QDM INTERNATIONAL INC. The following discussion should be read in conjunction with our interim financial statements, including the notes thereto, appearing elsewhere in this Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward- looking statements. Factors that could cause or contribute to such differences include but are not limited to those discussed below and elsewhere in this Report. Our interim financial statements are stated inUnited States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. 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. OnOctober 21, 2020 , we entered into a share exchange agreement (the "Share Exchange Agreement") withQDM Holdings Limited , a BVI company ("QDM BVI"), and Huihe Zheng, the sole shareholder of QDM BVI (the "QDM BVI Shareholder"), who is our 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 900,000 shares of a newly designated Series C Convertible Preferred Stock, par value$0.0001 per share (the "Series C Preferred Shares"), with each Series C Preferred Share initially being convertible into 11 shares of our common stock, par value$0.0001 per share, subject to certain adjustments and limitations (the "Share Exchange"). The Share Exchange closed onOctober 21, 2020 . As a result of the consummation of the Share Exchange, we acquired all the issued and outstanding capital stock of QDM BVI and its indirect subsidiary,YeeTah Insurance Consultant Limited , aHong Kong corporation ("YeeTah"), an insurance brokerage company primarily engaged in the sales and distribution of insurance products inHong Kong . Following the closing of the transaction, we have assumed the business operations of QDM BVI and its subsidiaries. YeeTah is a licensed insurance brokerage company inHong Kong that 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 aMandatory Provident Fund ("MPF") Intermediary, YeeTah assists customers with their investment through the MPF and the Occupational Retirement Schemes Ordinance schemes ("ORSO") inHong Kong , both of which are retirement protection schemes set up for employees.
17 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. 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 production faced an immediate slowdown. In addition,Hong Kong has suspended mainland tourists' free travel and requested those who travel from the mainland and enterHong Kong undergo quarantine for 14 days. 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. Protests inHong Kong Since early 2019, a number of political protests and conflicts have occurred inHong Kong in connection with proposed legislation that would allow local authorities to detain and extradite people who are wanted in territories thatHong Kong does not have extradition agreements with, including mainlandChina andTaiwan . The economy ofHong Kong has been negatively impacted, including the retail market, property market, stock market, and tourism, from such protests. Under the Basic Law of theHong Kong Special Administrative Region ofthe People's Republic of China ,Hong Kong is exclusively in charge of its internal affairs and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory,Hong Kong maintains and develops relations with foreign states and regions. We cannot assure you that theHong Kong protests will not affectHong Kong's status as aSpecial Administrative Region ofthe People's Republic of China and thereby affecting its current relations with foreign states and regions. Our revenue is susceptible to the ongoingHong Kong protests as well as any other incidents or factors which affect the stability of the social, economic and political conditions inHong Kong . As a result of theHong Kong protests, we experienced a drop in new customers from mainlandChina beginning inJune 2019 , which has impacted our revenue for period fromJune 2019 to the quarter endedJune 30, 2020 .
It is unclear whether there will be other political or social unrest in the near future or that there will not be other events that could lead to the disruption of the economic, political and social conditions inHong Kong . If such events persist for a prolonged period of time or that the economic, political and social conditions inHong Kong are to be disrupted, our overall business and results of operations may be adversely affected. 18 Results of Operations
Three Months Ended
The following table presents an overview of the results of operations for the
three months ended
For The Three For The Three
Months Ended Months Ended
December 31, December 31,
2020 2019
Revenue $ 33,455 $ 54,773
Cost of sales 33,133 41,202
Gross profit 322 13,571
Operating costs and expenses:General and administrative expenses 87,673 290,442 Total operating costs and expenses
87,673 290,442 Loss from operations (87,351 ) (276,871 ) Total other income 3,559 29,606 Net loss$ (83,791 ) $ (247,265 ) Revenue Revenue decreased by approximately$21,000 or 38.9% for the three months endedDecember 31, 2020 as compared to the same period of 2019. The decrease was mainly due to the economic impacts resulted from the ongoing COVID -19 epidemic inHong Kong and mainlandChina during fiscal 2020. Cost of sales
Cost of sales represented commissions paid to individuals or companies who referred customers to the Company. The amount decreased by approximately$8,000 or 19.6% for the three months endedDecember 31, 2020 as compared to the same period of 2019. The decrease was due to the decrease of revenue. Gross margin Gross margin was 1.0% for the three months endedDecember 31, 2020 as compared to the gross margin of 24.8% of the same period of last year. The lower gross margin in 2020 compared to 2019 was because our commission costs for the three months endedDecember 31, 2019 were lower. During the three months endedDecember 31, 2020 , the Company increased its commissions for renewals for clients referred byYeeTah Financial Group Co., Ltd. from the previous year.
