UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the fiscal year ended
For the transition period from___________ to___________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | (Zip Code) | |
| (Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act:
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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 and post such files)
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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
The aggregate market value of the voting and non-voting common stock
held by non-affiliates computed by reference to the price at which the common stock was last sold on the OTCQB Venture Market operated
by the OTC Markets as of September 30, 2024 ($3.86) was approximately $
As of July 10, 2025,
QDM INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2025
TABLE OF CONTENTS
i
CERTAIN TERMS AND CONVENTIONS
Unless otherwise indicated or the context otherwise requires, references in this Annual Report on Form 10-K (the “Report”) to:
| ● | “24/7 Kid” are to 24/7 Kid Doc, Inc., a Florida corporation and wholly-owned subsidiary of the Company, which was dissolved in September 2022; | |
| ● | “BVI” are to the British Virgin Islands; | |
| ● |
“China” or the “PRC” are to the People’s Republic of China, including Hong Kong and Macau, the special administrative regions of China and Taiwan only for purpose of this prospectus; | |
| ● | “Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China; | |
| ● | “Common stock” are to the common stock of the Company, par value $0.0001 per share; | |
| ● | “HKD,” “HK$” and “Hong Kong dollars” are to the legal currency of Hong Kong; | |
| ● | “Lutter Global Limited” or “LGL” are to Lutter Global Limited, a BVI company and a wholly-owned subsidiary of the Company; | |
| ● | “mainland China” are to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan; | |
| ● | “QDM BVI” are to QDM Holdings Limited, a BVI company and a wholly-owned subsidiary of the Company; | |
| ● | “QDM HK” are to QDM Group Limited, a Hong Kong corporation and a wholly-owned subsidiary of QDM BVI; | |
| ● | “QDM” are to QDM International Inc., a Florida corporation; | |
| ● | “Series C Preferred Stock” are to the Series C Convertible Preferred Stock, par value $0.0001 per share, of the Company, each convertible into approximately 3.67 shares of common stock; | |
| ● | “technical representatives” are to licensed individuals who provide advice to an insurance policy holder or potential policy holder on insurance matters on behalf of an insurance agent or broker, or arrange contracts of insurance in or from Hong Kong on behalf of that insurance agent or broker; | |
| ● | “US$,” “U.S. dollars,” “$,” and “USD” are to the legal currency of the United States; | |
| ● | the “Company,” “we,” “us,” and “our” are to QDM International Inc. and its consolidated subsidiaries, unless the context suggests otherwise; and | |
| ● | “YeeTah” are to Hong Kong YeeTah Insurance Broker Limited, formerly known as YeeTah Insurance Consultant Limited, a Hong Kong corporation and wholly-owned subsidiary of QDM HK. |
QDM and QDM BVI maintain their books and records in U.S. dollars and in accordance with generally accepted accounting principles of the United States. QDM HK and YeeTah maintain their books and records either in U.S. dollars or Hong Kong dollars. The functional currency of Lutter Global Limited is the Euro.
This Report also contains translations of Hong Kong dollars into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Hong Kong dollars into U.S. dollars were made at HK$7.800 = US$1.00, which is the prevailing exchange rate as of March 31, 2025. We make no representation that the Hong Kong dollar or U.S. dollar amounts referred to in this Report could have been or could be converted into U.S. dollars or Hong Kong dollars, as the case may be, at any particular rate or at all.
Due to rounding, numbers presented throughout this Report may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
In May 2020, we effected a reverse stock split of all issued and outstanding shares of common stock and preferred stock of 24/7 Kid at a split ratio of 1-for-100 (the “2020 Reverse Stock Split”). On August 10, 2021, we completed a one-for-thirty (1:30) reverse stock split, where every thirty (30) shares of the Company’s issued and outstanding shares of common stock were automatically converted into one share of common stock, without any change in the par value per share (the “2021 Reverse Stock Split”). The 2021 Reverse Stock Split reduced the number of the Company’s issued and outstanding shares of common stock from approximately 6.24 million shares to approximately 0.2 million shares. The number of authorized shares of common stock was not affected by the 2021 Reverse Stock Split. On April 5, 2024, we increased the authorized shares of common stock, par value $0.0001 per share, from 200,000,000 shares to 700,000,000 shares and the authorized shares of preferred stock, par value $0.0001 per share, from 5,000,000 shares to 30,000,000 shares; and completed a forward split of the issued and outstanding shares of common stock at a ratio of 10-for-1 (the “2024 Forward Stock Split”). The share number and related data in this Report has been updated to reflect the stock splits referenced above.
ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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. 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 impact of political uncertainty and social unrest in Hong Kong and laws, rules and regulations of the Chinese government aimed at addressing such unrest; |
| ● | the market for our services in Hong Kong and mainland China; |
| ● | our expansion and other plans and opportunities; |
| ● | our future financial and operating results, including revenues, income, expenditures, cash balances and other financial items; |
| ● | current and future economic and political conditions in Hong Kong and mainland China; |
| ● | the future growth of the Hong Kong insurance industry as a whole and the professional insurance intermediary sector in particular; |
| ● | our ability to attract customers, further enhance our brand recognition; |
| ● | our ability to hire and retain qualified management personnel and key employees in order to enable them to develop our business; |
| ● | changes in applicable laws or regulations in Hong Kong related to or that could impact our business; |
| ● | our management of business through a U.S. publicly-traded and reporting company; and |
| ● | other assumptions regarding or descriptions of potential future events or circumstances described in this Report underlying or relating to any forward-looking statements. |
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.
iii
PART I
Item 1. Business.
Overview
QDM is a holding company incorporated in Florida with no material operations of its own, and we conduct our insurance brokerage business through our indirectly wholly-owned subsidiary, YeeTah, primarily in Hong Kong.
YeeTah sells a wide range of insurance products consisting of two major categories: (i) life and medical insurance, such as individual life insurance; and (ii) general insurance, such as automobile insurance, commercial property insurance, liability insurance and homeowner insurance. In addition, as a Mandatory Provident Fund (“MPF”) intermediary, YeeTah is also licensed to provide customers with assistance on information collection, explanation of MPF products and policies (excluding investment advisory services), assistance with applications to set up MPF accounts, and transfer of funds across their respective MPF schemes. The MPF and the Occupational Retirement Schemes Ordinance (“ORSO”) schemes in Hong Kong are retirement protection schemes set up for employees who are Hong Kong residents.
YeeTah sells insurance products underwritten by insurance companies operating in Hong Kong to individual customers who are either Hong Kong residents or visitors from mainland China and is compensated for its services by commissions paid by insurance companies, typically based on a percentage of the premium paid by the insured. Commissions generally depend on the type and term of insurance products and the particular insurance company, and they are usually paid by the insurance companies the next month after the cooling off period of the policies sold, which is generally 21 days after the earlier of the delivery of the policy or the delivery of the cooling off notice to the policy holder, during which period policy purchasers may cancel the policy at their discretion and receive refunds.
As of the date of this Report, YeeTah is a party to agreements with 22 insurance companies in Hong Kong, and offers approximately 489 insurance products to its individual customers. For the fiscal year ended March 31, 2025, approximately 68.1% of YeeTah’s total commissions was attributable to one insurance company. For the fiscal year ended March 31, 2024, an aggregate of 96.5% of YeeTah’s total commissions was attributable to one insurance company.
During the fiscal year ended March 31, 2025 and March 31, 2024, YeeTah had a total of 263 and 133 customers who have purchased life and medical insurance products through YeeTah, and 36 and 33 individual customers who have purchased general insurance products, as well as one and five customers for MPF related services, respectively. As of the date of this Report, YeeTah has not provided any customer ORSO related services.
As an independent insurance broker, YeeTah offers not only a broad range of insurance products underwritten by multiple insurance companies to address the diverse needs and preferences of increasingly sophisticated customers but also provide a range of quality services covering insurance policy application, customer information collection, analysis of policy selection, and after-sale services.
YeeTah focuses on offering long-term life insurance products including endowment life and annuity life insurance and distributes general insurance products including automobile insurance, individual accident insurance, homeowner insurance, liability insurance and travel insurance. All of YeeTah’s sales of life and medical insurance products and general insurance products are conducted through its licensed salespersons (known in Hong Kong as technical representatives).
Hong Kong’s independent insurance intermediary market is experiencing rapid growth due to increasing demands for insurance products by the Chinese population, especially visitors from mainland China. Although we do not sell any insurance products in mainland China or solicit any customer in China, we intend to grow our business by offering premium services and recruiting talent to join our professional team and sales force, expanding our distribution network through building more connections with business partners in Hong Kong and mainland China, such as wealth management companies, funds, trust companies, and overseas immigration agencies.
1
Holding Company Structure
QDM is not an operating company but a Florida holding company with operations primarily conducted through its indirectly wholly-owned subsidiary based in Hong Kong. Our investors hold shares of common stock in QDM, the Florida holding company.
We do not have or intend to set up any subsidiary or enter into any contractual arrangements to establish a variable interest entity (“VIE”) structure with any entity in China. Our corporate organizational structure is as follows as of the date of this Report:
Our holding company structure presents unique risks as our investors may never directly hold shares in our Hong Kong operating subsidiary and we will be dependent upon dividends and other distributions from our subsidiaries to finance our cash flow needs. Our ability to receive dividends and other contributions from our subsidiaries may be significantly affected by regulations promulgated by Hong Kong and PRC authorities. Any change in the interpretation of existing rules and regulations or the promulgation of new rules and regulations may materially affect our operations and or the value of our securities, including causing the value of our securities to significantly decline or become worthless. For a detailed description of the risks facing the Company associated with our structure, please refer to “Item 1A. Risk Factors – Risks Related to Doing Business in Hong Kong.”
Currently, PRC laws and regulations do not prohibit direct foreign investment in our Hong Kong operating subsidiary. Nonetheless, in light of the statements and regulatory actions by the PRC government, such as those related to Hong Kong’s national security, the promulgation of regulations prohibiting foreign ownership of companies incorporated in mainland China operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of the uncertainty of any future actions of the PRC government in this regard, which would likely result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors, and the resulting adverse change in value to our common stock. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the China Securities Regulatory Commission, or CSRC, if we fail to comply with such rules and regulations, which would likely adversely affect the ability of the Company’s securities to continue to trade on the OTCQB Venture Market operated by the OTC Markets Group Inc. (the “OTCQB”), which would likely cause the value of our securities to significantly decline or become worthless.
2
The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act (the “HFCA Act”) was enacted on December 18, 2020. The HFCA Act states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting Oversight Board of the United States (the “PCAOB”) for three consecutive years beginning in 2021, the SEC shall prohibit the company’s shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB, issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. Our auditor, ZH CPA, LLC (“ZH CPA”), the independent registered public accounting firm that issues the audit report included in this Report, is headquartered in Denver, Colorado, and has been inspected by the PCAOB on a regular basis, with the last inspection in 2025. As of the date of this Report, our auditor is not among the firms listed on the PCAOB Determination List issued in February 2025. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S law, rules, and regulations. On December 15, 2022, the PCAOB vacated its previous Determination List, which concluded in December 2021 that the PCAOB could not inspect or investigate completely registered public accounting firms based in mainland China or Hong Kong. However, if in the future the PCAOB is prohibited from conducting complete inspections and investigations of PCAOB-registered public accounting firms in mainland China and Hong Kong, then the companies audited by those registered public accounting firms could be subject to a trading prohibition on U.S. markets pursuant to the HFCA Act. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in certain jurisdictions and we use an accounting firm headquartered in one of such jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 10-K for the relevant fiscal year. On December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which, among others, amended the HFCA Act to reduce the number of consecutive years an issuer can be identified a Commission-Identified Issuer before the SEC must impose an initial trading prohibition on the issuer’s securities from three years to two. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCA Act. See “Item 1.A. Risk Factors — Risks Related to Doing Business in Hong Kong — The HFCA Act and the related regulations continue to evolve. Further implementations and interpretations of or amendments to the HFCA Act or the related regulations, or a PCAOB determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us.” on page 34.
Transfers of Cash and Other Assets to and from Our Subsidiaries
QDM is a holding company incorporated in Florida with no material operations of its own, and we primarily conduct our insurance brokerage business through our indirectly wholly-owned subsidiary, YeeTah, in Hong Kong. We may rely on dividends and other distributions on equity to be paid by our Hong Kong operating subsidiary, YeeTah, to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. Currently, substantially all of our operations are in Hong Kong. We do not have or intend to set up any subsidiary or enter into any contractual arrangements to establish a VIE structure with any entity in mainland China. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China (the “Basic Law”), providing Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems.” The laws and regulations of the PRC do not currently have any material impact on transfer of cash from us to YeeTah or from YeeTah to us and the investors in the U.S. In addition, there are no restrictions or limitations under the laws of Hong Kong imposed on the conversion of Hong Kong dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S investors.
3
We are permitted under the Florida law to provide funding to our subsidiaries, including YeeTah, through loans or capital contributions without restrictions on the amount of the funds. There are no restrictions or limitations on our ability to distribute earnings from our businesses, including our subsidiaries, to the U.S. investors or to settle amounts owed. YeeTah is permitted under the laws of Hong Kong to provide funding to QDM HK and QDM BVI, the holding company incorporated in Hong Kong and the British Virgin Islands, respectively, through dividend or other distribution without restrictions on the amount of the funds, subject to availability of distributable profits and sufficient cash to maintain going concern and solvency of YeeTah and any contractual obligations owed to third parties prohibiting or restricting dividend distributions. As of the date of this Report, there has been no dividends or distributions between our holding company and our subsidiaries nor do we expect such dividends or distributions to occur in the near future among our holding company and its subsidiaries.
However, the PRC government has significant authority to intervene or influence the operations of an offshore holding company in mainland China at any time, and such oversight may also extend to our Hong Kong operating company. We cannot assure you that the PRC government will not prevent us from transferring the cash we maintain in Hong Kong outside of Hong Kong, or restrict our ability to deploy our cash into business or to pay dividends. We could also be subject to limitations on the transfer or the use of our cash if we expand our business operations into mainland China or conduct our operations in some other ways such that we become subject to PRC laws that regulate these activities. In addition, if YeeTah incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitation on our ability to transfer or use our cash could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate paying cash dividends in the near future. The declaration of dividends on any class of shares is within the discretion of our board of directors (the “Board”), subject to the Florida law, out of legally available funds, and will depend on the assessment of, among other factors, earnings, capital requirements and our operating and financial condition. If we determine to pay dividends on any of our capital stock in the future, we will be dependent on receipt of funds from our Hong Kong operating subsidiary, YeeTah. None of our subsidiaries has made any dividends or distributions to us. Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HKD into foreign currencies and the remittance of currencies out of Hong Kong. See “Item 1A. Risk Factors – Risks Related to Our Business and Industry – We rely on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business” on page 29 and “Item 1A. Risk Factors – Risks Related to Doing Business in Hong Kong - Our Hong Kong subsidiaries may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity requirements, conduct business and pay dividends to holders of our common stock. Dividends payable to our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC” on page 31.
Regulatory Permissions and Developments
Our PRC counsel has advised us that the laws and regulations of mainland China do not currently have any material impact on our business, financial condition or results of operations. However, there is no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. If there is a significant change to current political arrangements between mainland China and Hong Kong, companies operating in Hong Kong such as us may face similar regulatory risks as those operated in mainland China, including their ability to offer securities to investors, list their securities on a U.S. or other foreign exchange, conduct their business or accept foreign investment. In light of the PRC government’s expansion of authority in Hong Kong, there are risks and uncertainties which we cannot foresee for the time being, and rules and regulations in mainland China and Hong Kong can change quickly. The Chinese government may intervene or influence our current and future operations in Hong Kong or may exert more control over offerings conducted overseas and/or foreign investment in issuers like ourselves. See “Item 1A. Risk Factors – Risks Related to Doing Business in Hong Kong.”
4
The PRC government initiated a series of regulatory actions and statements to regulate business operations in certain areas in mainland China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over mainland China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
For example, on June 10, 2021, the Standing Committee of the National People’s Congress enacted the PRC Data Security Law, which took effect on September 1, 2021. The law requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which were available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by mainland China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing mainland China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. Moreover, the State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, not yet effective) on July 10, 2021, which require operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review.
On December 28, 2021, the Cyberspace Administration of China (the “CAC”) jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022, replacing the former Measures for Cybersecurity Review (2020) issued on July 10, 2021. Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operators (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, and any online platform operator who controls more than one million users’ personal information must undergo a cybersecurity.
On July 7, 2022, the CAC issued the Measures for the Security Assessment of Cross-border Transfer of Data, which stipulates that data processor who provides overseas the important data collected and generated during operations within the PRC and personal information that shall be subject to security assessment shall conduct a security assessment. Furthermore, if the data processor provides data overseas and meets one of the following circumstances, it shall declare the security assessment: (i) where a data processor provides critical data abroad; (ii) where a key information infrastructure operator or a data processor processing the personal information of more than one million people provides personal information abroad; (iii) where a data processor has provided personal information of 100,000 people or sensitive personal information of 10,000 people in total abroad since January 1 of the previous year; and (iv) other circumstances prescribed by the CAC for which declaration for security assessment for outbound data transfers is required.
On February 17, 2023, with the approval of the State Council, the CSRC promulgated the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. On May 16, 2023 and May 7, 2024, the CSRC promulgated the supporting guidelines No. 6 and No. 7 to the Trial Measures, respectively. Pursuant to the Trial Measures and their supporting guidelines, (i) domestic companies incorporated in mainland China that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following their submission of initial public offerings or listing applications. If a domestic company fails to complete the required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings and fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines; (ii) if the issuer meets both of the following criteria, the overseas offering and listing conducted by such issuer shall be deemed an indirect overseas offering and listing by a domestic company: (A) more than 50% of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic companies; and (B) the majority of the issuer’s business activities are carried out in mainland China, or its main place(s) of business are located in mainland China, or the majority of its senior management team in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in mainland China; and (iii) domestic companies listed on overseas over-the-counter markets are not required to file with the CSRC in accordance with the Trail Measures; however, domestic companies that seek to offer or list securities in overseas markets through a uplisting shall file with the CSRC pursuant to the requirements of the Trial Measures within three working days following their first submission of uplisting applications. In such circumstances, where a domestic company is seeking an indirect overseas offering and listing in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for an initial public offering or listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted.
On February 24, 2023, the CSRC, together with the Ministry of Finance of China, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions on Strengthening Confidentiality and Archive Administration in Overseas Issuance and Listing of Securities issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” (the “revised Provisions”) and became effective on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is to expand their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.
5
On March 22, 2024, the CAC issued the Provisions on Promoting and Regulating Cross-border Data Flows, which stipulates that a data handler providing personal information abroad may be exempted from declaring security assessment for data to be provided abroad, concluding a standard contract for personal information to be provided abroad or passing authentication for protection of personal information if it satisfies certain conditions. In addition, providing the data collected and generated in such activities as international trade, cross-border transport, academic cooperation, transnational manufacturing and marketing, which do not contain personal information or important data, to overseas parties is exempted from all these procedures aforementioned.
Except for the Basic Law, national laws of the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by promulgation or local legislation. National laws that may be listed in Annex III are currently limited under the Basic Law to those which fall within the scope of defense and foreign affairs as well as other matters outside the limits of the autonomy of Hong Kong. We are advised by our PRC counsel that, PRC national laws and regulations relating to data protection, cybersecurity and anti-monopoly have not been listed in Annex III of the Basic Law and do not apply directly to our Hong Kong subsidiaries.
Our PRC counsel has advised us that that we are not currently required to obtain any permission or approval from the CSRC, the CAC or any other regulatory authority in mainland China for our operations, the trading of our securities on the OTCQB and the offering of our securities to foreign investors. The business of our subsidiary is not subject to cybersecurity review with the CAC, given that laws and regulations of mainland China on data protection and cybersecurity do not currently apply to Hong Kong. To the extent that if we become subject to such laws and regulations of mainland China in the future, we do not believe we are required to conduct a cybersecurity review because (i) we do not possess a large amount of personal information in our business operations; and (ii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. In addition, we are not subject to merger control review by mainland China’s anti-monopoly enforcement agency as such PRC enforcement agency does not currently have jurisdiction over our Hong Kong operating subsidiary. However, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry, if we inadvertently conclude that such approvals are not required when they are, or applicable laws, regulations, or interpretations change and we are required to obtain approval in the future. We may be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the CSRC, if we fail to comply with such rules and regulations, which could adversely affect the ability of the Company’s securities to continue to trade on the OTCQB, which may cause the value of our securities to significantly decline or become worthless.
In addition, in light of the statements and regulatory actions by the PRC government, such as those related to Hong Kong’s national security, the promulgation of regulations prohibiting foreign ownership of mainland China companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that the PRC government could disallow our holding company structure, which may result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. These adverse actions could cause the value of our securities to significantly decline or become worthless.
Furthermore, there may be prominent risks associated with our operations being in Hong Kong. For example, as a U.S.-listed public company operating primarily in Hong Kong, we may face heightened scrutiny, criticism and negative publicity, which could result in a material change in our operations and the value of our common stock. We are also subject to certain legal and operational risks associated with our business operations in Hong Kong, which is subject to political and economic influence from China. PRC laws and regulations are sometimes vague and uncertain, and we may face the risk that changes in the policies of the PRC government could have a significant impact upon the business we conduct in Hong Kong and the profitability of such business. Therefore, these risks associated with being based in or having the majority of our operations in Hong Kong could likely cause the value of our securities to significantly decline or be worthless. Furthermore, these risks would likely result in a material change in our business operations or a complete hinderance of our ability to offer or continue to offer our securities to investors.
