key employees 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 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.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. 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. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
ii
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
QDM INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31 AND MARCH 31, 2023
| December 31, 2023 | March
31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Right of use assets – operating lease | ||||||||
| Long-term prepaids | ||||||||
| Property and equipment, at cost, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ 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 | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Subscription receivable | ( | ) | ||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
1
QDM INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
| For the Three Months Ended December 31, | For the Nine Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue | $ | |||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General & administrative expenses | $ | |||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other (income) expense | ||||||||||||||||
| Finance costs | ||||||||||||||||
| Gain from disposition of subsidiaries | ( | ) | ( | ) | ||||||||||||
| Other (income) expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense (income) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Current income tax expense | ||||||||||||||||
| Net income(loss) | $ | ( | ) | ( | ) | |||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive income (loss) | $ | ( | ) | ( | ) | |||||||||||
| Earnings (loss) per share of common stock: | ||||||||||||||||
| Basic | $ | ( | ) | ( | ) | |||||||||||
| Diluted | $ | ( | ) | ( | ) | |||||||||||
| Weighted average basic & diluted shares outstanding: | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
QDM INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
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, 2022 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance December 31, 2022 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||
| Balance September 30, 2023 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 (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, 2022 | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Investment from stockholder | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2022 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||
| Balance March 31, 2023 | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 (Unaudited) | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
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, 2023 AND 2022
| December 31, 2023 | December 31, 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Gain from disposition of subsidiaries | ( | ) | ||||||
| Non-cash lease expenses | ||||||||
| Changes in working capital: | ||||||||
| Accounts receivable & other receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Long-term prepaid expenses | ( | ) | ||||||
| Accounts payable & accrued liabilities | ||||||||
| Income tax payable | ||||||||
| Due to a related party | ( | ) | ||||||
| Net cash provided by (used in) 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: | ||||||||
| Proceeds borrowed from related parties | ||||||||
| Deferred costs related to equity financing | ( | ) | ||||||
| Contribution from stockholders | ||||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH | ||||||||
| CASH, BEGINNING OF PERIOD | $ | $ | ||||||
| CASH, END OF PERIOD | ||||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Non-cash offset of subscription receivable with 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, 2023 and 2022
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 also assists its customers with their investment through 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, QDM 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 stockholder, 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 acquisition 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.
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 its wholly-owned subsidiary, 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
5
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, 2023, and for the three and nine months ended December 31, 2023 and 2022. The results of operations for the three and nine months ended December 31, 2023 are not necessarily indicative of the operating results for the full year ending March 31, 2023 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, 2023, filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2023.
Use of Estimates
The preparation of the Company’s 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 the Company’s two subsidiaries, Lutter Global Limited and QDMI Software Group Limited, 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
| December
31, 2023 |
December
31, 2022 |
March
31, 2023 | ||||
| Year-end spot rate | EUR 1 = US$ |
EUR 1 = US$ |
EUR 1 = US$ | |||
| Average rate for the period | EUR 1 = US$ |
EUR 1 = US$ |
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, 2023, 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.
6
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.
Accounts Receivable
The Company’s receivables are initial recorded at fair value when billed and represent amounts owed by third-party customers. The carrying value of the Company’s receivables, net of the expected credit loss, represents their estimated net realizable value. The Company evaluates the expected credit loss of accounts receivable on a loss rate method based on historical information adjusted for current conditions and future estimated economic performance.
The Company historically did not have bad debts in accounts receivable. There were no bad debt expenses for the three and nine months ended December 31, 2023 and 2022 and there was no provision of expected credit loss as of December 31, 2023 and March 31, 2023.
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 primarily generates its income through commissions paid by insurance companies, typically based on a percentage of the premium paid by the insured. Commissions generally vary based on the type and term of insurance products, as well as the particular underwriting insurance carrier, and can be shared with other insurance agent or broker partners.
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.
7
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 period 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, 2023.
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, 2023 and 2022.
8
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.
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
Stock-Based Compensation
The Company recognizes stock-based compensation in accordance with FASB ASC 718, Stock Compensation. ASC 718 requires that the cost resulting from all stock-based transactions be recorded in the financial statements. It establishes fair value as the measurement objective in accounting for stock-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for stock-based payment transactions with employees. ASC 718 also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in stock-based payment transactions.
9
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
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires an entity to utilize a new impairment model known as the current expected credit loss (CECL) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. ASU 2016-13 became effective for the Company beginning April 1, 2023. The adoption of the new standard does not have a material impact on the Company.
