10-K: QDM International Reports Soaring Profitability Driven by Strategic Shift in Referral Business and Strong Insurance Sales Growth

QDM International Inc. announced a significant increase in net income and revenue for the fiscal year ended March 31, 2025, primarily driven by a strategic reduction in referral fees and robust growth in its core insurance brokerage services in Hong Kong.

Summary

• QDM International Inc. (QDM) is a Florida-incorporated holding company that conducts its insurance brokerage business primarily in Hong Kong through its indirectly wholly-owned subsidiary, YeeTah.
• YeeTah sells life and medical insurance, general insurance, and provides Mandatory Provident Fund (MPF) related services.
• For the fiscal year ended March 31, 2025, total revenue increased by 31.65% to $8,381,274, up from $6,366,154 in the prior year.
• Net income for the fiscal year ended March 31, 2025, surged by 208.3% to $4,823,338, compared to $1,564,538 in the previous year.
• The significant increase in profitability was largely due to a 72.8% decrease in cost of sales, from $3,912,743 in 2024 to $1,064,039 in 2025, primarily resulting from a reduction in referral fee rates from approximately 52.5% to 10% following a Hong Kong Insurance Authority circular.
• The company expanded its business model in December 2023 by entering into a collaborative partnership with a trust company in Hong Kong, generating $540,616 from referral business in fiscal year 2025.
• Life and medical insurance products accounted for 93.5% of net revenues in 2025, indicating a slight diversification from 99.9% in 2024.
• Customer numbers for life and medical insurance increased from 133 in 2024 to 263 in 2025, with mainland China customers representing a significant portion (256 in 2025).
• As of March 31, 2025, the company had 16 technical representatives, with 7 being full-time employees.
• The company's cash and cash equivalents increased to $8,557,305 as of March 31, 2025, from $5,158,223 in 2024.
• The company completed a 10-for-1 forward stock split effective April 5, 2024, increasing outstanding common shares from 29,156,393 to 291,563,930.
• On October 9, 2024, the company issued 6,000,000 shares of Series B Preferred Stock to CEO Huihe Zheng at $0.10 per share, offsetting $600,000 of debt owed to him. These Series B shares carry super voting rights (100 votes per share).
• Huihe Zheng, the CEO and Chairman, controls approximately 82.1% of the aggregate voting power.
• Management identified material weaknesses in internal control over financial reporting as of March 31, 2025, including lack of proper segregation of duties, lack of formal documentation, and lack of independent directors and an audit committee. Remediation efforts are ongoing.

Sentiment

Score: 8

Explanation: The company demonstrated exceptional financial growth in revenue and net income, largely driven by a strategic adjustment in referral fees and expansion into new business lines. It also shows proactive steps in addressing identified internal control weaknesses and strengthening its board. However, significant customer concentration and the high voting power of the controlling shareholder, coupled with ongoing regulatory uncertainties related to Hong Kong and China, present notable risks.

Positives

• Net income increased by 208.3% to $4,823,338 for the fiscal year ended March 31, 2025, demonstrating strong profitability growth.
• Revenue grew by 31.65% to $8,381,274, driven by expansion of insurance partnerships and the introduction of a new referral business.
• Gross profit increased by 198.2% to $7,317,235, primarily due to a significant 72.8% decrease in cost of sales, resulting from a strategic reduction in referral fee rates.
• The new referral business segment generated $540,616 in its first year (FY2025), diversifying revenue streams.
• The number of life and medical insurance customers increased significantly from 133 in 2024 to 263 in 2025.
• Cash and cash equivalents increased to $8,557,305 as of March 31, 2025, indicating strong liquidity.
• Net cash provided by operating activities increased by approximately $1.9 million, reflecting improved operational efficiency.
• The company's Hong Kong operating subsidiary, YeeTah, is in compliance with applicable minimum paid-up share capital and net assets requirements.
• The company's auditor, ZH CPA, LLC, is US-based and subject to PCAOB inspections, and is not currently on the PCAOB Determination List, mitigating immediate HFCA Act risks.
• Debt owed to CEO Huihe Zheng was reduced by $600,000 through the issuance of Series B Preferred Stock, improving the company's financial structure.

