QDM International Inc. - Quarter Report: 2014 September (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[x]     Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended September 30, 2014

-OR-

[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from _________ to________

Commission File Number  000-27251

Dale Jarrett Racing Adventure, Inc.

 (Exact name of registrant as specified in its charter)

FLORIDA		59-3564984
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

116 3rd Street NW, Suite 302, Hickory, NC		28601
(Address of principal executive offices)		(Zip Code)

(888) 467-2231

 (Registrant's telephone number, including area code)

Indicate by check mark whether the issuer (1) 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  [x]   No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [x]   No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerate filer, or a small reporting company as defined by Rule 12b-2 of the Exchange Act):

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Large accelerated filer        [  ]		Non-accelerated filer             [  ]
Accelerated filer                 [  ]		Smaller reporting company   [x]

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

The number of outstanding shares of the registrant's common stock as of

November 19, 2014:   Common Stock – 27,010,502

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DALE JARRETT RACING ADVENTURE, INC.

FORM 10-Q

For the quarterly period ended September 30, 2014

INDEX

PART I – FINANCIAL INFORMATION

		Page
Item 1.  Financial Statements (Unaudited)		4
Item 2.  Management's Discussion and Analysis of   Financial Condition and Results of Operations		9
Item 3.  Quantitative and Qualitative Disclosures   About Market Risk		10
Item 4.  Controls and Procedures		10

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings		12
Item 1A.  Risk Factors		12
Item 2.  Unregistered Sales of Equity Securities and   Use of Proceeds		12
Item 3.  Defaults upon Senior Securities		12
Item 4.  Mine Safety Disclosures		12
Item 5.  Other Information		12
Item 6.  Exhibits		12
SIGNATURES		13

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Dale Jarrett Racing Adventure, Inc.

Condensed Balance Sheets

4

Dale Jarrett Racing Adventure, Inc.

Condensed Statements of Operations

For the Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited)

5

Dale Jarrett Racing Adventure, Inc.

Condensed Statements of Cash Flows

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

6

DALE JARRETT RACING ADVENTURE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(UNAUDITED)

(1)

Basis of Presentation and Liquidity

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and Rule 8.03 of Regulation SX.   As such, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal, recurring adjustments) considered necessary for a fair presentation have been included.

In addition, such financial statements contemplate the realization of assets and liquidation of liabilities in the normal course of business.  At September 30, 2014, we have stockholder and working capital deficits, as well as minimal cash.   Although a portion of our liabilities (i.e. the shareholder advance, $50,000 of accrued expenses and approximately one half of our deferred revenues) are not expected to result in the outlay of cash in the next year we will need to generate capital, either through positive results of operations and/or equity or debt infusions, to meet our obligations during such period. We have reduced our general and administrative expenses significantly since September 30, 2013 and have also reduced the number of days that we are racing the cars (which will result in a reduction of overall revenues but an increase in revenues per day raced). Because of this, and although we anticipate revenues could be less in the next twelve months than they were for the period October 1, 2013 to September 30, 2014, we believe we will have the requisite resources to continue to pay our operating and other obligations for the next year. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the financial statements of the Company as of and for the year ended December 31, 2013, including notes, filed with the Company’s Form 10-K.

(2)

Recent Accounting Pronouncements

There are no new accounting pronouncements for which adoption is expected to have a material effect on our financial statements in future accounting periods.

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(3)

Basic and Diluted Income (Loss) Per Share

The Company calculates basic and diluted income (loss) per share as required by the FASB Accounting Standards Codification. Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when we report a net loss, anti-dilutive common stock equivalents are not considered in the computation.  We did not have any dilutive common stock equivalents during either of the three month periods ended September 30, 2014 and 2013.

(4)

Spare Parts and Supplies

Spare parts and supplies include engine parts, tires, and other supplies used in the racecar operations and are recorded at the lower of cost or market, on a first-in, first-out basis.

(5)

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets, ranging from 3 to 10 years.  Major additions are capitalized, while minor additions and maintenance and repairs, which do not extend the useful life of an asset, are expensed as incurred.  Depreciation expense approximated $23,000 and $26,000, and $68,000 and $69,000, during the respective three and nine month periods ended September 30, 2014 and 2013.

(6)

Employment Agreement

During August 2014 the Company entered into an employment agreement with a new officer.  The employment agreement is for a term of one year and includes a $30,000 salary and the issuance of 1,000,000 non-forfeitable common shares of the Company, valued at $50,000 based on the trading price of the shares on the date of grant/employment.  The shares will be issued in a lump sum and were expensed upon execution of the employment agreement and recorded as a liability at September 30, 2014.

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

Trends and Uncertainties.  Demand for the Company’s services and products are dependent on, among other things, general economic conditions that are cyclical in nature.  Inasmuch as a major portion of the Company's activities are the receipt of revenues from its driving school services and products, the Company's business operations may be adversely affected by competitors and prolonged recessionary periods.  The Company currently has classes planned through December 2015.