We face competition in the market due to the presence of a large number of insurance brokers and service providers. We may be subject to the Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (“Competition Ordinance”), which came into force on December 14, 2015, laying down three forms of behaviors and imposing three rules intended to prevent and discourage anti-competitive conducts: (i) the first conduct rule prohibits (a) the making of agreements by any entity, regardless of its legal status or the way in which it is financed, engaged in economic activity, and includes a natural person engaged in economic activity (“Undertakings”); (b) the engagement in concerted practice by Undertakings; or (c) the making or giving effect of decisions by members of an association of Undertakings, that have the object or effect of preventing, restricting distorting competition in Hong Kong; (ii) the second conduct rule prohibits undertakings with a substantial degree of market power in a market from abusing that power by engaging in conduct that has the object or effect of preventing, restricting or distorting competition in Hong Kong; and (iii) the merger rule prohibits Undertakings from directly or indirectly carrying out mergers that have or are likely to have the effect of substantially lessening competition in Hong Kong. Currently, the merger rule only applies where an Undertaking that holds or, directly or indirectly controls an Undertaking that holds a “carrier license” within the meaning of the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong) is involved in a merger. As we are not engaged in the telecommunication industry and do not hold such carrier license, such merger rule is currently not applicable to our business.
The Competition Commission is an independent statutory body in Hong Kong established under the Competition Ordinance to investigate any contravention against the competition rules and enforce the provisions of the Competition Ordinance, and the Competition Tribunal is a superior court of record set up by the Competition Ordinance, as part of the Hong Kong judiciary, to hear and decide cases relating to competition law in Hong Kong. Under the guidelines and policies published by the Competition Commission, possible outcomes of the investigation of a contravention of the Competition Ordinance may include the acceptance by the Competition Commission of a commitment given by the infringer to take any action or refrain from taking any action, the issuance of a warning notice or infringement notice, the commencement of proceedings in the Competition Tribunal, the application for a consent order, the referral of the complaint to a government agency and the conduct of a market study. The Competition Tribunal may order remedies including imposing a pecuniary penalty as well as making disqualification order or other orders under the Competition Ordinance. The guidelines and policies published by the Competition Commission in Hong Kong did not mention any remedies which may affect an entity’s ability to accept foreign investment or list on a U.S./foreign exchange as a result of the non-compliance of the Competition Ordinance. See “Risk Factors — Risks Related to Doing Business in Hong Kong — Failure to comply with Hong Kong Competition Law may result in material and adverse effect on our business, financial condition and results of operations.” beginning on page 28.
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Operating our business in Hong Kong, we are subject to the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) (the “PDPO”) which sets out the principles that a person who, either alone, jointly or in common with other persons, controls the collection, holding, processing or use of personal data (“Data User”) must follow in any acts concerning information, existing in a form which access to or processing of is practicable, which relates to a living individual and can be used to identify that individual. Alleged failure to comply with applicable laws and regulations regarding data security or failure to protect user privacy, regardless of their validity, may result in negative news or media coverage of our business which may in turn damage our reputation, erosion of customer faith in us and material negative impact on our business, results of operations, and financial condition. Contravention with the PDPO may entitle the Privacy Commissioner for Personal Data to issue a written enforcement notice directing such Data User to take prescribed steps within a specified timeframe to remedy and prevent recurrence of contravention. Contravention with the above enforcement notice issued by the Privacy Commissioner for Personal Data is an offence and on first conviction, the offender is liable to a maximum fine of HK$50,000 and imprisonment for 2 years, with a daily penalty of HK$1,000. Subsequent convictions can result in a maximum fine of HK$100,000 and imprisonment for 2 years, with a daily penalty of HK$2,000. The PDPO does not prescribe any express remedies regarding an entity’s ability to accept foreign investment or list on a U.S./foreign exchange as a result of the non-compliance of the PDPO. See “Risk Factors — Risks Related to Doing Business in Hong Kong — Failure to comply with the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong may result in material and adverse effect on our business, financial condition and results of operations.” beginning on page 28.
For a detailed description of the risks facing the Company and the risks associated with having our operations in Hong Kong, please refer to “Item 1A. Risk Factors – Risks Related to Doing Business in Hong Kong.”
Corporate History
QDM was incorporated in Florida on March 10, 2020 as the successor to 24/7 Kid, which was incorporated in Florida in November 1998. 24/7 Kid was a telemedicine company that provided Connect-a-Doc telemedicine kits to schools with its services aiming at providing an alternative 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.
On March 3, 2020, a stock purchase agreement (the “Purchase Agreement”) was entered into by and between Huihe Zheng, our Chief Executive Officer and Chairman, and Tim Shannon, our then controlling shareholder as well as Chief Executive Officer, Chief Financial Officer, President and director. Pursuant to the Purchase Agreement, Mr. Shannon sold to Mr. Zheng (i) 236,666 shares of common stock of 24/7 Kid, representing 42.6% of the total issued and outstanding shares of common stock of 24/7 Kid as of March 9, 2020 and (ii) 13,500 shares of Series B Preferred Stock, each entitling the holder to 100 votes on all corporate matters submitted for shareholder approval, in consideration of $500,000 in cash from Mr. Zheng’s personal funds. The shares of common stock and Series B Preferred Stock acquired by Mr. Zheng, in the aggregate, represented 68.3% of the outstanding voting securities of 24/7 Kid as of March 9, 2020, and the acquisition of such shares resulted in a change in control of 24/7 Kid.
On March 10, 2020, QDM was incorporated in Florida as a wholly owned subsidiary of 24/7 Kid, and QDM Merger Sub, Inc. (“Merger Sub”) was incorporated in Florida as the wholly owned subsidiary of QDM, for the purposes of effectuating a name change by implementing a reorganization of the corporate structure of 24/7 Kid through a merger (the “Merger”). On March 13, 2020, an Agreement and Plan of Merger (the “Merger Agreement”) was entered into by and among 24/7 Kid, QDM, and the Merger Sub. On April 8, 2020, the Articles of Merger were filed with the State of Florida to effect the Merger as stipulated by the Merger Agreement.
Pursuant to the Merger Agreement, Merger Sub merged with and into 24/7 Kid, with 24/7 Kid being the surviving entity. As a result, the separate corporate existence of Merger Sub ceased and 24/7 Kid became a direct, wholly-owned subsidiary of QDM. Pursuant to the Merger Agreement and as a result of the Merger, all issued and outstanding shares of common stock and Series B Preferred Stock of 24/7 Kid were converted into shares of QDM’s common stock and Series B Preferred Stock, respectively, on a one-for-one basis, with the QDM securities having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the corresponding share of the securities of 24/7 Kid being converted. As a result, upon consummation of the Merger, all of the shareholders of 24/7 Kid immediately prior to the Merger became shareholders of QDM and all the directors and officers of 24/7 Kid became the directors and officers of QDM. Upon consummation of the Merger, QDM became the successor issuer to 24/7 Kid pursuant to 12g-3(a) and as a result of shares of our common stock were deemed to be registered under Section 12(g) of the Exchange Act.
On October 21, 2020, QDM entered into a share exchange agreement (the “Share Exchange Agreement”) with QDM BVI, and Huihe Zheng, the sole shareholder of QDM BVI, who is also the principal shareholder and Chairman and Chief Executive Officer of QDM, 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 being currently convertible into approximately 3.67 shares of our common stock, subject to certain adjustments and limitations (the transaction, the “Share Exchange”). The Share Exchange closed on October 21, 2020. As a result of the consummation of the Share Exchange, QDM acquired 100% of the share capital of QDM BVI, and indirectly all of the share capital of QDM HK and YeeTah.
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On November 3, 2021, we acquired 100% of the issued and outstanding shares of QDMS, a company incorporated on February 6, 2020 in Cyprus. We acquired QDMS through an intermediary holding company, LGL, which was incorporated on July 29, 2021 in the BVI. Before the acquisition, Huihe Zheng was the sole shareholder of QDMS. As part of the acquisition, Mr. Zheng sold all the shares of QDMS to LGL for a consideration of EUR5,000and at the same time the sole shareholder of LGL, Mengting Xu, transferred all her shares in LGL to us for a consideration of USD$1.00. As a result, we acquired 100% ownership of LGL, which, in turn, owned 100% of QDMS.
In 2022, 24/7 Kid was administratively dissolved with the State of Florida.
In March 2023, the Company consummated a closing of a public offering of its common stock, par value $0.0001 per share (the “2023 Offering”), in which the Company issued and sold an aggregate of 289,104,000 shares of its common stock at a price of $0.081 per share to certain investors, generating gross proceeds to the Company of $2,339,937.
On October 4, 2023, the Company sold QDMS to Mr. Zheng for no consideration. As a result of the disposition, the Company recognized a gain of $33,165.
On March 28, 2024, the Company filed an Articles of Amendment to Articles of Incorporation of the Company (the “Amendment”) with the Florida Department of State to (i) increase its authorized shares of common stock, par value $0.0001 per share, from 200,000,000 shares to 700,000,000 shares and its authorized shares of preferred stock, par value $0.0001 per share, from 5,000,000 shares to 30,000,000 shares; and (ii) effect a forward split of its issued and outstanding shares of common stock at a ratio of 10-for-1, which became effective as of April 5, 2024 (the “2024 Forward Stock Split”). The foregoing amendments were approved by the Board and shareholders holding approximately 60.9% of the voting power of the Company.
As a result of the 2024 Forward Stock Split, each issued and outstanding share of the Company’s common stock prior to the effective time of the 2024 Forward Stock Spilt are split into ten shares of common stock and the total number of issued and outstanding shares of common stock increases from 29,156,393 shares to 291,563,930 shares. The 2024 Forward Stock Split has no impact on the Company’s issued and outstanding shares of preferred stock other than that the conversion rate and voting rights of our Series C Convertible Preferred Stock were proportionately adjusted.
On October 9, 2024, the Company entered into a securities subscription agreement with Mr. Huihe Zheng, the Company’s Chief Executive Officer, President, and Chairman of the Board (the “Securities Subscription Agreement”). Pursuant to the Securities Subscription Agreement, the Company agreed to issue 6,000,000 shares of Series B Preferred Stock, par value $0.0001 per share (the “Series B Shares”) to Mr. Zheng at a purchase price of $0.10 per share, and Mr. Zheng agreed to cancel and forgive a portion of the currently outstanding principal amount of the debt owed by the Company to Mr. Zheng, in the amount of US$600,000, which was loaned by Mr. Zheng to the Company providing for its working capital and general corporate expenses.
Competitive Advantages
We believe that the following competitive strengths contribute to our growth and differentiate us from our competitors:
| ● | Premium Customer Service Experience. We believe providing superior customer service to our existing and potential customers is the most important aspect of our business in terms of brand building and product differentiation. We have designed our services to provide personalized customer service throughout the whole insurance purchase process, including in-depth customer needs analysis, product and plan customization, product evaluation and selection, and claim settlement related assistance. |
| ● | Concentrated Insurance Product Offerings. Hong Kong’s independent insurance intermediary companies generally focus on both life insurance and property insurance, but our strategy has been to focus on life insurance because of generally higher commissions. As of March 31, 2025, YeeTah is a party to agreements with 21 insurance companies in Hong Kong and offers approximately 489 insurance products to its individual customers. We believe our ability to offer concentrated products and services makes us an attractive distributor for our insurance company partners and enables us to provide quality service to our customers. |
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Good Relationships with Insurance Companies. We maintain good relationships with the leading insurance companies in Hong Kong, which have very stringent requirements on selection of brokers. YeeTah has been working with them since 2015 and has been able to pass their annual evaluations and receive favorable commission rates. |
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Experienced Management Team in the Insurance Industry. YeeTah’s responsible officer has more than ten years of experience serving as a senior executive in the insurance industry and is familiar with the insurance intermediary industry and the regulatory environment in Hong Kong. In addition, YeeTah’s sales team includes three sales directors and two sales managers, each of whom have more than 10 years of experience in the insurance industry. |
| ● | Strong Commitment to Rigorous Training and Development. Given the rapid development of new insurance products and the heavy reliance on face-to-face sales efforts in Hong Kong’s insurance industry, we believe that YeeTah’s strong in-house training program, which covers regulatory requirements, product knowledge and sales skills, gives it a competitive edge over the other professional insurance intermediaries and helps YeeTah retain its sales force and improve our sales. The training also emphasizes inculcating in YeeTah’s technical representatives our corporate culture of customer service and commitment to high ethical standards. |
Growth Strategy
Our goal is to further expand our distribution network. To achieve this goal, we intend to capitalize on the growth potential of Hong Kong’s insurance industry and the insurance intermediary sector, leverage our competitive strengths and pursue the following strategy:
| ● | Further Participation in the Growing Life-Insurance Sector in Hong Kong. Life insurance products that require periodic premium payments have the potential to generate sustained revenue over an extended period of time. In order to take advantage of the significant growth potential of Hong Kong’s life issuance market and generate recurring income, we intend to continue to devote significant resources to growing this business line. We intend to actively recruit sales and marketing professionals to help increase sales of life insurance products in Hong Kong. We also intend to improve the productivity of individual technical representatives through rigorous training. In addition, we plan to leverage our existing customer base to cross-sell life insurance products to our non-life insurance customers. |
| ● | Further Expand Our Distribution Network Through Building Relationships with Strategic Partners. The insurance intermediary sector in Hong Kong is highly competitive. We plan to grow our distribution network by building relationships with partners in mainland China that have the potential of generating large premium in sales such as financial institutes, real estate companies and other public entities and with wealth management companies, high net-worth clients and strategic partners in the Hong Kong market through recruiting and hiring more sales professionals to cover strategic partners. We believe that expanding our distribution network will help us generate more business and grow our sales. |
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Continue to Strengthen Our Relationships with Leading Insurance Companies. We currently establish and maintain most of our business relationships with insurance companies in Hong Kong. As we plan to expand our distribution network through partners in mainland China in an effort to increase our sales volumes in the future, we hope to obtain favorable commission rates and exclusive rights to distribute high-margin products or collaborate with our insurance company partners to custom-develop products to suit the needs of our prospective customers. |
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Products and Services
We market and sell two broad categories of insurance products: (i) life and medical insurance products, and (ii) general insurance products. As of the date of March 31, 2025, insurance products we sell are underwritten by 21 insurance companies in Hong Kong. In addition, as an MPF Intermediary, we also assist our customers with their MPF schemes in Hong Kong. Such services primarily include information collection, explanation of MPF products and policies (excluding investment advisory services), assistance with applications to set up MPF accounts, and transfer of funds across their respective MPF schemes.
Life and Medical Insurance Products
During the fiscal year ended March 31, 2025 and 2024, our life and medical insurance products collectively accounted for approximately 93.5% and 99.9%, respectively, of our net revenues. For life and medical insurance products purchased by our customers, we generally receive commissions in the range of 2.75% to 90% of the first-year premiums and in the range of 0% to 64.8% of renewal premiums.
The sale of life and medical insurance products is, and we currently expect it to continue to be, the major source of our revenue in the next several years. We began offering life insurance products in 2015 with a focus on individual life products with periodic payment schedules. The major life and medical insurance products we sell can be broadly classified into the categories set forth below. Due to constant product innovation by insurance companies, some of the insurance products we sell combine features of one or more of the categories listed below:
| ● | Individual Health Insurance. The individual health insurance products we sell primarily consist of critical illness insurance products, which provide guaranteed benefits when the insured is diagnosed with specified serious illnesses, and medical insurance products, which provide conditional reimbursement for medical expenses during the coverage period. In return, the insured makes periodic payment of premiums over a pre-determined period. |
| ● | Individual Annuity. The individual annuity products we sell generally provide annual benefit payments after the insured attains a certain age, or for a fixed time period, and provide a lump sum payment at the end of the coverage period. In addition, the beneficiary designated in the annuity contract will receive guaranteed benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products makes periodic payments of premiums during a pre-determined accumulation period. |
| ● | Individual Endowment Life Insurance. The individual endowment products we sell generally provide insurance coverage for the insured for a specified time period and maturity benefits if the insured reaches a specified age. The individual endowment products we sell also provide to a beneficiary designated by the insured guaranteed benefits upon the death of the insured within the coverage period. In return, the insured makes periodic payment of premiums over a pre-determined period. |
We believe due to mainland China and Hong Kong’s rapidly aging population, high national savings rate, sustained economic development, rising household income, strong support from government policies and regulations, and enhanced risk protection awareness, Hong Kong’s life and medical insurance sector will experience faster growth than the other insurance sectors, and currently we continue to allocate greater resources to develop our life and medical insurance business.
General Insurance Products
During the fiscal year ended March 31, 2025 and 2024, our general insurance products accounted for less than 1.0% of our net revenues. For general insurance products purchased by our customers, we generally receive commissions from the insurance companies in the range of 8.0% – 57.5% of the premiums. The major general insurance products we offer or facilitate to individual customers can be further classified into the following categories:
| ● | Individual Accident Insurance. The individual accident insurance products we sell generally provide a guaranteed benefit during the coverage period in the event of death or disability of the insured as a result of an accident, or a reimbursement of medical expenses to the insured in connection with an accident. These products typically require only a single premium payment for each coverage period. Because most of the individual accident insurance products we sell are underwritten by general insurance companies, we classify individual accident insurance products as general insurance products. |
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| ● | Travel Insurance. The travel insurance products we sell are short-term insurance providing guaranteed benefit in the event of death or disability and covering travel-related emergencies and losses, either within one’s own country or internationally. These products typically require only a single premium payment for each coverage period. |
| ● | Homeowner Insurance. The homeowner insurance products we sell primarily cover damages to the insured house, along with furniture and household electrical appliance in the house caused by a number of incidents such as fire, flood and explosion. |
| ● | Auto Insurance. We facilitate both standard auto insurance policies and supplemental policies, which we refer to as riders. The standard auto insurance policies we facilitate generally have a term of one year and cover damages caused to the insured vehicle by collision and other traffic accidents, falling or flying objects, fire, explosion and natural disasters. We also facilitate standard third-party liability insurance policies, which cover bodily injury and property damage caused by an accident involving an insured vehicle to a person not in the insured vehicle. The riders we facilitate cover additional losses, such as liability to passengers, losses arising from vehicle theft and robbery, broken glass and vehicle body scratches. |
MPF and ORSO Services
The MPF is a compulsory saving scheme (pension fund) for the retirement of residents in Hong Kong. Most employees and their employers are required to contribute monthly to the MPF schemes provided by approved private organizations based on the salary and period of employment of the employee. ORSO schemes are retirement schemes set up voluntarily by employers to provide retirement benefits for their employees. MPF is the mainstream retire plan in Hong Kong. We introduce customers to the service providers of the MPF and ORSO schemes approved by MPFA as trustees to administer the MPF and ORSO schemes. As of March 31, 2025, there were a total 15 approved trustees in Hong Kong, of which, four have signed agreements with us in connection with its provision of MPF and ORSO related services. We assist employees who are Hong Kong residents to open personal accounts with a new approved trustee and employers in Hong Kong to set up corporate accounts. We receive service fees in the range of 1.0% – 5.0% of the total investment transferred by an employee/employer to the new trustee and are paid by the trustee once the transaction is completed. During the fiscal year ended March 31, 2025 and 2024, we serviced one and five customers, respectively, with account opening and transfer of funds across their respective MPF schemes.
Referral Business
In December 2023, we strategically expanded our business model by entering into a collaborative partnership with a trust company in Hong Kong. This partnership allows us to refer potential clients, who are part of our growing customer base, to the trust company for their investment products. In return for these referrals, we earn commissions based on a percentage of the value of the investment products purchased by the referred clients. This mutually beneficial arrangement enables us to diversify our revenue streams while providing additional value to our customers by connecting them with trusted investment opportunities. During the year ended March 31, 2025, we have generated $540,616 from our referral business.
Distribution Network and Marketing
We rely on our technical representatives to market and sell insurance products in Hong Kong. As of March 31, 2025, our team included 16 technical representatives who exclusively work in insurance brokerage services for YeeTah in Hong Kong. YeeTah enters into referral agreements with business partners, pursuant to which the business partners will refer clients to YeeTah and are compensated for their referrals if referred clients purchase insurance through YeeTah.
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Customers
By providing premium customer services to our customers, we strive to build a loyal customer base that generates referral and cross-selling opportunities, and that becomes returning customers, who purchase more than one product from us. During the fiscal year ended March 31, 2025 and 2024, we serviced a total of 263 and 133 customers with life and medical insurance, respectively, and 36 and 33 customers with general insurance, respectively. Of all of our customers in life and medical insurance, we had 7 from Hong Kong and 256 from mainland China for the fiscal year ended March 31, 2025, and six from Hong Kong and 127 from mainland China for the fiscal year ended March 31, 2024.
Collaboration with Insurance Companies
As of March 31, 2025, YeeTah is a party to long-term agreements with 21 insurance companies in Hong Kong, pursuant to which YeeTah is authorized to market and distribute certain insurance products of those companies to its customers. These agreements establish, among other things, the scope of our authority, the pricing of the insurance products YeeTah sells and its commission rates.
