Business description of QDM-International-Inc from last 10-k form

PART I

ITEM 1.   BUSINESS

Dale Jarrett Racing Adventure, Inc. was formed as a C corporation and incorporated November 24, 1998 in the State of Florida.  The Company is currently not involved with any proceedings, bankruptcy or receiverships.

We offer entertainment based oval driving schools and events.  These classes are conducted at various racetracks throughout the country. We completed our first driving classes in Rockingham, NC in July of 1999.  Since July 4th, 1999, we have run classes at over forty NASCAR tracks, including our eastern hub at Talladega Superspeedway in Alabama.

The Company currently owns 15 racecars, and has recently purchased 6 additional racecars for our Las Vegas, NV “hub”.  These racecars are classified as stock cars and are equipped for oval or round tracks only.  They are fully loaded with race engines, six point harnesses, neck and head restraints, communications, track specific gears and complete safety cages. We have negotiated terms with over forty racetracks where, for a fee ranging from $0 to $10,000 a day, we can rent their tracks.  

Products and Services.  The Company offers five types of ride or drive programs for individuals and corporations.  The "Qualifier" is a three lap ride with a professional driver which lasts about five minutes, depending on the length of the track.  The "Season Opener" is a half day training class culminating in the student driving ten laps.  The "Rookie Adventure" and "Happy Hour" are also half day driving classes with the students driving 20 or 30 laps, respectively.  The “Advanced Stock Car Adventure” is a full day 60 lap class.  The main purpose of each event is the thrill of actually driving the race car.

The operation is similar to that of a traveling show in that we transport the stock cars, the mechanics, the sales staff and the instructors from event to event.

Due to the expiration of an exclusive contract between the Richard Petty Driving Experience and the Las Vegas Motor Speedway in December 2011, we have expanded our operations to the west coast.  The Company began running schools at the Las Vegas Motor Speedway in January 2012.  We have leased a garage on Speedway Blvd. in Las Vegas, which is being managed by Glenn Jarrett, an officer and director.  This new hub establishes a national presence for the Company.  The Company plans to eventually service California, Arizona, and Colorado through this hub.

4

The Company currently has 15 racecars, with 6 more being ordered and manufactured, which had an original purchase price of approximately $50,000 per car.  Staffing costs are approximately $20,000 per month at each active hub.  We own a Miller Semi Tractor Trailer to haul the cars from track to track.  The transporting of staff to the event and their food and lodging costs average $4,000 per day.  We are required to maintain a minimum of $5,000,000 of liability insurance, worker’s compensation and property and casualty insurance.

The Company also offers a number of add-on sale items, including CDs from its Adventure Cam located in the car, clothing, souvenirs and photography.

Vendor Agreement.  During 2009, we entered into an agreement with a vendor, who provides video equipment and video recording services, which enables us to sell video recordings to our students.  Under the agreement, we were entitled to a 60% allocation of revenue for all video products and services sold through December 31, 2011.  Beginning January 1, 2012, the agreement was extended through December 31, 2013 and amended to provide for payments by us to the vendor of $30 for driving adventures, and $11 for riding adventures for which the recording is purchased by the student.

On August 19, 2010, we entered into an agreement with Talladega Superspeedway, LLC to allow Dale Jarrett Racing Adventure exclusivity during 2011 in providing stock car ride along programs and stock car driving experiences to paying students at Talladega Superspeedway.  Under the terms of the agreement, we agreed to rent a minimum of 60 days during 2011 for $450,000 payable in four payments of $112,500 due at the end of each quarter during 2011.

During October 2011, we entered into a new agreement with Talladega Superspeedway, LLC to allow Dale Jarrett Racing Adventure exclusivity during 2012 in providing stock car ride along programs and stock car driving experiences to paying students at Talladega Superspeedway.  Under the terms of the agreement, we agreed to rent a minimum of 60 days during 2012 for $438,000 payable in four payments of $109,500 due at the end of each quarter during 2012.  We will also be required to pay Talladega Superspeedway the greater of a set amount of each experience provided or 20% of all DJRA revenues on five designated racing days at the track.

On October 18, 2011, we signed an agreement with Las Vegas Motor Speedway to allow us to provide 34 event dates at the speedway during 2012.  We will pay $271,000 to Las Vegas Motor Speedway over the course of 2012 for use of the speedway.

Marketing.   We offer our products and services at various tracks throughout the country.  We employ a marketing director who is primarily responsible for closing the prospects created through promotion.  These services are sold as both corporate outings and directly to the public through various marketing and advertising mediums with an emphasis on radio and the internet.

