F-1: Ridgetech Launches $5M Share Offering Amidst China Wholesale Shift

Ridgetech, Inc. initiates a best-efforts public offering of up to $5 million in ordinary shares to fund its expanded wholesale pharmaceutical business in China following a strategic divestiture of its retail operations.

Summary

• Ridgetech, Inc. (formerly China Jo-Jo Drugstores, Inc.) is conducting a best-efforts self-underwritten public offering of up to $5,000,000 in ordinary shares.
• The offering has no minimum amount, meaning fewer than all shares may be sold, potentially reducing proceeds and hindering business goals.
• The company recently completed a strategic restructuring in February 2025, divesting its high-cost retail pharmacy business (Jiuxin Investment and its VIEs) and acquiring Ridgeline International Limited, which owns Allright (Hangzhou) Internet Technology Co. Ltd.
• This restructuring shifts the company's focus from retail to wholesale distribution of pharmaceutical and healthcare products in China, operating both offline and through online platforms.
• As of March 31, 2025, the company reported a net income of $10,199,851, a significant improvement from a net loss of $4,234,242 in 2024.
• Total revenue for the year ended March 31, 2025, was $119,971,638, a decrease of 3.2% from $123,994,053 in 2024.
• Offline wholesale revenue decreased by 4.3% to $118.9 million in 2025, while online platform revenue, contributed by the newly acquired Allright, was $1.1 million.
• The company faces significant risks related to its operations in China, including regulatory uncertainties, data security laws, and the Holding Foreign Companies Accountable Act (HFCAA).
• Lingtao Kong, Chairman of the Board, holds approximately 38% of outstanding ordinary shares, giving him significant influence.
• The company intends to use the net proceeds for expanding operating capacity (40%), advertising and branding (30%), and general corporate purposes (30%).

Sentiment

Score: 6

Explanation: While the company achieved a significant net income due to a divestiture gain and is strategically repositioning towards wholesale and online platforms, the underlying revenue from continuing operations declined. The offering is 'best efforts' with no minimum, indicating uncertainty in capital raise. Significant risks related to Chinese regulation, customer concentration, and management's inexperience in self-underwriting temper the positive sentiment. The strategic shift is positive, but its execution and impact on sustained profitability are yet to be fully proven.

Positives

• Achieved a net income of $10,199,851 for the year ended March 31, 2025, a substantial turnaround from a net loss of $4,234,242 in the prior year, largely due to a $15,757,753 gain from the divestiture of Jiuxin Investment.
• Successfully completed a strategic restructuring in February 2025, divesting the high-cost retail segment and acquiring Allright to expand the wholesale business.
• The acquisition of Allright introduced an online platform segment, contributing $1.1 million in revenue for the year ended March 31, 2025, diversifying revenue streams.
• The company's auditor, YCM CPA Inc., is headquartered in California and has been inspected by the PCAOB, mitigating immediate delisting risks under the HFCAA.
• Maintained a healthy working capital of $25.4 million and cash of $18.5 million as of March 31, 2025.
• Secured a three-year supply agreement between Jiuxin Medicine and Jiuzhou Pharmacy, which is expected to remain a significant revenue source in the near term.

Negatives

• Total revenue decreased by 3.2% to $119,971,638 for the year ended March 31, 2025, compared to $123,994,053 in 2024.
• Offline wholesale revenue declined by 4.3% due to abandoning certain low gross profit margin sales to maintain profitability.
• The offering is a 'best efforts' self-underwritten public offering with no minimum amount, meaning there's no guarantee of selling any shares and investors will not receive a refund if business goals are not met due to insufficient proceeds.
• Management (Mr. Ming Zhao and Mr. Lingtao Kong) has no prior experience conducting a best-efforts offering, decreasing the likelihood of success.
• Significant customer concentration, with two customers accounting for 67.1% and 18.7% of total sales from continuing operations for the fiscal year ended March 31, 2025.
• Risk of not fully collecting $13.6 million in accounts receivable from Divested Retail Entities (Jiuzhou Pharmacy and associated clinics) following the restructuring.
• The company has limited bargaining power with suppliers in the competitive pharmaceutical distribution market, potentially affecting gross margins.
• Heavy dependence on third-party electronic platforms for online sales exposes the company to risks of capacity limitations, policy changes, or service disruptions.
• The company has not paid cash dividends and does not anticipate doing so in the foreseeable future, intending to retain earnings for business expansion.
• The market price of ordinary shares has been volatile, ranging from $0.80 to $2.80 in the 52 weeks prior to the report date.

