20-F: Ridgetech Completes Major Restructuring, Shifts to Wholesale Focus Amidst Mixed Financials

Ridgetech, Inc. (formerly China Jo-Jo Drugstores, Inc.) has completed a significant corporate restructuring, divesting its retail pharmacy business and acquiring Ridgeline International Limited to focus solely on pharmaceutical wholesale distribution, reporting a net income driven by the divestiture gain despite a loss from continuing operations.

Summary

• Ridgetech, Inc. completed a strategic restructuring on February 28, 2025, divesting its retail pharmacy and herb farming businesses (Jiuxin Investment and its controlled entities) and acquiring Ridgeline International Limited, which owns Allright (Hangzhou) Internet Technology Co. Ltd.
• The company has transitioned from a high-cost retail segment to a wholesale-focused model, operating in both offline wholesale distribution and online platform sales of pharmaceutical and healthcare products.
• For the fiscal year ended March 31, 2025, total revenue decreased by approximately $4.02 million (3.2%) to $119,971,638 compared to $123,994,053 in the prior year.
• Offline wholesale revenue decreased by $5.1 million (4.3%) to $118,864,443 in fiscal year 2025, attributed to abandoning low gross profit margin sales in a competitive market.
• Online platform revenue, primarily from Allright after its acquisition, contributed approximately $1.1 million for March 2025.
• Gross profit for fiscal year 2025 was $3,838,815, a decrease of $1,039,602 (21.3%) from $4,878,417 in fiscal year 2024, with gross margins at 3.2% and 3.9% respectively.
• Net loss from continuing operations was $1,454,184 for fiscal year 2025, compared to a net loss of $785,706 in fiscal year 2024.
• The company reported a net income of $10,199,851 for fiscal year 2025, primarily due to a gain of $15,757,753 from the divestiture of Jiuxin Investment.
• As of March 31, 2025, the company had cash of approximately $18,541,075 and a working capital of $25,352,878.
• The company had two customers accounting for 67.1% and 18.7% of total sales from continuing operations in fiscal year 2025, and four suppliers accounting for 14.9%, 14.3%, 10.8%, and 10.1% of total purchases.
• Internal controls over financial reporting were deemed ineffective as of March 31, 2025, due to accounting and finance personnel weaknesses, including lack of US GAAP experience and timely reconciliation.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While continuing operations show a loss and significant risks remain, the strategic restructuring and the substantial one-time gain from divestiture resulted in a strong net income for the year. The shift to a wholesale-focused model, coupled with new acquisitions and capital raises, indicates a proactive approach to improving the business, despite the inherent challenges and operational inefficiencies during this transition.

Positives

• The company completed a strategic restructuring, divesting its high-cost retail segment to focus on the wholesale distribution of pharmaceutical products, which is expected to streamline operations.
• The acquisition of Ridgeline and its subsidiary Allright expands the company's wholesale distribution capabilities, particularly in online sales through third-party and self-operated platforms, enhancing nationwide reach.
• The company reported a net income of $10,199,851 for the fiscal year ended March 31, 2025, primarily driven by a significant gain of $15,757,753 from the divestiture of Jiuxin Investment.
• Cash provided by operating activities improved significantly to $1,247,770 in fiscal year 2025, compared to cash used in operating activities of $(3,155,439) in the prior year.
• The company maintains a strong working capital of $25,352,878 as of March 31, 2025, indicating sufficient short-term liquidity.
• A three-year supply agreement has been established between Jiuxin Medicine and Jiuzhou Pharmacy (the divested retail entity), ensuring a significant source of revenue for the near term.

Negatives

• Total revenue decreased by 3.2% in fiscal year 2025 compared to the prior year, with offline wholesale revenue declining by 4.3% due to competitive market pressures and abandonment of low-margin sales.
• Gross profit decreased by 21.3% in fiscal year 2025, and gross margins for offline wholesale sales slightly decreased, indicating ongoing pressure on profitability.
• The company reported a net loss from continuing operations of $1,454,184 for fiscal year 2025, indicating that core wholesale operations are not yet profitable.
• The company relies heavily on a limited number of key customers, with two customers accounting for 67.1% and 18.7% of total sales from continuing operations in fiscal year 2025, posing a concentration risk.
• There is a significant risk in recovering accounts receivable totaling $13.6 million from the divested retail entities (Jiuzhou Pharmacy and associated clinics) as of March 31, 2025.
• The company's internal control over financial reporting was deemed ineffective as of March 31, 2025, due to weaknesses in accounting and finance personnel, including a lack of US GAAP experience and timely reconciliation.
• The wholesale business is relatively new to the company, and most senior management personnel have less experience in this area, posing challenges for growth and sustainability.
• The company has limited bargaining power with suppliers due to relatively smaller purchase volumes, making it challenging to secure favorable pricing and potentially affecting gross margins.

