Notes
to Condensed Consolidated Financial Statements
December
31, 2020 and 2019
(Unaudited)
1.
Organization and principal activities
QDM International Inc. (“we,” the
“Company” or “QDM”) was incorporated in Florida in March 2020 and is the successor to 24/7 Kid
Doc, Inc. (“24/7 Kid”), which was incorporated in Florida in November 1998. The Company, conducts its business through
an indirectly wholly owned subsidiary, YeeTah Insurance Consultant Limited (“YeeTah”), a licensed insurance brokerage
company located in Hong Kong, China. YeeTah 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 a Mandatory Provident Fund (“MPF”) Intermediary,
YeeTah also assists its customers with their investment through the MPF and the Occupational Retirement Schemes Ordinance schemes
(“ORSO”) in Hong Kong, both of which are retirement protection schemes set up for employees.
On
October 21, 2020, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with QDM Holdings
Limited, a BVI company (“QDM BVI”), and Huihe Zheng, the sole shareholder of QDM BVI (the “QDM BVI Shareholder”),
who is also the Company’s 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 the Company’s common stock, par value $0.0001 per share, subject to
certain adjustments and limitations (the “Share Exchange”). The Share Exchange closed on October 21, 2020.
As
a result of the consummation of the Share Exchange, the Company acquired all the issued and outstanding capital stock of QDM BVI
and its subsidiaries, QDM Group Limited, a Hong Kong corporation and wholly owned subsidiary of QDM BVI (“QDM HK”)
and YeeTah.
The Company was a shell company prior to
the reverse acquisition which occurred as a result of the consummation of the transaction contemplated by the Share Exchange Agreement,
and QDM BVI was a private operating company. The reverse acquisition by a non-operating public shell company by a private operating
company typically results in the owners and management of the private company having actual or effective voting and operating control
of the combined company. Therefore, the reverse acquisition is considered a capital transaction in substance. In other words, the
transaction is a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets
of the shell company accompanied by a recapitalization. Therefore, the acquisition was accounted for as a recapitalization and
QDM BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of QDM BVI have
been brought forward at their book value and no goodwill has been recognized.
Accordingly,
the reverse acquisition has been treated as a corporate restructuring (reorganization) of entities under common control and thus
the current capital structures of QDM BVI and its wholly-owned subsidiary QDM HK and its wholly-owned subsidiary, YeeTah, have
been retrospectively presented in prior periods as if such structures existed at that time and in accordance with ASC 805-50-45-5.
As
a result of the Share Exchange, the Company ceased to be a shell company.
Unless the context specifically requires
otherwise, the term “Company” used herein means QDM International Inc. together with its direct and indirect subsidiaries
described above.
Going
Concern
The
condensed unaudited consolidated financial statements have been prepared on a going concern basis which assumes the Company will
be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company
has incurred a loss since inception resulting in an accumulated deficit as of December 31, 2020. Accordingly, there is substantial
doubt about the Company’s ability to continue as a going concern.
The ability to continue as a going concern
is dependent upon the Company generating revenue and profit in the future and/or to obtain necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating
costs over the next twelve months primarily through financings from the Company’s major shareholder, although the Company
may seek other sources of funding, including public and private offerings of securities.
These
condensed unaudited consolidated financial statements do not reflect adjustments that would be necessary if the Company were unable
to continue as a “going concern.” While management believes that the actions already taken or planned, including adjusting
its operating expenditures and obtaining financial supports from its principal shareholder, will mitigate the adverse conditions
and events which raise doubt about the validity of the “going concern” assumption used in preparing these financial
statements, there can be no assurance that these actions will be successful. If the Company were unable to continue as a “going
concern,” then substantial adjustments would be necessary to the reported amounts of its liabilities, the reported expenses
and the consolidated balance sheet classifications used.
2.
Summary of significant accounting policies
Basis
of Presentation
On
October 21, 2020, the Company’s board of directors approved a change to its fiscal year end from December 31 to March 31,
which is the fiscal year end of YeeTah, to align its reporting periods to be more consistent with YeeTah.
The Company’s unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting
of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations
for the periods shown and are not necessarily indicative of the results to be expected for the full year ending March 31, 2021.
These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related
notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Use
of Estimates
The
preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America requires us to make certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts
of revenues and expenses may be affected by the estimates that management is required to make. Actual results could differ from
those estimates.
Foreign
Currency and Foreign Currency Translation
The
Company’s reporting currency is the United States dollar (“US$”). The Company’s operations are principally
conducted in Hong Kong where 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 loss.
The
exchanges rates 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 Company’s balance sheets, income statement items and cash
flow items for both 2020 and 2019.
Certain
Risks and Concentration
The Company’s financial instruments that
potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and
receivables, and other assets. As of December 31, 2020, substantially all of the Company’s cash and cash equivalents were
held in major financial institutions located in Hong Kong, which management considers to being of high credit quality.