Risks

• Significant competition in the pharmaceutical distribution industry in China from regional and national players, some with greater resources, product variety, and pricing flexibility.
• Inability to timely identify or effectively respond to changing customer preferences, potentially reducing revenue and affecting inventory optimization.
• Continued penetration of counterfeit products into the pharmaceutical market in China may damage reputation and materially affect business.
• Challenges in 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 (two customers accounted for 67.1% and 18.7% of sales in FY2025) creates a risk of adverse effects if these relationships are lost.
• Challenges in recovering $13.6 million in accounts receivable from Jiuzhou Pharmacy and associated clinics following the Restructuring Transactions.
• Risk of not maintaining the three-year supply agreement with Jiuzhou Pharmacy, which is expected to generate a substantial portion of near-term revenue.
• Fluctuations in the operating results of the wholesale business, with no assurance that strategic initiatives will lead to sustained revenue growth or profitability.
• Heavy dependence on third-party electronic platforms for online sales, exposing the company to risks of capacity limitations, policy changes, or service disruptions.
• 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 (Lingtao Kong and certain managers), with potential severe disruption if their services are lost.
• Inability to maintain all required permits, licenses, and certifications (e.g., Drug Distribution Permit, GSP certification, food hygiene certificates) or adapt to changing standards.
• Failure to comply with China's new Data Security Law, Measures on Cybersecurity Review, Personal Information Protection Law, and other regulations, potentially leading to significant expenses, penalties, or operational restrictions.
• Exposure to intellectual property infringement and other claims by third parties, which could disrupt business and have a material adverse effect on financial condition.
• Reliance on dividends paid by consolidated PRC operating entities, with limitations on their ability to pay dividends due to PRC laws (e.g., statutory reserve requirements, foreign exchange controls).
• Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations, including potential interventions and increased control over overseas offerings.
• Difficulties for U.S. regulators (Department of Justice, SEC) to conduct investigations or collect evidence within China due to PRC laws.
• Difficulties for U.S. investors in effecting service of legal process, enforcing foreign judgments, or bringing original actions in China against the company or management.
• Dividends received from PRC subsidiaries may be subject to PRC withholding tax (5% or 10%), reducing funds available for distribution to shareholders.
• Potential delisting from Nasdaq under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB cannot inspect audit workpapers located in China, despite the current auditor being U.S.-based and inspected.
• The PRC's Labor Contract Law restricts the ability to reduce the workforce in the PRC during economic downturns, potentially increasing production costs.
• Fluctuations in the value of the Renminbi against the U.S. dollar may have a material adverse effect on investment, cash flows, revenues, earnings, and financial position.
• A severe or prolonged slowdown in the global or Chinese economy could materially and adversely affect business, results of operations, and financial condition.
• Failure to comply with the U.S. Foreign Corrupt Practices Act could subject the company to penalties and other adverse consequences.
• Changes in international trade policies, trade disputes, barriers to trade, and the emergence of a trade war (especially between the United States and China) could harm the global economy and dampen growth in China.
• Need for additional capital, with the sale of equity securities potentially resulting in dilution to shareholders, and debt requiring restrictive covenants.
• Low historical trading volume of ordinary shares may lead to greater price volatility and difficulty for investors to sell shares.
• The market price for the stock may be volatile, potentially subjecting the company to securities litigation.
• Techniques employed by manipulative short sellers in Chinese small-cap stocks may drive down the market price of ordinary shares.
• The Chairman of the Board, Lingtao Kong, owns approximately 38% of outstanding ordinary shares, enabling him to influence many significant corporate actions, and his interests may not align with those of other shareholders.
• The offering is self-underwritten without an underwriter, and management has no experience in conducting such an offering, increasing the risk of being unable to sell any shares.
• Purchasers of ordinary shares in this offering will experience immediate and substantial dilution of US$[] per share, representing the difference between the public offering price and the adjusted net tangible book value per ordinary share as of March 31, 2025.
• Management has broad discretion in the use of the net proceeds from this offering and may not use them effectively.
• Risk of delisting from the Nasdaq Capital Market for failing to maintain a minimum bid price of $1.00 or for other noncompliance with Nasdaq listing requirements.
• Failure to satisfy economic substance requirements under the Cayman Islands' International Tax Co-operation (Economic Substance) Act could result in significant financial penalties or business restrictions.