For the fiscal years ended March 31, 2025 and 2024, our top insurance company partners by commissions are as follows:
| Fiscal Year Ended March 31, 2025 | Fiscal Year Ended March 31, 2024 | |||||||||||||||
| Company Name | Commissions (In US$) | Percentage of Revenue | Commissions (In US$) | Percentage of Revenue | ||||||||||||
| Company A | 1,018,028.14 | 12.1 | % | 6,143,538.86 | 96.5 | % | ||||||||||
| Company B | 5,708,644.81 | 68.1 | % | 185,826.25 | 2.9 | % | ||||||||||
| Company C | 95,444.97 | 1.1 | % | 26,564.36 | 0.4 | % | ||||||||||
| Company D | 540,615.70 | 6.5 | % | — | — | |||||||||||
Competition
A number of industry players are involved in the distribution of insurance products in Hong Kong. We compete for customers on the basis of our competitive product offerings, premium customer services and reputation. Our principal competitors include:
| ● | Professional insurance brokerages. As of March 31, 2025, there were a total of 1,561 and 802 insurance agencies and insurance broker companies in Hong Kong, respectively. The insurance agencies represent insurance companies, and the insurance broker companies represent customers who purchase insurance products. The rest of the insurance brokerages are other businesses which sell insurance products, such as commercial banks. With an increasing consolidation expected in the insurance brokerage sector in the coming years, we expect competition within this sector to intensify. |
| ● | Insurance companies. We compete against insurance companies that rely on their own sales force to distribute their products. All large insurance companies use both in-house sales force and exclusive sales agents to distribute their own products. We believe that we can compete effectively with insurance companies because we focus only on distribution and are able to offer our customers a broader range of insurance products underwritten by multiple insurance companies. |
| ● | Other business entities. In Hong Kong, some business entities may distribute insurance products as an ancillary business, primarily commercial banks. However, the insurance products distributed by these entities are usually confined to those related to their main lines of business. We believe that we can compete effectively with these business entities because we offer our customers a broader variety of insurance products and professional services. |
Although some of our competitors have operated for a longer period of time than us, with more market shares and greater brand influence, we believe that our team’s years of experience in the insurance industry, as well as our quality customer service, enable us to better respond and adapt to fast changing insurance market conditions compared to the larger competitors.
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Seasonality
Our income is subject to quarterly fluctuations as a result of the seasonality of our business, the timing of policy renewals and the net effect of new and lost business. For life insurance, the insurance companies, under pressure to meet their annual sales targets, would increase their sales efforts during the fourth quarter of a year by, for example, offering more incentives for insurance brokerages to increase sales. As a result, income derived from life insurance products for the fourth quarter of a year is generally the highest among all four quarters. Business activities, including buying and selling insurance, usually slow down during the Chinese New Year holiday, which occur during the first quarter of each year. As a result, income derived from our insurance products for the first quarter of a year has generally been the lowest among all four quarters.
Intellectual Property
As of March 31, 2025, we had no registered or registration-pending intellectual property.
Employees and Technical Representatives
As of March 31, 2025, we had nine full-time employees, including two executive officers, and eight of nine employees are full-time employees who are based in our headquarter in Hong Kong, seven of whom are qualified technical representatives. The remaining nine technical representatives are independent contractors. Technical representatives are licensed individuals who provide advice to a policy holder or potential policy holder on insurance matters for an insurance agent or broker, or arrange contracts of insurance in or from Hong Kong on behalf of that insurance agent or broker. YeeTah’s affiliated technical representatives (who are not our employees) are solely compensated via commissions on sales of insurance policies. The commissions YeeTah pays its technical representatives vary from 100% to 170% of the basic commission rate provided by each insurance company.
Government Regulation
As a business operating in Hong Kong, we are subject to various regulations and rules promulgated by the Hong Kong government. The following is a brief summary of the Hong Kong laws and regulations that currently materially affect our business. This section does not purport to be a comprehensive summary of all present and proposed regulations and legislation relating to the industry in which we operate our business.
Regulations Related to Insurance Intermediaries
Effective September 23, 2019, IA took over the regulation of insurance agents and brokers (collectively, “Insurance Intermediaries”) from the three self-regulatory organizations (i.e., the Insurance Agents Registration Board established under The Hong Kong Federation of Insurers, The Hong Kong Confederation of Insurance Brokers and The Professional Insurance Brokers Association) and becomes the sole regulator to license and supervise all Insurance Intermediaries in Hong Kong. The IA is responsible for supervising Insurance Intermediaries’ compliance with the provisions of Insurance Ordinance (Chapter 41 of the Laws of Hong Kong) (the “IO”), and the relevant regulations, rules, codes and guidelines issued by the IA. The IA is also responsible for promoting and encouraging proper standards of conduct of Insurance Intermediaries, and has regulatory powers in relation to licensing, inspection, investigation and disciplinary sanctions.
The regulatory regime for Insurance Intermediaries is activity-based. Under section 64G of the IO, a person must not carry on a regulated activity, or must not hold out that the person is carrying on a regulated activity, in the course of business or employment, or for reward unless the person holds an appropriate type of Insurance Intermediary license or is exempt under the IO. It is an offence for contravening section 64G of the IO
Regulated Activity
Under section 3A(a) of the IO and Schedule 1A to the IO, a person carries on a regulated activity if the person does any of the following:
| ● | negotiating or arranging a contract of insurance; |
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| ● | inviting or inducing, or attempting to invite or induce, a person to enter into a contract of insurance; |
| ● | inviting or inducing, or attempting to invite or induce, a person to make a decision in relation to (a) the making of an application or proposal for a contract of insurance; (b) the issuance, continuance or renewal of a contract of insurance; (c) the cancellation, termination, surrender or assignment of a contract of insurance; (d) the exercise of a right under a contract of insurance; (e) the change in any term or condition of a contract of insurance; or (f) the making or settlement of an insurance claim; or |
| ● | giving advice in relation to (a) the making of an application or proposal for a contract of insurance; (b) the issuance, continuance or renewal of a contract of insurance; (c) the cancellation, termination, surrender or assignment of a contract of insurance; (d) the exercise of a right under a contract of insurance; (e) the change in any term or condition of a contract of insurance; or (f) the making or settlement of an insurance claim (such advice is referred to as “Regulated Advice”). |
Types of Licensed Insurance Brokers
The licensing regime under the IO prescribes two types of licensed insurance brokers: licensed insurance broker companies and licensed technical representatives (broker).
| ● | A licensed insurance broker company is a company which is granted an insurance broker company license under section 64ZA of the IO to carry on regulated activities in one or more lines of business, and to perform the act of negotiating or arranging an insurance contract as an agent of any policy holder or potential policy holder. |
| ● | A licensed technical representative (broker) is an individual who is granted a technical representative (broker) license under section 64ZC of the IO to carry on regulated activities in one or more lines of business, as an agent of any licensed insurance broker company. |
A license granted under section 64ZA or 64ZC of the IO is valid for 3 years or, if the IA considers it appropriate in a particular case, another period determined by the IA, beginning on the date on which it is granted.
Responsible Officer
Under section 64ZF of the IO, a licensed insurance broker company should appoint a fit and proper person to discharge his or her responsibilities as a responsible officer of the insurance broker company, and should provide sufficient resources and support to that person for discharging his or her responsibilities. Prior approval of the IA is required for appointment of the responsible officer.
“Fit and Proper” Requirements
Under the IO, a person who is, is applying to be, or is applying for a renewal of a license to be, a licensed insurance broker is required to satisfy the IA that he/she/it is a fit and proper person. In addition, the responsible officer(s), controller(s), and director(s) (where applicable) of a licensed insurance broker company are also required to be fit and proper persons. These “fit and proper” requirements aim at ensuring that the licensed insurance brokers are competent, reliable and financially sound, and have integrity. Pursuant to the IO, in determining whether a person is a fit and proper person, the IA must consider, among others, the following factors:
| ● | the person’s education or other qualifications or experience; |
| ● | the person’s ability to carry on a regulated activity competently, honestly and fairly; |
| ● | the persons’ reputation, character, reliability and integrity; |
| ● | the person’s financial status or solvency; |
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| ● | whether any disciplinary action has been taken against the person by the Monetary Authority, the Securities and Futures Commission, the Mandatory Provident Fund Schemes Authority; or any other authority or regulatory organization (in Hong Kong or elsewhere), which, in the IA’s opinion, performs a function similar to those of the IA; |
| ● | if the person is a company in a group of companies, any information in the possession of the IA, whether provided by the person or not, relating to any other company in the group of companies or any controller or director of the person or of such company; |
| ● | the state of affairs of any other business which the person carries on or proposes to carry on; and |
| ● | in respect of an application to be licensed as a licensed insurance broker company or renewal of such license, any information in the possession of the IA whether provided by the person or not relating to (i) any other person who is or is to be employed by, or associated with the person for the purposes of carrying on regulated activities, (ii) any other person who is or will be acting for or on behalf of the person in relation to carrying on regulated activities and (iii) the question as to whether the person has established effective internal control procedures and risk management systems to ensure its compliance with the IO. |
The IA also issued the Guideline on “Fit and Proper” Criteria for Licensed Insurance Intermediaries under the Insurance Ordinance (Cap. 41) to further explain the criteria that the IA would adopt in determining whether a person is a fit and proper person. In addition, continuing professional development is part of the fit and proper requirement and the IA issued the Guideline on Continuing Professional Development for Licensed Insurance Intermediaries to provide guidance for complying with the continuing professional development requirements.
Financial and Other Requirements for Licensed Insurance Broker Companies
A licensed insurance broker company is required to comply with the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (Chapter 41L of the Laws of Hong Kong) (“Broker Rules”), which came into force on September 23, 2019 and set out, inter alia, some of the key requirements in relation to:
| ● | Share Capital and Net Assets |
A licensed insurance broker company must at all times maintain a paid-up share capital of not less than HK$500,000 and net assets of not less than HK$500,000 ($64,103). In respect of licensed insurance broker companies which were previously registered under the self-regulatory regime (and which continue to be licensed under the new regulatory regime effective from September 23, 2019 mentioned above) (“specified insurance broker companies”), the Broker Rules stipulated a 4-year plus phase-in transitional arrangement, pursuant to which, “specified insurance broker company” is required to maintain the amount of paid-up share capital and net assets of (i) not less than HK $100,000 ($12,821) for the period from September 23, 2019 to December 31, 2021 and (ii) not less than HK $300,000 ($38,462) for the period from January 1, 2022 to December 31, 2023.
| ● | Professional Indemnity Insurance |
A licensed insurance broker company must maintain a professional indemnity insurance policy that provides coverage for claims made against the company for liabilities arising from breaches of duty in the course of carrying on its regulated activities.
| ● | Client Accounts |
A licensed insurance broker company that receives or holds client monies must maintain at least one client account with an authorized institution in the name of the licensed insurance broker company in the title of which the word “client” appears.
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| ● | Record Keeping |
A licensed insurance broker company must keep, in relation to its business which constitutes the carrying on of regulated activities, where applicable, sufficient accounting and other records (including records relating to the assets or affairs of the company’s clients).
Licensed insurance broker companies are required to file their audited financial statements and auditor’s compliance reports to the IA annually, which statements and reports are reviewed by the IA annually. Any issue noted or qualified opinion expressed by the auditor will be followed up and where applicable, further actions will be taken as the IA considers necessary.
The Broker Rules also provide certain exemptions for the broker insurance companies subject to the transitional requirements referenced above during the specified transitional period in complying with the requirements in relation to professional indemnity insurance, client monies reconciliation and audited financial statements.
Conduct Requirements
Licensed insurance brokers are required to comply with the statutory conduct requirements set out in sections 90 and 92 of the IO. The IA also issued the Code of Conduct for Licensed Insurance Brokers (“Code of Conduct”) to set out the general principles, together with the standards and practices relating to each general principle, serving as the minimum standards of professionalism to be met by licensed insurance brokers when carrying on regulated activities.
The general principles that a licensed insurance broker should comply with include:
| ● | acting honestly, ethically, with integrity and in good faith; |
| ● | acting in the best interests of its clients and treating its clients fairly; |
| ● | acting with due care, skill and diligence; |
| ● | possessing appropriate levels of professional knowledge and experience and only carrying on regulated activities in respect of which the broker has the required competence; |
| ● | providing clients with accurate and adequate information to enable them to make informed decisions; |
| ● | providing Regulated Advice suitable for the client taking into account the client’s circumstances; |
| ● | using best endeavors to avoid conflicts of interests and when such conflicts cannot be avoided, and managing them with appropriate disclosure to ensure clients are treated fairly at all times; and |
| ● | having sufficient safeguards in place to protect client assets received by the broker or which are in the broker’s possession. |
A licensed insurance broker company is required to have proper controls and procedures in place to ensure that the broker company and its licensed technical representatives (broker) meet the general principles, standards and practices set out in the Code of Conduct.
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The Code of Conduct does not have the force of law, in that it is not subsidiary legislation, and should not be interpreted in a way that would override the provision of any law. A failure by a licensed insurance broker to comply with the Code of Conduct shall not by itself render the broker liable to any judicial or other proceedings. However, in any proceedings under the IO before a court, the Code of Conduct is admissible in evidence, and if a provision in the Code of Conduct appears to the court to be relevant to a question arising in the proceedings, the court must, in determining the question, take into account any compliance or non-compliance with the Code of Conduct.
Regulation of Mandatory Provident Fund Intermediaries
With the implementation of the Mandatory Provident Fund Schemes (Amendment) Ordinance 2012, a new statutory regulatory regime for MPF intermediaries came into operation as of November 1, 2012. Under this statutory regime, only registered MPF intermediaries (such as our operating subsidiary) are allowed to engage in conducting sales and marketing activities and giving advice in relation to MPF schemes.
Under the statutory regime, the Mandatory Provident Fund Schemes Authority (“MPFA”) is the authority to administer MPF intermediaries, issue guidelines on compliance with statutory requirements applicable to registered MPF intermediaries, and impose disciplinary sanctions. On the other hand, the IA is given the statutory role for monitoring the compliance of the registered MPF intermediaries. As a frontline regulator, the IA supervises the conduct requirements stipulated in the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) (“MPFSO”). If the IA has reasonable cause to believe that the registered MPF intermediaries may have failed to comply with the statutory conduct requirements, it may exercise the investigation powers under the MPFSO for investigating the suspected non-compliance.
Registered MPF intermediaries must comply with a set of statutory conduct requirements when they engage in conducting sales and marketing activities and giving advice in relation to MPF schemes. The MPFA has issued the Guidelines on Conduct Requirements for Registered Intermediaries to assist the registered MPF intermediaries in understanding how to comply with the conduct requirements.
The minimum standards of conduct that a registered MPF intermediary should adopt include:
| ● | acting honestly, fairly, in the best interests of the client and with integrity; |
| ● | acting with care, skill and diligence; |
| ● | advising on matters within competence; |
| ● | having regard to client’s particular circumstances as is necessary for ensuing that the regulated activity is appropriate to the client; |
| ● | disclosing necessary information to the client; |
| ● | disclosing conflict of interest; |
| ● | prompt and proper accounting for client assets; |
| ● | keeping records of regulated activities; |
| ● | establishing, maintaining and observing proper controls and procedures for securing compliance by the principal intermediary; |
| ● | using the principal intermediary’s best endeavors to secure observance by subsidiary intermediaries attached to the principal intermediary of the controls and procedures established above; |
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| ● | ensuring that the responsible officer has sufficient authority within the principal intermediary for carrying out specified responsibilities in relation to the principal intermediary; |
| ● | providing the responsible officer with sufficient resources and support for carrying out specified responsibilities in relation to the principal intermediary; |
| ● | appointing a responsible officer to use his or her best endeavors to carry out specified responsibilities in relation to the principal intermediary; and |
| ● | complying with other requirements that are prescribed by the rules made by the MPFA. |
Regulation Related to Business Registration
The Business Registration Ordinance (Chapter 310 of the Laws of Hong Kong) requires every person carrying on any business in Hong Kong to make an application to the Commissioner of Inland Revenue in the prescribed manner for the registration of that business, unless it is exempt under the Business Registration Ordinance. The Commissioner of Inland Revenue must register each business for which a business registration application is made and as soon as practicable after the prescribed business registration fee and levy are paid and issue a business registration certificate or branch registration certificate for the relevant business or the relevant branch, as the case may be. Business registration certificate will be issued on submission of the necessary document(s) together with payment of the relevant fee and is renewable every year or every three years (if business operators elect for issuance of business registration certificate that is valid for three years). Any person who fails to apply for business registration shall be guilty of an offence and shall be liable to a fine of HK$5,000 and to imprisonment for one year.
Regulation Related to Employment and Labor Protection
Employment Ordinance (Chapter 57 of the Laws of Hong Kong)
The Employment Ordinance (Chapter 57 of the Laws of Hong Kong), or the EO, is an ordinance enacted for, among other things, the protection of the wages of employees and the regulation of the general conditions of employment and employment agencies. Under the EO, an employee is generally entitled to, amongst other things, notice of termination of his or her employment contract; payment in lieu of notice; maternity protection in the case of a pregnant employee; not less than one rest day in every period of seven days; severance payments or long service payments; sickness allowance; statutory holidays or alternative holidays; and paid annual leave of up to 14 days depending on the period of employment.
Under section 25 of the EO, where a contract of employment is terminated, any sum due to the employee shall be paid to him/her as soon as it is practicable and in any case not later than seven days after the day of termination. Any employer who willfully and without reasonable excuse contravenes section 25 of the EO commits an offence and is liable to a maximum fine of HK$350,000 and imprisonment for three years.
Further, under section 25A of the EO, if any wages or any sum referred to in section 25(2)(a) of the EO are not paid within seven days from the day on which they become due, the employer shall pay interest at a specified rate on the outstanding amount of wages or sum from the date on which such wages or sum become due up to the date of actual payment. Under section 63CA of the EO, any employer who willfully and without reasonable excuse contravenes section 25A of the EO commits an offence and is liable on conviction to a maximum fine of HK$10,000.
Employees’ Compensation Ordinance (Chapter 282 of the Laws of Hong Kong)
The Employees’ Compensation Ordinance (Chapter 282 of the Laws of Hong Kong), or the ECO, is an ordinance enacted for the purpose of providing for the payment of compensation to employees injured in the course of employment. As stipulated by the ECO, no employer shall employ any employee in any employment unless there is in force in relation to such employee a policy of insurance issued by an insurer for an amount not less than the applicable amount specified in the Fourth Schedule of the ECO in respect of the liability of the employer. According to the Fourth Schedule of the ECO, the insured amount shall be not less than HK$100,000,000 (approximately $12,900,000) per event if a company has no more than 200 employees. Any employer who contravenes this requirement commits a criminal offence and is liable on conviction to a fine of HK$100,000 (approximately $12,900) and imprisonment for two years. An employer who has taken out an insurance policy under the ECO is required to display a prescribed notice of insurance in a conspicuous place on each of its premises where any employee is employed. Any employer who, without reasonable cause, contravenes this requirement commits a criminal offence and is liable on conviction to a fine of HK$10,000 (approximately $1,290). We believe that we have taken sufficient employee compensation insurance for our employees required under the ECO.
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Under section 15 of the ECO, an employer must notify the Commissioner for Labor of any work accident by submitting Form 2 (within 14 days for general work accidents and within seven days for fatal accidents), irrespective of whether the accident gives rise to any liability to pay compensation. If the happening of such accident was not brought to the notice of the employer or did not otherwise come to his knowledge within such period of seven or 14 days (as the case may be), then such notice shall be given not later than seven days or, as may be appropriate, 14 days after the happening of the accident was first brought to the notice of the employer or otherwise came to his knowledge.
Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong)
The MPFSO is an ordinance enacted for the purposes of providing for the establishment of non-governmental mandatory provident fund schemes, or the MPF Schemes. The MPFSO requires every employer of an employee (other than exempt persons) of 18 years of age or above but under 65 years of age to take all practical steps to ensure the employee becomes a member of a registered MPF Scheme. Subject to the minimum and maximum relevant income levels, it is mandatory for both employers and their employees to contribute 5% of the employee’s relevant income to the MPF Scheme. For a monthly-paid employee, the maximum relevant income level is HK$30,000 (approximately $3,870) per month and the maximum amount of contribution payable by the employer to the MPF Scheme is HK$1,500 (approximately $193). Any employer who, without reasonable cause, contravenes this requirement commits a criminal offence and is liable on conviction to a fine of HK$350,000 (approximately $45,200) and imprisonment for three years, and to a daily penalty of HK$500 (approximately $65) for each day on which the offence is continued. As of the date of March 31, 2025, we believe that we have made all contributions required under the MPFSO.
Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong)
The Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong), or the MWO, provides for a prescribed minimum hourly wage rate (currently at HK$40.0 per hour) during the wage period for every employee engaged under a contract of employment under the EO, save for stipulated exceptions. Any provision of the employment contract which purports to extinguish or reduce the right, benefit or protection conferred on the employee by the MWO is void.
Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong)
The Occupational Safety and Health Ordinance provides for the safety and health protection of employees in workplaces, both industrial and non-industrial and is therefore applicable to HK Subsidiaries’ employees in general. Among others, employer must, as far as reasonably practicable, ensure the safety and health of employees at work by:
(a) providing and maintaining plant and work systems that are, so far as reasonably practicable, safe and without risks to health;
(b) making arrangement for ensuring, so far as reasonably practicable, safety and absence of risks to health in connection with the use, handling, storage or transport of plant or substances;
(c) providing all necessary information, instruction, training and supervision to employee as may be necessary to ensure, so far as reasonably practicable, safety and health;
(d) providing and maintaining the workplace, and safe access to and egress from the workplace that are, so far as reasonably practicable, safe and without risks to health; and
(e) providing and maintaining work environment that is, so far as reasonably practicable, safe and without risks to health.
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Under section 6 of the Occupational Safety and Health Ordinance, failure to comply with any of the above provisions constitutes an offence and the employer is liable on conviction to a fine of HK$10,000,000. An employer who fails to do so intentionally, knowingly or recklessly commits an offence and is liable on conviction to a maximum fine of HK$10,000,000 and to imprisonment for two years.
The Commissioner for Labor may also issue improvement notices against non-compliance of the Occupational Safety and Health Ordinance, or suspension notices against activity of workplace which may create imminent hazard to the employees. Failure to comply with such notices constitutes an offence punishable by a maximum fine of HK$400,000 and HK$1,000,000 respectively and imprisonment of up to 12 months.
Occupiers Liability Ordinance (Chapter 314 of the Laws of Hong Kong)
The Occupiers Liability Ordinance regulates the obligations of a person occupying or having control of premises on injury resulting to persons or damage caused to goods or other property lawfully on the land.
The Occupiers Liability Ordinance also imposes a common duty of care on an occupier of premises to take such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there.
