10-K: Longduoduo 2025 Annual Report: Revenue Plunges 42%

Longduoduo Company Limited reported a significant 42% decrease in total revenue for the fiscal year ended June 30, 2025, primarily due to reduced principal sales and economic environment impacts.

Summary

• Total revenue decreased by 42% to $4,262,663 in fiscal year 2025 from $7,389,842 in fiscal year 2024.
• Net income fell by 64% to $492,260 in fiscal year 2025 from $1,363,278 in fiscal year 2024.
• Income from operations decreased by 73% to $552,679 in fiscal year 2025 from $2,026,141 in fiscal year 2024.
• Commission revenue accounted for over 97% of gross revenue in fiscal year 2025, primarily from a single source, Inner Mongolia Honghai Health Management Co., Ltd.
• Revenue from principal sales decreased by almost 63% in fiscal year 2025 compared to fiscal year 2024.
• The company attributes the revenue decline to a post-pandemic surge in fiscal year 2024 and a decrease in customer health expenditures due to the economic environment.
• Operating expenses decreased by 30% to $3,618,885 in fiscal year 2025, mainly due to a reduction in advertising and promotion expenses.
• Net income attributable to common stockholders was $460,435 ($0.015 per share) in fiscal year 2025, down from $1,255,448 ($0.042 per share) in fiscal year 2024.
• As of June 30, 2025, cash and cash equivalents stood at $1,642,721, with working capital of $983,123.
• Management identified material weaknesses in internal control over financial reporting, including a small accounting staff, lack of U.S. GAAP expertise, CFO unfamiliarity with U.S. public company reporting, and insufficient documentation.

Sentiment

Score: 3

Explanation: The significant decline in revenue and net income, coupled with identified material weaknesses in internal controls and high revenue concentration risk, indicates a negative financial performance and operational challenges, despite some cost reductions and management's optimistic outlook on government policies.

Positives

• Operating expenses decreased by 30% ($1,571,467) in fiscal year 2025, primarily due to reduced advertising and promotion expenses.
• Cash and cash equivalents increased to $1,642,721 as of June 30, 2025, from $1,404,042 in fiscal year 2024.
• Working capital improved to $983,123 as of June 30, 2025.
• The company's independent auditor, Bush & Associates CPA LLC, is headquartered in Nevada, and the PCAOB is able to fully inspect its work papers, mitigating immediate Holding Foreign Companies Accountable Act (HFCAA) risks.
• Management believes the government has recently introduced policies to promote economic recovery.

Negatives

• Total revenue decreased by 42% ($3,127,179) for the year ended June 30, 2025, compared to the prior year.
• Net income decreased by 64% ($871,018) for the year ended June 30, 2025.
• Income from operations decreased by 73% ($1,473,462) for the year ended June 30, 2025.
• Service revenue from principal sales fell by almost 63% in fiscal year 2025.
• Over 97% of revenue in fiscal year 2025 came from a single source, Inner Mongolia Honghai Health Management Co., Ltd., posing significant concentration risk.
• Identified material weaknesses in internal control over financial reporting, which management does not believe warrant remediation at the current level of operations.
• The company is unlikely to pay cash dividends in the foreseeable future.
• The majority shareholder, Zhang Liang, controls 51.30% of outstanding shares, limiting the influence of other shareholders.

Risks

• 97% revenue concentration from a single source (Honghai); termination of this relationship would seriously harm financial results.
• Reliance on third-party providers for services, leading to potential liability and reputational harm if inferior service or harm to customers occurs.
• Risk of computer system failure, security breach, or data privacy/security breach disrupting business, damaging reputation, and adversely affecting financial results.
• Operating in a competitive environment with larger, better-funded competitors (public hospitals, private medical examination companies).
• Inability to effectively control and manage planned growth due to limited operational, administrative, and financial resources.
• Expansion of government-sponsored social medical insurance in China could adversely affect business if the company does not become a qualified institution.
• Additional capital may not be available on acceptable terms, if at all, leading to dilution or restrictive debt terms.
• Loss of key officers (Xu Huibo, Zhou Hongxiao, Kang Liping) or failure to retain competent personnel could negatively impact business development.
• Internal controls over financial reporting may not be effective, and the independent auditor may not be able to certify their effectiveness.
• Management has limited experience managing a public company, hindering effective controls and compliance.
• Significant legal, accounting, and other expenses incurred as a public company.
• Difficulty establishing adequate management, legal, and financial controls in the PRC.
• Changes in United States and China relations and/or regulations may adversely impact business, operating results, ability to raise capital, and share price.
• Heightened scrutiny, criticism, and negative publicity in the PRC as a U.S.-listed public company.
• Uncertainties with respect to the PRC legal system, including enforcement of laws and sudden changes in regulations.
• Difficulty for U.S. shareholders to enforce rights against the company or officers/directors in the PRC due to assets and management being in China and lack of reciprocal enforcement treaties.
• Fluctuation of RMB may materially and adversely affect investment value.
• Potential subjection to new PRC laws and regulations regarding privacy, data security, cybersecurity, and data protection, with liability for improper use of personal information.
• Risk of securities being prohibited from trading on a U.S. stock exchange if the auditor is not inspected by the PCAOB for two consecutive years (HFCAA).
• Restrictions in Chinese law on overseas securities regulators collecting information in China may deny investors benefits of U.S. securities regulation.
• Governmental control of currency conversion may affect investment value and ability to remit foreign currency.
• PRC government oversight and discretion over business conduct, with potential for intervention or influence at any time.
• PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent use of capital reserves.
• Requirement for CSRC approval for listing on OTCQB, Nasdaq, or any U.S. exchange, which could be restricted, delayed, or eliminated.
• Shareholders do not have pre-emptive rights, leading to dilution if additional securities are issued.
• Insiders own the majority of outstanding shares, giving them control over stockholder matters and limiting the influence of new investors.

