QDM INTERNATIONAL INC. 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. Following the change in control inMarch 2020 , we planned to conduct insurance brokerage business inHong Kong , through either formation or acquisition of an existing insurance brokerage business. To implement our business plan, during 2020, we engaged professionals (legal counsel and accountants) to evaluate the optimal corporate structure for our new business and conduct due diligence
on a potential target.
OnOctober 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 toMr. Zheng 30,000 shares (900,000 shares before the Reverse Split) of a newly designated 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 onOctober 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
engaged in the sales and distribution of insurance products in
OnNovember 3, 2021 , the Company acquired 100% of the issued and outstanding shares of QDMS, a company incorporated onFebruary 6, 2020 inCyprus . The Company acquired QDMS through an intermediary holding company, LGL, which was incorporated onJuly 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 ofEUR5,000 inNovember 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 ofUSD$1.00 . As a result, the Company acquired a 100% ownership of LGL, which, in turn, owns 100% of QDMS. QDMS plans 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. We plan to market QDMS' SaaS services to our network of banks, securities companies, insurance companies and other financial services providers inHong Kong andChina . Impact of COVID-19 Impact of COVID-19
An outbreak of a novel strain of the coronavirus, COVID-19, was identified inChina and has subsequently been recognized as a pandemic by theWorld 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, includingHong 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.
15 With social distancing measures having been implemented to curtail the spread of COVID-19, insurance brokers inHong Kong , such as YeeTah, which relied primarily on storefront and in-person consultations for new business faced an immediate slowdown. In addition,Hong Kong has suspended mainland tourists' free travel and requested thosewho travel from the mainland and enterHong Kong undergo quarantine measures, although onSeptember 26, 2022 , a new quarantine policy for overseas visitors arriving inHong Kong lifted compulsory quarantine requirement and required a combination of COVID-19 tests, three days medical surveillance and four days self-health monitoring. Customers from mainlandChina contributed to a large part of YeeTah's commissions. Regulations require their physical presence inHong Kong to complete the policy contract. However, due to the political turmoil and travel restrictions related to the COVID-19 epidemic, mainland Chinese customers have dropped sharply. As a result, YeeTah's revenue from commissions on new business has decreased significantly. YeeTah's commissions from renewal premiums have also been materially affected since the mainland Chinese customers have been late in making the renewal payments due to inability to visitHong Kong to make the payments. Most of YeeTah's mainland customers do not haveHong Kong bank account and used to pay their premiums through credit card or in cash in person. Results of Operations
Three and Six Months Ended
The following table presents an overview of the results of operations for the
three and six months ended
For The Three For The Three For The Six For The Six
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2022 2021 2022 2021
Revenue $ 13,181 $ 18,608 $ 22,963 $ 30,218
Cost of sales 13,181 18,608 22,963 30,218
Gross profit - - - -
Operating costs and expenses:
General and administrative expenses 74,822 75,580 171,447 183,703
Total operating costs and expenses 74,822 75,580 171,447 183,703
Loss from operations (74,822 ) (75,580 ) (171,447 ) (183,703 )
Total other income (expenses) 1,557 (64 )
2,026 (960 )
Net loss $ (73,265 ) $ (75,644 ) $ (169,421 ) $ (184,663 )
Revenue
Revenue decreased by approximately $5,400 or 29.2% and $7,300 or 24.0%
respectively for the three and six months ended September 30, 2022 as compared
to the same periods of 2021. The decreases were mainly due to the decreases in
the number of customers, primarily PRC mainland customers, resulting from the
prolonged COVID-19 travel restriction and quarantine measures imposed by PRC and
Hong Kong governments.
Cost of sales
The amounts decreased by approximately$5,400 or 29.2% and$7,300 or 24.0% respectively for the three and six months endedSeptember 30, 2022 as compared to the same periods of 2021. The decreases were in line with the decreases
of revenue. 16
General and administrative expenses
General and administrative (G&A) expenses 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 decreased by approximately$700 or 1% for the three months endedSeptember 30, 2022 as compared to the same period of 2021. The change is immaterial and consistent with the activity of the Company in 2022 compared to 2021 as there was no significant change in revenue and G&A expenses are generally fixed and routine costs. General and administrative expenses decreased by approximately$12,000 or 6.7% for the six months endedSeptember 30, 2022 as compared to the same period of 2021. The change is primarily due to the fact that there were more professional expenses in relation to amendments to the Company's Annual Report on Form 10-K in 2021. Net loss As a result of the factors described above, net loss for the three months endedSeptember 30, 2022 decreased by approximately$2,000 or 3.1% as compared to
the same period of 2021.