Regulations Related to Hong Kong Taxation
Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong)
Under the Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong), where an employer commences to employ in Hong Kong an individual who is or is likely to be chargeable to tax, or any married person, the employer shall give a written notice to the Commissioner of Inland Revenue not later than three months after the date of commencement of such employment. Where an employer ceases or is about to cease to employ in Hong Kong an individual who is or is likely to be chargeable to tax, or any married person, the employer shall give a written notice to the Commissioner of Inland Revenue not later than one month before such individual ceases to be employed in Hong Kong.
Tax on Dividends
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by the Company.
Capital Gains and Profit Tax
No tax is imposed in Hong Kong in respect of capital gains from the sale of shares. However, trading gains from the sale of shares by persons carrying on a trade, profession or business in Hong Kong, where such gains are derived from or arise in Hong Kong, will be subject to Hong Kong profits tax which is imposed at the rates of 8.25% on assessable profits up to HK$2,000,000 (approximately US$258,000) and 16.5% on any part of assessable profits over HK$2,000,000 (approximately US$258,000) on corporations from the year of assessment of 2018/2019 onwards. Certain categories of taxpayers (for example, financial institutions, insurance companies and securities dealers) are likely to be regarded as deriving trading gains rather than capital gains unless these taxpayers can prove that the investment securities are held for long-term investment purposes.
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Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong)
Under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong), the Hong Kong stamp duty, currently charged at the ad valorem rate of 0.1% on the higher of the consideration for or the market value of the shares, will be payable by the purchaser on every purchase and by the seller on every sale of Hong Kong shares (in other words, a total of 0.2% is currently payable on a typical sale and purchase transaction of Hong Kong shares). In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of Hong Kong shares. Where one of the parties is a resident outside Hong Kong and does not pay the ad valorem duty due by it, the duty not paid will be assessed on the instrument of transfer (if any) and will be payable by the transferee. If no stamp duty is paid on or before the due date, a penalty of up to ten times the duty payable may be imposed.
Regulations Related to Anti-Money Laundering and Counter-Terrorist Financing
Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615 of the Laws of Hong Kong)
The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615 of the Laws of Hong Kong), or the AMLO, imposes requirements relating to client due diligence and record-keeping and provides regulatory authorities with the powers to supervise compliance with the requirements under the AMLO. In addition, the regulatory authorities are empowered to (i) ensure that proper safeguards exist to prevent contravention of specified provisions in the AMLO; and (ii) mitigate money laundering and terrorist financing risks.
Drug Trafficking (Recovery of Proceeds) Ordinance (Chapter 405 of the Laws of Hong Kong)
The Drug Trafficking (Recovery of Proceeds) Ordinance (Chapter 405 of the Laws of Hong Kong), or the DTROP, contains provisions for the investigation of assets suspected to be derived from drug trafficking activities, the freezing of assets on arrest and the confiscation of the proceeds from drug trafficking activities. It is an offense under the DTROP if a person deals with any property knowing, or having reasonable grounds to believe, it to be the proceeds from drug trafficking. The DTROP requires a person to report to an authorized officer if he/she knows or suspects that any property (directly or indirectly) is the proceeds from drug trafficking or is intended to be used or was used in connection with drug trafficking, and failure to make such disclosure constitutes an offence under the DTROP.
Organized and Serious Crimes Ordinance (Chapter 455 of the Laws of Hong Kong)
The Organized and Serious Crimes Ordinance (Chapter 455 of the Laws of Hong Kong), or the OSCO, empowers officers of the Hong Kong Police Force and the Hong Kong Customs and Excise Department to investigate organized crime and triad activities, and it gives the Hong Kong courts jurisdiction to confiscate the proceeds from organized and serious crimes, to issue restraint orders and charging orders in relation to the property of defendants of specified offences. The OSCO extends the money laundering offence to cover the proceeds of all indictable offences in addition to drug trafficking.
United Nations (Anti-Terrorism Measures) Ordinance (Chapter 575 of the Laws of Hong Kong)
The United Nations (Anti-Terrorism Measures) Ordinance (Chapter 575 of the Laws of Hong Kong), or the UNATMO, provides that it is a criminal offence to: (i) provide or collect funds (by any means, directly or indirectly) with the intention or knowledge that the funds will be used to commit, in whole or in part, one or more terrorist acts; or (ii) make any funds or financial (or related) services available, directly or indirectly, to or for the benefit of a person knowing that, or being reckless as to whether, such person is a terrorist or terrorist associate. The UNATMO also requires a person to report his knowledge or suspicion of terrorist property to an authorized officer, and failure to make such disclosure constitutes an offence under the UNATMO.
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GL3: Guideline on Anti-Money Laundering and Counter-Terrorist Financing (“AML/CFT Guideline”)
The Guideline on Anti-Money Laundering and Counter-Terrorist Financing is issued by the IA, and it sets out the relevant anti-money laundering and counter-financing of terrorism (AML/CFT) statutory and regulatory requirements. It also prescribes the AML/CFT standards which authorized insurers and reinsurers carrying on long term business, and licensed individual insurance agents, licensed insurance agencies and licensed insurance broker companies carrying on regulated activities in respect of long term business (hereinafter referred to as “insurance institutions” (“IIs”)), should meet in order to comply with the statutory requirements under the AMLO and the IO. Compliance with the AML/CFT Guideline is enforced through the AMLO and the IO. IIs which fail to comply with the AML/CFT Guideline may be subject to disciplinary or other actions under the AMLO and/or the IO for non-compliance with the relevant requirements.
Regulation Related to Prevention of Bribery
Prevention of Bribery Ordinance (Chapter 201 of the Laws of Hong Kong)
Under the Prevention of Bribery Ordinance (Chapter 201 of the Laws of Hong Kong) (“PBO”), it is an offense for any agent who, without lawful authority or reasonable excuse, solicits or accepts any advantage as inducement to or reward for or otherwise on account of his doing or forbearing to do, or having done or forborne to do, any act in relation to his principal’s affairs or business; or showing or forbearing to show, or having shown or forborne to show, favor or disfavor to any person in relation to his principal’s affairs or business. Upon conviction, the agent concerned can be subject to a maximum penalty of a fine of HK$500,000 and imprisonment for 7 years.
Regulations Related to Personal Data
Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong)
The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) (“PDPO”) imposes a statutory duty on data users to comply with the requirements of the six data protection principles (the “Data Protection Principles”) contained in Schedule 1 to the PDPO. The PDPO provides that a data user shall not do an act, or engage in a practice, that contravenes a Data Protection Principle unless the act or practice, as the case may be, is required or permitted under the PDPO. The six Data Protection Principles are:
| ● | Principle 1 — purpose and manner of collection of personal data; |
| ● | Principle 2 — accuracy and duration of retention of personal data; |
| ● | Principle 3 — use of personal data; |
| ● | Principle 4 — security of personal data; |
| ● | Principle 5 — information to be generally available; and |
| ● | Principle 6 — access to personal data. |
Non-compliance with a Data Protection Principle may lead to a complaint to the Privacy Commissioner for Personal Data (the “Privacy Commissioner”). The Privacy Commissioner may serve an enforcement notice to direct the data user to remedy the contravention and/or instigate prosecution actions. A data user who contravenes an enforcement notice commits an offense that may lead to a fine and imprisonment.
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The PDPO also gives data subjects certain rights, inter alia:
| ● | the right to be informed by a data user whether the data user holds personal data of which the individual is the data subject; |
| ● | if the data user holds such data, to be supplied with a copy of such data; and |
| ● | the right to request correction of any data the individual considers to be inaccurate. |
The PDPO criminalizes, including, but not limited to, the misuse or inappropriate use of personal data in direct marketing activities, non-compliance with a data access request, and the unauthorized disclosure of personal data obtained without the relevant data user’s consent. An individual who suffers damage, including injured feelings, by reason of a contravention of the PDPO in relation to his or her personal data may seek compensation from the data user concerned.
Enforceability of Civil Liabilities
Mainland China
Half of our officers and directors are Chinese nationals or domiciled in mainland China, and a substantial portion of their assets are located outside the United States. As a result, it may be difficult or impossible for a shareholder to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also be difficult for a shareholder to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our executive officers and directors.
Our PRC counsel has advised us that there is uncertainty as to whether the PRC courts would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Our PRC counsel has further advised us that the PRC Civil Procedures Law governs the recognition and enforcement of foreign judgments. The PRC courts may recognize and enforce foreign judgments in accordance with the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions.
The PRC does not have any treaties or other agreements with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in mainland China will not enforce a foreign judgment against us or our directors and officers if they determine that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in mainland China, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit.
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Hong Kong
There is uncertainty as to whether the courts of Hong Kong would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in Hong Kong against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
A judgment of a court in the United States predicated upon U.S. federal or state securities laws may be enforced in Hong Kong at common law by bringing an action in a Hong Kong court on that judgment for the amount due thereunder and then seeking summary judgment on the strength of the foreign judgment, provided that the foreign judgment, among other things, is (1) for a debt or a definite sum of money (not being taxes or similar charges to a foreign government taxing authority or a fine or other penalty), and (2) final and conclusive on the merits of the claim, but not otherwise. Such a judgment may not, in any event, be so enforced in Hong Kong if (a) it was obtained by fraud, (b) the proceedings in which the judgment was obtained were opposed to natural justice, (c) its enforcement or recognition would be contrary to the public policy of Hong Kong, (d) the court of the United States was not jurisdictionally competent, or (e) the judgment was in conflict with a prior Hong Kong judgment.
Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States. As a result, there is uncertainty as to the enforceability in Hong Kong, in original actions or in actions for enforcement, of judgments of U.S. courts of civil liabilities predicated solely upon the federal securities laws of the United States or the securities laws of any state or territory within the United States.
Item 1A. Risk Factors
Our business is subject to many significant risks, as more fully described in this section entitled “Risk Factors.” If any of the risks discussed in this Report actually occur, our business, financial condition or operating results could be materially and adversely affected. In particular, our risks include, but are not limited to, the following:
Summary of Risk Factors
Risks Related to Our Business and Industry
| ● | Our operating subsidiary derives a significant portion of revenues from selling insurance products supplied by our major insurance company partners and our business is subject to concentration risks arising from dependence on a single or limited number of insurance company partners. |
| ● | All of our sales of life and medical insurance products and general insurance products are conducted through our licensed technical representatives. If we are unable to attract and retain highly productive technical representatives, our business could be materially and adversely affected. |
| ● | Misconduct of the technical representatives may also have a material adverse effect on our business, results of operations or financial condition. |
| ● | We are subject to extensive regulations for our insurance brokerage business and operations in Hong Kong. Failure to obtain, renew, or retain licenses, permits or approvals may affect our ability to conduct or expand our business. |
| ● | We face intense competition in the insurance intermediary industry in Hong Kong. If we are unable to compete effectively with both existing and new market participants, we may lose customers and our financial results may be negatively affected. |
| ● | Our commission revenue is subject to quarterly fluctuations as a result of the seasonality of our business, the timing of policy renewals and the net effect of new and lost business. The factors that cause the quarterly variations are not within our control. |
Risks Related to Doing Business in Hong Kong
| ● | Political risks associated with conducting business in Hong Kong and economic instability in Hong Kong may adversely impact our results of operations. We may also face the risk that changes in the policies of the PRC government could have a significant impact upon the business we conduct in Hong Kong and the profitability of such business. |
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| ● | Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we conduct in Hong Kong and accordingly on the results of our operations and financial condition. |
| ● | The enactment of the Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region could impact our Hong Kong operating subsidiary. |
| ● | The PRC government exerts substantial influence and discretion over the manner in which companies incorporated under the laws of the PRC must conduct their business activities. We are a Hong Kong-based company with no operations in mainland China. There is a risk that the PRC government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in Hong Kong or PRC-based issuers. Any such action of the PRC government could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause our securities to significantly decline in value or become worthless. |
| ● | In light of the PRC government’s extension of its authority into Hong Kong, the Chinese government can change Hong Kong’s rules and regulations at any time with little to no advance notice, and can intervene and influence our operations and business activities in Hong Kong. |
| ● | We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers. |
| ● | We may rely on dividends and other distributions on equity paid by the Hong Kong operating subsidiary to fund any cash and financing requirements it may have, and any limitations or restrictions, prohibitions, interventions or limitations by the PRC government on the ability of the Company or our Hong Kong operating subsidiary to transfer cash or assets in or out of Hong Kong may result in these funds or assets not being available to fund operations or for other uses outside of Hong Kong, which on the ability of the Hong Kong operating subsidiary to make payments to the Company could have a material and adverse effect on the business. |
| ● | Trading in our securities may be prohibited under the HFCA Act if the PCAOB determines that it cannot inspect or investigate completely our auditor. |
| ● | It may be difficult for shareholders to enforce any judgment obtained in the United States against us, which may limit the remedies otherwise available to our shareholders. |
| ● | Our business, financial condition and results of operations, and/or the value of our Common Stock or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us. |
Risks Related to Our Common Stock
| ● | An active market for our common stock may never develop. |
| ● | Even if a market for our common stock develops, the market price of our common stock may be significantly volatile, which could result in substantial losses for purchasers. |
| ● | We may not maintain qualification for OTCQB inclusion, and therefore you may be unable to sell your shares. |
| ● | Our controlling shareholder may exercise significant influence over us and may be subject to conflicts of interest. |
| ● | The Series B and Series C Preferred Stock, which are controlled by Mr. Huihe Zheng, our Chairman of the Board, Chief Executive Officer, have super voting rights that may adversely affect our holders of common stock; in addition, Mr. Zheng, as our controlling shareholder, may exercise significant influence over us and may be subject to conflicts of interest. |
| ● | Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell. |
| ● | Our management has determined that our disclosure controls and procedures were not effective as of March 31, 2025 and we have identified material weaknesses in our internal control over financial reporting. |
An investment in our securities is highly speculative and involves substantial risks, including the risks described below. You should carefully consider all of the risks described below, together with the other information contained in this Report, before making a decision to invest in our securities. The risks highlighted here are not the only ones that we may face. For example, additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If any of the risks or uncertainties described below or any such additional risks and uncertainties actually occur, our business, prospects, financial condition or results of operations could be negatively affected, and you might lose all or part of your investment.
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Risks Related to Our Business and Industry
Our business is subject to concentration risks arising from dependence on a single or limited number of insurance company partners.
We derive a significant portion of revenues from selling insurance products supplied by our major insurance company partners. For the fiscal year ended March 31, 2025, approximately 68.1% of our total commissions were attributed to one insurance company. For the fiscal year ended March 31, 2024, approximately 96.5% of our total commissions were attributed to one insurance company.
Because of this concentration in the supply of the insurance products we sell, our business and operations would be negatively affected if we experience a partial or complete loss of any of these insurance partners. In addition, any significant adverse change in our relationship with any of these insurance company partners could result in loss of revenue, increased costs and distribution delays that could harm our business and customer relationships.
If we fail to attract and retain productive technical representatives to sell the insurance products, our business and operating results could be materially and adversely affected.
All of our sales of life and medical insurance products and general insurance products are conducted through our licensed technical representatives. We have been actively recruiting and will continue to recruit technical representatives to join our distribution and service network. Technical representatives have been instrumental to the development of our life insurance business.
As of March 31, 2025, we had 16 technical representatives, seven of whom are our full-time employees. Competition for technical representatives is intense and there can be no assurance that we will be able to attract and retain such personnel. If we are unable to attract and retain highly productive technical representatives, our business could be materially and adversely affected.
Misconduct of the technical representatives may have a material adverse effect on our business, results of operations or financial condition.
Misconduct of the technical representatives could result in regulatory sanctions, litigation or serious reputational or financial harm to us.
Misconduct may include:
| ● | the conduct during the course of sales and the use of methods of solicitation and advertising that violates the relevant laws and regulations governing insurance industry or other applicable area of laws and regulations in Hong Kong; | |
| ● | the use of methods of solicitation and advertising that are not compatible with the integrity and dignity of the profession of insurance broking; |
| ● | the use of any illustration, circular, memorandum or other material that misrepresents or is incomplete as regards the terms, benefits or advantages of any insurance policy issued or to be issued to a prospective customer; |
| ● | the use of any incomplete or misleading comparison or illustration of any policy or contract of insurance for the purpose of inducing an insured to forfeit or replace a policy or contract of insurance; |
| ● | the offer of any unlawful payment, allowance or gift as an inducement to any prospective customer to insure through the technical representative; and |
| ● | holding out to the public or advertising by means of advertisements, cards, circulars, letters, signs or other methods in an irresponsible, untruthful or otherwise unlawful manner. |
Failure to prevent and detect misconduct may have a material adverse effect on our business, results of operations or financial condition.
We are subject to extensive regulations for our insurance brokerage business and operations.
We conduct our business primarily in Hong Kong as a licensed insurance broker, and our business operations are subject to vigorous regulations in Hong Kong applicable to licensed insurance brokers. Any failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our license as an insurance broker. In addition, we are a registered MPF intermediary and subject to the relevant laws and regulations. Even if a sanction imposed against us or our personnel is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us by regulators could harm our reputation and impede our ability to retain customers and develop new customer relationships, which may reduce our revenues.
The regulatory landscape in the insurance industry in Hong Kong is subject to constant evolution and changes. We face the risk of significant intervention by regulatory authorities from time to time, including increased registered capital requirements, extended training of the insurance agencies’ personnel, and adoption of restrictive new regulations that can incur substantial costs on the Company. If any such new regulations and rules become effective and applicable to our business, these regulations may materially limit our business activities and operational profitability.
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Compliance with changing regulation of corporate governance and public disclosure as a public company in the U.S., and our management’s limited experiences with such regulations, may result in additional expenses and create an increased risk of non-compliance.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. In addition, our management members who are located Hong Kong have limited experience with compliance with U.S. laws (including securities laws). This inexperience may cause us to fall out of compliance with applicable regulatory requirements, which could lead to enforcement action against us and a negative impact on our stock price.
Failure to obtain, renew, or retain licenses, permits or approvals may affect our ability to conduct or expand our business.
We are required to obtain applicable licenses, permits and approvals from different Hong Kong regulatory authorities in order to conduct or expand our business. The Insurance Authority of Hong Kong (“IA”) has promulgated various regulations on the insurance business, including regulations requiring an insurance broker company license. We obtained, renewed and maintained our insurance broker company license as required by the IA. However, there is no assurance that the IA will not issue new regulations governing the insurance product and service industry that might require us to obtain additional licenses, permits or approvals for our current or future business operations. Our failure to obtain any such additional licenses, permits or approvals may adversely affect our business operations and financial condition.
Competition in our industry is intense and, if we are unable to compete effectively with both existing and new market participants, we may lose customers and our financial results may be negatively affected.
The insurance intermediary industry in Hong Kong is intensely competitive, and we expect competition to persist and further intensify as more insurance broker companies enter the market. In insurance product distribution, we face competition from insurance companies that use their in-house sales force and exclusive sales agents to distribute their products, from business entities that distribute insurance products on an ancillary basis, such as commercial banks, as well as from other traditional insurance intermediaries. Many of our competitors, both existing and newly emerging, have greater financial and marketing resources than we do and may be able to offer products and services that we do not currently offer and may not offer in the future. If we are unable to compete effectively against those competitors, we may lose customers and our financial results may be negatively affected.
Because the commission we earn on the sale of insurance products is based on premiums and commission rates set by insurance companies, any decrease in these premiums or commission rates may have an adverse effect on our results of operations.
We are an insurance broker and derive revenues primarily from commissions paid by the insurance companies whose policies our customers purchase. Our commission rates are set by insurance companies and are based on the types and terms of the insurance products. Commission rates and premiums can change based on the prevailing economic, regulatory, tax-related and competitive factors that affect insurance companies. These factors, which are not within our control, include the ability of insurance companies to place new business, underwriting and non-underwriting profits of insurance companies, consumer demand for insurance products, the availability of comparable products from other insurance companies at a lower cost, as well as the tax deductibility of commissions and the consumers themselves.
Because we do not determine, and cannot predict, the timing or extent of premium or commission rate changes, we cannot predict the effect any of these changes may have on our operations. Any decrease in premiums or commission rates may significantly affect our profitability.
Quarterly and annual variations in our commission revenue may unexpectedly impact our results of operations.
Our commission revenue is subject to quarterly fluctuations as a result of the seasonality of our business, the timing of policy renewals and the net effect of new and lost business. During any given year, our commission revenue derived from distribution of life and medical insurance products is highest during the fourth quarter and is lowest during the first quarter because it is customary for insurance companies in Hong Kong to launch promotions in the fourth quarter in pursuit of higher sales by year end. The factors that cause the quarterly variations are not within our control. Specifically, regulatory changes to product design may result in cessation of products from time to time and cause quarterly fluctuation in the results of our operations. In addition, consumer demand for insurance products can influence the timing of renewals, new business and lost business, which generally includes policies that are not renewed, and cancellations, and many of our insurance products last more than one year, contributing to the annual fluctuations in sales. As a result, quarterly or annual comparisons of our operating results may not be used as an indication of our future performance.
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Our future success depends on the continuing efforts of our senior management team and other key personnel, and our business may be harmed if we lose their services.
Our future success depends heavily upon the continuing services of the members of our senior management team and other key personnel, in particular, Mr. Huihe Zheng, our President and Chief Executive Officer. If our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily, or at all. As such, our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel in the insurance brokerage industry is intense because of a number of factors, including the limited pool of qualified candidates. We may not be able to retain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future. In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, sensitive trade information, key professionals and staff members.
We may not be able to ensure the accuracy and completeness of product information and the effectiveness of our recommendation of insurance products.