Negatives

• The company faces significant customer concentration risk, with 68.1% of total commissions in FY2025 attributable to a single insurance company (Company B).
• Material weaknesses in internal control over financial reporting were identified as of March 31, 2025, including lack of proper segregation of duties, lack of formal documentation, and absence of independent directors and an audit committee.
• General and administrative expenses increased substantially by 116.3% to $1,411,945, primarily due to increased employee hiring and professional fees.
• The company has never paid cash dividends on its common stock and does not anticipate doing so in the near future, meaning investor returns are solely dependent on capital appreciation.
• CEO Huihe Zheng holds approximately 82.1% of the aggregate voting power, which could lead to conflicts of interest and limit the influence of minority shareholders.
• The company's common stock may be considered a 'penny stock,' which could subject it to additional sale and trading regulations, potentially making it more difficult for investors to sell their shares.
• A significant increase in accounts receivable, resulting in an approximately $1.5 million cash outflow from operating activities in FY2025, indicates a longer collection period for revenues.

Risks

• The business is subject to concentration risks due to significant dependence on a single or limited number of insurance company partners.
• Inability to attract and retain highly productive licensed technical representatives could materially and adversely affect the business.
• Misconduct by technical representatives could result in regulatory sanctions, litigation, or severe reputational and financial harm.
• The company is subject to extensive and evolving regulations in Hong Kong; failure to comply or obtain/renew licenses could lead to fines, sanctions, or business disruption.
• Intense competition in the Hong Kong insurance intermediary industry from other brokerages, in-house sales forces of insurance companies, and other business entities could negatively affect financial results.
• Commission revenue is based on premiums and rates set by insurance companies, which are subject to external factors not within the company's control, potentially affecting profitability.
• Quarterly and annual variations in commission revenue are expected due to seasonality of the business, timing of policy renewals, and new/lost business.
• Future success heavily depends on the continuing efforts of senior management and other key personnel, particularly CEO Huihe Zheng; loss of their services could harm the business.
• Inability to ensure the accuracy and completeness of product information and the effectiveness of insurance product recommendations could harm reputation and reduce business.
• Potential for cybersecurity incidents, data breaches, or failure to protect confidential customer information, leading to financial costs, reputational damage, and potential liability.
• Operations are primarily in Hong Kong, making the business sensitive to political and economic conditions, social unrest, and changes in the legal environment in Hong Kong and the surrounding region.
• Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could significantly impact business in Hong Kong, including potential intervention or influence over operations.
• Trading in the company's securities may be prohibited under the HFCA Act if the PCAOB determines it cannot inspect or investigate the company's auditor for two consecutive years.
• Difficulty for shareholders to enforce U.S. judgments against the company or its directors/officers due to assets and domicile outside the U.S. and lack of reciprocal enforcement treaties.
• Risk that mainland China laws and regulations (e.g., data protection, cybersecurity, anti-monopoly) could become applicable to the Hong Kong operations, leading to additional compliance requirements, costs, or penalties.
• The company may be affected by changes to the currency peg system in Hong Kong, potentially leading to devaluation of the Hong Kong dollar and increased expenditures.
• Identified material weaknesses in internal control over financial reporting (lack of segregation of duties, formal documentation, independent directors/audit committee) could lead to material misstatements and regulatory actions.
• The common stock may be considered a 'penny stock,' subjecting it to additional sale and trading regulations that make it more difficult to sell.
• Future equity offerings or conversion of preferred stock could lead to additional dilution for common stock shareholders.
• Resale of shares is subject to Rule 144 restrictions for former shell companies, limiting liquidity for at least 12 months after non-shell status filing.
• Series B Preferred Stock, controlled by the CEO, has super voting rights (100 votes per share), diluting common stock voting power and concentrating control.
• The Board has the authority to issue new series of preferred stock without shareholder approval, which could adversely affect the rights of common stock holders.

Future Outlook

The company intends to expand its distribution network by recruiting sales and marketing professionals, improving technical representative productivity through rigorous training, and leveraging its existing customer base for cross-selling life insurance products. It plans to build relationships with strategic partners in mainland China (e.g., financial institutes, real estate companies, trust companies, overseas immigration agencies) and Hong Kong to increase sales volumes. The company also aims to strengthen relationships with leading insurance companies to secure favorable commission rates and exclusive distribution rights for high-margin or custom-developed products. Management anticipates faster growth in Hong Kong's life and medical insurance sector due to demographic and economic factors. The company currently intends to retain all available funds and future earnings for business operation and expansion, not anticipating cash dividends in the near future. Remediation efforts for identified internal control weaknesses are ongoing, including hiring qualified accounting personnel, providing training, formulating U.S. GAAP accounting policies, establishing SOX compliance assessment, and forming an audit committee.

