QDMI QDM International Inc (QB)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One) 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-27251

QDM International Inc.

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 14, 2025, there were 291,563,930 shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding.

QDM INTERNATIONAL INC. 

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2024

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”), including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:

The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

QDM INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31 AND MARCH 31, 2024

See accompanying notes to condensed consolidated financial statements.

QDM INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2024 AND 2023

See accompanying notes to condensed consolidated financial statements.

QDM INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2024 AND 2023

For the three months ended

For the nine months ended

See accompanying notes to condensed consolidated financial statements.

QDM INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2024 AND 2023

See accompanying notes to condensed consolidated financial statements.

QDM International Inc.

Notes to Condensed Consolidated Financial Statements
December 31, 2024 and 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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. Certain capitalized terms used but not defined in the below discussion and elsewhere in this Report have the meanings ascribed to them in the footnotes to the accompanying financial statements included as part of this Report.

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.

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 shareholder 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 900,000 shares of 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 and assumed the business operations of QDM BVI and its subsidiaries. YeeTah is primarily engaged in marketing and sales of diversified insurance products, including property, life and social security insurance products, underwritten by insurance companies operating in Hong Kong to individual customers from Hong Kong SAR and Mainland China. In addition, as an MPF Intermediary, YeeTah is also licensed to provide its customers with assistance on account opening and related services under the MPF and the ORSO in Hong Kong, both of which are retirement protection schemes set up for employees.

Recent Developments

On October 4, 2024, we filed an Articles of Amendment to Articles of Incorporation of the Company with the Florida Division of Corporation to increase our authorized shares of Series B preferred stock, par value $0.0001 per share (the “Series B Shares”), from 2,000,000 shares to 10,000,000 shares, which became effective as of October 7, 2024. The foregoing amendment was approved by the Board, in accordance with our Articles of Incorporation and the Florida Business Corporation Act.

On October 9, 2024, we entered into a securities subscription agreement (the “Securities Subscription Agreement”) with Huihe Zheng, our Chief Executive Officer, President, and Chairman of the Board. Pursuant to the Securities Subscription Agreement, we issued 6,000,000 Series B Shares to Mr. Zheng at a purchase price of $0.10 per share, in exchange for the cancellation by Mr. Zheng of a portion of the currently outstanding principal amount of the debt owed by us to Mr. Zheng, in the amount of US$600,000, which was loaned by Mr. Zheng to us providing for our working capital and general corporate expenses. As a result of the issuance of Series B Shares to Mr. Zheng, Mr. Zheng beneficially owns 81.0% of the aggregate voting power of us as of the date of this Report. 

Results of Operations

Three Months Ended December 31, 2024 and 2023

The following table presents an overview of our results of operations for the three months ended December 31, 2024 and 2023:

Revenue

Revenue increased by approximately $598,000, or 59.2%, for the three months ended December 31, 2024 as compared to the same period of 2023. The increase was mainly due to revenue from two new insurance company partners, with whom we did not cooperate in the same period of 2023, and who offered higher basic commission rates. However, the increase was partially offset by the decrease in revenue from one of the existing insurance company partners. A substantial portion of the revenue from this partner in the three months ended December 31, 2024, was derived from insurance renewal commissions, which are based on the renewal commission rate that is lower than the first-year commission rate. 

Cost of sales

Cost of sales decreased by approximately $360,000, or 59.3%, for the three months ended December 31, 2024 as compared to the same period of 2023. The decrease was primarily due to lower referral fees paid. On May 22, 2024, the Hong Kong Insurance Authority issued a circular, which mandated, among other things, that referral fees for introducing clients should not be excessively high and should be consistent with the work the referrers provide. In compliance with this regulatory directive, and after discussion with our referrers, we lowered our referral fee rates, which resulted in the significant decrease in cost of sales. 

Gross profit

Gross profit margin increased by approximately 44.7% for the three months ended December 31, 2024 as compared to the same period of 2023, which was in line with the significant decrease in cost of sales.    

General and administrative expenses

General and administrative expenses generally are fixed and consist primarily of employee salaries, office rent, insurance costs, general office operating expenses (e.g., utilities, repairs and maintenance) and professional fees in engaging various service providers.

General and administrative expenses increased by approximately $252,000, or 126.0%, for the three months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to hiring of more employees and increase in professional fees paid to various service providers.

Other income (expenses)

Other income (expenses) decreased by approximately $37,000, or 103.3%, for the three months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to our recognition of gain from disposition of subsidiaries during the three months ended December 31, 2023, with no such income recognized during the same period in 2024.

Current income tax expenses

Current income tax expenses increased by approximately $154,000, or 334.9%, for the three months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to increase in profits in the three months ended December 31, 2024.

Net income

As a result of the factors described above, net income for the three months ended December 31, 2024 increased by approximately $514,000, or 267.8%, as compared to the same period of 2023.

Nine Months Ended December 31, 2024 and 2023

The following table presents an overview of our results of operations for the nine months ended December 31, 2024 and 2023:

Revenue

Revenue decreased by approximately $1.8 million, or 33.8%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The decrease was mainly due to the decrease in revenue from one of the insurance company partners. In the nine months ended December 31, 2024, a substantial portion of the revenue from this partner was derived from insurance renewal commissions, which are based on the renewal commission rate that is lower than the first-year commission rate. During the same period, we increased our cooperation with other insurance company partners, who offered higher basic commission rates. The shift in focus on different partnership also contributed to the overall decrease in revenue from our top insurance company partner.  Moreover, following the lift by Hong Kong government of the COVID-19 travel restrictions and quarantine requirements in January 2023, we experienced a rebound in business as cross-border travel resumes with mainland China after three years of restrictions. As a result, our revenue for the three months ended June 30, 2023 was significantly higher than the other periods. Our revenue subsequently stabilized. The average quarterly revenue for the subsequent periods was approximately $1.1 million.