Our customers rely on the insurance product information we provide through our technical representatives. While we believe that such information is generally accurate, complete and reliable, there can be no assurance that the accuracy, completeness or reliability of the information can be maintained in the future. If our technical representatives provide any inaccurate or incomplete information due to either their own fault or that of our insurance partners, or we fail to present accurate or complete information of any insurance products which could lead to our customers’ failure to get the protection or we being warned or punished by regulatory authorities, our reputation could be harmed and we could experience reduced businesses, which may adversely affect our business and financial performance.
Though we have not experienced any material cybersecurity incidents in the past, if our database was compromised by outside sources or if we were accused of failing to protect the confidential information of our customers, we may be forced to expend significant financial and managerial resources in remedying the situation, defending against these accusations and we may face potential liability. Any negative publicity, especially concerning breaches in our cybersecurity systems, may adversely affect our public image and reputation. Though we take proactive measures to protect against these risks and believe that our efforts in this area are sufficient for our business, there can be no assurance that such measures will prove effective against all cybersecurity risks.
Failure to comply with the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) may result in material and adverse effect on our business, financial condition and results of operations.
The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) provides the principles that a Data User must follow in any acts concerning information, existing in a form which access to or processing of is practicable, which relates to a living individual and can be used to identify that individual. Contravention with the PDPO may entitle the Privacy Commissioner for Personal Data to issue a written enforcement notice directing such Data User to take prescribed steps within a specified timeframe to remedy and prevent recurrence of contravention. Contravention with the above enforcement notice issued by the Privacy Commissioner for Personal Data is an offence and on first conviction, the offender is liable to a maximum fine of HK$50,000 and imprisonment for 2 years, with a daily penalty of HK$1,000. Subsequent convictions can result in a maximum fine of HK$100,000 and imprisonment for 2 years, with a daily penalty of HK$2,000. However, if a Data User has taken all due diligence to comply with the enforcement notice, then such Data User may have a defense against the above offence.
In the course of our business, we collect data that are related to our business, all with consent from owners of such information. We are committed to protecting the privacy and security of such data, and have established and implemented policies on data collection, processing and usage. We believe we are in full compliance with the PDPO of Hong Kong. While we strive to comply with applicable data protection laws and regulations as well as our own privacy policies and other obligations, we may have, with respect to privacy and data protection, instances of failure or perceived failure to comply with these laws, regulations, policies and other obligations, which may result, and in some cases has resulted, in customer complaints, and may also result in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, each of which could cause us to lose consumers, and have an adverse effect on our business, financial condition and results of operations.
Failure to comply with Hong Kong Competition Law may result in material and adverse effect on our business, financial condition and results of operations.
We face competition in the market due to the presence of a large number of insurance brokers and service providers. We may be subject to the Competition Ordinance, which came into force on December 14, 2015, laying down three forms of behaviors and imposing three rules intended to prevent and discourage anti-competitive conducts: (i) the first conduct rule prohibits (a) the making of agreements by any entity, regardless of its legal status or the way in which it is financed, engaged in economic activity, and includes a natural person engaged in economic activity; (b) the engagement in concerted practice by Undertakings; or (c) the making or giving effect of decisions by members of an association of Undertakings, that have the object or effect of preventing, restricting or distorting competition in Hong Kong; (ii) the second conduct rule prohibits undertakings with a substantial degree of market power in a market from abusing that power by engaging in conduct that has the object or effect of preventing, restricting or distorting competition in Hong Kong; and (iii) the merger rule prohibits Undertakings from directly or indirectly carrying out mergers that have or are likely to have the effect of substantially lessening competition in Hong Kong. Currently, the merger rule only applies where an Undertaking that directly or indirectly holds or, directly or indirectly controls an Undertaking that holds a “carrier license” within the meaning of the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong) is involved in a merger. As we are not engaged in the telecommunication industry and do not hold such carrier license, such merger rule is currently not applicable to our business.
The Competition Commission is an independent statutory body in Hong Kong established under the Competition Ordinance to investigate any contravention against the competition rules and enforce the provisions of the Competition Ordinance, and the Competition Tribunal is a superior court of record set up by the Competition Ordinance, as part of the Hong Kong judiciary, to hear and decide cases relating to competition law in Hong Kong. Under the guidelines and policies published by the Competition Commission, possible outcomes of the investigation of a contravention of the Competition Ordinance may include the acceptance by the Competition Commission of a commitment given by the infringer to take any action or refrain from taking any action, the issuance of a warning notice or infringement notice, the commencement of proceedings in the Competition Tribunal, the application for a consent order, the referral of the complaint to a government agency and the conduct of a market study. The Competition Tribunal may order remedies including imposing a pecuniary penalty, making a disqualification order or other orders under the Competition Ordinance.
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We have not adopted any anti-competitive conduct described in the Competition Ordinance and will continue to act in compliance with the Competition Ordinance. However, there may be uncertainties on the full effect of the rules in respect of compliance, infringement, and its effect on our business in particular when tendering is involved in securing contracts. We may face difficulties and may need to incur legal costs in ensuring our compliance with the rules. If we face any complaints of infringement of the Competition Ordinance, we may incur substantial legal costs and may result in business disruption and/or negative media coverage, which could adversely affect our business, results of operations and reputation.
We may face potential liability, loss of customers and damage to our reputation for any failure to protect the confidential information of our customers.
Our customer database holds confidential information concerning our customers. We may be unable to prevent third parties, such as hackers or criminal organizations, from stealing information provided by our customers. Confidential information of our customers may also be misappropriated or inadvertently disclosed through insurance agents’ misconduct or mistake. We may also in the future be required to disclose certain confidential information concerning our customers to government authorities. Any compromise of our security could have a material adverse effect on our reputation, business, prospects, financial condition and results of operations.
Though we have not experienced any material cybersecurity incidents in the past, if our database was compromised by outside sources or if we were accused of failing to protect the confidential information of our customers, we may be forced to expend significant financial and managerial resources in remedying the situation, defending against these accusations and we may face potential liability. Any negative publicity, especially concerning breaches in our cybersecurity systems, may adversely affect our public image and reputation. Though we take proactive measures to protect against these risks and believe that our efforts in this area are sufficient for our business, there can be no assurance that such measures will prove effective against all cybersecurity risks.
We rely on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
QDM is a holding company incorporated in Florida, and it relies on dividends and other distributions on equity paid by its subsidiaries for its cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to its shareholders and service any debt it may incur. If any of QDM’s subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to QDM.
Within our structure, funds from foreign investors can be directly transferred to our Hong Kong operating subsidiary by way of capital injection or in the form of a shareholder loan from the Company in connection with our future equity or debt offerings. As a holding company, we may rely on dividends and other distributions on equity paid by our Hong Kong operating subsidiary for our cash and financing requirements. We are permitted under the laws of the state of Florida and our articles of incorporation (as amended from time to time) to provide funding to our Hong Kong operating subsidiary incorporated in Hong Kong through loans and/or capital contributions. According to the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), a Hong Kong company may only make a distribution out of profits available for distribution. Any limitation on the ability of our Hong Kong subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. Our Hong Kong subsidiaries are permitted under the laws of Hong Kong to issue cash dividends to us without limitation on the size of such dividends, subject to availability of distributable profits. In addition, if our Hong Kong operating subsidiary incur debt on their own behalf, the instruments governing such debt may restrict their ability to pay dividends. We do not maintain cash management policies or procedures with respect to the size or means of such transfers. There can be no assurance that the PRC government will not restrict or prohibit the flow of cash in or out of Hong Kong. Any restrictions, prohibitions, interventions or limitations by the PRC government on the ability of the Company or our Hong Kong operating subsidiary to transfer cash or assets in or out of Hong Kong may result in these funds or assets not being available to fund operations or for other uses outside of Hong Kong.
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by our Hong Kong subsidiaries to us. See “Item 1. Business – Regulation — Regulations Related to Hong Kong Taxation.” Any limitation on the ability of our Hong Kong subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
Risks Related to Doing Business in Hong Kong
Political risks associated with conducting business in Hong Kong and economic instability in Hong Kong may adversely impact our results of operations. We may also face the risk that changes in the policies of the PRC government could have a significant impact upon the business we conduct in Hong Kong and the profitability of such business.
Our operational activities are primarily conducted in Hong Kong. Accordingly, political and economic conditions in Hong Kong and the surrounding region may directly affect our business. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, namely, the constitutional document for Hong Kong, which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. However, there is no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. Since all of our operations are primarily based in Hong Kong, any change of such political arrangements may pose an immediate threat to the stability of the economy in Hong Kong, thereby directly and adversely affecting our results of operations and financial positions.
Our revenue is susceptible to ongoing incidents or factors which affect the stability of the social, economic and political conditions in Hong Kong. Any drastic events may adversely affect the business operations of our Hong Kong operating subsidiary. Such adverse events may include changes in economic conditions and regulatory environment, social and/or political conditions, civil disturbance or disobedience, as well as significant natural disasters. Given the relatively small geographical size of Hong Kong, any of such incidents may have a widespread effect on the business operations of our Hong Kong operating subsidiary, which could in turn adversely and materially affect our business, our results of operations and financial condition. Furthermore, legislative or administrative actions in respect of China-U.S. relations could cause investor uncertainty for affected issuers, including us, and the market price of our Ordinary Shares could be adversely affected.
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In addition, economic, political and legal developments and social conditions in the PRC may significantly affect our business, financial condition, results of operations and prospects. The PRC economy is in transition from a planned economy to a market-oriented economy subject to plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on economic conditions in the PRC and Hong Kong. While we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and that business development in the PRC will continue to follow market forces, we cannot assure you that this will be the case. Our business operations and prospects, financial condition, and results of operations may be adversely affected by changes in policies by the PRC government, including:
| ● | changes in laws, regulations or their interpretation; | |
| ● | confiscatory taxation; | |
| ● | restrictions on currency conversion, imports or sources of supplies, or ability to continue as a for-profit enterprise; | |
| ● | expropriation or nationalization of private enterprises; and | |
| ● | the allocation of resources. |
Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we conduct in Hong Kong and accordingly on the results of our operations and financial condition. In addition, if we become subject to the oversight of the CSRC, CAC or other regulatory agencies of the PRC government, the PRC government could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause of our common stock to significantly decline in value or become worthless.
Our business operations may be adversely affected by the current and future political environment in the PRC. The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The interpretations of many laws, regulations and rules may not always be uniform and the enforcement of these laws, regulations and rules may involve uncertainties for you and us. Our ability to operate in Hong Kong, conduct overseas offerings and continue to investment in Hong Kong based issuers may be harmed by these changes in its laws and regulations, including those relating to taxation, import and export tariffs, healthcare regulations, environmental regulations, land use and property ownership rights, and other matters. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in Hong Kong or particular regions thereof, and could limit or completely hinder our ability to offer or continue to offer securities to investors or require us to divest ourselves of any interest we then hold in Hong Kong properties or joint ventures. Any such actions (including divesture or similar actions) could result in a material adverse effect on us and on your investment in us and could render our securities and your investment in our securities worthless.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts that provide interpretations of laws and regulations and decide contractual disputes and issues may change their interpretation or enforcement very rapidly with little advance notice at any time, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as may cause possible problems to foreign investors.
Although the PRC government has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and imposing policies that impact particular industries in different ways. For example, according to the Circular on Further Promoting the Facilitation of Individual Current Account Foreign Exchange Business and its annexes issued and implemented by the State Administration of Foreign Exchange on March 25, 2021, the purchase of foreign exchange by individuals of mainland China shall not be used to purchase overseas life insurance or investment dividend-returning insurance. We cannot assure you that the PRC government will continue to pursue policies favoring a market-oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
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The enactment of the Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security Law”) could impact our Hong Kong operating subsidiary.
On June 30, 2020, the Standing Committee of the PRC National People’s Congress passed the Hong Kong National Security Law. Hong Kong’s chief executive promulgated it in Hong Kong later the same day. This law defines the duties and government bodies of the Hong Kong for safeguarding national security and four categories of offences — secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security — and their corresponding penalties. On July 14, 2020, the former U.S. President Donald Trump signed the Hong Kong Autonomy Act, or HKAA, into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a significant transaction with foreign persons sanctioned under this authority. The imposition of sanctions may directly affect the foreign financial institutions as well as any third parties or customers dealing with any foreign financial institution that is targeted. It is difficult to predict the full impact of the Hong Kong National Security Law and HKAA on Hong Kong and companies located in Hong Kong. If our Hong Kong operating subsidiary is determined to be in violation of the Hong Kong National Security Law or the HKAA by competent authorities, the business operations, our financial position and results of operations could be materially and adversely affected.
Our business operations are located in Hong Kong, which renders us especially sensitive to local conditions and changes, such as those with respect to laws and regulations, economic and political environments, force majeure events, natural disasters or mass civil movements.
Currently, our business operations are based in Hong Kong, and we have no plan to operate in other territories in the near future. Our business operations are therefore exposed to any deterioration in the economic, social and/or political conditions, significant changes in laws and regulations governing the insurance brokerage services industry, as well as any change of legal system, incidence of social movements, strike, riot, civil disturbances, mass civil movements, disobedience, recurrence of past outbreaks or epidemics, occurrence of any future epidemic outbreaks, natural disasters or other catastrophic events in Hong Kong. Since our business operations are limited to Hong Kong, the aforesaid adverse circumstances may materially and adversely disrupt operations of our insurance brokerage services, and in turn, our revenues and profitability, and consequently, our results of operations and financial condition.
Our Hong Kong subsidiaries may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity requirements, conduct business and pay dividends to holders of our common stock. Dividends payable to our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.
QDM is a holding company incorporated in Florida with its operating subsidiary located in Hong Kong. Accordingly, most of our cash is maintained in Hong Kong Dollars. We conduct no other business and, as a result, we depend entirely upon our Hong Kong operating subsidiary’s earnings and cash flow. If we decide in the future to pay dividends, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our Hong Kong operating subsidiary. There are currently no restrictions of transferring funds between our Florida holding company and our operating subsidiary in Hong Kong or limitations on the ability of our Hong Kong subsidiaries to issue dividends or other distributions to its overseas shareholders. However, we cannot assure you that the oversight of the PRC government will not be extended to companies operating in Hong Kong like our Hong Kong operating subsidiary. There is a possibility that the PRC government could prevent our cash maintained in Hong Kong from leaving or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. Any such controls or restrictions may adversely affect our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders and could result in a material adverse change to our business operations, our prospects, financial condition, and results of operations, and could cause our common stock to significantly decline in value or become worthless.
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The market price for our securities could be adversely affected by increased tensions between the United States and China.
Recently there have been heightened tensions in the economic and political relations between the United States and China. On June 30, 2020, the Standing Committee of the PRC National People’s Congress issued the Hong Kong National Security Law. This law defines the duties and government bodies of Hong Kong for safeguarding national security and four categories of offences—secession, subversion, terrorist activities and collusion with a foreign country or external elements to endanger national security—and their corresponding penalties. On July 14, 2020, former U.S. President Donald Trump signed the Hong Kong Autonomy Act, or HKAA, into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. On August 7, 2020, the U.S. government imposed HKAA-authorized sanctions on eleven individuals, including then Hong Kong chief executive Carrie Lam. On October 14, 2020, the U.S. State Department submitted to relevant committees of Congress the report required under HKAA, identifying persons materially contributing to “the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law”. On March 16, 2021, the U.S. State Department submitted a report listing an additional 24 foreign persons determined to meet the HKAA criteria. This report is an update to the October 2020 and March 2021 reports, consistent with section 5(e) of the HKAA. In July 2021, President Joe Biden warned investors about the risks of doing business in Hong Kong and on July 16, 2021, the U.S. Departments of State, Commerce, Homeland Security and the Treasury issued an advisory saying China’s push to exert more control over Hong Kong threatens the rule of law and endangers employees and data. The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a significant transaction with foreign persons sanctioned under this authority. The imposition of sanctions such as those provided in the HKAA is in practice discretionary and highly political, especially in a relationship as extensive and complex as that between the United States and China. It is difficult to predict the full impact of the HKAA on Hong Kong and companies like us. Furthermore, legislative or administrative actions in respect of Sino-U.S. relations could cause investor uncertainty for affected issuers, including us, and the market price of our securities could be adversely affected.
We may be affected by the currency peg system in Hong Kong.
Since 1983, Hong Kong dollars have been pegged to the U.S. dollars at the rate of approximately HK$7.80 to US$1.00. We cannot assure you that this policy will not be changed in the future. If the pegging system collapses and Hong Kong dollars suffer devaluation, the Hong Kong dollar cost of our expenditures denominated in foreign currency may increase. This would in turn adversely affect the operations and profitability of our business.
Our business, financial condition and results of operations, and/or the value of our common stock or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of mainland China become applicable to a company such as us.
We currently have no operations in mainland China. YeeTah does not sell any insurance products in mainland China or solicit customers or collect, store or process any personal data of any customer in mainland China, and is not regulated by any insurance regulator in mainland China. As a result, the laws and regulations of the PRC do not currently have any material impact on YeeTah’s business, financial condition and results of operations. However, as we operate in Hong Kong, a special administrative region of China, there is no guarantee that if certain existing or future laws of mainland China become applicable to a company such as us, it will not have a material adverse impact on our business, financial condition and results of operations and/or our ability to offer or continue to offer securities to investors, any of which may cause the value of such securities to significantly decline or be worthless.
Except for the Basic Law, national laws of the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by promulgation or local legislation. National laws that may be listed in Annex III are currently limited under the Basic Law to those which fall within the scope of defense and foreign affairs as well as other matters outside the limits of the autonomy of Hong Kong. National laws and regulations relating to data protection, cybersecurity and the anti-monopoly have not been listed in Annex III and do not apply directly to Hong Kong.
The laws and regulations in the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties. To the extent any mainland China laws and regulations become applicable to us, we may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice.
We may also become subject to the laws and regulations of mainland China to the extent we commence business and customer facing operations in mainland China as a result of any future acquisition, expansion or organic growth.
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The PRC government exerts substantial influence and discretion over the manner in which companies incorporated in mainland China must conduct their business activities. We are a Hong Kong-based company with no operations in mainland China. There is a risk that the PRC government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in Hong Kong or mainland China-based issuers. Any such action of the PRC government could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause our securities to significantly decline in value or become worthless.
We have no operation in mainland China. We primarily operate in Hong Kong, a special administrative region of China. In addition, YeeTah does not sell any insurance products in mainland China or solicit any customer in mainland China, and is not regulated by any insurance regulator in mainland China. However, we may be subject to such direct influence or discretion in the future due to changes in laws or other unforeseeable reasons or as a result of our expansion or acquisition of operations in mainland China.
The PRC legal system is evolving rapidly and the PRC laws, regulations, and rules may change quickly with short notice. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, the interpretation of these laws, rules and regulations may contain inconsistences, the enforcement of which involves uncertainties. The PRC government has exercised and continues to exercise substantial control over many sectors of the economy of mainland China through regulation and/or state ownership. The PRC government actions have had, and may continue to have, a significant effect on economic conditions in mainland China and businesses which are subject to such government actions. We may become subject to the PRC government’s significant oversight and discretion over the conduct of our business, and the government may intervene or influence our operations at any time as the government deems appropriate. The PRC government has published new policies that significantly affected certain industries in mainland China, such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies extending the oversight and regulation to certain business and industries in Hong Kong, including our industry, that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in mainland China-based companies. If such action is extended to cover companies in Hong Kong, like ours, such actions could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause such securities to significantly decline in value or become worthless.
We may become subject to the direct intervention or influence of the PRC government at any time due to changes in laws or other unforeseeable reasons or as a result of our development, expansion or acquisition of operations in the PRC, or due to the expansion of the PRC government’s oversight onto our industry in Hong Kong, and it may require a material change in our operations and/or result in increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In addition, the market prices of our common stock could be adversely affected as a result of anticipated negative impacts of any such government actions, as well as negative investor sentiment towards Hong Kong-based companies subject to direct PRC government oversight and regulation, regardless of our actual operating performance. There can be no assurance that the Chinese government would not intervene in or influence our operations at any time.
In the opinion of our PRC counsel, we are not currently required to obtain permission from the PRC government for the trading of our common stock on the OTCQB; however, there is no guarantee that this will continue to be the case in the future, or even when such permission is obtained, it will not be subsequently denied or rescinded. Any actions by the PRC government to exert more oversight and control over offerings (including businesses whose primary operations are in Hong Kong) that are conducted overseas and/or foreign investments in Hong Kong-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless.
We are aware that the PRC government initiated a series of regulatory actions and statements to regulate business operations in mainland China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over mainland China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Our PRC counsel has advised us that we are not subject to cybersecurity review with the CAC, given that: (i) we do not possess a large amount of personal information in our business operations; and (ii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. In addition, our PRC counsel has advised us that we are not subject to merger control review by the anti-monopoly enforcement agency of the PRC government due to the level of our revenues which provided from us and audited by our auditor, and the fact that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues within mainland China of more than RMB800 million. Currently, these statements and regulatory actions have had no impact on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. See “Item 1. Business – Regulatory Permissions and Developments” on page 4.
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The HFCA Act and the related regulations continue to evolve. Further implementations and interpretations of or amendments to the HFCA Act or the related regulations, or a PCAOB determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us.
On December 18, 2020, the HFCA Act was signed into law. The HFCA Act has since then been subject to amendments by the U.S. Congress and interpretations and rulemaking by the SEC. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which proposes to reduce the period of time for foreign companies to comply with PCAOB audits from three to two consecutive years, thus reducing the time period before the securities of such foreign companies may be prohibited from trading or delisted.
On December 16, 2021, PCAOB announced the PCAOB HFCA Act determinations relating to the PCAOB’s inability to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, because of a position taken by one or more authorities in mainland China or Hong Kong. The inability of the PCAOB to conduct inspections of auditors in China made it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in issuers operating in China to lose confidence in such issuers’ procedures and reported financial information and the quality of financial statements.