General and administrative expenses
General and administrative expenses ("G&A") expenses consist primarily of
stock-based payments, employee salaries, office rent, insurance costs, general
office operating expenses (e.g. utilities, repairs and maintenance) and
professional fees. G&A expenses decreased by approximately $203,000 or 69.8% for
the three months ended December 31, 2020 as compared to the same period of 2019.
The decrease was primarily due to a decrease of approximately $223,000 in
stock-based compensation to officers and directors due to less stock-based
compensation was awarded in 2020. The $223,000 decrease resulted from less
stock-based compensation was offset by a slight net increase in other G&A
expenses during 2020.
Other income
Other income decreased by approximately$26,000 or 88% for the three months endedDecember 31, 2020 as compared to the same period of 2019. The decrease was due to termination of certain management services YeeTah provided to a related party inDecember 2019 . Net loss As a result of the factors described above, net loss for the three months endedDecember 31, 2020 decreased by approximately$163,000 or 66.1% as compared
to the same period of 2019. 19
Nine Months Ended
The following table presents an overview of the results of operations for the
nine months ended
For The Nine For The Nine
Months Ended Months Ended
December 31, December 31,
2020 2019
Revenue $ 100,355 $ 177,954
Cost of sales 99,130 166,412
Gross profit 1,225 11,542
Operating costs and expenses:
General and administrative expenses 230,122 493,600
Total operating costs and expenses 230,122 493,600
Loss from operations (228,897 ) (482,058 )
Total other income
6,849 85,295 Net loss$ (222,048 ) $ (396,763 ) Revenue
Revenue decreased by approximately
Cost of sales Cost of sales represented commissions paid to individuals or companies who referred customers to the Company. The amount decreased by approximately$67,000 or 40.4% for the nine months endedDecember 31, 2020 as compared to the same period of 2019. The decrease was in line with the decrease of revenue. Gross margin Gross margin was 1.2% for the nine months endedDecember 31, 2020 as compared to the 6.5% for the same period of last year. The lower gross margin in 2020 compared to 2019 was because our commission costs for the nine months endedDecember 31, 2019 were lower. During the nine months endedDecember 31, 2020 , the Company increased its commissions for renewals for clients referred byYeeTah Financial Group Co., Ltd. from the previous year.
General and administrative expenses
G&A expenses consist primarily of stock-based payments, employee salaries, office rents, insurance costs, general office operating expenses (e.g. utilities, repairs and maintenance) and professional fees. G&A expenses decreased by approximately$263,000 or 53.4% for the nine months endedDecember 31, 2020 as compared to the same period of 2019. The decrease was primarily due to a decrease of approximately$289,000 in stock-based compensation to officers and directors due to less stock-based compensation was awarded in 2020. The$289,000 decrease resulted from less stock-based compensation was offset by a slight net increase in other G&A expenses during 2020. The$289,000 decrease resulted from less stock-based compensation was offset by a slight net increase in other G&A expenses during 2020. 20 Other income
Other income decreased by approximately$78,000 or 92% for the nine months endedDecember 31, 2020 as compared to the same period of 2019. The decrease was due to termination of certain management services YeeTah provided to a related
party inDecember 2019 . Net loss As a result of the factors described above, net loss for the nine months endedDecember 31, 2020 decreased by approximately$175,000 or 44% as compared to
the same period of 2019.
