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. 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.
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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 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.
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Recent Regulatory Developments
We are a holding company incorporated in Florida with substantially all of our
operation conducted by the operating entity in Hong Kong. Although we conduct
limited administrative activities in our principal executive offices located in
China, we currently do not have or intend to set up any subsidiary or enter into
any contractual arrangements to establish a variable interest entity structure
with any entity in mainland China. Hong Kong is a special administrative region
of the PRC and the basic policies of the PRC regarding Hong Kong are reflected
in the Basic Law, namely, Hong Kong's constitutional document, which provides
Hong Kong with a high degree of autonomy and executive, legislative and
independent judicial powers, including that of final adjudication under the
principle of "one country, two systems". Accordingly, we believe the laws and
regulations of the PRC do not currently have any material impact on our
business, financial condition or results of operations. However, there is no
assurance that there will not be any changes in the economic, political and
legal environment in Hong Kong in the future. If there is significant change to
current political arrangements between mainland China and Hong Kong, companies
operated in Hong Kong may face similar regulatory risks as those operated in
PRC, including its ability to offer securities to investors, list its securities
on a U.S. or other foreign exchange, conduct its business or accept foreign
investment. In light of China's recent expansion of authority in Hong Kong,
there are risks and uncertainties which we cannot foresee for the time being,
and rules and regulations in China can change quickly with little or no advance
notice. The Chinese government may intervene or influence our current and future
operations in Hong Kong at any time, or may exert more control over offerings
conducted overseas and/or foreign investment in issuers likes ourselves. See
"Item 1A. Risk Factors - Risks Related to Doing Business in Hong Kong." in our
Annual Report on Form 10-K for the year ended March 31, 2021, which was
originally filed with the Securities and Exchange Commission on July 12, 2021
and was amended on October 22, 2021 and December 17, 2021, respectively.
We are aware that, recently, the PRC government initiated a series of regulatory
actions and statements to regulate business operations in certain areas in China
with little advance notice, including cracking down on illegal activities in the
securities market, enhancing supervision over China-based companies listed
overseas using variable interest entity structure, adopting new measures to
extend the scope of cybersecurity reviews, and expanding the efforts in
anti-monopoly enforcement. For example, on July 6, 2021, the General Office of
the Communist Party of China Central Committee and the General Office of the
State Council jointly issued a document to crack down on illegal activities in
the securities market and promote the high-quality development of the capital
market, which, among other things, requires the relevant governmental
authorities to strengthen cross-border oversight of law-enforcement and judicial
cooperation, to enhance supervision over China-based companies listed overseas,
and to establish and improve the system of extraterritorial application of the
PRC securities laws. Also, on July 10, 2021, the Cyberspace Administration of
China ("CAC") issued a revised draft of the Measures for Cybersecurity Review
for public comments, or the Revised Draft, which required that, among others, in
addition to "operator of critical information infrastructure", any "data
processor" controlling personal information of no less than one million users
(which to be further specified) which seeks to list in a foreign stock exchange
should also be subject to cybersecurity review, and further elaborated the
factors to be considered when assessing the national security risks of the
relevant activities. On December 28, 2021, the Measures for Cybersecurity Review
(2021 version) was promulgated and will become effective on February 15, 2022,
which iterates that any "online platform operators" controlling personal
information of more than one million users which seeks to list in a foreign
stock exchange should also be subject to cybersecurity review. The Measures for
Cybersecurity Review (2021 version), further elaborates the factors to be
considered when assessing the national security risks of the relevant
activities, including, among others, (i) the risk of core data, important data
or a large amount of personal information being stolen, leaked, destroyed, and
illegally used or exited the country; and (ii) the risk of critical information
infrastructure, core data, important data or a large amount of personal
information being affected, controlled, or maliciously used by foreign
governments after listing abroad. The Cyberspace Administration of China has
said that under the proposed rules companies holding data on more than 1,000,000
users must now apply for cybersecurity approval when seeking listings in other
nations because of the risk that such data and personal information could be
"affected, controlled, and maliciously exploited by foreign governments."
Except for the Basic Law, national laws of the PRC do not apply in Hong Kong
unless they are listed in Annex III of the Basic Law and applied locally by
promulgation or local legislation. National laws that may be listed in Annex III
are currently limited under the Basic Law to those which fall within the scope
of defense and foreign affairs as well as other matters outside the limits of
the autonomy of Hong Kong. National laws and regulations relating to data
protection, cybersecurity and the anti-monopoly have not been listed in Annex
III and so do not apply directly to Hong Kong.