Our auditor, ZH CPA, LLC, an U.S. based independent registered public accounting firm that issues the audit report included elsewhere in this Report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Our auditor is subject to inspection by the PCAOB on a regular basis with the latest inspection in 2025. As of the date of this Report, our auditor is not among the firms listed on the PCAOB Determination List issued in December 2021.
On August 26, 2022, the PCAOB announced and signed a Statement of Protocol (the “Protocol”) with the CSRC and the Ministry of Finance of the People’s Republic of China (together, the “PRC Authorities”). The Protocol provides the PCAOB with: (1) sole discretion to select the firms, audit engagements and potential violations it inspects and investigates, without any involvement of Chinese authorities; (2) procedures for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed; (3) direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates.
On December 15, 2022, the PCAOB announced in its 2022 HFCA Act Determination Report (the “2022 Report”) its determination that the PCAOB was able to secure complete access to inspect and investigate audit firms headquartered in mainland China and Hong Kong in 2022, and the PCAOB Board voted to vacate previous determinations to the contrary. According to the 2022 Report, this determination was reached after the PCAOB had thoroughly tested compliance with every aspect of the Protocol necessary to determine complete access, including on-site inspections and investigations in a manner fully consistent with the PCAOB’s methodology and approach in the U.S. and globally. According to the 2022 Report, the PRC authorities had fully assisted and cooperated with the PCAOB in carrying out the inspections and investigations according to the Protocol, and have agreed to continue to assist the PCAOB’s investigations and inspections in the future. The PCAOB may reassess its determinations and issue new determinations consistent with the HFCA Act at any time.
On December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which, among others, amended the HFCA Act to reduce the number of consecutive years an issuer can be identified a Commission-Identified Issuer before the SEC must impose an initial trading prohibition on the issuer’s securities from three years to two.
Further developments related to the HFCA Act could add uncertainties to our offering. We cannot assure you what further actions the SEC, the PCAOB or the stock exchanges will take to address these issues and what impact such actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market). Furthermore, any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create uncertainty for investors, the market price of our common stock could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement. Such a delisting would substantially impair your ability to sell or purchase our common stock when you wish to do so, and would have a negative impact on the price of our common stock.
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If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of your investment in our shares, especially if such matter cannot be addressed and resolved favorably.
U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting and reporting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we may have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless. In addition, major issues with other U.S. listed Chinese companies in the future, could have a negative effect on the value of your investment, even though the Company is not involved.
There may be risks and uncertainties regarding the interpretation, application, and enforcement of current and future PRC laws, rules and regulations.
Because substantially all of our operations are based in Hong Kong, we are subject to the regulations and rules of the Hong Kong government as well as the influence of the Chinese government. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in Hong Kong may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. The Company’s operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. Given that the Chinese government may intervene or influence our operations at any time with little to no advanced notice, it could result in a material change in our operation and the value of our common stock. Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Furthermore, it is uncertain when and whether the Company will be required to obtain permission from the PRC government for our current quotation on the OTCQB or any future application to have our securities list on a U.S. stock exchange, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any PRC regulatory authorities and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. As a result, our common stock may decline in value dramatically or even become worthless should we become subject to new requirement to obtain permission from the PRC government to list on U.S. exchange in the future.
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The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which were available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. Moreover, the State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, not yet effective) on July 10, 2021, which require operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. On December 28, 2021, the Cyberspace Administration of China (the “CAC”) jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022, replacing the former Measures for Cybersecurity Review (2020) issued on July 10, 2021. Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operators (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, and any online platform operator who controls more than one million users’ personal information must undergo a cybersecurity.
On July 7, 2022, the CAC issued the Measures for the Security Assessment of Cross-border Transfer of Data, which stipulates that data processor who provides overseas the important data collected and generated during operations within the PRC and personal information that shall be subject to security assessment shall conduct a security assessment. Furthermore, if the data processor provides data overseas and meets one of the following circumstances, it shall declare the security assessment: (i) where a data processor provides critical data abroad; (ii) where a key information infrastructure operator or a data processor processing the personal information of more than one million people provides personal information abroad; (iii) where a data processor has provided personal information of 100,000 people or sensitive personal information of 10,000 people in total abroad since January 1 of the previous year; and (iv) other circumstances prescribed by the CAC for which declaration for security assessment for outbound data transfers is required.
On February 17, 2023, with the approval of the State Council, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, (i) domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following their submission of initial public offerings or listing applications. If a domestic company fails to complete the required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings and fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines; (ii) if the issuer meets both of the following criteria, the overseas offering and listing conducted by such issuer shall be deemed an indirect overseas offering and listing by a PRC domestic company: (A) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year were derived from PRC domestic companies; and (B) the majority of the issuer’s business activities are carried out in mainland China, or its main place(s) of business are located in mainland China, or the majority of its senior management team in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in mainland China. In such circumstances, where a PRC domestic company is seeking an indirect overseas offering and listing in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for an initial public offering or listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted.
On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” and became effective on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. On March 22, 2024, the CAC issued the Provisions on Promoting and Regulating Cross-border Data Flows, which stipulates that a data handler providing personal information abroad may be exempted from declaring security assessment for data to be provided abroad, concluding a standard contract for personal information to be provided abroad or passing authentication for protection of personal information if it satisfies certain conditions. In addition, to provide the data collected and generated in such activities as international trade, cross-border transport, academic cooperation, transnational manufacturing and marketing, which do not contain personal information or important data, to overseas parties is exempted from all these procedures aforementioned.
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The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. While we believe that our operations are not affected by this, as these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.
It may be difficult for shareholders to enforce any judgment obtained in the United States against us, which may limit the remedies otherwise available to our shareholders.
Substantially all of our assets are located in Hong Kong. Moreover, half of our current directors and officers are Chinese nationals or domiciled in mainland China. All or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for our shareholders to effect service of process within the United States upon our subsidiaries or any individuals. In addition, there is uncertainty as to whether the courts of Hong Kong or mainland China would recognize or enforce judgments of U.S. courts obtained against us or our officers and/or directors predicated upon the civil liability provisions of Hong Kong against us or such persons predicated upon the securities laws of the United States or any state thereof. It is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties under the United States Federal securities laws or otherwise.
In addition, the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. The PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of the PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
It may be difficult for overseas regulators to conduct investigations or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in the PRC, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside the PRC or otherwise with respect to foreign entities. Although the authorities in the PRC may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the United States may not be efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the State Council and the competent departments of the State Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within the PRC may further increase difficulties faced by you in protecting your interests.
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Risks Related to Our Common Stock
An active market for our common stock may never develop.
If there is a thin trading market or “float” for our common stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our common stock would be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. In addition, in the absence of an active public trading market, investors may be unable to liquidate their investment in us. Furthermore, the stock market is subject to significant price and volume fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including, but not limited to:
| ● | our quarterly or annual operating results; |
| ● | changes in our earnings estimates or the failure to accurately forecast and appropriately plan our expenses; |
| ● | failure to achieve our growth expectations; |
| ● | failure to attract customers and retain them; |
| ● | the effect of increased or variable competition on our business; |
| ● | additions or departures of key or qualified personnel; |
| ● | failure to adequately protect our intellectual property; |
| ● | costs associated with defending claims, including intellectual property infringement claims and related judgments or settlements; |
| ● | changes in governmental or other regulations affecting our business; |
| ● | our compliance with governmental or other regulations affecting our business; and |
| ● | changes in global or regional industry, general market, or economic conditions. |
The stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in our industry. The changes may not be possible to predict and often appear to occur without regard to specific operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our Company and these fluctuations could materially reduce our stock price.
Even if a market for our common stock develops, the market price of our common stock may be significantly volatile, which could result in substantial losses for purchasers.
The market price for our common stock may be significantly volatile and subject to wide fluctuations in response to factors including the following:
| ● | actual or anticipated fluctuations in our quarterly or annual operating results; |
| ● | changes in financial or operational estimates or projections; |
| ● | conditions in markets generally; |
| ● | changes in the economic performance or market valuations of companies similar to ours; and |
| ● | general economic or political conditions in the United States or elsewhere. |
In some cases, following periods of volatility in the market price of a company’s securities, shareholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our business operations and reputation.
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We may not maintain the qualification for OTCQB inclusion, and therefore you may be unable to sell your shares.
Our common stock is eligible for quotation on the OTCQB. However, trading of our common stock could be suspended. If for any reason our common stock does not become eligible or maintain eligibility for quotation on the OTCQB or a public trading market does not develop, purchasers of shares of our common stock may have difficulty selling their shares should they desire to do so. If we are unable to satisfy the requirements for quotation on the OTCQB, any quotation in our common stock could be conducted in the “pink sheets” market. As a result, a purchaser of our common stock may find it more difficult to dispose of, or to obtain accurate quotations as to the price of their shares. This would materially and adversely affect the liquidity of our securities.
Our controlling shareholder may exercise significant influence over us and may be subject to conflicts of interest.
Our Chairman of the Board, Chief Executive Officer and President, Huihe Zheng, owns approximately 82.1% of our outstanding voting power. Mr. Zheng thus has the power, on his own, to determine the outcome of any corporate transaction or other matters submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, approval of equity incentive plans, and other significant corporate actions. Mr. Zheng also has the power to prevent or cause a change in control. In addition, without the consent of Mr. Zheng, we could be prevented from entering into transactions that could be beneficial to us. The interests of Mr. Zheng may differ from the interests of our other shareholders, which cause him to be faced with conflicts of interests that may not be resolved in favor of or to the satisfaction of our minority shareholders.
The Series B Preferred Stock, which are controlled by our Chairman of the Board, Chief Executive Officer, have super voting rights that may adversely affect our holders of common stock.
Except as required by law, holders of Series B Preferred Stock (which is currently controlled by Huihe Zheng, our Chairman of the Board, Chief Executive Officer) are entitled to super voting rights. Each share of Series B Preferred Stock is entitled to 100 votes. Holders of Series B Preferred Stock will vote on all matters upon which common stock holders are entitled to vote. The voting rights of holders of our common stock will be diluted as a result of these super voting rights.
Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.
Our common stock, which is currently quoted on OTCQB, may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Exchange Act, as amended. Our common stock may be a “penny stock” if it meets one or more of the following conditions: (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is not quoted on the Nasdaq Capital Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million. The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to: (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.
Compliance with these requirements may make it more difficult for our investors to resell their shares of common stock to third parties or to otherwise dispose of them. Shareholders should be aware that, according to Securities and Exchange Commission Release No. 34-29093, dated April 17, 1991, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include: (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
The low price of our common stock might have a negative effect on the amount and percentage of transaction costs paid by individual shareholders. The low price of our common stock also limits our ability to raise additional capital by issuing additional shares. There are several reasons for these effects. First, the internal policies of certain institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker’s commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, the Company’s shareholders may pay transaction costs that are a higher percentage of their total share value than if our share price were substantially higher.
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FINRA sales practice requirements may also limit your ability to buy and sell our common stock, which could depress the price of our shares.
FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.
You may face significant restrictions on the resale of your shares due to state “blue sky” laws.
Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or it must be exempt from registration. The applicable broker-dealer must also be registered in that state.
We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those broker-dealers, if any, who agree to serve as market makers for our common stock. We have not yet applied to have our securities registered in any state and will not do so until we receive expressions of interest from investors resident in specific states after they have viewed this Report. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your shares without the significant expense of state registration or qualification.
Our management has determined that our disclosure controls and procedures are not effective and we have identified material weaknesses in our internal control over financial reporting.
In connection with the preparation of our financial statements for the fiscal years ended March 31, 2025 and 2024, our management concluded that our internal control over financial reporting was not effective and we identified several material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In addition, as of March 31, 2025, our management concluded that our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting. The material weaknesses result from the following: (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.
Each of the material weaknesses described above could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected.
To remediate our identified material weaknesses, we plan to adopt measures to improve our internal controls over financial reporting, including, among others: (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen our financial reporting function and to set up a financial and system control framework; (ii) organizing regular training for our accounting staff, especially training related to U.S. GAAP and SEC reporting requirements, (iii) formulating U.S. GAAP accounting policies and procedures manual, which will be maintained, reviewed and updated, on a regular basis, to the latest U.S. GAAP accounting standards, (iv) establishing assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (v) establishing an audit committee of the Board consisting of three committee members meeting independence requirements under the Nasdaq listing rules and SEC rules.
While implementation of the remediation plan remains ongoing, as of the date of this report, we have: (i) hired a qualified full-time Chief Financial Officer of the Company; (ii) established internal audit function by engaging an external consulting firm to assist the Company with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (iii) appointed two independent directors and an independent director nominee who will serve on the Board upon the commencement of trading of the shares of common stock of the Company on Nasdaq, to strengthen our corporate governance.
All other actions required to complete our remediation plan remain to be completed at this time. There is no guarantee that we will complete as planned or our efforts will be successful. As of the date of this report, we have not incurred material costs as part of the remediation efforts. Due to the nature of the remediation process and the need for adequate time after implementation to evaluate and test the effectiveness of the implemented controls, we cannot provide an estimate of costs expected to be incurred in connection with implementation of the remediation plan. We expect the remediation to be time-consuming and place significant demands on the Company’s financial and operational resources. We cannot assure you that any measures we may take in the future will be sufficient to remediate the material weaknesses described above or avoid potential future material weaknesses. If we are unable to report financial information timely and accurately or to maintain effective disclosure controls and procedures, our stock price could be negatively impacted and we could be subject to, among other things, regulatory or enforcement actions by the SEC.
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If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We do not foresee paying cash dividends in the near future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.
We do not plan to declare or pay any cash dividends on our shares of common stock in the near future and currently intend to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be investors’ sole source of gain for the near future. Moreover, investors may not be able to resell their common stock at or above the price they paid for them.
Our articles of incorporation allow our Board to create a new series of preferred stock without approval by our shareholders, which could adversely affect the rights of the holders of our common stock.
Our Board has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board also has the authority to issue preferred stock without shareholder approval. As a result, our Board could authorize the issuance of a series of preferred stock granting holders a preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock, and the right to redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our Board could authorize the issuance of an additional series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing shareholders.
You may experience additional dilution as a result of future equity offerings.
In order to raise additional capital, we have issued equity securities in the past and may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per unit in our previous equity offering. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions, may be lower than the price per share paid by investors in our previous equity offering.
Shares of our common stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
Prior to the closing of the Share Exchange, we were deemed a “shell company” under applicable SEC rules and regulations because we had no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets. Pursuant to Rule 144 promulgated under the Securities Act, sales of the securities of a former shell company, such as us, under that rule are not permitted (i) until at least 12 months have elapsed from the date on which our Current Report on Form 8-K reflecting our status as a non-shell company, was filed with the SEC; (ii) unless at the time of a proposed sale, we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports; or (iii) until the effectiveness of a registration statement under the Securities Act relating to our common stock. Therefore, unless we register such shares of common stock for sale under the Securities Act, most of our shareholders will be forced to hold their shares of our common stock for at least that 12-month period before they are eligible to sell those shares, and even after that period, sales may not be made under Rule 144 unless we and the selling shareholders are in compliance with other requirements of Rule 144. Further, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities unless we agree to register such securities under the Securities Act, which could cause us to expend significant time and cash resources. Additionally, our previous status as a shell company could also limit our use of our securities to pay for any acquisitions we may seek to pursue in the future (although none are currently planned). The lack of liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period of time than a non-former shell company could cause the market price of our securities to decline.
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Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity.
Risk Management
We may face significant
and persistent cybersecurity risks due to the need to protect our business, our confidential information and information concerning our
personnel and others with whom we conduct business. As with other insurance brokerage companies, we occasionally face threats from actors
who seek to disrupt our business as well as others who are engaging in malicious activities for profit, to make a political point or for
no particular reason other than creating disruption. Disclosure of certain information as a result of a cybersecurity breach may result
in a breach of privacy laws. The substantial level of harm that could occur to us and our business partners and customers were we to suffer
impacts of a material cybersecurity incident; and
While we have not, as of the date of this Report, experienced a cybersecurity threat or incident that resulted in a material adverse impact to our business or operations, we cannot assure you that we will not experience such an incident in the future. Any cybersecurity incidents, whether or not successful, could result in our incurring additional costs related to, for example, rebuilding our internal systems, implementing additional threat protection measures, responding to regulatory inquiries or actions, paying damages or making payments to obtain access to our computer systems, or taking other remedial steps with respect to third parties, as well as incurring significant reputational harm. We seek to detect and investigate unauthorized attempts and attacks against our network, products, and services, and to prevent their occurrence and recurrence where practicable through changes or updates to our internal processes and tools and changes or updates to our products and services; however, we remain potentially vulnerable to known or unknown threats. In some instances, we, our business partners and our customers can be unaware of a threat or incident or its magnitude and effects. Further, there are increasing regulation requirements regarding responses to cybersecurity incidents, including reporting to regulators, which could subject us to additional liability and reputational harm.
Governance
Following these risk
assessments, we evaluate whether and how to re-design, implement, and maintain reasonable safeguards to mitigate identified risks and
reasonably address any identified gaps in existing safeguards.
Item 2. Properties.
Our principal executive office is located at Room 1030B, 10/F, Ocean Centre, Harbour City, 5 Canton Road, Tsim Sha Tsui, Hong Kong.
We have two office leases, both with a lease term of three years that YeeTah entered into in February 2025 (the “2025 Office Lease”) and in May 2023 (the “2023 Office Lease”). The monthly rent is HK$57,684 and HK$24,783 for the 2023 Office Lease and 2025 Office Lease, respectively. We do not own or lease any other properties.
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Company or its subsidiaries are a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of the Company’s voting securities, or security holder is a party adverse to the Company or has a material interest adverse to the Company. 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 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
Our common stock is quoted on the OTCQB under the symbol “QDMI.” There has been limited trading in our shares of common stock. We cannot assure you that there will be an active market in the future for our common stock.
The following table sets forth, for the periods indicated, the high and low closing prices of our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
| Closing Prices (1) | ||||||||
| High | Low | |||||||
| FISCAL YEAR ENDED MARCH 31, 2024: | ||||||||
| First Quarter | 0.10 | 0.10 | ||||||
| Second Quarter | 2.70 | 0.10 | ||||||
| Third Quarter | 2.70 | 1.12 | ||||||
| Fourth Quarter | 1.60 | 1.12 | ||||||
| FISCAL YEAR ENDED MARCH 31, 2025: | ||||||||
| First Quarter | 15.13 | 1.21 | ||||||
| Second Quarter | 3.85 | 1.04 | ||||||
| Third Quarter | 4.70 | 1.94 | ||||||
| Fourth Quarter | 1.94 | 1.00 | ||||||
| (1) | The above tables set forth the range of high and low closing prices per share of our common stock as reported by www.otcmarket.com for the periods indicated. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. |
(b) Shareholders of Record
As of July 10, 2025, we had approximately 380 shareholders of record. Because certain shares of our common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of beneficial shareholders.
(c) Dividends
We are permitted under the Florida law to provide funding to our subsidiaries, including YeeTah, through loans or capital contributions without restrictions on the amount of the funds. There are no restrictions or limitations on our ability to distribute earnings from our businesses, including subsidiaries, to the U.S. investors or our ability to settle amounts owed. YeeTah is permitted under the laws of Hong Kong to provide funding to QDM HK and QDM BVI, the holding company incorporated in Hong Kong and the British Virgin Islands, respectively, through dividend distribution without restrictions on the amount of the funds, subject to availability of distributable profits and sufficient cash to maintain going concern and solvency of YeeTah and any contractual obligations owed to third parties prohibiting or restricting dividend distributions. As of the date of this Report, there has been no dividends or distributions between our holding company and our subsidiaries nor do we expect such dividends or distributions to occur in the near future among our holding company and its subsidiaries.
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However, the PRC government has significant authority to intervene or influence operations of an offshore holding company in mainland China at any time, and such oversight may also extend to our Hong Kong operating subsidiary. We cannot assure you that the PRC government will not prevent us from transferring the cash we maintain in Hong Kong outside of Hong Kong, or restrict our ability to deploy our cash into business or to pay dividends. We could also be subject to limitations on the transfer or the use of our cash if we expand our business operations into mainland China or conduct our operations in some other ways such that we become subject to PRC laws that regulate these activities. In addition, if YeeTah incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitation on our ability to transfer or use our cash could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate paying cash dividends in the near future. The declaration of dividends on any class of shares is within the discretion of the Board, subject to the Florida law, out of legally available funds, and will depend on the assessment of, among other factors, earnings, capital requirements and our operating and financial condition. If we determine to pay dividends on any of our capital stock in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong operating subsidiary YeeTah. None of our subsidiaries has made any dividends or distributions to us. Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HKD into foreign currencies and the remittance of currencies out of Hong Kong. See “Item 1A. Risk Factors - Risks Related to Our Business and Industry - We rely on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.”
Any future determination related to our dividend policy will be made at the discretion of the Board after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the Board deems relevant, and subject to the restrictions contained in any future financing instruments.
(d) Securities Authorized for Issuance under Equity Compensation Plans
We currently do not have any equity compensation plans.
(e) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offering
During the past three fiscal years, we did not offer or sell any unregistered securities that were not previously disclosed in a quarterly report on Form 10-Q or in a current report on Form 8-K.
(f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6. [Reserved].
Item 7. 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. 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.
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Overview
From 2016 to 2020, we were a telemedicine company that provided Connect-a-Doc telemedicine kits to schools. Our services aimed to provide alternatives to schools that desired to provide a higher level of healthcare to their students but were 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 a newly designated Series C Preferred Stock, with each share of Series C Preferred Stock being convertible into approximately 3.67 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 that primarily markets and sells 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 a MPF intermediary, YeeTah also assists its customers with their investment through the MPF and the ORSO in Hong Kong, both of which are retirement protection schemes set up for employees. Following the closing of the transaction, we have assumed the business operations of QDM BVI and its subsidiaries.