5

Promotional and Licensing Agreements.  In December 1998, we entered into promotional and licensing agreements with Dale Jarrett, Ned Jarrett, Glenn Jarrett, Jason Jarrett and Brett Favre whereby these individuals have granted us the use of their names and likeliness in advertising, products and promotional materials, as well as an agreed upon number of appearances per year and an agreed upon number of radio and/or television commercials as set out in each agreement.  Ned Jarrett is the father of Dale Jarrett and Glenn Jarrett.  Dale Jarrett is the father of Jason Jarrett.

Pursuant to these agreements, we issued an aggregate of 5,500,000 common shares of the Company.  The term of each agreement was ten years and expired in December 2008.  These individuals have verbally agreed to continue their relationship with us without a written agreement and will be compensated for future services only when they are rendered.

Competition.  The driving schools industry is currently experiencing a limited degree of competition with regard to availability, price, service, quality and location.  There is one well-established market leader, Richard Petty Driving Experience, that is nationally recognized and which possess substantially greater financial, marketing personnel and other resources than us.  There are also a small number of local or regional schools.  Virtual reality driving experiences are also becoming more realistic and a growing competitor.   It is also likely that other competitors will emerge in the near future.  There is no assurance that we will compete successfully with other established driving schools.  We shall compete on the basis of availability, price, service, quality and location.  Inability to compete successfully might result in increased costs, reduced yields and additional risks to the investors herein.

Employees.  The Company employs three full time employees responsible for securing the Driving Adventure locations, procurement of equipment, racecars, and the development and implementation of our marketing plan.  Each active location has up to 25 contract personnel including but not limited to a mechanic, four to ten driving instructors, two administrators, a flagman and a site manager.  Additional employees or independent contractors will be obtained as required.

Seasonal Nature of Business Activities.   The Company's operations have shown to be seasonal partly because some track locations may only operate on certain days or certain times of the year.  Primarily, this is due to the weather.  Our plan is to run more tracks in the south during the winter to maintain a steady revenue stream in the future.

Government Regulation.  The Company does not currently need any government approval of our services and are not aware of any existing or probable governmental regulations on our business or industry.  

6

ITEM 1A.  RISK FACTORS

Not applicable to a smaller reporting company.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.  PROPERTIES

The Company’s executive offices which consist of 1,500 square feet are located at 1313 10^th Avenue Lane, SE, Hickory, North Carolina.  In October 2009, the Company entered into an operating lease for use of this office space.  The lease requires a monthly payment of $1,830 and expires in November, 2012.  Once this lease is up, we plan to procure new executive offices at an estimated monthly rent payment of $2,000.  Subsequent to December 31, 2011 we entered into a lease for office space in Las Vegas, NV which requires monthly payments of $1,510 and continues through February 28, 2013.  Future minimum payments under these lease agreements are as follows: $35,461 in 2012 and $3,020 in 2013.  The Company also leases various office and warehouse space on a month-to-month basis or under terms that are less than one year, including our garage facility in Talladega, AL.  Our rent expense was $62,559 and $66,287 for the years ended December 31, 2011 and 2010, respectively.

ITEM 3.  LEGAL PROCEEDINGS.

There is no litigation pending or threatened by or against Dale Jarrett Racing Adventure.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable

7

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

    Item 5(a)

a)  Market Information.  The Company began trading publicly on the NASD Over the Counter Bulletin Board on June 22, 2000 under the symbol "DJRT".

The following table sets forth the range of high and low bid quotations for our common stock.  The quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions.

b)  Holders.  At March 29, 2012, there were approximately 312 shareholders of the Company.

c)  Dividends.  Holders of our common stock are entitled to receive such dividends as may be declared by our board of directors.  No dividends on our common stock have ever been paid, and we do not anticipate that dividends will be paid on our common stock in the foreseeable future.

d)  Securities authorized for issuance under equity compensation plans.  No securities are authorized for issuance by the Company under equity compensation plans.

e)  Performance graph.  Not applicable.

f)  Sale of unregistered securities.  

Not applicable

    Item 5(b)  Use of Proceeds.  Not applicable.

8

    Item 5(c)  Purchases of Equity Securities by the issuer and affiliated purchasers.  

During 2010, we purchased a total of 397,150 shares of our common stock for cash aggregating $22,132, which is classified as treasury stock in the accompanying balance sheets as of December 31, 2011 and 2010.

ITEM 6.  SELECTED FINANCIAL DATA

Not applicable to a smaller reporting company.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Trends and Uncertainties.  Demand for the Company's products are dependent on general economic conditions, which are cyclical in nature.  Because a major portion of our activities are the receipt of revenues from our driving school services and products, our business operations may be adversely affected by competitors and prolonged recessionary periods.  

