20-F: Haoxi Health Reports Revenue Decline Amid Competition

Haoxi Health Technology Limited reported a significant 32% revenue decrease and a 66% gross profit drop for fiscal year 2025, despite a rise in net income driven by non-operating gains.

Summary

• Total revenue decreased by 32.39% to $32.80 million for the fiscal year ended June 30, 2025, down from $48.52 million in fiscal year 2024, primarily due to increasing competition.
• Gross profit decreased by 66% to $0.93 million in fiscal year 2025 from $2.75 million in fiscal year 2024, with gross margin falling to 2.83% from 5.67%.
• Net income increased by 200% to $3.88 million in fiscal year 2025 from $1.29 million in fiscal year 2024, largely due to a $6.76 million gain from the change in fair value of warrant liability.
• Net cash used in operating activities significantly increased to $3.36 million in fiscal year 2025 from $0.75 million in fiscal year 2024.
• The number of advertiser customers served decreased to 473 in fiscal year 2025 from 543 in fiscal year 2024.
• Average revenue per customer decreased to $69,354 in fiscal year 2025 from $89,355 in fiscal year 2024.
• General and administrative expenses increased by 207% to $2.80 million in fiscal year 2025, partly due to bonus distribution and intangible asset amortization.
• The company identified material weaknesses in its internal control over financial reporting (ICFR), including a lack of U.S. GAAP and SEC reporting experienced staff, insufficient monitoring mechanisms, and inadequate management review controls.
• Haoxi Beijing launched livestreaming agency services in April 2025, which are currently in the R&D stage and have not yet generated revenue.
• The company remains highly dependent on Ocean Engine, which accounted for 97.48% of total purchases in fiscal year 2025.

Sentiment

Score: 3

Explanation: The company experienced significant declines in revenue, gross profit, and operating cash flow, indicating a worsening operational performance. While net income increased, it was due to a non-operating fair value adjustment of warrant liability, which is not sustainable. Identified material weaknesses in internal controls and high supplier concentration add to the concerns. The recent capital raise is relatively small and may not fully address underlying operational challenges.

Positives

• Net income increased significantly by 200% to $3.88 million in fiscal year 2025, compared to $1.29 million in fiscal year 2024, primarily due to a $6.76 million gain from the change in fair value of warrant liability.
• Net cash provided by financing activities was strong at $8.90 million in fiscal year 2025, including $8.11 million from a firm commitment offering.
• The company has a management team with several years of experience in marketing for healthcare companies, including CEO Zhen Fan (15+ years in online marketing) and COO Lei Xu (10+ years in healthcare marketing).
• Self-developed data analysis software, Bidding Compass, is used to obtain ad placement data and optimize marketing strategies.
• Established stable relationships with mainstream online advertising platforms in China, such as ByteDance platforms (Toutiao, Douyin, Xigua Video).
• Launched new livestreaming agency services in April 2025, targeting growing demand in the healthcare and medical aesthetics sectors.
• Plans to reinforce collaboration with media platforms and expand its advertiser base in the healthcare industry, aiming for 150-200 new advertisers annually.
• Continued investment in R&D for Bidding Compass to improve data analytical capabilities and efficiency.
• Remedial measures for identified material weaknesses in ICFR are being implemented, including hiring an experienced Chief Financial Officer and establishing an internal audit department.

Negatives

• Total revenue decreased by 32.39% to $32.80 million in fiscal year 2025 from $48.52 million in fiscal year 2024, mainly due to increasing competition.
• Gross profit decreased by 66% to $0.93 million in fiscal year 2025 from $2.75 million in fiscal year 2024.
• Gross margin declined to 2.83% in fiscal year 2025 from 5.67% in fiscal year 2024, attributed to increased cost of revenues for overseas advertising business.
• Net cash used in operating activities worsened significantly, increasing to $3.36 million in fiscal year 2025 from $0.75 million in fiscal year 2024.
• The number of advertiser customers decreased to 473 in fiscal year 2025 from 543 in fiscal year 2024.
• Average revenue per customer decreased to $69,354 in fiscal year 2025 from $89,355 in fiscal year 2024.
• General and administrative expenses surged by 207% to $2.80 million in fiscal year 2025, partly due to bonus distribution and intangible asset amortization.
• The company has identified material weaknesses in its internal control over financial reporting (ICFR).
• Significant concentration risk due to reliance on Ocean Engine, which accounted for 97.48% of total purchases in fiscal year 2025.
• The operating entity did not pay social insurance and housing provident fund contributions in full for all employees for fiscal years 2025, 2024, and 2023, potentially leading to penalties.
• No dividends are anticipated in the foreseeable future as the company intends to retain earnings for business expansion.
• The business is geographically concentrated in China, exposing it to greater risks from local or regional economic and political conditions.
• The company does not maintain director liability, property, business interruption, or general third-party liability insurance.

