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 until our acquisition of YeeTah, as more fully described below. 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 . Self-underwritten Offering The Company filed a registration statement on Form S-1 with theSEC , as amended (the "Registration Statement"), pursuant to which the Company is offering up to 30,000,000 shares of its common stock on a best efforts/no minimum basis. The Registration Statement was declared effective by theSEC onJanuary 27, 2023 . The offering will terminate three months after the effectiveness of the Registration Statement. 15 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. Due to the COVID-19 pandemic, insurance brokers inHong 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 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 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 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 Nine Months Ended
The following table presents an overview of the results of operations for the three and nine months endedDecember 31, 2022 and 2021: For the Three Months For the Nine Months Ended Ended December 31, December 31, 2022 2021 2022 2021 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue$ 24,057 $ 24,601 $ 47,020 $ 54,819 Cost of sales 16,508 24,601 39,471 54,819 Gross profit 7,549 - 7,549 - Operating expenses
General & administrative expenses$ 76,875 $ 89,837 $
248,322$ 273,540 Total operating expenses 76,875 89,837 248,322 273,540 Loss from operations (69,326 ) (89,837 ) (240,773 ) (273,540 ) Total other expense (income) (252 ) (711 ) (2,278 ) 249 Net income$ (69,074 ) $ (89,126 ) $ (238,495 ) $ (273,789 ) Revenue Revenue decreased by approximately$7,800 or 14.2% and$544 or 2.2% respectively for the nine and three months endedDecember 31, 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$15,000 or 28% and$8,000 or 32.9% respectively for the nine and three months endedDecember 31, 2022 as compared to the same periods of 2021. The decreases were due to the decreases of revenue. The percentage of decrease in costs of sales in the three months endedDecember 31, 2022 is significantly higher than the percentage of decrease of its revenue in the period due to the lower commission paid out due to the dealing with the different insurance products and brokers. 16
General and administrative expenses
General and administrative 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$25,000 or 9.2% for the nine - months endedDecember 31, 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. General and administrative expenses decreased by approximately$13,000 or 14.4% for the three months endedDecember 31, 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 endedDecember 31, 2022 decreased by approximately$20,000 or 22.5% as compared to the same period of 2021. As a result of the factors described above, net loss for the nine months endedDecember 31, 2022 decreased by approximately$35,000 or 12.9% as compared to the same period of 2021. Foreign Currency Translation The Company's reporting currency isthe United States dollar ("US$"). 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 nine months ended December
31, 2022 and 2021.
The exchanges rates used for translation from Euro to US$ are as follows:
December 31, 2022 December 31, 2021
Period-end spot rate EUR1 = US$1.0698 EUR1 = US$1.1318
Average rate for nine months period
Liquidity and Capital Resources
We have financed our operations primarily through cash generated by operating activities, equity financings and advances from our principal stockholder. QDM is a holding company and conducts substantially all of its operations through YeeTah, which is its only entity that has operating cash inflows . Our expenses are paid directly either by YeeTah or our principal stockholder.
There have been no cash and any asset transactions between us and our
subsidiaries since the Share Exchange. As of
17
Nine Months Ended Nine Months Ended
December 31 , December 31,
2022 2021Net cash used in operating activities$ (227,517 ) $ (247,698 ) Net cash used in investing activities (14,628 ) - Net cash provided by financing activities 293,316 339,070 Effect of Exchange rate changes on cash 311 - Net increase (decrease) in cash, cash equivalents 51,482 91,372 Cash and cash equivalents at beginning of period 69,658 35,605 Cash and cash equivalents at end of period$ 121,140
$ 126,977 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 theChina andHong Kong economy following the pandemic. Operating Activities: Net cash used in operating activities was approximately$228,000 for the nine months endedDecember 31, 2022 , compared to net cash used in operating activities of$248,000 for 2021, representing a decrease of approximately$20,000 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$35,000 in the nine months endedDecember 31, 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
inflow for the nine months ended December 31, 2022 compared to an
approximately $8,000 cash inflow for the same period of 2021, which led
to an approximately $3,000 increase in net cash inflow from operating
activities.
(2) Change in accounts payable and accrued liabilities resulted in an
approximately $1,000 cash inflow for the nine months ended
2022 compared to an approximately $4,000 cash inflow for the same
period of 2021, which led to an approximately $3,000 decrease in net
cash inflow from operating activities.
(3) Change in due to a related party resulted in an approximately $4,000
cash inflow for the nine months ended December 31, 2022 compared to an
approximately $20,000 cash inflow for the same period of 2021, which
led to an approximately $16,000 decrease in net cash inflow from
operating activities.
(4) Change in accounts receivable resulted in an approximately
outflow for the nine months ended December 31, 2022 compared to an
approximately $6,000 cash outflow for the same period of 2021, which
led to an approximately $5,000 increase in net cash outflow from
operating activities.
(5) Change in non-cash item resulted in an approximately
for the nine months ended December 31, 2022 compared to zero cash
inflow for the same period of 2021, which led to an approximately
$6,000 increase in net cash inflow from operating activities. Investing Activities: Net cash used in investing activities was approximately$15,000 for the nine months endedDecember 31, 2022 , which was solely attributable to acquisitions of fixed assets. There were no investing cash activities for the same period of 2021. 18 Financing Activities:
Net cash generated from financing activities was approximately$293,000 for the nine months endedDecember 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.
Net cash generated from financing activities was approximately$339,000 for the nine months endedDecember 31, 2021 , which was attributable to the net results of: (i) related-party advances of approximately$363,000 ; (ii) share issuance proceeds of$200,500 ; (iii) repayment of related party of$200,500 and payment of$24,000 issuance costs for share issued in the period. Material Commitments
We have no material commitments for the next twelve months. We will, however, require additional capital to meet our liquidity needs.
We had one office lease agreement and our lease commitments as of
Operating lease 2023$ 10,542 2024 42,172 2025 35,143 Total future minimum lease payments$ 87,857 Less: imputed interest (4,497 ) Total operating lease liability$ 83,360
Less: operating lease liability - current 38,954
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 of
© Edgar Online, source