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.
3. Equity
Yeetah
is a registered insurance broker in Hong Kong and subject to certain Hong Kong insurance broker requirements regarding its share capital
and net assets. Pursuant to the requirements, a licensed insurance broker must at all times maintain a paid-up share capital of not less
than US$
There were no stock transactions, including preferred stock, common stock and treasury stock, during the three and nine months ended December 31, 2023 and 2022.
Additional paid-in-capital
On
July 22, 2022, Huihe Zheng invested additional share capital of $
10
4. Related Party Transaction
| Name of related parties | Relationship with the Company | |
| Siu Ping Lo | ||
| Huihe Zheng | ||
| YeeTah Financial Group Co., Ltd. (“YeeTah Financial”) | ||
| Ouya Properties Group Ltd. (“OPG”) |
Related Party Transactions
| (i) | During the three and nine months ended December 31, 2022, YeeTah Financial charged Yeetah US$ | |
| (ii) | During the three and nine months ended December 31, 2023, Huihe Zheng
advanced $ | |
| (iii) | During the three and nine months ended December 31, 2023, OPG advanced and (2022: US$ |
11
Due to Related Party Balance
| December 31, 2023 | March 31, 2023 | |||||||
| US$ | US$ | |||||||
| Huihe Zheng | ||||||||
| OPG | ||||||||
| YeeTah Financial | ||||||||
| Total | ||||||||
The due to related party balance is unsecured, interest-free and due on demand.
Subscription Receivable Due from a Stockholder
| December 31, 2023 | March 31, 2023 | |||||||
| US$ | US$ | |||||||
| Huihe Zheng | — | |||||||
| Total | — | |||||||
The due from stockholder balances represent the purchase price for shares of QDM BVI to be paid by Mr. Huihe Zheng. The due from a stockholder balance as of March 31, 2023 was unsecured, interest-free and due on demand. The subscription receivable from Mr. Huihe Zheng has been offset with the balance that the Company owed to him.
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 the Cyprus, the Company’s Cyprus subsidiary is subject to a standard income tax rate of
12
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 measures the unrecognized benefits associated with the tax positions. As of December 31, 2023, 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, 2023 and 2022, the operating lease expense recognized was $
During
the nine months ended December 31, 2023 and 2022, the operating lease expense recognized was $
| 2022 Office Lease | 2023 Office Lease | Total | ||||||||||
| 2024 | $ | $ | $ | |||||||||
| 2025 | ||||||||||||
| 2026 and after | ||||||||||||
| Total future minimum lease payments | $ | $ | $ | |||||||||
| Less: imputed interest | ( | ) | ( | ) | ( | ) | ||||||
| Total operating lease liability | $ | $ | $ | |||||||||
| Less: operating lease liability - current | ||||||||||||
| Total operating lease liability – non current | $ | $ | $ | |||||||||
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 our business, financial position, cash flows or results of operations taken as a whole. As of December 31, 2023, 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, 2023 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.
13
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. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Report, and other factors that we may not know.
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 stockholder 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 a newly designated Series C Preferred Stock, with each 30 shares 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 primarily markets and sells 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 a MPF intermediary, Yeetah also assists its customers with their investment through the MPF and the ORSO in Hong Kong, both of which are retirement protection schemes set up for employees. Following the closing of the transaction, we have assumed the business operations of QDM BVI and its subsidiaries.
On November 3, 2021, the Company acquired 100% of the issued and outstanding shares of QDMS, a company incorporated on February 6, 2020 in Cyprus. The Company acquired QDMS through an intermediary holding company, LGL, which was incorporated on July 29, 2021 in the BVI. Before the acquisition, Huihe Zheng was the sole shareholder of QDMS. As part of the acquisition, Mr. Zheng sold all the shares of QDMS to LGL for a consideration of EUR5,000 in November 2021 and at the same time the sole shareholder of LGL, Mengting Xu, transferred all her shares in LGL to the Company for a consideration of US$1.00. As a result, the Company acquired 100% ownership of LGL, which, in turn, owns 100% of QDMS. QDMS planned to engage in the research and development of customer relationship management (“CRM”) software as a service (“SaaS”), with a business model derived from “customer-centered” CRM concept to improve enterprise-customers relationship. In October 2023, the Company sold QDMS to Mr. Huihe Zheng for no consideration following its decision not to pursue its plan to provide CRM SaaS Services.