Future Outlook

The company expects to fund its subsidiaries primarily through equity contributions rather than loans following the Restructuring Transactions. It anticipates Jiuxin Medicine will serve as a major supplier to Jiuzhou Pharmacy over the next three years under a new supply agreement. The acquisition of Ridgeline is expected to provide additional distribution channels and enhance revenue opportunities, though there is no guarantee these benefits will be realized or that overall profitability will improve. The company intends to keep future earnings to finance business expansion and does not plan to declare or pay dividends in the foreseeable future. Management plans to use offering proceeds for expanding operating capacity, increasing warehousing and staff (40%), advertising and branding campaigns (30%), and general corporate purposes (30%).

Management Comments

• We intend to keep any future earnings to finance the expansion of our business, and we do not have any current plan to declare or pay any dividends on our ordinary shares in the foreseeable future.
• Our management will have broad discretion in the application of such net proceeds, including working capital and other general corporate purposes, and we may spend or invest these proceeds in a way with which our shareholders disagree.
• We believe that the aggregate amount of our current cash, anticipated cash flow from operations, available borrowings under our existing bank facilities, and personal loans from our principal shareholders should be sufficient to meet our anticipated cash needs for the near future.

Industry Context

Ridgetech, Inc. operates in the highly competitive pharmaceutical distribution industry in China. The company's strategic shift from a high-cost retail segment to a wholesale-focused model, including expansion into online B2B platforms, aligns with broader trends of digital transformation and efficiency seeking in the healthcare supply chain. However, the industry in China is subject to significant government oversight, evolving regulations (e.g., data security, overseas listings), and the persistent challenge of counterfeit products. The company's reliance on a few key customers and its limited bargaining power with suppliers are common challenges for smaller players in a market dominated by larger regional and national distributors. The slowing economic growth in China and global macroeconomic challenges further impact consumer confidence and spending patterns, influencing the pharmaceutical market.

Comparison to Industry Standards

• The company faces significant competition from larger regional and national players who possess greater financial resources, a wider variety of products, stronger relationships with pharmaceutical manufacturers, greater pricing flexibility, larger economies of scale, more extensive advertising, and stronger brand recognition.
• The company's dependence on a limited number of key customers (67.1% and 18.7% of sales from two customers in FY2025) suggests a higher concentration risk compared to a more diversified industry standard.
• The company's limited bargaining power with suppliers due to lower purchase volumes is a disadvantage compared to larger industry participants who can secure more favorable pricing.

Management Changes

Corporate Governance

Legal Proceedings

• As of the date of this prospectus, the company and its subsidiaries have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor have any of them received any inquiry, notice, or sanction.
• Litigation may be necessary in the future to enforce intellectual property rights or to determine the validity and scope of the intellectual property rights of others.
• The company may, in the future, be the target of securities class action litigation following periods of volatility in the market price of its securities.