We do not believe that we are currently required to obtain any permission or
approval from the China Securities Regulatory Commission, CAC or any other
regulatory authority in the PRC for our operations, the trading of our
securities on the OTC Markets and the issuance of our securities to foreign
investors.
Nevertheless, the laws and regulations in the PRC are evolving, and their
enactment timetable, interpretation and implementation involve significant
uncertainties. To the extent any PRC laws and regulations become applicable to
us, we may be subject to the risks and uncertainties associated with the legal
system in the PRC, including with respect to the enforcement of laws and the
possibility of changes of rules and regulations with little or no advance
notice.
17
The U.S. government, including the Securities and Exchange Commission, has
recently made statements and taken certain actions that may lead to significant
changes to U.S. and international relations, and will impact companies with
connections to the United States or China (including Hong Kong). The Securities
and Exchange Commission has issued statements primarily focused on companies
with significant China-based operations. For example, on July 30, 2021, Gary
Gensler, Chairman of the SEC, issued a Statement on Investor Protection Related
to Recent Developments in China, pursuant to which Chairman Gensler stated that
he has asked the SEC staff to engage in targeted additional reviews of filings
for companies with significant China-based operations.
Results of Operations
Three Months Ended December 31, 2021 and 2020
The following table presents an overview of the results of operations for the
three months ended December 31, 2021 and 2020:
For The Three Months For The Three Months
Ended Ended
December 31, December 31,
2021 2020
Revenue $ 24,601 $ 33,455
Cost of sales 24,601 33,133
Gross profit - 322
Operating costs and expenses:
General and administrative expenses 87,737 87,673
Total operating costs and expenses 87,737 87,673
Loss from operations (87,737 ) (87,351 )
Total other income (expenses) (711 ) (3,559 )
Net loss $ (87,026 ) $ (83,791 )
Revenue
Revenue decreased by approximately $9,000 or 26.5% for the three months ended
December 31, 2021 as compared to the same period of 2020. The decrease was
mainly due to the decrease in the number of customers from mainland China
resulting from the prolonged COVID-19 travel restriction and quarantine measures
imposed by Hong Kong government during three months ended December 31, 2021.
Cost of sales
Cost of sales represented commissions paid to individuals or companies who
referred customers to us. The amount decreased by approximately $9,000 or 25.8%
for the three months ended December 31, 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 December 31, 2021 as compared to
the 1.0% for the same period of last year. The gross margin is fairly consistent
for both periods.
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General and administrative expenses
General and administrative expenses ("G&A") 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 are consistent for the three months
ended December 31, 2021 as compared to the same period of 2020 as G&A is largely
fixed expenses
.
Net loss
As a result of the factors described above, net loss for the three months ended
December 31, 2021 increased by approximately $3,000 or 3.9% as compared to the
same period of 2020.
Nine Months Ended December 31, 2021 and 2020
The following table presents an overview of the results of operations for the
nine months ended December 31, 2021 and 2020:
For The Nine Months For The Nine Months
Ended Ended
December 31, December 31,
2021 2020
Revenue $ 54,819 $ 100,355
Cost of sales 54,819 99,130
Gross profit - 1,225
Operating costs and expenses:
General and administrative expenses 271,440 230,122
Total operating costs and expenses 271,440 230,122
Loss from operations (271,440 ) (228,897 )
Total other income (expenses) 249 (6,849 )
Net loss $ (271,689 ) $ (222,048 )
Revenue
Revenue decreased by approximately $46,000 or 45.4% for the nine months ended
December 31, 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 and quarantine measures imposed by Hong
Kong government during the nine months ended December 31, 2021.
Cost of sales
Cost of sales represented commissions paid to individuals or companies who
referred customers to us. The amount decreased by approximately $44,000 or 44.7%
for the nine months ended December 31, 2021 as compared to the same period of
2020. The decrease was in line with the decrease of revenue.
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Gross margin
Gross margin was 0% for the nine months ended December 31, 2021 as compared to
the 1.2% for the same period of last year. The lower gross margin in 2021
compared to 2020 was because our commission costs for the nine months ended
December 31, 2020 were relatively lower. During the nine months ended December
31, 2021, we slightly increased our commissions for renewals for clients
referred by YeeTah Financial from the previous year.
