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 in United 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.
Following the change in control in March 2020, we planned to conduct insurance
brokerage business in Hong 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.
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 of 900,000 shares 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 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
engaged in the sales and distribution of insurance products in Hong Kong.
Following the closing of the transaction, we have assumed the business
operations of QDM BVI and its subsidiaries.
Impact of COVID-19 and Protests
Impact of COVID-19
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.
15
With social distancing measures having been implemented to curtail the spread of
COVID-19, insurance brokers in Hong 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 Hong Kong's current boarding requirements vary based on where the
traveler has visited in the past 14 or 21 days and whether the traveler is
vaccinated.
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 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 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.
Impact of Protests in Hong Kong
Since early 2019, a number of political protests and conflicts have occurred in
Hong Kong in connection with proposed legislation that would allow local
authorities to detain and extradite people who are wanted in territories that
Hong Kong does not have extradition agreements with, including mainland China
and Taiwan. On June 30, 2020, China's National People's Congress Standing
Committee passed a national security law for the Hong Kong Special
Administrative Region (HKSAR). Hong Kong's Chief Executive promulgated it in
Hong Kong later the same day. Among other things, it criminalizes separatism,
subversion, terrorism and foreign interference in Hong Kong. The economy of Hong
Kong has been negatively impacted, including the retail market, property market,
stock market, and tourism, from such protests.
Under the Basic Law of the Hong Kong Special Administrative Region of the
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 the Hong Kong protests will not affect Hong Kong's status as a
Special Administrative Region of the People's Republic of China and thereby
affecting its current relations with foreign states and regions.
Our revenue is susceptible to Hong Kong protests as well as any other incidents
or factors which affect the stability of the social, economic and political
conditions in Hong Kong. For example, as a result of the Hong Kong protests, we
experienced a drop in new customers from mainland China beginning in June 2019,
which impacted our revenue for the period from June 2019 to the quarter ended
June 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 in Hong Kong. If such events
persist for a prolonged period of time or that the economic, political and
social conditions in Hong Kong are to be disrupted, our overall business and
results of operations may be adversely affected.
16
Results of Operations
Three Months Ended June 30, 2021 and 2020
The following table presents an overview of the results of operations for the
three months ended June 30, 2021 and 2020:
For The Three Months For The Three Months
Ended Ended
June 30, June 30,
2021 2020
Revenue $ 11,610 $ 20,880
Cost of sales 11,610 19,578
Gross profit - 1,302
Operating costs and expenses:
General and administrative expenses 108,123 82,709
Total operating costs and expenses 108,123 82,709
Loss from operations (108,123 ) (81,407 )
Total other income 896 (3,444 )
Net loss $ (109,019 ) $ (77,963 )
Revenue
Revenue decreased by approximately $9,000 or 44.4% for the three months ended
June 30, 2021 as compared to the same period of 2020. The decrease was mainly
due to the decrease in the number of customers resulting from the prolonged
COVID-19 travel restriction imposed by Hong Kong government during three months
ended June 30, 2021.
Cost of sales
Cost of sales represented commissions paid to individuals or companies who
referred customers to us. The amount decreased by approximately $8,000 or 40.7%
for the three months ended June 30, 2021 as compared to the same period of 2020.
The decrease was in line with the decrease of revenue.
Gross margin
Gross margin was 0% for the three months ended June 30, 2021 as compared to the
6.2% for the same period of last year. The lower gross margin in 2021 compared
to 2020 was because our commission costs for the three months ended June 30,
2020 were lower. During the three months ended June 30, 2021, we increased our
commissions for renewals for clients referred by YeeTah Financial from the
previous year.
17
General and administrative expenses
General and administrative 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.
General and administrative expenses increased by approximately $25,000 or 30.7%
for the three months ended June 30, 2021 as compared to the same period of 2020.
The increase was primarily due to additional legal fees incurred in the three
months ended June 30, 2021 for the proposed reverse stock split.
