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.
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 900,000 shares of a newly designated Series C Preferred
Stock, with each share of Series C Preferred Stock initially being convertible
into 11 shares of our common stock, subject to certain adjustments and
limitations. The Share Exchange closed on October 21, 2020.
As a result of the consummation of the Share Exchange, we acquired QDM BVI and
its indirect subsidiary, YeeTah, an insurance brokerage company primarily
engaged in the sales and distribution of insurance products in Hong Kong.
Following the closing of the transaction, we have assumed the business
operations of QDM BVI and its subsidiaries.
Impact of COVID-19 and Protests
Impact of COVID-19
An outbreak of a novel strain of the coronavirus, COVID-19, was identified in
China and has subsequently been recognized as a pandemic by the World Health
Organization. The COVID-19 pandemic has severely restricted the level of
economic activity around the world. In response to this pandemic, the
governments of many countries, states, cities and other geographic regions,
including Hong Kong, have taken preventative or protective actions, such as
imposing restrictions on travel and business operations and advising or
requiring individuals to limit or forego their time outside of their homes.
37
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 requested those who travel from the mainland and enter Hong Kong
undergo quarantine for 14 days.
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. As a result of the Hong Kong protests, we experienced a
drop in new customers from mainland China beginning in June 2019, which impacted
our revenue for the period from June 2019 to the quarter ended June 30, 2020.
It is unclear whether there will be other political or social unrest in the near
future or that there will not be other events that could lead to the disruption
of the economic, political and social conditions in Hong Kong. If such events
persist for a prolonged period of time or that the economic, political and
social conditions in Hong Kong are to be disrupted, our overall business and
results of operations may be adversely affected.
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Results of Operations
Years Ended March 31, 2021 and 2020
The following table presents an overview of the results of operations for the
years ended March 31, 2021 and 2020:
For The Year For The Year
Ended Ended
March 31, March 31,
2021 2020
Revenue $ 123,438 $ 221,289
Cost of sales 123,046 200,011
Gross profit 392 21,278
Operating costs and expenses:
General and administrative expenses 314,867 592,789
Total operating costs and expenses 314,867 592,789
Loss from operations (314,475 ) (571,511 )
Total other income 6,773 82,512
Net loss $ (307,702 ) $ (488,999 )
Revenue
Revenue decreased by approximately $98,000 or 44.2% for the year ended March 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 imposed by Hong Kong government during the year ended March 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 $77,000 or 38.5%
for the year ended March 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 0.3% for the year ended March 31, 2021 as compared to the 9.6%
for the same period of last year. The lower gross margin in 2021 compared to
2020 was because our commission costs for the year ended March 31, 2020 were
lower. During the year ended March 31, 2021, we increased our commissions for
renewals for clients referred by YeeTah Financial from the previous year.
General and administrative expenses
General and administrative expenses consist primarily of stock-based payments,
employee salaries, office rents, insurance costs, general office operating
expenses (e.g. utilities, repairs and maintenance) and professional fees.
General and administrative expenses decreased by approximately $278,000 or 46.9%
for the year ended March 31, 2021 as compared to the same period of 2020. The
decrease was primarily due to a decrease of approximately $269,000 in
stock-based compensation to officers and directors due to less stock-based
compensation was awarded in 2021. The remaining decrease is related to other
general and administrative expenses due to less operating activities in the year
ended March 31, 2021.
39
Other income
Other income decreased by approximately $76,000 or 91.8% for the year ended
March 31, 2021 as compared to the same period of 2020. The decrease was due to
termination of certain management services YeeTah provided to a related party in
December 2019.
Net loss
As a result of the factors described above, net loss for the year ended March
31, 2021 decreased by approximately $181,000 or 37.0% as compared to the same
period of 2020.
Foreign Currency Translation
The Company's reporting currency is the United States dollar ("US$"). The
Company's operations are principally conducted in Hong Kong where the Hong Kong
dollar is the functional currency.
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 Group's balance sheets, income statement items
and cash flow items for both the years ended March 31, 2021 and 2020.