There are no other known trends, events or uncertainties that have, or are reasonably likely to have, a material impact on our short term or long term liquidity.  Sources of liquidity will come from the sale of our products and services, as well as the private sale of our stock.  There are no material commitments for capital expenditure at this time.  There are no trends, events or uncertainties that have had or are reasonably expected to have a material impact on the net sales or revenues or income from continuing operations.  There are no significant elements of income or loss that do not arise from the Company’s continuing operations.  There are no other known causes for any material changes from period to period in one or more line items of our financial statements.  

We currently have classes planned through December 2012.

Capital and Source of Liquidity.  The Company currently has no material commitments for capital expenditures and has no plans for future capital expenditures, other than as discussed above, at this time.  

We believe that there will be sufficient capital from revenues to conduct operations for the next 12 months.  

In 2011, our revenue provided substantially all of the cash necessary to conduct operations; however, our operations used $91,230 in cash during the year due to activities related to our expansion to Las Vegas.  Future revenues from classes and events will determine the amount of additional financing necessary to continue and expand operations.

9

The board of directors has no immediate offering plans in place and shall determine the amount and type of financing as our financial situation dictates.

For the year ended December 31, 2011, we acquired property and equipment, including racecars under construction, of $37,434 resulting in net cash used in investing activities of $37,434.  For the year ended December 31, 2010, we acquired property and equipment of $53,919 resulting in net cash used in investing activities of $53,919.  

The following table summarizes the stock option activity during the years ended December 31, 2011 and 2010:

At December 31, 2011, we have the following options outstanding, all of which are exercisable:

Exercise price: $0.15; Outstanding: 3,500,000; Contractual life: 2.8 years

For the year ended December 31, 2011, we repaid long-term debt of $24,962.  As a result, our net cash used in financing activities was $24,962 in 2011.

For the year ended December 31, 2010, we repaid long-term debt of $21,612.  We also purchased treasury stock of an amount equaling $22,132.  As a result, our net cash used in financing activities was $43,744 in 2010.

Our long-term liquidity is dependent on the continuation of operations and receipt of revenues.

10

Results of Operations.

For the year ended December 31, 2011, we had sales of $2,875,602, which represented a 6% decrease over the 2010 sales of $3,075,262.  Revenues decreased due to general economic distress in our market areas.  The cost of sales increased only 3% to $1,355,924 from the 2010 cost of sales of $1,320,718 due to an emphasis placed on controlling at-track expenses.  This resulted in a 13% decrease in gross profit from $1,754,544 in 2010 to $1,519,678 in 2011.

For the year ended December 31, 2011, we had selling, general and administrative expenses of $1,849,847.  This is an increase from the $1,676,550 in general and administrative expenses for the year ended December 31, 2010 of 10%.

Plan of Operation.  The Company may experience problems, delays, expenses and difficulties, many of which are beyond the Company’s control.  These include, but are not limited to, unanticipated problems relating to additional costs and expenses that may exceed current estimates and competition.

Critical Accounting Policies

The following accounting policies are considered critical by our management.  These and other accounting policies require that estimates be made based on assumptions and judgment, which affect revenues, expenses, assets, liabilities and disclosure of contingencies in our financial statements.  These estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances.  However, actual results may differ from these estimates under different and/or future circumstances.

Revenue Recognition

In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the student is fixed or determinable, and collectability is reasonably assured.  The following policies reflect specific criteria for the various revenue streams of the Company:

Revenue is recognized at the time the product is delivered or the service is performed.

Deferred revenue is recorded for amounts received in advance of the time at which services are performed and included in revenue at the completion of the related services. Deferred revenue aggregated $1,172,821 and $946,922 at December 31, 2011 and 2010, respectively.

11

Property and Equipment

Property and equipment are recorded at cost and are depreciated based upon estimated useful lives using the straight-line method. Estimated useful lives range from three to ten years.  At December 31, 2011, we believe the remaining carrying values of these assets are recoverable.

Stock-Based Compensation

We record 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 and 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. The Statement 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.

Recent Pronouncements

We have determined that all recently issued accounting standards will not have a material impact on our financial statements, or do not apply to our operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

12

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Dale Jarrett Racing Adventure, Inc.

Index to the Financial Statements

13

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Dale Jarrett Racing Adventure, Inc.:

We have audited the accompanying balance sheets of Dale Jarrett Racing Adventure, Inc. (the Company) as of December 31, 2011 and 2010, and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dale Jarrett Racing Adventure, Inc. as of December 31, 2011 and 2010, and the results of its operations, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Kingery & Crouse, P.A.

Certified Public Accountants

Tampa, Florida

March 29, 2012

14

DALE JARRETT RACING ADVENTURE, INC.

BALANCE SHEETS

DECEMBER 31, 2011 and 2010