Net loss
As a result of the factors described above, net loss for the three months ended
June 30, 2021 increased by approximately 31,000 or 39.8% as compared to the same
period of 2020.
Foreign Currency Translation
Our reporting currency is the United States dollar. Our operations are
principally conducted in Hong Kong where the Hong Kong dollar is the functional
currency.
Transactions denominated in other than the functional currencies are re-measured
into the functional currency of the entity at the exchange rates prevailing on
the transaction dates. Monetary assets and liabilities denominated in currencies
other than the applicable functional currencies are translated into the
functional currency at the prevailing rates of exchange at the balance date. The
resulting exchange differences are reported in the statements of operations and
comprehensive income.
The exchanges rate used for translation from Hong Kong dollar to US$ was 7.8000,
a pegged rate determined by the linked exchange rate system in Hong Kong. This
pegged rate was used to translate our balance sheets, income statement items and
cash flow items for both the three months ended June 30, 2021 and 2020.
Liquidity and Capital Resources
We have financed our operations primarily through cash generated by operating
activities, equity financings and advances from our principal stockholder. As of
June 30, 2021 and March 31, 2021, we had $30,389 and 35,605, respectively, in
cash and cash equivalents, which primarily consisted of cash deposited in banks.
June 30, June 30,
2021 2020
Net cash used in operating activities $ (101,521 ) $ (62,462 )
Net cash provided by (used in) financing activities 96,305 82,529
Net increase (decrease) in cash, cash equivalents (5,216 ) 20,067
Cash and cash equivalents at beginning of year
35,605 62,780
Cash and cash equivalents at end of year $ 30,389 $ 82,847
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Our working capital requirements mainly comprise of commissions paid to
technical representatives and referral fees, office administrative costs 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 in Hong Kong and the COVID-19 epidemic in China and Hong 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 the Hong Kong economy following the civilian
protests.
Operating Activities:
Net cash used in operating activities was approximately $102,000 for the three
months ended June 30, 2021, compared to net cash used in operating activities of
approximately $62,000 for 2020, representing an increase of approximately
$40,000 in the net cash outflow in operating activities. The increase in net
cash used in operating activities was primarily due to an increase of net loss
of $31,000 in the three months ended June 30, 2021 as compared to the same
period of 2020 and the following major working capital changes:
(1) Change in prepaid expenses resulted in an approximately $32,000 cash
inflow for the three months ended June 30, 2021, while for the same
period of 2020, change in prepaid expenses resulted in a cash outflow
of approximately $21,000, which led to an approximately $53,000
decrease in net cash outflow from operating activities.
(2) Change in accounts payable and accrued liabilities resulted in an
approximately $13,000 cash inflow for the three months ended June 30,
2021, while for the same period of 2020, change in accounts payable and
accrued liabilities generated a cash inflow of approximately $7,000,
which led to an approximately $6,000 increase in net cash inflow from
operating activities.
(3) Change in due to related parties resulted in an approximately $36,000
cash outflow for the three months ended June 30, 2021, while for the
same period of 2020, change in due to related parties generated a cash
inflow of approximately $27,000, which led to an approximately $63,000
increase in net cash outflow from operating activities.
Financing Activities:
Net cash generated from financing activities was approximately $96,000 for the
three months ended June 30, 2021, which was attributable to the net results of:
(i) stockholder advances of approximately $120,000; (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.
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Net cash generated from financing activities was approximately $83,000 for the
three months ended June 30, 2020, which was attributable to the net results of:
(i) stockholder advances of approximately $88,000; (ii) repayment of stockholder
advances of approximately $10,000; and (iii) capital contribution of $5,000 from
a shareholder.
Material Commitments
We have no material commitments for the next twelve months. We will, however,
require additional capital to meet our liquidity needs.
Critical Accounting Policies
Please refer to the notes to the Company's condensed 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 June 30, 2021, 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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