Foreign Currency Translation
The Company's reporting currency is
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange differences are reported in the statements of operations
and comprehensive income. The exchanges rate used for translation fromHong Kong dollar to US$ was 7.8000, a pegged rate determined by the linked exchange rate system inHong Kong . This pegged rate was used to translate the Company's balance sheets, income statement items and cash flow items for both the three and nine months ended December
31, 2020 and 2019. 21
Liquidity and Capital Resources
To date, we have financed our operations primarily through cash generated by operating activities, equity financings and advances from our principal stockholder. As ofDecember 31, 2020 , andMarch 31, 2020 , we had$70,930 and$62,780 , respectively, in cash and cash equivalents, which primarily consisted of cash deposited in banks.
Nine Months Ended
December 31 ,December 31, 2020 2019
Net cash used in operating activities$ (226,493 ) $ (97,418 ) Net cash provided by (used in) financing activities 234,643 (61,998 ) Net increase (decrease) in cash, cash equivalents 8,150 (159,416 ) Cash and cash equivalents at beginning of period 62,780
177,556
Cash and cash equivalents at end of year$ 70,930
$ 18,140 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. In light of impact on our operations from the civilian protests inHong Kong and the COVID-19 pandemic, 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$226,000 for the nine months endedDecember 31, 2020 , compared to net cash used in operating activities of approximately$97,000 for 2019, represented an increase of approximately$129,000 in the net cash outflow in operating activities. The increase in net cash used in operating activities was primarily due to a decrease of net loss of$175,000 in the nine months endedDecember 31, 2020 as compared to the same period of 2019. In addition, the decrease was also due to following working capital changes:
(1) Change in accounts receivable resulted in an approximately
inflow for the nine months ended December 31, 2020 , while for the nine
months ended December 31, 2019 , change in accounts receivable was an
approximately $41,000 cash inflow, which led to an approximately
$37,000 decrease in net cash inflow from operating activities.
(2) Change in prepaid expenses resulted in an approximately $18,000 cash
outflow for the nine months ended December 31, 2020 , while for the nine
months ended December 31, 2019 , change in prepaid expenses resulted in
a cash outflow of approximately $1,000 , which led to an approximately
$17,000 increase in net cash outflow from operating activities. (3) Change in accounts payable and accrued liabilities resulted in an approximately$13,000 cash outflow for the nine months ended
December
31, 2020, while for the nine months ended December 31, 2019 , change in
accounts payable and accrued liabilities generated a cash inflow of
approximately $27,000 , which led to an approximately $39,000 increase
in net cash outflow from operating activities.
(4) Change in non-cash operating items resulted in an approximately
cash inflow for 2020, while for 2019, change in non-cash operating
items resulted in a cash inflow of approximately $236,000 , which led to
an approximately $215,000 decrease in net cash inflow from operating
activities.
22
Financing Activities:
Net cash generated from financing activities was approximately$235,000 for the nine months endedDecember 31, 2020 , which was attributable to the net results of: i) stockholder advances of approximately$499,000 ; ii) cash used in reverse acquisition of approximately$244,000 ; iii) cash of approximately$30,000 incurred for future equity issuance; iv) shareholder capital contributions of approximately$20,000 ; and v) repayment of shareholder advances of approximately$10,000 . Net cash used for financing activities was approximately$62,000 for the nine months endedDecember 31, 2019 , which was attributable to the net results of: i) stockholder advances of approximately$59,000 ; ii) cash used in repurchase of common stock of approximately$14,000 ; and iii) repayment of stockholder advances of approximately$107,000 . Material Commitments
The Company had one office lease agreement and its lease commitments as of
Payments due by period
Less than
Total 1 year 1-3 years
Over 3 years
Operating lease obligations
-
Critical Accounting Policies
Please refer to the notes to the Company's consolidated financial statements included in this Report for details of critical accounting policies. There were no areas requiring significant management judgments and estimates for the periods covered by this Report.
Off-balance Sheet Commitments and Arrangements
As of
23
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