Capital Resources and Source of Liquidity.  We used cash of $294,497 to finance our operating activities during the nine months ended September 30, 2014.  The use of cash was primarily a result of us significantly reducing our balance of accounts payable and paying of expenses related to converting deferred revenue to earned revenue.

For the nine months ended September 30, 2014 and 2013, we used cash of $0 and $20,129, respectively for the acquisition of property and equipment.

For the nine months ended September 30, 2014, we used $20,761 to repay long-term debt.  For the nine months ended September 30, 2013, we used $7,861 to repay long-term debt and received $100,000 from the issuance of stock.

Because we have minimal cash and a significant working capital deficit at September 30, 2014, we anticipate that we will need to generate additional capital (either through positive  results of operations or debt or equity infusions) to meet our obligations for the next year.

Results of Operations.

For the three months ended September 30, 2014, we had sales of $622,655.  Our cost of sales and services was $297,831, resulting in a gross profit of $324,824.  We incurred general and administrative expenses of $313,693 (including $50,000 of non-cash stock based compensation).  We earned interest income of $13 and other income of $411. We incurred interest expenses of $3,047.  As a result, we had a net income of $8,508 for the three months ended September 30, 2014.

Comparatively, for the three months ended September 30, 2013, we had sales of $600,153.  Our cost of sales and services was $344,147, resulting in a gross profit of $256,006.  We incurred $376,724 in general and administrative expenses.  We earned interest income of $12 and other income of $631.  We incurred interest expenses of $2,796.  As a result, we had a net loss of $122,871 for the three months ended September 30, 2013.

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The improved operating results for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 primarily resulted from decreases in cost of sales and general and administrative expenses.  We earned $22,502, or 3.7%, more revenue during the three months ended September 30, 2014, while our cost of sales and services was reduced by $46,316, or 13.5% due to decreased track rental and track labor expenses.  Our general and administrative expenses decreased by $63,031 or 16.7% for the three months ended September 30, 2014 due mostly to decreased labor and advertising costs, offset by the non-cash stock compensation cost of $50,000.  

For the nine months ended September 30, 2014, we had sales of $1,897,044.  Our cost of sales and services was $908,996, resulting in a gross profit of $988,048.  We incurred general and administrative expenses of $938,571.  We earned $702 in interest income, $411 in other income, and incurred $12,631 in interest expenses.  As a result, we had a net income of $37,959 for the nine months ended September 30, 2014.

Comparatively, for the nine months ended September 30, 2013, we had sales of $2,011,883.  Our cost of sales and services was $986,980, resulting in a gross profit of $1,024,903.  We paid general and administrative expenses of $1,212,560.  We earned interest income of $134 and other income of $6,754.  We paid interest expenses of $6,052 and had a loss on disposal of assets of $842.  As a result, we had a net loss of $187,663 for the nine months ended September 30, 2013.

The net income for the Company increased by $225,622 during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.  This increase is primarily the result of reduced general and administrative expenses.  Our revenues decreased by $114,839, or 5.7%, and our cost of sales and services decreased by $77,984, or 7.9%.  Our general and administrative expenses decreased by $273,989, or 22.6%.  Our decreased sales revenue was primarily the result of a decrease in class days and laps during the period.  The decrease in general and administrative expenses is the result of cost cutting measures implemented by the Company in advertising, maintenance, payroll, professional fees and rent, offset by the $50,000 non-cash stock compensation expense during the third quarter.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable for smaller reporting companies.

Item 4.  Controls and Procedures

Changes in Internal Control over Financial Reporting

 

During the quarter ended September 30, 2014, management determined that the lack of resources and segregation of duties results in disclosure controls that are not effective.  As a result there was a change in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, we conducted an evaluation of disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2014.  Based on this evaluation, our chief executive officer and principal financial officers have concluded such controls and procedures were not effective because our size and financial resources precludes us from having full time accounting staff. This results in a lack of segregation of duties and our inability to hire personnel that have a thorough understanding of all of the nuances of generally accepted accounting principles as of September 30, 2014.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

 

We have not established adequate financial reporting monitoring activities to mitigate the risk of missed financial statement adjustments and disclosures relative to transactions that are other than routine for the reasons mentioned above.  In addition, and unless results of operations improve considerably, we do not currently anticipate that we will have the available cash flow to remediate this weakness.

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PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

None

Item 1A.  Risk Factors  

Not applicable for smaller reporting companies

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

None

Item 6.   Exhibits

Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**   XBRL Instance Document

101.SCH**   XBRL Taxonomy Extension Schema Document

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB**   XBRL Taxonomy Extension Label Linkbase Document

101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document

*  Filed herewith

**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

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

Dated: November 19, 2014

DALE JARRETT RACING ADVENTURE, INC.

By:

/s/Timothy Shannon

Timothy Shannon

Chief Executive Officer

Principal Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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