In March 2023, the Company consummated a closing of a public offering of its common stock, par value $0.0001 per share (the “2023 Offering”), in which the Company issued and sold an aggregate of 28,910,400 shares of its common stock at a price of $0.081 per share to certain investors, generating gross proceeds to the Company of $2,339,937.
Impact of COVID-19
In 2019, an outbreak of a novel strain of the coronavirus, COVID-19, was identified in China and has subsequently been recognized as a pandemic by the World Health Organization. The COVID-19 pandemic has severely restricted the level of economic activity around the world. In response to this pandemic, the governments of many countries, states, cities and other geographic regions, including Hong Kong, have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes.
14
During the COVID-19 pandemic, insurance brokers in Hong Kong have been greatly affected by the implementation of travel restrictions and social distancing measures. These restrictions and measures have resulted in a significant decrease in new business for insurance brokers, such as Yeetah, that rely on in-person consultations and storefronts for customer acquisition.
Customers from mainland China contributed to a large part of Yeetah’s commissions. Regulations require their physical presence in Hong Kong to complete the policy contract. However, due to the political turmoil and travel restrictions related to the COVID-19 epidemic, mainland Chinese customers dropped sharply. As a result, Yeetah’s revenue from commissions on new business decreased significantly during the pandemic. Yeetah’s commissions from renewal premiums were materially affected since the mainland Chinese customers were late in making the renewal payments due to inability to visit Hong Kong to make the payments. Most of Yeetah’s mainland customers do not have Hong Kong bank account and used to pay their premiums through credit card or in cash in person.
In early 2023, Hong Kong fully reopened its borders with mainland China. With the lifting of travel restriction, customers from mainland China can travel to Hong Kong again to meet with insurance brokers. As a result, the Company’s revenue significantly increased for the three and nine months ended December 31, 2023 compared to the same periods of 2022. Refer to “Results of Operations” below for details.
In May 2023, the World Health Organization declared an end to the Covid-19 as a public health emergency.
Results of Operations
The following table presents an overview of the results of operations for the three and nine months ended December 31, 2023 and 2022:
| For The Three Months Ended | For The Three Months Ended | For The Nine Months Ended | For The Nine Months Ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | |||||||||||||
| Revenue | $ | 1,009,716 | 24,057 | $ | 5,446,729 | 47,020 | ||||||||||
| Cost of sales | 606,779 | 16,508 | 3,366,496 | 39,471 | ||||||||||||
| Gross profit | 402,937 | 7,549 | 2,080,233 | 7,549 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General & administrative expenses | 200,271 | 76,875 | 478,838 | 248,322 | ||||||||||||
| Total operating expenses | 200,271 | 76,875 | 478,838 | 248,322 | ||||||||||||
| Income (loss) from operations | 202,666 | (69,326 | ) | 1,601,395 | (240,773 | ) | ||||||||||
| Total other income | 35,506 | 252 | 68,026 | 2,278 | ||||||||||||
| Current income tax expenses | 46,033 | — | 266,028 | — | ||||||||||||
| Net income (loss) | $ | 192,139 | $ | (69,074 | ) | 1,403,393 | (238,495 | ) | ||||||||
Three Months Ended December 31, 2023 and 2022
Revenue
Revenue increased by approximately $986,000, or 4,097.2%, for the three months ended December 31, 2023 as compared to the same period of 2022. The increases were mainly due to lifting of COVID-19 travel restrictions and quarantine measures in early 2023 and mainland Chinese customers can travel to Hong Kong again. Yeetah’s revenue from commissions on new business therefore increased significantly during the three and nine months ended December 31, 2023 compared to the same period of 2022.
15
Cost of sales
Cost of sales increased by approximately $590,000, or 3,575.7%, for the three months ended December 31, 2023 as compared to the same period of 2022. The increase was due to the significant increase in revenue. The gross profit margin increased by approximately 8.5% for the three months ended December 31, 2023, which was primarily due to the Company starting to generate revenue from first year insurance premiums which have higher gross profit margin than the recurring commissions since December 2022.
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.
General and administrative expenses increased by approximately $123,000, or 160.5%, for the three months ended December 31, 2023 as compared to the same period of 2022. The change is primarily due to the fact that there were more rent expenses in relation to the 2023 Office Lease entered in April 2023 and more employees were hired due to business expansion.
Net income (loss)
As a result of the factors described above, net income for the three months ended December 31, 2023 increased by approximately $261,000, or 378.2%, as compared to the same period of 2022, which incurred a net loss of approximately $69,000.