On November 3, 2021, we acquired 100% of the issued and outstanding shares of QDMS, a company incorporated on February 6, 2020 in Cyprus. We acquired QDMS through an intermediary holding company, Lutter Global Limited (“LGL”), which was incorporated on July 29, 2021 in the BVI. Before the acquisition, Huihe Zheng was the sole shareholder of QDMS. As part of the acquisition, Mr. Zheng sold all the shares of QDMS to LGL for a consideration of EUR5,000 in November 2021 and at the same time the sole shareholder of LGL, Mengting Xu, transferred all her shares in LGL to the Company for a consideration of US$1.00. As a result, we acquired a 100% ownership of LGL, which, in turn, owns 100% of QDMS. QDMS plans to engage in the research and development of customer relationship management (“CRM”) software as a service (“SaaS”), with a business model derived from “customer-centered” CRM concept to improve enterprise-customers relationship. In October 2023, the Company sold QDMS to Mr. Huihe Zheng for no consideration following its decision not to pursue its plan to provide CRM SaaS Services.
In March 2023, we consummated the 2023 Offering, in which we issued and sold an aggregate of 289,104,000 shares of common stock at a price of $0.0081 per share to certain investors, generating gross proceeds of $2,339,937.
On October 4, 2023, we sold QDMS to Mr. Zheng for no consideration. As a result of the disposition, the Company recognized a gain of $33,165.
On March 28, 2024, we filed an Articles of Amendment to Articles of Incorporation of the Company with the Florida Division of Corporation to (i) increase our authorized shares of common stock, par value $0.0001 per share, from 200,000,000 shares to 700,000,000 shares and our authorized shares of preferred stock, par value $0.0001 per share, from 5,000,000 shares to 30,000,000 shares; and (ii) effect a forward split of our issued and outstanding shares of common stock at a ratio of 10-for-1, which became effective as of April 5, 2024. The foregoing amendments were approved by the Board and shareholders holding approximately 60.9% of the voting power of the Company.
As a result of the 2024 Forward Stock Split, each issued and outstanding share of the Company’s common stock prior to the effective time of the 2024 Forward Stock Spilt were split into ten shares of common stock and the total number of issued and outstanding shares of common stock increases from 29,156,393 shares to 291,563,930 shares. The 2024 Forward Stock Split had no impact on the Company’s issued and outstanding shares of preferred stock other than that the conversion rate and voting rights of our Series C Convertible Preferred Stock were proportionately adjusted. On April 4, 2024, the 2024 Forward Stock Split was approved and announced by the Financial Industry Regulatory Authority with an effective date on April 5, 2024. All numbers in this report give effect to the 2024 Forward Stock Split unless indicated otherwise.
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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 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 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 shares of Series B Preferred Stock 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 Preferred Stock to Mr. Zheng, Mr. Zheng beneficially owns 82.1% of the aggregate voting power of us as of the date of this report.
Results of Operations
Years Ended March 31, 2025 and 2024
The following table presents an overview of the results of operations for the years ended March 31, 2025 and 2024:
| For the Year Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue: | ||||||||
| Insurance brokerage services | $ | 7,840,658 | $ | 6,366,154 | ||||
| Referral business | 540,616 | — | ||||||
| Total revenue | 8,381,274 | 6,366,154 | ||||||
| Cost of sales | 1,064,039 | 3,912,743 | ||||||
| Gross profit | 7,317,235 | 2,453,411 | ||||||
| Operating expenses | ||||||||
| General & administrative expenses | $ | 1,411,945 | $ | 652,836 | ||||
| Total operating expenses | 1,411,945 | 652,836 | ||||||
| Income from operations | 5,905,290 | 1,800,575 | ||||||
| Total other income | 4,423 | 73,006 | ||||||
| Current income tax expenses | 1,086,375 | 309,043 | ||||||
| Net income | $ | 4,823,338 | $ | 1,564,538 | ||||
Revenue
Revenue increased by approximately $1.5 million, or 23.2%, for the year ended March 31, 2025 as compared to the same period of 2024. The increase was mainly due to (i) expansion of our collaboration with insurance partners in fiscal year 2025, (ii) increase in the number of insurance policies that generate commissions for us and (ii) the incremental revenue from referral fees paid by a trust company in Hong Kong. This growth was partially offset by the decrease in revenue from one of the existing insurance company partners, as a substantial portion of the revenue from this partner in the fiscal year of 2025 was derived from insurance renewal commissions, which are based on the renewal commission rate that is lower than the first-year commission rate. In addition, we expanded our collaboration with insurance partners in 2025. Moreover, we have strategically expanded our business model by entering into a collaborative partnership with a trust company in Hong Kong. Under this arrangement, we referred clients to the trust company for investment products and, in return, earned commissions based on a percentage of the value of the investment products purchased by the referred clients as revenue.
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Cost of sales
The amounts decreased by approximately $2.8 million or 72.8% for the year ended March 31, 2025 as compared to the same period of 2024. 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, we lowered our referral fee rates from approximately 52.5% to approximately 10%, which resulted in the significant decrease in cost of sales and increase in revenue.
Gross profit
Gross profit margin increased by approximately 48.8% for the year ended March 31, 2025 as compared to the same period of 2024, 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 $759,000, or 116.3%, for the year ended March 31, 2025 as compared to the same period of 2024. The change is primarily due to hiring of more employees and technical representatives and increase in professional fees paid to various service providers.
Other income
Other income decreased by approximately $69,000, or 93.9%, for the year ended March 31, 2025 as compared to the same period of 2024. The income was mainly attributable to the receipt of referral fees from introducing clients to sub-brokers in Macao, partially offset by the payment of bank charges. The change is primarily due to the recognition of a gain from the disposal of subsidiaries during the fiscal year of 2024, with no such income recognized in the same period of 2025, as well as a reduction in referral fees received from sub-brokers.
Current income tax expenses
Current income tax expenses increased by approximately $777,000, or 251.5%, for the year ended March 31, 2025 as compared to the same period of 2024. The change is primarily due to increase in profits in the year ended March 31, 2025.
Net income
As a result of the factors described above, net income for the year ended March 31, 2025 increased by approximately $3.3 million, or 208.3%, as compared to a net income of approximately $1.6 million for the same period for 2024.
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Foreign Currency and Foreign Currency Translation
The Company’s reporting currency is the United States Dollar (“US$” or “$”). The Company’s operations are principally conducted in Hong Kong where Hong Kong dollar is the functional currency.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance sheet date. The resulting exchange differences are reported in the statements of operations and comprehensive loss.
The exchanges rates used for translation from Hong Kong dollar to US$ 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 the years ended March 31, 2025 and 2024.
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 by the cash provided by our operating activities.
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 March 31, 2025.
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There have been no cash and any asset transactions between QDM and our subsidiaries since the Share Exchange. As of March 31, 2025 and March 31, 2024, we had $8,557,305 and $5,158,223, respectively, in cash and cash equivalents, which primarily consisted of cash deposited in banks.
| Year Ended March 31, 2025 | Year Ended March 31, 2024 | |||||||
| Net cash provided by operating activities | $ | 4,082,303 | $ | 2,208,037 | ||||
| Net cash used in investing activities | — | (100,241 | ) | |||||
| Net cash (used in) provided by financing activities | (683,221 | ) | 332,886 | |||||
| Effect of Exchange rate changes on cash | — | (204 | ) | |||||
| Net increase in cash, cash equivalents | 3,399,082 | 2,440,478 | ||||||
| Cash and cash equivalents at beginning of period | 5,158,223 | 2,717,745 | ||||||
| Cash and cash equivalents at end of period | $ | 8,557,305 | $ | 5,158,223 | ||||
Operating Activities:
Net cash generated from operating activities was approximately $4.1 million for the year ended March 31, 2025, compared to net cash generated from operating activities of approximately $2.2 million for the same period in 2024, representing an increase of approximately $1.9 million in the net cash inflow in operating activities. The increase in net cash generated from operating activities was primarily due to an increase of net income of approximately $3.3 million in the year ended March 31, 2025 as compared to the same period of 2024. The significant increase in net income was primarily driven by a substantial reduction in cost of sales, which was mainly attributable to lower referral fees paid to the referrers. The increase in operating cash flow also reflects the following major working capital changes:
| (1) | Increase in accounts receivable resulted in an approximately $1.5 million cash outflow for the year ended March 31, 2025 compared to an approximately $108,000 cash inflow for the same period of 2024, which led to an approximately $1.6 million increase in net cash outflow from operating activities. | |
| (2) | Decrease in accounts payable and accrued liabilities resulted in an approximately $281,000 cash outflow for the year ended March 31, 2025 compared to an approximately $344,000 cash inflow for the same period of 2024, which led to an approximately $625,000 increase in net cash outflow from operating activities. | |
| (3) | Increase in short-term and long-term prepaid expenses resulted in an approximately $68,000 cash outflow for the year ended March 31, 2025 compared to an approximately $116,000 cash outflow for the same period of 2024, which led to an approximately $48,000 decrease in net cash outflow from operating activities. The increase in prepaid expenses was primarily due to a substantial commission prepayment to a newly contracted referrer. During this period, the Company prepaid HK$1,000,000 (US$128,205) to this referrer for future referral fees payable. As of March 31, 2025, the outstanding prepaid balance to this referrer was HK$773,116 (US$99,117), and the prepaid amount was subsequently fully credited against the referral fees payable to the referrer in April 2025. |
| (4) | Increase in income tax payable resulted in an approximately $1.1 million cash inflow for the year ended March 31, 2025 compared to an approximately $309,000 cash inflow for the same period of 2024, which led to an approximately $777,000 increase in net cash inflow from operating activities. |
Investing Activities:
Net cash used in investing activities was nil for the year ended March 31, 2025 compared to net cash used in investing activities of approximately $100,000 for the same period of 2024. Net cash used in investing activities for the year ended March 31, 2024 was solely attributable to acquisitions of fixed assets and disposition of subsidiaries.
Financing Activities:
Net cash used in financing activities was approximately $683,000 for the year ended March 31, 2025, which was solely attributable to the net repayment to related parties.
Net cash generated from financing activities was approximately $333,000 for the year ended March 31, 2024, which was fully attributable to shareholder advances to the Company during the period.
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Material Commitments
We have no material commitments for the next twelve months.
We had two office lease agreements and our lease commitments as of March 31, 2025 are summarized as follows:
Operating lease
| 2023 Office Lease | 2025 Office Lease | Total | ||||||||||
| 2026 | 88,744 | 38,128 | 126,872 | |||||||||
| 2027 | 6,441 | 38,128 | 44,569 | |||||||||
| 2028 | — | 31,773 | 31,773 | |||||||||
| Total future minimum lease payments | $ | 95,185 | $ | 108,029 | $ | 203,214 | ||||||
| Less: imputed interest | (5,457 | ) | (11,249 | ) | (16,706 | ) | ||||||
| Total operating lease liability | $ | 89,728 | $ | 96,780 | $ | 186,508 | ||||||
| Less: operating lease liability - current | 83,342 | 31,783 | 115,125 | |||||||||
| Total operating lease liability – non current | $ | 6,386 | $ | 64,997 | $ | 71,383 | ||||||
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 March 31, 2025, 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 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is not required to provide the information required by this Item as it is a “smaller reporting company”
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is included in this Report as set forth in the “Index to Financial Statements” which appears on page F-1 of this Report, after the signature pages of this Report, and is incorporated by reference herein.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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Item 9A. 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 (collectively, the “Certifying Officers”) or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision of our Certifying Officers, we evaluated 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 March 31, 2025 due to the material weaknesses in our internal control over financial reporting discussed below.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses, which are indicative of many small companies with small staff, as of March 31, 2025: (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.
Because of these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting as of March 31, 2025, based on the criteria established in “2013 Internal Control-Integrated Framework” issued by COSO.
To remediate our identified material weaknesses, we plan to adopt measures to improve our internal controls over financial reporting, including, among others: (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen our financial reporting function and to set up a financial and system control framework; (ii) organizing regular training for our accounting staff, especially training related to U.S. GAAP and SEC reporting requirements, (iii) formulating U.S. GAAP accounting policies and procedures manual, which will be maintained, reviewed and updated, on a regular basis, to the latest U.S. GAAP accounting standards, (iv) establishing assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (v) establishing an audit committee of the Board consisting of three committee members meeting independence requirements under the Nasdaq listing rules and SEC rules.
While implementation of the remediation plan remains ongoing, as of the date of this report, we have: (i) hired a qualified full-time Chief Financial Officer of the Company; (ii) established internal audit function by engaging an external consulting firm to assist the Company with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (iii) appointed an independent director and an independent director nominee who will serve on the Board upon the commencement of trading of the shares of common stock of the Company on Nasdaq, to strengthen our corporate governance.
This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following tables set forth the respective positions and ages of the directors, director nominee and executive officers of the Company as of the date of this Report. Each director of the Company has been elected to hold office until the next annual meeting of shareholders and until his or her successor is duly elected and qualified.
| Name | Age | Positions | ||
| Huihe Zheng | 44 | Chairman of the Board, Chief Executive Officer and President | ||
| Wei Li | 40 | Chief Financial Officer and Secretary | ||
| Timothy Miles | 78 | Director | ||
| Fawn Ren | 51 | Director | ||
| Lei Sun | 46 | Director Nominee |
Biographical Information
Huihe Zheng has more than twenty years of experience in investment and wealth management. Mr. Zheng has served as Chairman of Shanghai Dingchan Industrial Co., Ltd., a company primarily engaged in wholesale and distribution of computer equipment and components since he founded the company in November 2013. Mr. Zheng has served as Chief Executive Officer and Chairman of Shanghai Hewu Investment Management Co., Ltd., an investment company, since he founded the company in January 2016. Mr. Zheng served as a director, Chief Executive Officer and President of 24/7 Kid from March 2020 to its dissolution in September 2022. From 1999 to 2016, Mr. Zheng primarily focused on securities trading in stock markets in China and abroad for his own account. We believe Mr. Zheng’s experience in business management, investment and capital market qualifies him to serve on the Board.
Wei Li has served as the Chief Financial Officer and Secretary of the Company since August 5, 2024. Ms. Li has over 15 years of experience in accounting and management. Since October 2019, Ms. Li has been a Partner and the Chief Financial Officer of Beyond Consultancy Corporation, a company that provides capital market solutions for companies planning to go public, assists companies in the preparation of their financial statements in accordance with U.S. GAAP and provides consultation on accounting related matters. Since July 2025, Ms. Li has served as director of MaxsMaking Inc. (Nasdaq: MAMK), a China-based company focusing on manufacturing customized consumer goods. From August 2023 to May 2024, Ms. Li served as Chief Financial Officer of Hongchang International Co., Ltd (OTC: HCIL), a company engaged in international food trade and processing, where she was responsible for the relevant matters during the reverse merger of the company. From April 2018 to February 2021, Ms. Li served as the Chief Financial Officer of Heyu Biological Technology Corporation (OTC: HYBT), a Malaysian company specializing in cancer cell therapy, where she oversaw the financial management matters of the company. From March 2018 to September 2019, Ms. Li served as an independent director of Dragon Victory International Limited (Nasdaq: LYL), a China-based crowdfunding platform company. From December 2011 to July 2017, she served as the Chief Financial Officer of China Education Alliances, Inc. (formerly NYSE: CEU), an online education company, where she oversaw the financial management matters of the company. From August 2010 to December 2011, Ms. Li worked as a senior consultant with PricewaterhouseCoopers, an international leading management consulting firm, where she focused on risk and control functions and provided audit, internal control advice and SOX compliance services to both public and private companies. From March 2006 to July 2010, Ms. Li served as senior auditor and tax advisor at RB Accountants, an accounting firm in Australia, where she provided financial auditing, planning and tax advice to both local and multinational companies. Ms. Li held a bachelor’s degree in Business (Accountancy) from Queensland University Technology in Australia in 2006. She has been a certified public accountant in Australia since 2010, and became a Fellow of Certified Practice Accountant (FCPA) in 2024.
Timothy Miles has been the president and owner of Happiness Now Hypnosis, a hypnotherapy company, since 2016. Mr. Miles has served as a director of the Company since January 2020. From 1999 through 2016, Mr. Miles was the president of Littlepond Enterprises, Inc., a business consulting firm. Mr. Miles attended the University of California at Davis, but did not receive a degree. We believe Mr. Miles’ decades’ experience in business management and consulting qualifies him to serve on the Board.
Fawn Ren has served as a director of the Company since November 6, 2024. Ms. Ren has more than 13 years’ experience in business consulting, management and financial services. Since September 2021, Ms. Ren has served as a Senior Manager at international client services group at PwC Cyprus, a regional member firm of PricewaterhouseCoopers International Limited, a global professional service group. From September 2018 to August 2021, Ms. Ren served as a Manager at private wealth group at PwC Cyprus. From December 2014 to August 2018, Ms. Ren was a Senior Associate I and II with private wealth group and assurance group at PwC Cyprus. From August 2011 to November 2014, Ms. Ren was an Associate with assurance and asset management group at PwC Boston. Ms. Ren holds a bachelor’s degree in Economics from University of Iowa and a Master’s degree in Accounting from Bentley University. We believe Ms. Ren’s decades’ experience in financial and accounting services and business consulting qualifies her to serve on the Board.
Lei Sun will serve as a member of our board of directors upon commencement of trading of our shares of common stock on Nasdaq. Ms. Sun has extensive experience in management, corporate finance, accounting, and corporate governance. Since June 2021, Mr. Sun has served as the executive director of Brickhill Capital (CY) Ltd, a regional branch in Cyprus of a multinational professional services provider specializing in investment, trading and brokerage, where she leads the local operation team and is responsible for the management and development strategy of the company. From December 2014 to June 2021, Ms. Sun served as the China general manager of Brickhill Capital Ltd in China, where she was responsible for strategic development, financial control and budgeting and business development. From December 2013 to December 2014, Ms. Sun served as the China Region Leader of Forex Time Ltd, a company specialized in services related to foreign currency exchange, where she was responsible for establishing the sales team and for business development in China. Between 2007 through December 2013, Ms. Sun worked in management, business development and marketing positions at various companies in Cyprus. Ms. Sun received her bachelor’s degree in Business Law, Business Communication and International Trade from China International Business College in 1999 and a diploma in Business, Marketing and Public Relations and Accounting from Cyprus CTL Eurocollege in 2003. We believe that Ms. Sun is qualified to serve as a director on the Board, based on her decades of experience in corporate finance, management and corporate governance.
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Director Independence
We are not currently listed on a national stock exchange and not required to maintain a majority of independent directors.
Family Relationships
There are no family relationships among our directors and executive officers.
The Board and Committees
We are not required to maintain a majority of independent directors under the rules applicable to companies that do not have securities listed or quoted on a national securities exchange. Our Board does not maintain a separate audit, nominating, or compensation committee. Functions customarily performed by such committees are performed by our board of directors as a whole.
Involvement in Certain Legal Proceedings
None of our directors and executive officers have been involved in any of the following events during the past ten years:
| ● | any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; | |
| ● | being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| ● | being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Code of Conduct and Ethics
We currently do not have a Code of Ethics and plan to adopt one as we develop our business.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers, directors and persons who beneficially own more than ten percent of its common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on our review of such forms furnished to us, we believe that all reports applicable to our executive officers, directors and greater than ten percent beneficial owners were filed in a timely manner in accordance with Section 16(a) of the Exchange Act except that Ruiyin Capital Ltd filed a late Form 4 on August 20, 2024, Bakelai Capital Ltd filed a late Form 4 on August 22, 2024, Wei Li filed a late Form 3 on August 22, 2024, and Huihe Zheng filed a late Form 4 on August 11, 2024.
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Item 11. Executive Compensation.
The following table sets forth the cash and non-cash compensation awarded to or earned by each individual who served as the executive officer during the fiscal years ended March 31, 2025 and 2024.
Summary of Executive Compensation Table
| Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Option Awards ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||
| Huihe Zheng | 2025 | — | — | — | — | — | — | |||||||||||||||||||
| Chief Executive Officer and Chairman | 2024 | — | — | — | — | — | — | |||||||||||||||||||
| Wei Li | 2025 | 78,710 | — | — | 78,710 | |||||||||||||||||||||
| Chief Financial Officer | 2024 | — | — | — | — | — | ||||||||||||||||||||
Outstanding Equity Awards at Fiscal Year End
None.
Employment Agreements
Employment Agreement with Wei Li
Effective as of August 5, 2024, the Company and Ms. Li entered into an employment agreement (the “Li Agreement”). Under the Li Agreement, Ms. Li is entitled to an annual salary of $120,000 (which shall increase to $150,000 per year commencing upon the listing of the Company’s securities on Nasdaq) for her services as the Chief Financial Officer of the Company. She is also entitled to participate in the Company’s equity incentive plans and other Company benefits, each as determined by the Board from time to time. Her employment has an initial term of one year and is subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the end of the applicable term.
Pursuant to the Li Agreement, the Company may terminate Ms. Li’s employment for cause, at any time, without notice or remuneration, for certain acts, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to the detriment of the Company, or misconduct or a failure to perform agreed duties and such failure continuing after she is afforded not less than fifteen (15) days to cure such failure. In such case, Ms. Li will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and her right to all other benefits will terminate, except as required by any applicable law. The Company may also terminate Ms. Li’s employment without cause upon 30 days’ advance written notice. In such case of termination by the Company, Ms. Li will be entitled to the amount of base salary earned and not paid prior to termination.
Pursuant to the Li Agreement, Ms. Li may terminate her employment at any time with 30 days’ prior written notice to the Company without cause or if (1) there is a material reduction in her authority, duties and responsibilities unless such reduction was made with her consent, or (2) there is a material reduction in her annual salary. Upon her termination of the employment due to any aforementioned reasons, the Company shall provide compensation to Ms. Li the equivalent to one month of her base salary that she is entitled to immediately prior to such termination.