Risks

• Significant competition in the pharmaceutical distribution industry in China may materially and adversely affect revenue and profitability.
• Inability to timely identify or effectively respond to changing customer preferences may lead to failure in optimizing product offerings and inventory positions.
• Failure to establish effective advertising, marketing, and promotional programs could result in material decreases in revenue and profitability.
• Failure to maintain optimal inventory levels could increase holding costs or cause loss of sales.
• Continued penetration of counterfeit products into the Chinese pharmaceutical market may damage reputation and adversely affect business.
• Challenges in effectively growing the wholesale business organically and realizing anticipated benefits from acquisitions, including integration difficulties and unfamiliarity with new business areas.
• Reliance on a limited number of key customers, with the loss of one or more potentially adversely affecting operating results.
• Challenges in recovering accounts receivable from Jiuzhou Pharmacy and associated clinics following the Restructuring Transactions, and in maintaining the supply relationship with Jiuxin Medicine.
• Significant challenges in growing and sustaining the wholesale business, including limited bargaining power with suppliers, pricing volatility, and the need for ongoing investment in platforms, customer acquisition, and management.
• Operating results of the wholesale business have fluctuated, and there is no assurance that strategic initiatives will lead to sustained revenue growth or profitability.
• Heavy dependence on third-party electronic platforms for online sales, with capacity restrictions or failures potentially adversely affecting business.
• Failure to obtain and maintain requisite assets, licenses, qualified personnel, and approvals under China's complex regulatory environment for Internet-based businesses.
• Substantial dependence on the continuing efforts of key personnel, with loss of services potentially disrupting business.
• Operations require numerous permits and licenses, and failure to comply or renew them could materially adversely affect business.
• Failure to comply with privacy, data protection, and cybersecurity laws and regulations could have a materially adverse effect on reputation, results of operations, or financial condition.
• Inability to protect brand names, trade secrets, and other intellectual property from infringement may harm business.
• Exposure to intellectual property infringement and other claims by third parties, which, if successful, could disrupt business.
• Reliance principally on dividends from consolidated operating entities in PRC, with limitations on their ability to pay dividends potentially having a material adverse effect.
• Substantial uncertainties and restrictions with respect to PRC government political and economic policies and laws, which could significantly impact business.
• Adverse effects from complexity, uncertainties, and changes in Chinese regulation of pharmaceutical wholesale and online sales business.
• Compliance with China's new Data Security Law, Measures on Cybersecurity Review, and Personal Information Protection Law may entail significant expenses and materially affect business.
• Additional regulatory review and disclosure requirements adopted by the SEC in response to recent regulatory developments in China may increase compliance costs.
• Difficulties for U.S. regulators to conduct investigations or collect evidence within China.
• Difficulties in effecting service of legal process, enforcing foreign judgments, or bringing original actions in China against the company or management.
• Management will have broad discretion over the use of financing proceeds and might not apply them in ways that increase investment value.
• PRC subsidiaries are subject to restrictions on making payments to the holding company.
• Dividends received from PRC subsidiaries may be subject to PRC withholding tax.
• Risks related to disease epidemics and other outbreaks (e.g., COVID-19) could severely affect economic activity and business.
• Failure to comply with the U.S. Foreign Corrupt Practices Act could subject the company to penalties.
• Changes in international trade policies, trade disputes, and other disruptions, particularly between the U.S. and China, could harm the global economy and dampen growth in China.
• Risk of delisting from Nasdaq if the PCAOB is unable to inspect the company's auditors for two consecutive years, despite the current auditor being U.S.-based.
• PRC labor law restricts the ability to reduce workforce during economic downturns and may increase production costs.
• Uncertainty regarding more stringent restrictions on Renminbi convertibility, especially for foreign exchange transactions.
• Fluctuations in the value of RMB may have a material adverse effect on investment.
• Changes in economic conditions and consumer confidence in China may influence the pharmaceutical industry and spending patterns.
• Slowing growth or contraction of the Chinese economy could materially and adversely affect financial condition.
• Need for additional capital, with equity sales potentially diluting shareholders and debt requiring restrictive covenants.
• No history of cash dividends, and no estimation to distribute any in the foreseeable future.
• Nasdaq may delist ordinary shares for failing to maintain minimum bid price or other noncompliance.
• Low trading volume of ordinary shares may adversely affect price and liquidity.
• Market price for stock may be volatile, potentially leading to securities litigation.
• Techniques employed by manipulative short sellers in Chinese small-cap stocks may drive down the market price.
• The Chairman of the Board owns a substantial portion of outstanding ordinary shares, enabling influence over significant corporate actions, and interests may not align with other shareholders.