Nine Months Ended December 31, 2023 and 2022
Revenue
Revenue increased by approximately $5.4 million or 11,483.9% for the nine months ended December 31, 2023 as compared to the same period of 2022. The increases were mainly due to lifting of COVID-19 travel restrictions and quarantine measures in early 2023 and mainland Chinese customers can travel to Hong Kong again. Yeetah’s revenue from commissions on new business therefore increased significantly during the three and nine months ended December 31, 2023 compared to the same period of 2022.
Cost of sales
The amounts increased by approximately $3.3 million, or 8,429.0%, for the nine months ended December 31, 2023 as compared to the same period of 2022. The increase was due to the significant increases in revenue. The gross profit margin increased by approximately 22.1% for the nine months ended December 31, 2023, which primarily due to the Company starting to generate revenue from first year insurance premiums which have higher gross profit margins than the recurring one since December 2022.
General and administrative expenses
General and administrative expenses generally are fixed and consist primarily of employee salaries, office rents, insurance costs, general office operating expenses (e.g., utilities, repairs and maintenance) and professional fees.
General and administrative expenses increased by approximately $231,000, or 92.8%, for the nine months ended December 31, 2023 as compared to the same period of 2022. The change is primarily due to the fact that there were more rent expenses in relation to the 2023 Office Lease entered in April 2023 and more employees were hired due to business expansion.
Net income (loss)
As a result of the factors described above, net income for the nine months ended December 31, 2023 increased by approximately $1.6 million or 688.4% as compared to net loss of approximately $238,000 for the same period of 2022a.
Foreign Currency Translation
The Company’s reporting currency is the United States dollar (“US$”). The Company’s operations are principally conducted in Hong Kong where the Hong Kong dollar is the functional currency. The functional currency of the Company’s two subsidiaries, Lutter Global Limited and QDMI Software Group Limited, 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, 2023 and the year ended March 31, 2023.
16
The exchanges rates used for translation from Euro to US$ are as follows:
| December 31, 2023 | December 31, 2022 | March 31, 2023 | ||||
| Period-end spot rate | EUR1= US$1.1062 | EUR1= US$1.0698 | EUR1= US$1.0872 | |||
| Average rate for the year | EUR1= US$1.0845 | EUR1= US$1.0310 | EUR1= US$1.0414 |
Liquidity and Capital Resources
We have financed our operations primarily through cash generated by operating activities, equity financings and advances from our principal stockholder. 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 stockholder.
Yeetah is a registered insurance broker in Hong Kong and subject to certain Hong Kong insurance broker requirements regarding its share capital and net assets. Pursuant to the requirements, a licensed insurance broker 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 certain transitional arrangements, pursuant which, the Company 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.
There have been no cash and any asset transactions between us and our subsidiaries since the Share Exchange. As of December 31, 2023 and March 31, 2023, we had $6,322,854 and $2,717,745, respectively, in cash and cash equivalents, which primarily consisted of cash deposited in banks.
| Nine Months Ended December 31, 2023 | Nine Months Ended December 31, 2022 | |||||||
| Net cash provided by (used in) operating activities | $ | 3,438,000 | $ | (227,517 | ) | |||
| Net cash used in investing activities | (100,241 | ) | (14,628 | ) | ||||
| Net cash provided by financing activities | 267,557 | 293,316 | ||||||
| Effect of Exchange rate changes on cash | (207 | ) | 311 | |||||
| Net increase in cash, cash equivalents | 3,605,109 | 51,482 | ||||||
| Cash and cash equivalents at beginning of period | 2,717,745 | 69,658 | ||||||
| Cash and cash equivalents at end of period | $ | 6,322,854 | $ | 121,140 | ||||
Our working capital requirements mainly comprise of commissions paid to technical representatives and referral fees, operating lease payments and employee salaries. Historically, our capital requirements were generally met by cash generated from our operations, equity financings and funding from our principal stockholder. Although historically we were successful in obtaining equity financings through the sales of our securities and obtaining loans from our principal stockholder, the availability of such financings when required is dependent on many factors beyond our control.