Liquidity and Capital Resources
The Company
We have financed our operations primarily through cash generated by operating
activities, equity financings and advances from our principal stockholder. 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 our principal stockholder. There
have been no cash and any asset transactions between us and our subsidiaries
since the Share Exchange. As of March 31, 2021 and 2020, we had $35,605 and
$62,780, respectively, in cash and cash equivalents, which primarily consisted
of cash deposited in banks.
March 31, March 31,
2021 2020
Net cash used in operating activities $ (350,728 ) $ (132,632 )
Net cash provided by (used in) financing activities 323,553 17,856
Net increase (decrease) in cash, cash equivalents (27,175 ) (114,776 )
Cash and cash equivalents at beginning of year
62,780 177,556
Cash and cash equivalents at end of year $ 35,605 $ 62,780
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 from the civilian
protests in Hong Kong and the COVID-19 epidemic in China and Hong Kong, we
undertook certain cost cutting measures, including but not limited to,
relocating to a new office with a much lower rent and reducing the number of
employees. Discretionary expenditures are also curtailed or reduced to save
costs. In addition to adjusting our operating expenditures, we will continue to
seek opportunities of equity financings and financial supports from our
principal stockholder. Although historically we were successful in obtaining
equity financings through the sales of our securities and obtaining loans from
our principal stockholder, the availability of such financings when required is
dependent on many factors beyond our control, such as the unforeseeable impact
from COVID-19 and the recovery of the Hong Kong economy following the civilian
protests.
40
Operating Activities:
Net cash used in operating activities was approximately $351,000 for the year
ended March 31, 2021, compared to net cash used in operating activities of
approximately $133,000 for 2020, representing an increase of approximately
$218,000 in the net cash outflow in operating activities. The increase in net
cash used in operating activities was primarily due to a decrease of net loss of
$181,000 in the year ended march 31, 2021 as compared to the same period of
2020, offset by the following working capital changes:
(1) Change in accounts receivable resulted in an approximately $8,000 cash
inflow for the year ended March 31, 2021, while for the year ended
March 31, 2020, change in accounts receivable was an approximately
$77,000 cash inflow, which led to an approximately $70,000 decrease in
net cash inflow from operating activities.
(2) Change in prepaid expenses resulted in an approximately $29,000 cash
outflow for the year ended March 31, 2021, while for the year ended
March 31, 2020, change in prepaid expenses resulted in a cash inflow of
approximately $6,000, which led to an approximately $34,000 increase in
net cash outflow from operating activities.
(3) Change in accounts payable and accrued liabilities resulted in an
approximately $14,000 cash outflow for the year ended March 31, 2021,
while for the year ended March 31, 2020, change in accounts payable and
accrued liabilities generated a cash inflow of approximately $30,000,
which led to an approximately $44,000 increase in net cash outflow from
operating activities.
(4) Change in non-cash operating items resulted in an approximately $21,000
cash inflow for 2021, while for 2020, change in non-cash operating
items resulted in a cash inflow of approximately $276,000, which led to
an approximately $255,000 decrease in net cash inflow from operating
activities
Financing Activities:
Net cash generated from financing activities was approximately $324,000 for the
year ended March 31, 2021, which was attributable to the net results of: (i)
stockholder advances of approximately $626,000; (ii) cash used in reverse
acquisition of approximately $251,000; (iii) cash of approximately $71,000
incurred for future equity issuance; and (iv) shareholder capital contributions
of approximately $20,000;
Net cash generated from financing activities was approximately $62,000 for the
year ended March 31, 2020, which was attributable to the net results of: (i)
stockholder advances of approximately $66,000; (ii) cash used in repurchase of
common stock of approximately $14,000; and (iii) repayment of stockholder
advances of approximately $35,000.
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 March 31, 2021
are summarized as follows:
Payments due by period
Less than Over
Total 1 year 1-3 years 3 years
Operating lease obligations $ 2,923 2,923 $ - $ -
Critical Accounting Policies
Please refer to the notes to the Company's 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.
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Off-balance Sheet Commitments and Arrangements
As of March 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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