20-F: 111, Inc. Files 20-F Annual Report, Details Financial Performance and Operational Risks

111, Inc.'s 20-F filing highlights its financial results for the year ended December 31, 2024, while also outlining various legal, operational, and financial risks associated with its business and industry.

Summary

• 111, Inc., a Cayman Islands holding company, conducts its operations in China through its PRC subsidiaries.
• The company's 20-F filing includes audited consolidated financial statements.
• As of December 31, 2024, there were 172,877,660 ordinary shares outstanding, including 100,877,660 Class A shares and 72,000,000 Class B shares.
• The company experienced a net loss of RMB20.8 million (US$2.8 million) in 2024.
• 111, Inc. is subject to evolving regulatory requirements in China, particularly concerning the internet, healthcare, and pharmaceutical industries.
• The company faces competition in the PRC general health and wellness market.
• 111, Inc. relies on dividends from its PRC subsidiaries to fund cash requirements.
• The company's ADSs may be delisted under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB cannot inspect its auditors for two consecutive years.
• The company has a dual-class share structure that limits investor influence.
• 111, Inc. does not expect to pay dividends in the foreseeable future.
• The company's operations are subject to various risks related to doing business in China, including changes in economic, political, and social conditions.
• The company is pursuing an initial public offering of 1 Pharmacy Technology on the STAR Market.
• As of December 31, 2024, an amount of RMB 1.08 billion has been recorded under redeemable non-controlling interests and accrued expenses and other current liabilities related to the STAR Market listing.
• 111 has received redemption requests from certain investors in 1 Pharmacy Technology and has reached agreements with or received commitment letters from investors representing approximately 96.79% of the total amount to reschedule the repayments.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there are positive aspects such as the decrease in net loss and positive operating cash flow, there are also negative aspects such as the decrease in revenue and the potential for delisting. The overall sentiment is neutral.

Positives

• The company's net loss as a percentage of net revenues decreased from 2.8% in 2022 to 0.1% in 2024.
• The company generated positive operating cash flows of RMB263.0 million (US$36.0 million) in 2024.
• The company has reached agreements with or received commitment letters from investors representing approximately 96.79% of the total amount to reschedule the repayments related to the STAR Market listing.

Negatives

• The company experienced a net loss of RMB20.8 million (US$2.8 million) in 2024.
• The company's revenue decreased by 3.7% from RMB14.9 billion in 2023 to RMB14.4 billion (US$2.0 billion) in 2024.
• The company's ADSs may be delisted under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB cannot inspect its auditors for two consecutive years.

Risks

• Uncertainties in the interpretation and enforcement of PRC laws and regulations.
• The approval, filing or other requirements of the China Securities Regulatory Commission or other PRC government authorities may be required under PRC law in connection with the company's issuance of securities overseas.
• The company may be adversely affected by the complexity, uncertainties and changes in PRC regulation of pharmaceutical and healthcare industry and internet-related businesses.
• The company relies on dividends and other distributions on equity paid by its PRC subsidiaries to fund any cash and financing requirements it may have.
• The company's ADSs may be delisted and its ADSs and Class A ordinary shares may be prohibited from trading in the over-the-counter market under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in China for two consecutive years.
• The trading price for the ADSs may be volatile.
• Techniques employed by short sellers may drive down the trading price of the ADSs.
• The company's dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
• The dual-class structure of the company's ordinary shares may adversely affect the trading market for its ADSs.
• The company does not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the ADSs for return on your investment.
• Substantial future sales or perceived potential sales of ADSs in the public market could cause the price of the ADSs to decline.
• The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the voting of the underlying Class A ordinary shares which are represented by your ADSs.
• The depositary for the company's ADSs may give the company a discretionary proxy to vote the Class A ordinary shares underlying your ADSs if you do not give voting instructions, which could adversely affect your interests.
• The deposit agreement may be amended or terminated without your consent.
• Your right to participate in any future rights offerings may be limited, which may cause dilution of your holdings.
• You may not receive dividends or other distributions on our Class A ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
• Holders of ADS may experience difficulties in effecting service of legal process, enforcing foreign, including U.S., judgments or bringing actions in the PRC and Hong Kong against us or our directors and management named in this offering memorandum based on foreign laws, including U.S. securities law.
• You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
• We may need additional capital and may sell additional ADSs or other equity securities or incur indebtedness, which could result in additional dilution to our shareholders or increase our debt service obligations.
• Our memorandum and articles of association contains anti-takeover provisions that could discourage a third party from acquiring us and adversely affect the rights of holders of our Class A ordinary shares and the ADSs.
• Certain existing shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.
• We have granted, and may continue to grant, share incentive awards, which may result in increased share-based compensation expenses.
• We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
• We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
• There can be no assurance that we will not be a passive foreign investment company, or PFIC, for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in the ADSs or ordinary shares.
• If our redemption obligation is triggered by a failure to complete the STAR Market listing, we may not have available liquidity to meet investor redemptions.

Future Outlook

The company intends to finance its long-term working capital requirements and capital expenditures from cash generated from operating activities and funds raised from financing activities.

Industry Context

The company operates in the rapidly evolving digital healthcare industry in China, which is subject to government regulation and competition from various players, including traditional pharmaceutical distributors, online platforms, and internet healthcare service providers.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• A comprehensive analysis would require specific benchmarks related to revenue growth, profitability, and operational efficiency of comparable companies in the Chinese digital healthcare market.
• Comparable companies could include Ali Health, JD Health, and other major players in the online pharmacy and healthcare services sector in China.
• A detailed comparison would also need to consider factors such as market share, customer acquisition costs, and regulatory compliance.

Legal Proceedings

• The company is involved in legal arbitration with one of the investors in the 1 Pharmacy Technology, regarding the redemption of its noncontrolling interest in 1 Pharmacy Technology.

Stakeholder Impact

• Shareholders face risks related to regulatory changes, potential delisting, and limited influence due to the dual-class share structure.
• Employees may be affected by changes in compensation and benefits.
• Customers may be affected by changes in product offerings and service quality.
• Suppliers may be affected by changes in procurement policies and payment terms.

Next Steps

• The company will continue to monitor regulatory developments in China.
• The company will continue to seek to complete the STAR Listing of 1 Pharmacy Technology.
• The company will continue to negotiate with investors regarding the redemption of their equity in 1 Pharmacy Technology.

Key Dates

Keywords

financial results, risk factors, 20-F filing, PCAOB, HFCAA, China, ADSs, securities, regulations, pharmacy, healthcare, delisting