As a result of the factors described above, net loss for the three and six
months ended
Foreign Currency Translation The Company's reporting currency isthe United States dollar ("US$"). The Company's operations are principally conducted inHong Kong where theHong Kong dollar is the functional currency. The functional currency of the Company's two subsidiaries,Lutter Global Limited andQDMI 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 fromHong Kong dollar to US$ was 7.8000, a pegged rate determined by the linked exchange rate system inHong Kong . This pegged rate was used to translate Company's balance sheets, income statement items and cash flow items for both the three and six months ended September
30, 2022 and 2021.
The exchanges rates used for translation from Euro to US$ are as follows:
September 30, 2022 September 30, 2021
Period-end spot rate EUR1 = US$0.9783 EUR1 = US$1.1577
Average rate EUR1 = US$1.0353 EUR1 = US$1.1917
Liquidity and Capital Resources
We have financed our operations primarily through cash generated by operating activities, equity financings and advances from our principal stockholder. QDM is a holding company and conducts substantially all of its operations through YeeTah, which is its only entity that has cash inflows and outflows. Our expenses are paid directly either by YeeTah or our principal stockholder.
There have been no cash and any asset transactions between us and our
subsidiaries since the Share Exchange. As of
17
September 30 , September 30,
2022 2021Net cash used in operating activities$ (182,987 ) $ (193,854 ) Net cash used in investing activities (14,628 )
-
Net cash provided by financing activities 282,843
187,491
Effect of Exchange rate changes on cash (506 )
-
Net increase (decrease) in cash, cash equivalents 84,722 (6,363 ) Cash and cash equivalents at beginning of period 69,658
35,605
Cash and cash equivalents at end of period
29,242 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. In light of impact on our operations of the COVID-19 epidemic inChina andHong Kong , we undertook certain cost cutting measures, including but not limited to, relocating to a new office with a much lower rent and reducing the number of employees. Discretionary expenditures are also curtailed or reduced to save costs. In addition to adjusting our operating expenditures, we will continue to seek opportunities of equity financings and financial supports 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, such as the unforeseeable impact from COVID-19 and the recovery of theHong Kong economy following the civilian protests. Operating Activities: Net cash used in operating activities was approximately$183,000 for the six months endedSeptember 30, 2022 , compared to net cash used in operating activities of$194,000 for 2021, representing a decrease of approximately$11,000 in the net cash outflow in operating activities. The decrease in net cash used in operating activities was primarily due to a decrease of net loss of$15,000 in the six months endedSeptember 30, 2022 as compared to the same period of 2021 and the following major working capital changes: (1) Change in prepaid expenses resulted in an approximately$14,000 cash outflow for the six months endedSeptember 30, 2022 compared to an approximately$21,000 cash inflow for the same period of 2021, which led to an approximately$35,000 increase in net cash outflow from operating activities. (2) Change in accounts payable and accrued liabilities resulted in an approximately$7,000 cash outflow for the six months ended
September
30, 2022 compared to an approximately $14,000 cash inflow for the same
period of 2021, which led to an approximately $20,000 increase in net
cash outflow from operating activities.
(3) Change in due to a related party resulted in an approximately $4,000
cash inflow for the six months ended September 30, 2022 compared to an
approximately $41,000 cash outflow for the same period of 2021, which
led to an approximately $45,000 increase in net cash inflow from
operating activities.
(4) Change in accounts receivable resulted in an approximately $500 cash
inflow for the six months ended September 30, 2022 compared to an
approximately $3,300 cash outflow for the same period of 2021, which
led to an approximately $3,800 increase in net cash inflow from
operating activities.
Investing Activities:
Net cash used in investing activities was approximately $15,000 for the six
months ended September 30, 2022 , which was solely attributable to acquisitions
of fixed assets. There was no investing cash activities for the same periodof 2021. 18 Financing Activities:
Net cash generated from financing activities was approximately$283,000 for the six months endedSeptember 30, 2022 , which was attributable to the net results of: (i) related-party advances of approximately$167,000 ; (ii) stockholder contribution of$150,000 ; (iii) prepayment of$34,000 issuance costs for future equity financing.
Net cash generated from financing activities was approximately$187,000 for the six months endedSeptember 30, 2021 , which was attributable to the net results of: (i) related-party advances of approximately$211,000 ; (ii) share issuance proceeds of$200,500 ; (iii) repayment of related party of$200,500 and payment of$24,000 issuance costs for share issued in the period. Material Commitments
We have no material commitments for the next twelve months. We will, however, require additional capital to meet our liquidity needs.
We had one office lease agreement and our lease commitments as of
Operating lease 2023$ 21,086 2024 42,172 2025 35,143 Total future minimum lease payments$ 98,400 Less: imputed interest (5,596 ) Total operating lease liability$ 92,805
Less: operating lease liability - current 38,481
Total operating lease liability - non current
Critical Accounting Estimates
There were no areas requiring significant management judgments and estimates for the periods covered by this Report
Off-balance Sheet Commitments and Arrangements
As ofSeptember 30, 2022 , 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.
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