Related Party Transactions

• Divestiture of Jiuxin Investment: Renovation (wholly-owned subsidiary) transferred all equity in Jiuxin Investment to Oakview (affiliated with former CEO Mr. Lei Liu and Ms. Li Qi) in exchange for the surrender of 2,548,353 ordinary shares by Mr. Liu, Ms. Qi, Oakview and their affiliates. Following this, Jiuxin Investment and its controlled entities are owned/controlled indirectly by Mr. Liu and Ms. Qi.
• Acquisition of Ridgeline: Acquired Ridgeline from Mr. Lingtao Kong (now Chairman of the Board) by issuing 2,225,000 ordinary shares to him.
• Supply Agreement: Jiuxin Medicine (a subsidiary) signed a three-year supply agreement with Jiuzhou Pharmacy (now indirectly controlled by former CEO Mr. Liu and Ms. Qi) to serve as a major supplier.
• Due to related parties: As of March 31, 2025, $2,130 was due to a director of subsidiaries.

Stakeholder Impact

• Shareholders: Potential for growth in the wholesale and online platform segments post-restructuring, but face immediate and substantial dilution from the current offering, risk of further dilution, share price volatility, lack of dividends, significant influence of Chairman Lingtao Kong, and ongoing regulatory risks in China (HFCAA, data security).
• Employees: PRC Labor Contract Law restricts workforce reduction during economic downturns, potentially increasing costs and affecting operational flexibility.
• Customers: Continued supply of pharmaceutical products through Jiuxin Medicine to Jiuzhou Pharmacy. Expansion into online platforms may offer broader access to products. However, dependence on a limited number of key customers creates risk if those relationships are disrupted.
• Suppliers: The company has limited bargaining power with suppliers, potentially affecting pricing.
• Creditors: Improved net income in FY2025. However, risk of uncollected accounts receivable from divested entities. PRC regulations may restrict subsidiaries' ability to pay dividends, impacting the holding company's ability to service debt.

Next Steps

• Complete the public offering of ordinary shares as soon as practicable after the registration statement is declared effective.
• File with the CSRC in accordance with the Trial Measures within three working days after the offering is completed.
• Expand operating capacity and increase warehousing and staff using 40% of net proceeds.
• Execute advertising and branding campaigns using 30% of net proceeds.
• Utilize 30% of net proceeds for general corporate purposes, including working capital and capital expenditures.
• Invest unutilized net proceeds in short-term, interest-bearing bank deposits or debt instruments.
• Obtain regulatory approvals, registration, or filings (e.g., with Ministry of Commerce, SAMR, SAFE-authorized bank) to transfer funds to PRC subsidiaries.
• Continue to operate primarily in the wholesale business, selling pharmaceutical products to trading companies and other businesses.
• Jiuxin Medicine is expected to serve as a major supplier to Jiuzhou Pharmacy over the next three years under the new supply agreement.
• The PCAOB Board will consider issuing a new determination if PRC authorities obstruct or fail to facilitate PCAOB's access in the future.

Key Dates

Recommendation

The company is undergoing a significant strategic transformation, divesting its retail business and focusing on wholesale and online distribution. The reported net income for FY2025 is positive, but largely driven by a one-time gain from divestiture, while core revenue from continuing operations declined. The 'best efforts' offering without a minimum raises concerns about the certainty of capital infusion. While the strategic shift has potential, it is accompanied by substantial risks, including intense competition, customer concentration, regulatory uncertainties in China, and potential dilution for existing shareholders. A 'hold' recommendation is appropriate as the company navigates this transition; investors should monitor the execution of its new strategy, the success of the capital raise, and the impact of regulatory developments before making further investment decisions.

Keywords

Ridgetech, Inc., RDGT, Public Offering, Wholesale Distribution, Pharmaceutical Products, China Operations, Restructuring, Divestiture, Acquisition, Allright (Hangzhou) Internet Technology Co. Ltd., Nasdaq Capital Market, Chinese Regulation, Data Security Law, HFCAA, PCAOB, Financial Results, Net Income, Revenue, Capital Raise, Shareholder Dilution, Corporate Governance, Risk Factors, Emerging Growth Company