Management Comments

• "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."
• "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."
• "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."
• "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."
• "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."
• "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."
• "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."

Industry Context

The Hong Kong independent insurance intermediary market is experiencing rapid growth, fueled by increasing demand for insurance products, particularly from visitors from mainland China. The life and medical insurance sector in Hong Kong is projected to grow faster than other insurance sectors, driven by factors such as an aging population, high national savings rates, sustained economic development, rising household incomes, supportive government policies, and increased risk protection awareness. The insurance intermediary sector in Hong Kong is highly competitive, with a large number of agencies and broker companies, and consolidation is expected to intensify competition. Regulatory oversight is active, as evidenced by the Hong Kong Insurance Authority's circular in May 2024, which mandated lower referral fees, directly impacting the company's cost structure and profitability.

Comparison to Industry Standards

• The company believes it competes effectively with insurance companies by focusing solely on distribution and offering a broader range of products underwritten by multiple insurance companies, unlike in-house sales forces.
• The company believes it can compete effectively with other business entities, such as commercial banks, that distribute insurance products as an ancillary business, by offering a broader variety of insurance products and professional services.
• The company asserts that its team's extensive experience in the insurance industry and commitment to quality customer service enable it to respond and adapt more effectively to fast-changing market conditions compared to larger competitors.

Management Changes

Corporate Governance

Legal Proceedings

• No pending legal proceedings to which the Company or its subsidiaries are a party or in which any director, officer, or 5% beneficial owner is adverse to the Company.
• The Company may from time to time be subject to legal or administrative claims and proceedings arising in the ordinary course of business, which could result in substantial cost and diversion of resources.

Related Party Transactions

• Huihe Zheng, the principal shareholder, CEO, and Chairman, advanced $129,056 to the Company in FY2025 (compared to $244,313 in FY2024) to support operations.
• The Company repaid $812,277 to Huihe Zheng in FY2025 (no repayments in FY2024).
• On October 9, 2024, the Company issued 6,000,000 Series B Preferred Stock shares to Huihe Zheng at $0.10 per share, in exchange for the cancellation of $600,000 of debt owed to him.
• The due to related party balance from Huihe Zheng was $0 as of March 31, 2025, down from $1,283,221 as of March 31, 2024.
• The due to related party balance is unsecured, interest-free, and due on demand.

Stakeholder Impact

• Shareholders: Positive impact from significant increase in net income and revenue, and strategic business expansion. However, potential negative impact from dilution due to future equity offerings, concentrated voting power of the CEO, and identified material weaknesses in internal controls. No dividends expected in the near future.
• Employees/Technical Representatives: Increased hiring of employees and technical representatives, indicating growth in the workforce. Strong commitment to training and development.
• Customers: Benefit from premium customer service, a broad range of insurance products, and new referral services.
• Insurance Company Partners: The company maintains good relationships with leading insurance companies, acting as an attractive distributor.
• Creditors: Debt to a related party (CEO) was reduced/offset, improving the balance sheet.
• Regulatory Authorities: The company is subject to extensive regulations in Hong Kong and is taking steps to remediate internal control weaknesses, indicating engagement with regulatory compliance.

Next Steps

• Actively recruit sales and marketing professionals to increase sales of life insurance products in Hong Kong.
• Improve the productivity of individual technical representatives through rigorous training.
• Leverage the existing customer base to cross-sell life insurance products.
• Expand the distribution network by building relationships with partners in mainland China (e.g., financial institutes, real estate companies, public entities) and Hong Kong (e.g., wealth management companies, high net-worth clients, strategic partners).
• Continue to strengthen relationships with leading insurance companies to obtain favorable commission rates and exclusive rights to distribute high-margin products or custom-develop products.
• Remediate identified material weaknesses in internal control over financial reporting by hiring qualified accounting personnel, organizing regular training, formulating U.S. GAAP accounting policies, establishing SOX compliance assessment, and forming an audit committee.
• Appoint Lei Sun as an independent director nominee to the Board upon Nasdaq listing.

Key Dates

Recommendation

Keywords

Insurance Brokerage, Hong Kong, Financial Results, SEC Filing, Profitability, Revenue Growth, Life Insurance, General Insurance, Referral Business, Internal Controls, Corporate Governance, Risk Management, Huihe Zheng, YeeTah, OTC Markets, HFCA Act, PRC Regulations, Financial Services, Wealth Management, Mandatory Provident Fund