The Li Agreement also contains customary restrictive covenants relating to confidentiality, non-competition and non-solicitation.
We presently do not have any other employment agreements with our other executive officers. There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.
Director Compensation
The following table sets forth information with respect to compensation earned by our named executive officers for the fiscal year ended March 31, 2025.
Name and Principal Position(2) | Year | Fees earned or paid in cash ($) | Stock awards ($) | Option awards ($) | Non-equity Incentive Plan Compensation ($) | Change in pension value and nonqualified deferred compensation earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||
| Timothy Miles | 2025 | 12,015 | — | — | — | — | — | 12,015 | ||||||||||||||||||||||||
| Fawn Ren | 2025 | 5,000 | — | — | — | — | — | 5,000 | ||||||||||||||||||||||||
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Ms. Ren, who was appointed as our director on November 6, 2024, is entitled to an annual cash compensation of $12,000 for each calendar year of service as director. Ms. Ren is also entitled to reimbursement for reasonable, pre-approved expenses incurred by her in connection with the performance of her responsibilities as our director.
We do not currently have an established policy to provide compensation to members of our Board for their services in that capacity, although we may choose to adopt a policy in the future. Salaries are established by our Board.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information known to the Company regarding beneficial ownership of shares of the Company’s common stock as of July 10, 2025 by:
| ● | each person known by the Company to be the beneficial owner of more than 5% of the Company’s outstanding common stock; |
| ● | each of the Company’s named executive officers, directors and director nominee; and |
| ● | all executive officers and directors as a group. Beneficial ownership of shares and percentage ownership are determined in accordance with the SEC’s rules. |
Unless otherwise indicated and subject to community property laws where applicable, the individuals and entities named in the table above have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them. The percentage of class is based on 291,563,930 shares of common stock, 6,013,500 shares of Series B Preferred Stock, and 531,886 shares of Series C Preferred Stock issued and outstanding as of July 10, 2025.
Unless otherwise indicated, the business address of each of the entities, directors and executives in this table is Room 1030B, 10/F, Ocean Centre, Harbour City, 5 Canton Road, Tsim Sha Tsui, Hong Kong.
| Name of Beneficial Owner 5% shareholders | Shares of Common Stock | Percentage of Shares of Common Stock | Shares of Series B Preferred Stock(1) | Percentage of Shares of Series B Preferred Stock(1) | Shares of Series C Preferred Stock Owned(2) | Percentage of Shares of Series C Preferred Stock(2) | Percentage of Aggregate Voting Power | |||||||||||||||||||||
| Huili Shen(3) | 50,001,670 | 17.2 | % | — | — | — | — | 5.6 | % | |||||||||||||||||||
| Morgan Capital Limited(3) | 50,000,000 | 17.2 | % | — | — | — | — | 5.6 | % | |||||||||||||||||||
| Goldman Sachs Capital Limited(4) | 26,240,754 | 9.0 | % | — | — | — | — | 2.9 | % | |||||||||||||||||||
| Barclays Capital Limited (5) | 26,240,754 | 9.0 | % | — | — | — | — | 2.9 | % | |||||||||||||||||||
| Directors and Officers | ||||||||||||||||||||||||||||
| Huihe Zheng | 131,738,100 | 45.2 | % | 6,013,500 | 100 | % | 531,886 | 100 | % | 82.1 | ||||||||||||||||||
| Wei Li | — | — | — | — | — | — | — | |||||||||||||||||||||
| Fawn Ren | — | — | — | — | — | — | — | |||||||||||||||||||||
| Timothy Miles | 81,670 | * | — | — | — | — | * | |||||||||||||||||||||
| Director Nominee | ||||||||||||||||||||||||||||
| Lei Sun | — | — | — | — | — | — | — | |||||||||||||||||||||
| All officers, director nominee and directors as a group (five persons) | 131,819,707 | 45.2 | % | 6,013,500 | 100 | % | 531,886 | 100 | % | 82.1 | % | |||||||||||||||||
| * | Less than 1% |
| (1) | Each share of Series B Preferred Stock entitles the holder to 100 votes on all corporate matters submitted for shareholder approval. |
| (2) | Each share of Series C Preferred Stock entitles the holder to approximately 3.67 votes on all corporate matters submitted for shareholder approval. |
55
| (3) | 50,000,000 shares of common stock directly held by Morgan Capital Limited, of which Huili Shen, our former director, is the sole shareholder and director and holds the voting and dispositive power over the shares of common stock held by such entity. The address for this shareholder is Rm 4F, 15/F, Sunwise Industrial Building, 16-26 Wang Wo Tsai Street, Tsuen Wan, Hong Kong. |
| (4) | Erkai Wang is the sole shareholder and director of Goldman Sachs Capital Limited. The address for this shareholder is Rm 4G, 15/F, Sunwise Industrial Building, 16-26 Wang Wo Tsai Street, Tsuen Wan, Hong Kong. |
| (5) | Shimei Zhou is the sole shareholder and director of Barclays Capital Limited. The address for this shareholder is Rm 4, 15/F, Sunwise Industrial Building, 16-26 Wang Wo Tsai Street, Tsuen Wan, Hong Kong. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Parties
| Name of related parties | Relationship with the Company | |
| Huihe Zheng | Principal shareholder, Chief Executive Officer and Chairman of the Company |
Related Party Transactions
We had the following related party transactions for the fiscal years ended March 31, 2025 and 2024:
| (i) | During the year ended March 31, 2025, Huihe Zheng advanced $129,056 (2024: $244,313) to the Company to support its operations. | |
| (ii) | During the year ended March 31, 2025, the Company repaid $812,277 (2024: nil) to Huihe Zheng. | |
| (ii) | On October 9, 2024, the Company issued 6,000,000 Series B Shares to Huihe 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 the Company to Mr. Zheng, in the amount of $600,000, which was loaned by Mr. Zheng to the Company providing for its working capital and general corporate expenses. |
Due to Related Party Balance
The Company’s due to related party balance is as follows:
| March 31, 2025 | March 31, 2024 | |||||||
| US$ | US$ | |||||||
| Huihe Zheng | — | 1,283,221 | ||||||
| Total | — | 1,283,221 | ||||||
The due to related party balance is unsecured, interest-free and due on demand.
56
Policies for Approval of Related Party Transactions
Our Board reviews and approves transactions with directors, officers and holders of five percent or more of our voting securities and their affiliates, each a related party. The material facts as to the related party’s relationship or interest in the transaction are disclosed to our Board prior to their consideration of such transaction, and the transaction was not considered approved by our Board unless a majority of the directors who are not interested in the transaction approved the transaction. Further, when stockholders are entitled to vote on a transaction with a related party, the material facts of the related party’s relationship or interest in the transaction were disclosed to the stockholders, who must approve the transaction in good faith.
Item 14. Principal Accountant Fees and Services.
The following table sets forth fees billed to us by our independent registered public accounting firm, ZH CPA, during the fiscal years ended March 31, 2025 and 2024 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered.
| 2024 | 2024 | |||||||
| Audit Fees | $ | 115,000 | $ | 70,000 | ||||
| Audit-Related Fees | — | |||||||
| Tax Fees | — | |||||||
| All Other Fees | — | |||||||
| Total | $ | 115,000 | $ | 70,000 | ||||
Pre-Approval Policies and Procedures
Our Board is responsible for approving all related party transactions. We have not adopted written policies and procedures specifically for related party transactions.
57
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(1) Financial Statements
Financial Statements and Report of Independent Registered Public Accounting Firm are set forth on pages F-1 through F-16 of this Report.
(2) Financial Statement Schedules
Schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is given in the consolidated financial statements or the notes thereto.
(3) Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
| + | Portions of the exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company hereby agrees to furnish a copy of any omitted portion to the SEC upon request. |
Item 16. FORM 10-K SUMMARY
Not applicable.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| QDM International Inc. | ||
| Date: July 10, 2025 | By: | /s/ Huihe Zheng |
| Name: | Huihe Zheng | |
| Title: | Chairman of the Board, Chief Executive Officer, and President | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Huihe Zheng | Chairman of the Board, Chief Executive Officer and President | July 10, 2025 | ||
| Huihe Zheng | (principal executive officer) | |||
| /s/ Wei Li | Chief Financial Officer and Secretary | July 10, 2025 | ||
| Wei Li | (principal accounting and financial officer) | |||
| /s/ Timothy Miles | Director | July 10, 2025 | ||
| Timothy Miles | ||||
| /s/ Fawn Ren | Director | July 10, 2025 | ||
| Fawn Ren |
59
Index to the Financial Statements
F-1
 |
 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
QDM International Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of QDM International Inc. and its subsidiaries (“the Company”) as of March 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive income, shareholders’ equity (deficit), and cash flows for each of the years in the two-year period ended March 31, 2025, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We determined that there were no critical audit matters.
| /s/ | |
We have served as the Company’s auditor since 2021
July 10, 2025
999 18th Street, Suite 3000, Denver, CO, 80202, USA. Phone: 1.303.386.7224 Fax: 1.303.386.7101 Email: admin@zhcpa.
F-2
QDM INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2025 AND 2024
| March 31, 2025 | March 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and deposits | ||||||||
| Total current assets | ||||||||
| Right of use assets – operating lease | ||||||||
| Long-term prepaid expenses and deposits | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable & accrued liabilities | $ | $ | ||||||
| Operating lease liabilities - current | ||||||||
| Income tax payable | ||||||||
| Due to related party | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities – non current | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
*Retrospectively applied for effect of Forward stock split on April 5, 2024
See accompanying notes to consolidated financial statements.
F-3
QDM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
FOR THE YEARS ENDED MARCH 31, 2025 AND 2024
| For the Years Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| General & administrative expenses | $ | $ | ||||||
| Total operating expenses | ||||||||
| Income from operations | ||||||||
| Other (income) expense | ||||||||
| Finance costs | ( | ) | ( | ) | ||||
| Gain from disposition of subsidiaries | ||||||||
| Other income, net | ||||||||
| Total other income | ||||||||
| Income before income taxes | ||||||||
| Current income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Other comprehensive income | ||||||||
| Currency translation adjustment | ( | ) | ||||||
| Total comprehensive income | $ | $ | ||||||
| Earnings per share of common stock: | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnings per share | $ | $ | ||||||
| Weighted average basic & diluted shares outstanding: | ||||||||
| Preferred | ||||||||
| Common | ||||||||
*Retrospectively applied for effect of Forward stock split on April 5, 2024
See accompanying notes to consolidated financial statements.
F-4
QDM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 2025 AND 2024
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred | Common | Additional | Other | |||||||||||||||||||||||||||||||||||||||||
| Preferred | Common | Treasury | Stock | Stock | Treasury | Paid-in | Subscription | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock | Amount | Amount | Amount | Capital | Receivable | Deficit | Income | Total | ||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Offset with due to related party balance | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2025 | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
*Retrospectively applied for effect of Forward stock split on April 5, 2024
See accompanying notes to consolidated financial statements.
F-5
QDM INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2025 AND 2024
| March 31, 2025 | March 31, 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Gain from disposition of subsidiaries | ( | ) | ||||||
| Non-cash lease expenses | ( | ) | ||||||
| Changes in working capital: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and deposit | ( | ) | ( | ) | ||||
| Long-term prepaid expenses and deposit | ( | ) | ( | ) | ||||
| Accounts payable & accrued liabilities | ( | ) | ||||||
| Income tax payable | ||||||||
| Due to a related party | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Disposition of subsidiaries | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Net (repayment to) proceeds from related parties | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ||||||
| NET INCREASE IN CASH | ||||||||
| CASH, BEGINNING OF PERIOD | $ | $ | ||||||
| CASH, END OF PERIOD | ||||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Non-cash offset of subscription receivable with due to related party balance | $ | $ | ||||||
| ROU obtained in exchange for new operating lease | $ | $ | ||||||
| Issuance of Series B preferred stock to offset due to related party balance | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
F-6
QDM International Inc.
Notes to Consolidated Financial Statements
1. Organization and principal activities
QDM International Inc. (“QDM,” and collectively with its subsidiaries, the “Company”) 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, which changed its name to Hong Kong YeeTah Insurance Broker Limited (“YeeTah”) in December 2022, 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
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 of 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.
F-7
On November 3, 2021,
the Company acquired
In 2022, 24/7 Kid was administratively dissolved with the State of Florida.
In March 2023, the Company
consummated a public offering of its common stock, par value $
On March 28, 2024, the
Company filed an Articles of Amendment to Articles of Incorporation of the Company (the “Amendment”) with the Florida Department
of State to (i) increase its authorized shares of common stock, par value $
As a result of the 2024
Forward Stock Split, each issued and outstanding share of the Company’s common stock prior to the effective time of the 2024 Forward
Stock Spilt were split into
On April 4, 2024, the 2024 Forward Stock Split was approved and announced by the Financial Industry Regulatory Authority with an effective date on April 5, 2024.
2. Summary of significant accounting policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with the U.S. GAAP requires the Company 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.
Changes in facts and circumstances may cause the Company to revise its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The following are some of the areas requiring significant judgments and estimates as of March 31, 2025 and March 31, 2024: discount rate used in calculation of right-of-use assets and lease liability, valuation assumptions in performing asset impairment tests of long-lived assets, etc.
F-8
Foreign Currency and Foreign Currency Translation
The Company’s reporting currency is the United States Dollar (“US$” or “$”). 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 sheet 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
Measurement of credit losses on financial instruments
On April 1, 2022, the Company adopted ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments,” for financial assets at amortized cost including accounts receivable, refundable deposits. This guidance replaced the “incurred loss” impairment methodology with an approach based on “expected losses” to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset.
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 March 31, 2025, 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.
During the year ended March 31, 2025, the two largest customers accounted
for
During the year ended March 31, 2025, the three largest suppliers (sub-brokers)
accounted for
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. The Company maintains all bank accounts in Hong Kong. Cash balances in bank accounts in Hong Kong are protected under Deposit Protection Scheme in accordance with the Deposit Protection Scheme Ordinance. The maximum protection is up to HKD800, per depositor per Scheme member, including both principal and interest.
Accounts Receivable
Accounts receivable represents trade receivable and are recognized initially at fair value and subsequently adjusted for any allowance for expected credit loss.
F-9
The Company evaluates the expected credit loss of accounts receivable based on historical collection experience, the financial condition of its customers and assumptions for the future movement of different economic drivers and how these drivers will affect each other. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement with respect to a disputed receivable is reached for an amount that is less than the carrying value.
The Company historically did not have material bad debts in accounts receivable and management believed that there were no expected credit loss for doubtful accounts. There were no provision for credit loss for doubtful accounts for the years ended March 31, 2025 and 2024 and there was no allowance for credit loss as of March 31, 2025 and 2024.
Revenue Recognition
The Company generates revenue primarily through insurance brokerage services and referral business 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. In addition, the Company has entered into a collaborative partnership with a trust company in Hong Kong. Under this arrangement, the Company referred clients to the trust company for investment products and, in return, earned commissions based on a percentage of the value of the investment products purchased by the referred clients as revenue.
ASC 606 provides for a five-step model for recognizing revenue from contracts with customers. These five steps include:
| (i) | Identify the contract | |
| (ii) | Identify performance obligations | |
| (iii) | Determine transaction price | |
| (iv) | Allocate transaction price | |
| (v) | Recognize revenue |
The Company enters into insurance brokerage contracts with customers (insurance companies). Performance obligation for these insurance brokerage contracts is to help insurance company customers to promote, coordinate and complete subscriptions of insurance policies offered by customers.
Insurance brokerage services
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.
Referral Business
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 referral services occurs at a point in time when the trust company confirms the referred client’s purchase of the investment product and the receipt of the corresponding funds. At that point, the Company has satisfied its performance obligation and recognizes revenue.
A summary of the Company’s gross revenues disaggregated by major service lines for the years ended March 31, 2025 and 2024, respectively, are as follows:
| Fiscal Year Ended March 31, 2025 | Fiscal Year Ended March 31, 2024 | |||||||||||||||
| Service Type | Revenue (US$) | Percentage of Revenue | Revenue (US$) | Percentage of Revenue | ||||||||||||
| Insurance brokerage services | % | % | ||||||||||||||
| Referral business | % | % | ||||||||||||||
| Total Revenue | % | % | ||||||||||||||
F-10
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:
| Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2: | Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities. | |
| Level 3: | Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, lease 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. For lease liabilities, fair value approximates their carrying value at the period end as the interest rates used to discount the host contracts approximate market rates.
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 March 31, 2025 and March 31, 2024.
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.
| Category | Depreciation rate | Estimated residual value | ||
| Office equipment | ||||
| Leasehold improvements |
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 impairment losses for the years ended March 31, 2025 and 2024.
F-11
Leases
Arrangements meeting the definition of a lease are classified as operating or finance leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.
In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
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
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General and administrative expenses
General and administrative expenses primarily include staff cost, consulting and professional fees, rent and rates, depreciation, travelling and transportation, insurance, and other miscellaneous administrative expenses.
Related party transactions
In general, related parties exist when there is
a relationship that offers the potential for transactions at less than arm’s-length, favorable treatment, or the ability to influence
the outcome of events different from that which might result in the absence of that relationship. A related party may be any of the following:
a) an affiliate, which is a party that directly or indirectly controls, is controlled by, or is under common control with another party;
b) a principle owner, owner of record or known beneficial owner of more than
Earnings per share
Basic earnings per share is computed by dividing net income attributable to holders of common stock 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 holders of common stock 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. Equity
2024 Forward Stock Split
On April 5, 2024, the
Company effected a forward split of its issued and outstanding shares of common stock at a ratio of 10-for-1 (the “Forward Stock
Split”). As a result of the Forward Stock Split, each issued and outstanding share of the Company’s common stock prior to
the effective time of the Forward Stock Spilt are split into ten shares of common stock and the total number of issued and outstanding
shares of common stock increases from
Preferred Stock
On October 4, 2024, the
Company filed an Articles of Amendment to Articles of Incorporation of the Company with the Florida Division of Corporation to increase
the Company’s authorized shares of Series B preferred stock, par value $
On October 9, 2024, the
Company entered into a securities subscription agreement (the “Securities Subscription Agreement”) with Huihe Zheng, the Company’s
Chief Executive Officer, President, and Chairman of the Board. Pursuant to the Securities Subscription Agreement, the Company issued
The Company’s authorized
capital stock consists of
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. As per the requirements, a licensed insurance broker company must at all times maintain a paid-up share capital of not less than
US$
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4. Related Party Transaction
Related Parties
| Name of related parties | Relationship with the Company | |
| Huihe Zheng |
Related Party Transactions
| (i) | During the year ended March 31, 2025, Huihe Zheng advanced $ | |
| (ii) | During the year ended March 31, 2025, the Company repaid $ | |
| (iii) | On October 9, 2024, the Company issued |
Due to Related Party Balance
The Company’s due to related party balance is as follows:
| March 31, 2025 | March 31, 2024 | |||||||
| US$ | US$ | |||||||
| Huihe Zheng | ||||||||
| Total | ||||||||
The due to related party balance is unsecured, interest-free and due on demand.
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5. Income Taxes
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance,
the Company’s Hong Kong subsidiaries are subject to a
BVI
Under the current laws of the BVI, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no BVI withholding tax will be imposed.
Cyprus
Under the current laws of the Cyprus, the Company’s
Cyprus subsidiary is subject to a standard income tax rate of
US
Under the current Florida state and US federal
income tax, the Company does not need to pay income taxes as Florida state does not levy income tax. The federal income tax is based on
a flat rate of
Reconciliation of the differences between statutory tax rate and the effective tax rate
The Company operates in serval tax jurisdictions.
Therefore, its income is subject to various rates of taxation.
| March 31, 2025 | March 31, 2024 | |||||||
| US$ | US$ | |||||||
| Income before income tax expenses | ||||||||
| US federal statutory income tax rate | % | % | ||||||
| Income tax calculated at statutory rate | ||||||||
| Decrease in income tax expense resulting from: | ||||||||
| Rate differences in various jurisdictions | ( | ) | ||||||
| Non-deductible expenses | ||||||||
| Loss carried forward | ( | ) | ( | ) | ||||
| Additional tax reduction related to HK two-tiered profits tax regime | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
As of March 31, 2025 and 2024, there was net operating
loss (“NOL”) carryforward of $
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of March 31, 2025, the Company did not have any significant unrecognized uncertain tax positions.
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6. General and Administrative Expenses
| March 31, 2025 | March 31, 2024 | |||||||
| US$ | US$ | |||||||
| Staff cost | ||||||||
| Consulting and professional fees | ||||||||
| Rent and rates | ||||||||
| Depreciation | ||||||||
| Traveling and transportation | ||||||||
| Insurance | ||||||||
| Others | ||||||||
| Total | ||||||||
7. Commitments and Contingencies
Other than two office leases both with a lease
term of
Operating lease
The 2023 Office Lease
has a remaining lease term of the operating lease of
The 2025 Office Lease
has a remaining lease term of the operating lease of
During the years ended
March 31, 2025 and 2024, the operating lease expense recognized was $
| 2023 Office Lease | 2025 Office Lease | Total | ||||||||||
| 2026 | ||||||||||||
| 2027 | ||||||||||||
| 2028 | ||||||||||||
| Total future minimum lease payments | $ | $ | $ | |||||||||
| Less: imputed interest | ( | ) | ( | ) | ( | ) | ||||||
| Total operating lease liability | $ | $ | $ | |||||||||
| Less: operating lease liability – current | ||||||||||||
| Total operating lease liability – non current | $ | $ | $ | |||||||||
Contingencies
The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matter will have a material adverse effect on our business, financial position, cash flows or results of operations taken as a whole. As of March 31, 2025, the Company is not a party to any material legal or administrative proceedings.
8. Subsequent Events
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 2025 through the date of issuance of the financial statements and has determined that it does not have any other material subsequent events to disclose in these financial statements.
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