17
Operating Activities:
Net cash generated from operating activities was approximately $3.4 million for the nine months ended December 31, 2023, compared to net cash used in operating activities of approximately $228,000 for 2022, representing an increase of approximately $3.7 million in the net cash inflow in operating activities. The increase in net cash inflow in operating activities was primarily due to the increase of net income of approximately $1.6 million in the nine months ended December 31, 2023 as compared to the same period of 2022 and the following major working capital changes:
| (1) | Change in accounts receivable resulted in an approximately $217,000 cash inflow for the nine months ended December 31, 2023 compared to an approximately $10,000 cash outflow for the same period of 2022, which led to an approximately $227,000 increase in net cash inflow in operating activities. | |
| (2) | Change in accounts payable and accrued liabilities resulted in an approximately $1.7 million cash inflow for the nine months ended December 31, 2023 compared to an approximately $1,000 cash inflow for the same period of 2022, which led to an approximately $1.7 million increase in net cash inflow from operating activities. | |
| (3) | Change in short-term and long-term prepaid expenses resulted in an approximately $111,000 cash outflow for the nine months ended December 31, 2023 compared to an approximately $11,000 cash inflow for the same period of 2022, which led to an approximately $122,000 increase in net cash outflow from operating activities.
| |
| (4) | Change in income tax payable resulted in an approximately $266,000 cash inflow for the nine months ended December 31, 2023 compared to $nil cash inflow for the same period of 2022, which led to an approximately $266,000 increase in net cash inflow from operating activities. |
Investing Activities:
Net cash used in investing activities was approximately $100,000 for the nine months ended December 31, 2023, which was attributable to the net results of: (i) acquisitions of fixed assets of approximately $93,000; (ii) disposition of subsidiaries of approximately $8,000.
Net cash used in investing activities was approximately $15,000 for the nine months ended December 31, 2022, which was solely attributable to acquisitions of fixed assets.
Financing Activities:
Net cash generated from financing activities was approximately $268,000 for the nine months ended December 31, 2023, which was fully attributable to stockholder advances to the Company during the period.
Net cash generated from financing activities was approximately $293,000 for the nine months ended December 31, 2022, which was attributable to the net results of: (i) related-party advances of approximately $180,000; (ii) stockholder contribution of $150,000; (iii) prepayment of $37,000 issuance costs for future equity financing.
Material Commitments
We have no material commitments for the next twelve months. We will, however, require additional capital to meet our liquidity needs.
We had two office lease agreements and our lease commitments as of December 31, 2023 are summarized as follows:
Operating lease
| 2024 | $ | 32,729 | ||
| 2025 | 123,888 | |||
| 2026 and after | 95,186 | |||
| Total future minimum lease payments | $ | 251,803 | ||
| Less: imputed interest | (24,860 | ) | ||
| Total operating lease liability | $ | 226,943 | ||
| Less: operating lease liability - current | 114,185 | |||
| Total operating lease liability – non current | $ | 112,758 |
18
Critical Accounting Policies and 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, 2023, 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 December 31, 2023 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 will devote resources to remediate these 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
19
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.
We are a smaller reporting company and accordingly we are not required to provide information required by this Item.
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.
The following exhibits are filed as part of, or incorporated by reference into, this Report:
| * | Filed herewith. |
| ** | Furnished herewith. |
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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, 2023 | By: | /s/ Huihe Zheng |
| Name: | Huihe Zheng | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: February 14, 2023 | By: | /s/ Tim Shannon |
| Name: | Tim Shannon | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) |
21
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)) 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, including 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; and |
| 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 registrant’s 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. |
Dated: February 14, 2024
| By: | /s/ Huihe Zheng | |
| Name: | Huihe Zheng | |
| Title: |
President and 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 THE
SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Tim Shannon, 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)) 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, including its consolidated subsidiaries, is made known to me 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; and |
| 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 registrant’s 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. |
Dated: February 14, 2024
| By: | /s/ Tim Shannon | |
| Tim Shannon | ||
| Chief Financial Officer | ||
| (Principal Accounting and Financial 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 on Form 10-Q of QDM International Inc. (the “Company”) for the quarter ended December 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), Huihe Zheng, as President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Sections 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. |
Dated: February 14, 2024
| By: | /s/ Huihe Zheng | |
| Name: | Huihe Zheng | |
| Title: |
President and Chief Executive Officer (Principal Executive Officer) |
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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 on Form 10-Q of QDM International Inc. (the “Company”) for the quarter ended December 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), Tim Shannon, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Sections 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. |
Dated: February 14, 2024
| By: | /s/ Tim Shannon | |
| Name: | Tim Shannon | |
| Title: |
Chief Financial Officer (Principal Accounting and Financial Officer) |
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.