Future Outlook

The company expects to make equity investments in its subsidiaries rather than providing loans following the restructuring. It anticipates that the acquisition of Ridgeline will provide additional distribution channels and enhance revenue opportunities, though there is no guarantee these benefits will be realized or that the restructuring will improve overall profitability. The supply agreement with Jiuzhou Pharmacy is expected to remain a significant source of revenue in the near term. The company believes it has sufficient financial resources to support operations for at least the next 12 months, based on current cash, anticipated cash flow, available borrowings, and personal loans from principal shareholders.

Management Comments

• Ming Zhao, Interim Chief Executive Officer and Chief Financial Officer, stated that the company believes it has sufficient financial resources to support its operations for at least the next 12 months, based on current cash, anticipated cash flow from operations, available borrowings under existing bank facilities, and personal loans from principal shareholders.
• Management believes that providing insights from data, including artificial intelligence and machine learning, will become increasingly important to the value that solutions and services deliver to customers.

Industry Context

The company's strategic shift from retail to wholesale distribution aligns with a trend towards specialization and efficiency in the pharmaceutical market. The emphasis on online platforms reflects the broader digital transformation in China's commerce, particularly in B2B sectors. The highly fragmented and competitive nature of the Chinese pharmaceutical distribution industry, with regional and national players, suggests that the company's success will depend on its ability to secure favorable pricing, attract new customers, and invest in platform development. The regulatory environment in China, particularly regarding data security and foreign investment, continues to evolve rapidly, posing ongoing challenges for companies operating in the region.

Comparison to Industry Standards

• The company's gross margin for offline wholesale sales (3.2% in FY2025) is noted as low, with management stating they 'may have to maintain low profit margins in order to drive sales' until they can obtain exclusive sales agent status or access large local hospitals. This suggests the company's current margins are below what might be considered optimal or competitive for established, larger distributors like Fengwoda Pharmaceutical Co., Ltd. and Jiuzhoutong Pharmaceutical Co., Ltd., which likely benefit from greater economies of scale and bargaining power.
• The company's heavy reliance on a limited number of key customers (67.1% and 18.7% of sales from two customers in FY2025) is a significant concentration risk, potentially higher than industry standards for diversified wholesale distributors, which typically aim for a broader customer base to mitigate revenue volatility.
• The company's stated need to 'invest heavily in platform development' to remain competitive in the wholesale industry indicates a recognition of the industry's shift towards digital solutions, aligning with broader trends seen in more mature markets where e-commerce platforms are critical for distribution efficiency and reach.
• The company's challenges in securing favorable pricing due to 'lower purchase volumes' compared to larger competitors highlights a disadvantage against national operators who enjoy 'larger economies of scale and purchasing power' as mentioned in the risk factors, suggesting the company is not yet operating at a scale comparable to industry leaders in terms of procurement leverage.

Management Changes

Corporate Governance

Legal Proceedings

• No material, existing or pending legal proceedings against the company were reported.
• The company is not involved as a plaintiff in any material proceeding or pending litigation.
• No proceedings were reported in which any directors, officers, affiliates, or significant stockholders are adverse parties or have a material adverse interest.