General and administrative expenses
General and administrative expenses increased by approximately $41,000 or 18.0%
for the nine months ended December 31, 2021 as compared to the same period of
2020. The increase was primarily due to additional legal fees incurred for the
Reverse Split in the nine months ended December 31, 2021.
Net loss
As a result of the factors described above, net loss for the nine months ended
December 31, 2021 increased by approximately $50,000 or 22.4% as compared to the
same period of 2020.
Foreign Currency Translation
Our reporting currency is the United States dollar. Our operations are
principally conducted in Hong Kong where the Hong Kong dollar is the functional
currency.
Transactions denominated in other than the functional currencies are re-measured
into the functional currency of the entity at the exchange rates prevailing on
the transaction dates. Monetary assets and liabilities denominated in currencies
other than the applicable functional currencies are translated into the
functional currency at the prevailing rates of exchange at the balance date. The
resulting exchange differences are reported in the statements of operations and
comprehensive income.
The exchanges rate used for translation from Hong Kong dollar to US$ 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 and nine months ended December 31, 2021 and
2020.
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Liquidity and Capital Resources
We have financed our operations primarily through cash generated by operating
activities, equity financings and advances from Huihe Zheng, our principal
stockholder, Chairman and Chief Executive Officer. We are a holding company and
conduct substantially all of our operations through YeeTah, which is our only
entity that has cash inflows and outflows. Our expenses are paid directly either
by YeeTah or Mr Zheng. There have been no cash and any asset transactions
between us and our subsidiaries since the Share Exchange. As of December 31,
2021 and March 31, 2021, we had $126,977 and 35,605, respectively, in cash and
cash equivalents, which primarily consisted of cash deposited in banks.
December 31, December 31,
2021 2020
Net cash used in operating activities $ (247,689 ) $ (226,493 )
Net cash provided by (used in) financing activities 339,070 234,643
Net increase (decrease) in cash, cash equivalents 91,372 8,150
Cash and cash equivalents at beginning of year 35,605 62,780
Cash and cash equivalents at end of year $ 126,977 $ 70,930Our 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 Mr.
Zheng, our principal stockholder, Chairman and Chief Executive Officer. 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 Mr. Zheng. Although historically we were successful in
obtaining equity financings through the sales of our securities and obtaining
loans from Mr. Zheng, 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 $248,000 for the nine
months ended December 31, 2021, compared to net cash used in operating
activities of approximately $227,000 for the same period of 2020, representing
an increase of approximately $21,000 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 $50,000 in the nine months ended December 31,
2021 as compared to the same period of 2020 and the following major working
capital changes:
21
(1) Change in accounts receivable resulted in an approximately $6,000 cash
outflow for the nine months ended December 31, 2021, while for the same
period of 2020, change in accounts receivable resulted in a cash inflow
of approximately $4,000, which led to an approximately $10,000 increase
in net cash outflow from operating activities.
(2) Change in prepaid expenses resulted in an approximately $6,000 cash
inflow for the nine months ended December 31, 2021, while for the same
period of 2020, change in prepaid expenses resulted in a cash outflow
of approximately $18,000, which led to an approximately $24,000
increase in net cash inflow from operating activities.
(3) Change in accounts payable and accrued liabilities resulted in an
approximately $4,000 cash inflow for the nine months ended December 31,
2021, while for the same period of 2020, change in accounts payable and
accrued liabilities generated a cash outflow of approximately $12,000,
which led to an approximately $16,000 increase in net cash inflow from
operating activities.
(4) Change in due to related parties resulted in an approximately $19,000
cash inflow for the nine months ended December 31, 2021, while for the
same period of 2020, change in due to related parties generated a cash
inflow of approximately $1,000, which led to an approximately $18,000
increase in net cash inflow from operating activities.
(5) Change in non-cash stock compensation resulted in a decreased in cash
inflow of $20,000 in nine-month period of 2021 compared to 2020.
Investing Activities:
There were no investing activities for the nine months ended December 31, 2021
and December 31, 2020.
Financing Activities:
Net cash generated from financing activities was approximately $339,000 for the
nine months ended December 31, 2021, which was attributable to the net results
of: (i) stockholder advances of approximately $363,000; (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.
Net cash generated from financing activities was approximately $235,000 for the
nine months ended December 31, 2020, which was attributable to the net results
of: (i) stockholder advances of approximately $499,000; (ii) costs incurred on
reverse take-over of $254,000; (iii) payment of $30,000 issuance costs for
deferred equity transactions; and (vi) capital contribution of $20,000 from a
stockholder.
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 December 31, 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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