Cost of sales

Cost of sales decreased by approximately $2.8 million, or 82.3%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The decrease was primarily due to lower referral fees paid as a result of adjustment of our referral fee rates according to regulatory directive from Hong Kong Insurance Authority. 

Gross profit

Gross profit margin for the nine months ended December 31, 2024 increased by approximately 45.3% as compared to the same period of 2023, which was in line with the significant decrease in cost of sales.    

General and administrative expenses

General and administrative expenses generally are fixed and consist primarily of employee salaries, office rent, insurance costs, general office operating expenses (e.g., utilities, repairs and maintenance) and professional fees paid to various service providers.

General and administrative expenses increased by approximately $496,000, or 103.6%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The increase is primarily due to hiring of more employees, and increase in professional fees paid various service providers.

Other income

Other income decreased by approximately $44,000, or 65.1%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The income was mainly attributable to the receipt of referral fees by introducing clients to other companies. The decrease in referral fee was due to a much lower referral commission rate for renewal premiums in 2024, while partially offset by a one-off referral fee paid by a trust company in July 2024. Moreover, we recognized gain from disposition of subsidiaries during the nine months ended December 31, 2023, with no such income recognized during the same period in 2024.

Current income tax expenses

Current income tax expenses increased by approximately $140,000, or 52.6%, for the nine months ended December 31, 2024 as compared to the same period of 2023. The change is primarily due to increase in profits in the nine months ended December 31, 2024.

Net income

As a result of the factors described above, net income for the nine months ended December 31, 2024 increased by approximately $251,000, or 17.9%, as compared to the same period of 2023. 

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 the Hong Kong dollar is the functional currency. The functional currency of LGL 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 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 the three and nine months ended December 31, 2024 and 2023, and the year ended March 31, 2024.

The exchanges rates used for translation from Euro to US$ are as follows:

Liquidity and Capital Resources

Our working capital requirements mainly comprise of commissions paid to technical representatives and referral fees, operating lease payments and employee salaries. We have financed our operations primarily through cash generated by operating activities, equity financings and advances from our principal shareholder. 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 shareholder.

YeeTah is a licensed insurance broker company in Hong Kong and subject to certain Hong Kong insurance broker requirements regarding its share capital and net assets. According to the requirements, a licensed insurance broker company must at all times maintain a paid-up share capital of not less than US$64,103 (HK$500,000) and net assets of not less than US$64,103 (HK$500,000), subject to the phase-in transitional arrangement applicable to specified insurance broker companies, including YeeTah, pursuant to which, YeeTah is required to maintain the amount of paid-up share capital and net assets of (i) not less than US$12,821 (HK$100,000) for the period from September 23, 2019 to December 31, 2021 and (ii) not less than US$38,462 (HK$300,000) for the period from January 1, 2022 to December 31, 2023. YeeTah was in compliance with the applicable minimum paid-up share capital and net assets requirements as of December 31, 2024. 

There have been no cash and any asset transactions between us and our subsidiaries since the Share Exchange. As of December 31, 2024 and March 31, 2024, we had $5,937,744 and $5,158,223, respectively, in cash and cash equivalents, which primarily consisted of cash deposited in banks.

Operating Activities:

Net cash generated from operating activities was approximately $1.5 million for the nine months ended December 31, 2024, compared to net cash generated from operating activities of approximately $3.4 million for the same period in 2023, representing a decrease of approximately $1.9 million in the net cash inflow in operating activities. The decrease in net cash inflow in operating activities was due to the combined effect of (i) increase  of net income of approximately $251,000 in the nine months ended December 31, 2024 as compared to the same period of 2023, and (ii) the following major working capital changes:

Investing Activities:

Net cash used in investing activities was nil for the nine months ended December 31, 2024 compared to net cash used in investing activities of approximately $100,000 for the same period of 2023. Net cash used in investing activities for the nine months ended December 31, 2023 was solely attributable to acquisitions of fixed assets and disposition of subsidiaries.

Financing Activities:

For the nine months ended December 31, 2024, net cash used in financing activities was approximately $721,000, which was derived from the net repayment to related parties of approximately $683,000 and payment for offering cost of approximately $38,000.

For the nine months ended December 31, 2023, net cash provided by financing activities was approximately $268,000, which was fully derived from the proceeds borrowed from related parties.

Material Commitments

We have no material commitments for the next twelve months.

We had two office lease agreements and our lease commitments as of December 31, 2024 are summarized as follows:

Operating lease

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases their estimates on historical experience and on various other factors that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.

While our significant accounting policies are more fully described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements, we believe that there were no critical accounting policies and estimates that affect the preparation of financial statements. 

Off-balance Sheet Commitments and Arrangements

As of December 31, 2024, 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of September 30, 2024 due to the material weakness in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) lack of proper segregation of duties and risk assessment process; (ii) lack of formal documentation in internal controls over financial reporting; and (iii) lack of independent directors and an audit committee. We have hired a qualified Chief Financial Officer who has extensive experience and expertise in US GAAP and SEC reporting requirements. We will continue to devote resources to remediate the aforementioned material weaknesses, as we grow and such resources required for implementing proper internal controls for financial reporting are available.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently a party to any material legal or administrative proceedings. We may from time to time be subject to legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.

Item 1A. Risk Factors.

As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, as of the date of this Report, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on July 1, 2024. Any of the previously disclosed risk factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC. 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Trading Arrangements

During the quarterly period ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.  

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this Report:

SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.