Related Party Transactions

• On January 31, 2025, the company entered into an Equity Exchange Agreement with Mr. Lingtao Kong and Ridgeline, acquiring all outstanding ordinary shares of Ridgeline by issuing 2,225,000 ordinary shares to Mr. Kong. Mr. Kong became Chairman of the Board and a beneficial owner of approximately 38% of outstanding shares.
• Concurrently on January 31, 2025, the company entered into an Equity Exchange Agreement with Renovation, Mr. Lei Liu, Ms. Li Qi, and Oakview, transferring all equity in Jiuxin Investment to Oakview in exchange for the irrevocable surrender of 2,548,353 ordinary shares by Mr. Liu, Ms. Qi, Oakview, and their affiliates. Mr. Liu and Ms. Qi resigned from their positions.
• In October and November 2024, Mr. Lei Liu and Mr. Ming Zhao surrendered a total of 475,715 ordinary shares for no consideration, which were immediately cancelled by the company.
• As of March 31, 2025, there were no amounts due from related parties, compared to $19,737 due from related parties (Hangzhou Kahamadi Biotechnology Co., Ltd and directors of subsidiaries) as of March 31, 2024.
• As of March 31, 2025, $2,130 was due to a director of subsidiaries, consistent with $2,140 as of March 31, 2024.
• Following the restructuring, Jiuxin Medicine (a company subsidiary) and Jiuzhou Pharmacy (a divested entity now controlled by former management) entered into a three-year supply agreement, with sales to Jiuzhou Pharmacy expected to remain a significant source of revenue (over 60% of company revenue).

Stakeholder Impact

• **Shareholders**: The strategic restructuring and divestiture of the retail business aim to improve long-term financial performance by focusing on the wholesale segment. The one-time gain from divestiture resulted in positive net income for the year, which is favorable. However, the ongoing net loss from continuing operations and significant concentration risk with key customers could impact future profitability and share value. The substantial ownership by the Chairman of the Board (38%) gives him significant influence over corporate actions, potentially not aligning with other shareholders' interests. The ineffectiveness of internal controls over financial reporting poses a risk to financial transparency and investor confidence.
• **Employees**: The company's total workforce decreased due to the divestiture of Jiuxin Investment and its entities, offset by the acquisition of Ridgeline and Allright. The shift in business focus may require retraining or new skill sets for existing employees, and the company acknowledges the need to recruit experienced management personnel for the wholesale business.
• **Customers**: The company's shift to wholesale distribution, including online platforms, aims to serve a broader customer base (retail pharmacies, clinics, trading companies) nationwide. The three-year supply agreement with Jiuzhou Pharmacy ensures continued supply to a major customer, but its potential termination or disruption poses a significant risk.
• **Suppliers**: The company's limited bargaining power with suppliers due to lower purchase volumes may affect its ability to secure favorable pricing, potentially impacting its gross margins. The reliance on a few key suppliers (four suppliers accounted for over 10% of purchases in FY2025) also presents a concentration risk.
• **Creditors**: The company's ability to continue as a going concern depends on aligning funding sources with expenditure requirements and repaying short-term debts. The company has credit facilities and notes payable, and its working capital position is positive, which is favorable for creditors. However, the risk of uncollectible accounts receivable from divested entities could impact liquidity.

Next Steps

• Recruit and retain highly experienced management personnel for the wholesale business.
• Continue to invest heavily in platform development for the wholesale industry.
• Actively look for new buyers in certain emerging new platforms to increase sales volume.
• Negotiate and obtain lower purchase prices from vendors to increase wholesale profit margin.
• Monitor and test the effectiveness of newly implemented controls to remediate material weaknesses in internal control over financial reporting.
• More closely monitor the collection of accounts receivables and quickly seek potential recovery or recognize losses if uncollectible.
• File accordingly with the CSRC within 3 working days after any future offering is completed, as per the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies.

Key Dates

Recommendation

The company is undergoing a significant strategic transformation, divesting its unprofitable retail segment and focusing on wholesale. While the reported net income for FY2025 is positive due to a one-time divestiture gain, the core continuing operations still show a net loss and face challenges like declining offline wholesale revenue and low gross margins. The high customer concentration and identified material weaknesses in internal controls are notable concerns. The acquisition of Allright and the shift to online platforms offer potential for future growth, but the success of this transition is uncertain and requires substantial investment and experienced management. Given the ongoing operational challenges, significant risks, and the transitional nature of the business, a 'hold' recommendation is appropriate. Investors should monitor the company's ability to improve profitability in its continuing wholesale operations, diversify its customer base, and remediate internal control weaknesses before considering a more aggressive stance.

Keywords

Pharmaceutical Wholesale, China, SEC Filing, Restructuring, Healthcare Distribution, Online Pharmacy, Offline Wholesale, Nasdaq, PRC Regulations, Corporate Governance, Risk Factors, Financial Performance, Acquisition, Divestiture, Ridgetech, RDGT