Cash
and Cash Equivalents
Cash
and cash equivalents consist of petty cash on hand and cash held in banks, which are highly liquid and have original maturities
of three months or less and are unrestricted as to withdrawal or use.
Accounts
Receivable
Accounts
receivable represents trade receivable and are recognized initially at fair value and subsequently adjusted for any allowance
for doubtful accounts and impairment.
The
Company makes impairment loss for bad and doubtful debts based on assessments of the recoverability of the trade and other receivables
based on individual account analysis, including the current creditworthiness and the past collection history of each debtor. Impairments
arise when there is an objective evidence indicate that the balances may not be collectible. The identification of bad and doubtful
debts, in particular of a loss event, requires the use of judgment and estimates, which involve the estimates of specific losses
on individual exposures, as well as a provision on historical trends of collections. Based on management of customers’ credit
and ongoing relationship, management makes conclusions whether any balances outstanding at the end of the period will be deemed
uncollectible on an individual basis and on aging analysis basis. The provision is recorded against accounts receivables balances,
with a corresponding charge recorded in the statements of income and comprehensive income. Delinquent account balances are written-off
against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
The
Company historically did not have material bad debts in accounts receivable. There were no bad debt expenses for the three and
nine months ended December 31, 2020 and 2019 and there was no provision for doubtful accounts as of December 31, 2020 and March
31, 2020.
Revenue
Recognition
The Company generates revenue primarily
by providing insurance brokerage services in Hong Kong. The Company sells insurance products underwritten by insurance companies
operating in Hong Kong to its individual customers and is compensated for its services by commissions paid by insurance companies,
typically based on a percentage of the premium paid by the insured. The Company adopted ASC 606 for its fiscal year beginning on
April 1, 2019 using the modified retrospective approach. There were no material unfinished contracts with customers on the adoption
date of ASC 606.
Prior
to the adoption of ASC 606, under ASC 605, the basic criteria necessary for revenue recognition were:
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(i)
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Persuasive evidence of an arrangement exists,
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(ii)
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Delivery has occurred or services have been
rendered
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(iii)
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The selling price is fixed or determinable,
and
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(iv)
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Collectability is reasonably assured.
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Revenue
is recognized when the brokerage services are rendered under ASC 605.
ASC 606 provides for a five-step model
for recognizing revenue from contracts with customers. These five steps include:
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(i)
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Identify the contract
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(ii)
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Identify performance obligations
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(iii)
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Determine transaction price
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(iv)
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Allocate transaction price
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The Company enters into contracts with
our customers (insurance companies) primarily through written contracts. Performance obligation for these insurance brokerage contracts
is to help our insurance company customers to promote, coordinate and complete subscriptions of insurance policies offered by our
customers for sales of our products to our customers.
Under ASC 606, revenue is recognized when
the customer obtains control of a good or service. A customer obtains control of a good or service if it has the ability to direct
the use of and obtain substantially all of the remaining benefits from that good or service. The transfer of control of the Company’s
brokerage services generally occurs at a point in time on the effective date of the associated insurance contract when the policy
transfers to the customer. The insurance policy entered between the insurance company and the insured customer generally contains
a cool-off period of one to two months. When the cool-off period elapses and the insured customer does not withdraw from the insurance
policy, the policy becomes effective. Once the transfer of control of a service occurs, the Company has satisfied its insurance
brokerage performance obligation and recognizes revenue.
Revenue
recognition under ASC 606 has not had material differences than revenue recognition under the legacy ASC 605 for the Company.
Fair
Value Measurement
Fair
value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and it considers assumptions that market participants would use when pricing the asset or liability.
The
established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon
the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure
fair value as follows:
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Level 1:
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Quoted prices
(unadjusted) in active markets for identical assets or liabilities.
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Level 2:
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Observable, market-based
inputs, other than quoted prices, in active markets for identical assets or liabilities.
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Level 3:
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Unobservable
inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
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The
Company’s financial instruments include cash and cash equivalents, accounts receivable, other receivables, due from related
parties, accounts payable and accrued liabilities, and due to related party. The carrying amounts of these financial instruments
approximate their fair values due to the short-term nature of these instruments.
The
Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were
measured at fair value on a recurring nor non-recurring basis as of December 31, 2020.
Property
and Equipment
Property
and equipment are recorded at cost, less accumulated depreciation and impairment. Depreciation of property and equipment is calculated
on a straight-line basis, after consideration of expected useful lives and estimated residual values. The estimated annual deprecation
rate of these assets are generally as follows:
Category
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Depreciation
rate
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Estimated residual value
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Office equipment
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20%
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Nil
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Leasehold improvements
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Shorter of lease
term or 20%
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Nil
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Expenditures
for maintenance and repairs are expensed as incurred. Gains and losses on disposals are the differences between net sales proceeds
and carrying amount of the relevant assets and are recognized in the statements of operations and comprehensive loss.
Impairment
of Long-Lived Assets
The
Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the expected future
undiscounted cash flows attributable to these assets. If it is determined that an asset is not recoverable, an impairment loss
is recorded in the amount by which the carrying amount of the assets exceeds the expected discounted cash flows arising from those
assets.