Future Outlook

The company plans to expand its service offerings, network coverage nationwide, and upgrade service standards to establish itself as a leading health management service provider and sales agency in China. Management believes that government policies promoting economic recovery will eventually improve the economic environment, and the company is currently adjusting its operational policies to adapt. It intends to continue investing heavily in advertising and promotion to expand its brand and services.

Management Comments

• "Management believes that the government has recently introduced policies to promote economic recovery, but it may take some time for the situation to truly improve."
• "Meanwhile, as we wait for the economy to revive, the Company is implementing plans to improve its operations by adjusting its operational policies."
• "The Company will continue to invest heavily in advertising and promotion expenses in the near future as it continues to establish and expand its brand and products and services."
• "We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay current obligations and future capital expenditures."
• "The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from a public offering and/or debt financing."
• "We expect Zhang Liang, our majority shareholder, to continue to provide support in the future, if needed."
• "Management does not believe that the current level of the Companys operations warrants a remediation of the weaknesses identified in this assessment [of internal controls]."

Industry Context

The company operates in the competitive Chinese preventive healthcare market, facing competition from major public hospitals' medical examination departments and various private medical examination companies. The market is influenced by government policies, including potential expansion of social medical insurance, and the current economic environment has led to decreased customer health expenditures. The company aims to leverage its network and customer base to expand its service offerings and market presence.

Comparison to Industry Standards

• The company competes primarily on price, quality of service, convenience, location, brand recognition, and reputation.
• It does not possess the same level of brand recognition or extensive geographical coverage as some larger public hospitals or private competitors.
• The company lacks the equipment necessary for certain highly technical medical tests.
• Government-owned competing hospitals are exempt from income taxes on their medical income, providing them with a significant competitive advantage over the company.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not presently a party to any legal proceedings that, if determined adversely, would individually or taken together have a material adverse effect on its business, operating results, financial condition, or cash flows.

Related Party Transactions

• Due to Zhang Liang (majority shareholder) of $408 as of June 30, 2025, compared to $2,233 as of June 30, 2024. These advances are unsecured, repayable on demand, and bear no interest.
• Related party transactions with Zhang Liang resulted in $8,630 for the year ended June 30, 2025, compared to $(105,918) for the year ended June 30, 2024.

Stakeholder Impact

• Shareholders face significant dilution risk from future equity issuances due to the absence of pre-emptive rights.
• The majority shareholder (Zhang Liang) controls 51.30% of voting power, limiting the influence of other shareholders on corporate decisions.
• Shareholders are unlikely to receive cash dividends in the foreseeable future as the company intends to retain earnings for business operations and expansion.
• Potential for significant decline or worthlessness of securities due to substantial PRC regulatory risks and uncertainties in U.S.-China relations.
• Employees experienced a decrease in headcount due to adjustments in operational policies.
• Customers' health expenditures have decreased due to the economic environment, impacting the company's revenue.
• Customers may discontinue or terminate their relationship if government-sponsored social medical insurance expands and the company does not become a qualified institution.
• Customers are exposed to the risk of inferior service or harm from third-party healthcare providers, which could also lead to reputational damage for the company.
• The company relies heavily on a single sales agency partner (Honghai) for over 97% of its revenue, creating a significant risk if this relationship terminates.
• The company's ability to fund growth and meet obligations depends on cash generated from operations and potential future financing, impacting creditors.

Next Steps

• Expand product offerings.
• Continue to expand network coverage nationwide.
• Further upgrade service standards to enhance customer experience.
• Implement plans to improve operations by adjusting operational policies.
• Continue to invest heavily in advertising and promotion expenses.
• Strive to achieve a better balance of customer deposits and prepayments.
• Apply for listing on the OTCQB or Nasdaq as soon as eligible.
• Monitor and evaluate the effectiveness of disclosure controls and procedures and internal control over financial reporting.
• Take further action and implement additional improvements to internal controls as necessary and as funds allow.

Key Dates

Recommendation

The company reported a substantial 42% decline in total revenue and a 64% drop in net income for fiscal year 2025, indicating significant operational and financial deterioration. A critical risk is the over 97% revenue concentration from a single third-party provider, Honghai, whose contract expires in June 2026 with no certainty of renewal. Furthermore, the company identified material weaknesses in its internal controls over financial reporting and management explicitly stated that remediation is not warranted at the current level of operations, which is a serious governance concern for a public company. The inherent risks of operating in China, including potential government intervention, currency controls, and uncertainties in the legal and regulatory environment, are substantial and could further impair the company's ability to raise capital or conduct business. The majority shareholder's control limits the influence of other investors, and there is no expectation of dividends. These factors collectively point to a highly speculative and risky investment with significant downside potential.

Keywords

Healthcare, China, SEC filing, 10-K, Financial results, Revenue, Net income, Health management, Preventive healthcare, Inner Mongolia, Honghai, Sales agency, PRC regulations, Cybersecurity, Data security, Corporate governance, Risk factors, Internal controls, Capital raise, Stock market, OTCID, LDDD