There
were no impairment losses for the periods ended December 31, 2020 and 2019.
Leases
A
lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee
as an operating lease. When a lease contains rent holidays, the Company records the total expenses on a straight-line basis over
the lease term.
Leases
that substantially transfer to the Company all the risks and rewards of ownership of assets are accounted for as capital leases.
At the commencement of the lease term, a capital lease is capitalized at the lower of the fair value of the leased asset and the
present value of the minimum lease payments, each determined at the inception of the lease.
The
corresponding liability to the lessor is included in the balance sheets as capital lease obligation. Lease payments are apportioned
between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during
the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Assets
under capital leases are depreciated the same as owned assets over the shorter of the lease term and their estimated useful lives.
Taxation
Current
income taxes are provided on the basis of net profit for financial reporting purposes, adjusted for income and expense items which
are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred
income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts
in the financial statements, net operating loss carryforwards and credits. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be
realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets
and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected
to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement
of operations and comprehensive income in the period of the enactment of the change.
The
Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more
likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax
attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon
its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during
the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Company
has considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences,
(ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income
arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within
the industry.
The
Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that
the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not
recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company
judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s
liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress
of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in
which they are identified. The Company’s effective tax rate includes the net impact of changes in the liability for unrecognized
tax benefits and subsequent adjustments as considered appropriate by management. The Company classifies interest and penalties
recognized on the liability for unrecognized tax benefits as income tax expense.
Stock-Based
Compensation
We recognize stock-based compensation in
accordance with FASB ASC 718, Stock Compensation. ASC 718 requires that the cost resulting from all share-based transactions be
recorded in the financial statements. It establishes fair value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions
with employees. ASC 718 also establishes fair value as the measurement objective for transactions in which an entity acquires goods
or services from non-employees in share-based payment transactions.
Earnings per share
Basic earnings per share is computed by
dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during
the period using the two-class method. Under the two-class method, net income is allocated between shares of common stock and other
participating securities based on their participating rights. Net loss is not allocated to other participating securities if based
on their contractual terms they are not obligated to share in the losses. Diluted earnings per share is calculated by dividing
net income attributable to common shareholders by the weighted average number of common and dilutive common equivalent shares outstanding
during the period. Common equivalent shares are not included in the denominator of the diluted loss per share calculation when
inclusion of such shares would be anti-dilutive.
Recently
Issued Accounting Standards
The
Company has reviewed all the recent accounting pronouncements issued to date of the issuance of these financial statements, and
does not believe any of these pronouncements will have a material impact on the Company.
3.
Deferred Asset
Deferred
asset of $30,000 as of December 31, 2020 represented prepaid transaction costs in relation to future equity financing. The amount
will be charged against share capital when the respective equity financing is completed.
4.
Equity
Reverse
Stock Split
In
May 2020, the Company effected a reverse stock split whereby each 100 issued and outstanding shares of common stock were consolidated
into one share of common stock and each 100 issued and outstanding shares of preferred stock were consolidated into one share
of preferred stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, additional 391 shares were
issued due to round-up effects.
Common
Stock
There
were no treasury stock transactions during the nine months ended December 31, 2020. During the nine months ended December 31,
2019, the Company redeemed 3,018 (301,800 before the Reverse Stock Split) shares of common stock at a cost of $13,815.
On
November 11, 2020, the Company’s board approved to issue an aggregate of 20,000 shares of common stock to its directors
and officers as equity compensation for services they provided in 2020.
Preferred
Stock
On
October 8, 2020, the Company filed an amendment to its Articles of Incorporation to designate 900,000 shares of its authorized
preferred stock as Series C Convertible Preferred Stock. The Series C Preferred Shares will be entitled to receive any dividends
or distributions paid in respect of the Common Stock on an as-converted basis. Holders of Series C Preferred Shares will be entitled
to vote, together with the holders of Common Stock, on an as-converted basis on all matters submitted to a vote of the holders
of Common Stock. Each Series C Preferred Share is convertible into Common Stock at an initial conversion rate of 1-for-11.
On October 21, 2020, as part of the Share
Exchange with QDM BVI, the Company issued 900,000 Series C Preferred Shares to Huihe Zheng, the sole shareholder of QDM BVI and
the Chairman and Chief Executive Officer of QDM.
Additional Paid-in Capital
During the nine months ended December 31, 2020,
the Company received capital contribution of $19,747 from its principal shareholder for working capital uses. The capital contribution
was recorded in additional paid-in capital.
On October 21, 2020, as a result of the Share
Exchange with QDM BVI, the Company completed a reverse acquisition with QDM BVI. The transaction costs of $254,024 in connection
with the reverse acquisition was recorded into additional paid-in capital.
5.
Related Party Transaction
The due from shareholder balances represent
the purchase price for shares of QDM BVI to be paid by Mr. Huihe Zheng. These due from shareholder balances at of the balance sheet
dates are unsecured, interest-free and due on demand.