Risks

• Changes in PRC political and economic policies or U.S.-China relations may materially and adversely affect business, financial condition, and results of operations.
• Substantial uncertainties exist regarding the interpretation and enforcement of PRC laws, rules, and regulations, including the Foreign Investment Law, Cybersecurity Review Measures, and Data Security Law.
• The PRC government exerts substantial influence over business activities and may intervene or influence operations at any time, potentially causing a material change in operations or a decline in share value.
• Subsequent offerings may be subject to CSRC filing procedures, which could significantly limit or hinder the ability to offer Class A Ordinary Shares.
• Difficulties may arise in effecting service of legal process, enforcing foreign judgments, or conducting investigations in China.
• PRC regulations regarding acquisitions (M&A Rules) may impose significant regulatory approval and review requirements, making growth through acquisitions more difficult.
• Failure to comply with PRC regulations relating to investments in offshore companies by PRC residents may subject beneficial owners or Haoxi Beijing to liability or penalties.
• Failure to comply with PRC regulations regarding employee share incentive plans may subject participants or the company to fines and sanctions.
• PRC regulations of loans to, and direct investment in, PRC entities by offshore holding companies, and governmental control of currency conversion, may limit the ability to use offshore offering proceeds in China.
• Limitations on Haoxi Beijing's ability to transfer cash out of China may restrict the company's access to cash generated by operations.
• The company may be treated as a resident enterprise for PRC tax purposes, subjecting its global income to PRC income tax.
• Dividends payable to foreign investors and gains on the sale of Class A Ordinary Shares by foreign investors may be subject to PRC tax.
• Uncertainties exist with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
• Restrictions on currency exchange may limit the ability to utilize Renminbi revenue effectively.
• Fluctuations in exchange rates could result in foreign currency exchange losses and reduce the value of dividends payable in U.S. Dollars.
• Failure to make adequate contributions to various employee benefit plans and withhold individual income tax on employees' salaries as required by PRC regulations may subject the operating entity to penalties.
• Additional and more stringent criteria applied to emerging market companies by the SEC and PCAOB, and the HFCA Act, could add uncertainties to continued listing or future offerings in the U.S.
• PRC laws and regulations related to current business operations are sometimes vague and uncertain, and changes may impair the ability to operate profitably.
• Advertisers may stop purchasing online marketing services or decrease spending, or the company may be unable to establish and maintain new relationships with advertisers.
• Failure to maintain relationships with media partners, particularly Ocean Engine, could materially and adversely affect financial performance.
• The company may continue to experience net cash outflow from operating activities and may not maintain sufficient net cash inflows.
• The limited operating history in a rapidly evolving industry makes it difficult to accurately forecast future operating results and evaluate business prospects.
• Reliance on a few customers for a significant percentage of total revenue creates concentration risk.
• Unstable operating revenue and anticipated increases in operating expenses may prevent the company from achieving or sustaining profitability on a consistent basis.
• Pandemics, epidemics, natural disasters, terrorist activities, and political unrest could disrupt operations.
• Geographic concentration of business in China subjects it to greater risks from changes in local or regional conditions.
• Unauthorized use of intellectual property by third parties and expenses incurred in protecting intellectual property rights may adversely affect business.
• Third parties may claim infringement on their proprietary intellectual property rights, leading to significant legal expenses.
• Failure to attract, recruit, or retain key personnel, including executive officers, senior management, and key employees, could affect ongoing operations and growth.
• Future acquisitions may have an adverse effect on the ability to manage the business.
• Legal claims, government investigations, or other regulatory enforcement actions could subject the operating entity to civil and criminal penalties.
• Allegations, harassment, or other detrimental conduct by third parties could harm reputation and cause loss of market share and clients.
• Insufficient insurance coverage may lead to additional expenses in case of business disruptions.
• Inability to obtain additional capital in a timely manner or on acceptable terms.
• Failure to maintain the satisfactory performance of the company's software, Bidding Compass, and resulting interruptions in its availability may adversely impact business.
• Investment in R&D of Bidding Compass may fail to result in a satisfactory return.
• The trading price of Class A Ordinary Shares is likely to be volatile, which could result in substantial losses to investors.
• Substantial future sales of Class A Ordinary Shares or the anticipation of future sales could cause the price to decline.
• The dual class structure of ordinary shares concentrates voting control with the CEO, whose interests may not align with other shareholders.
• The dual-class structure may adversely affect the trading market for Class A Ordinary Shares.
• As a controlled company, the company may follow certain exemptions from Nasdaq corporate governance standards, providing less protection to public shareholders.
• Requirements of being a public company may strain resources and divert management's attention.
• No dividends are intended to be paid for the foreseeable future.
• If securities or industry analysts do not publish research or publish negative reports, the price and trading volume could decline.
• Management has broad discretion to determine how to use funds raised in offerings.
• Ceasing to qualify as a foreign private issuer would require full compliance with Exchange Act reporting requirements, incurring significant additional expenses.
• Inability to satisfy Nasdaq Capital Market listing requirements could lead to delisting.
• Anti-takeover provisions in the amended and restated articles of association may discourage, delay, or prevent a change in control.
• The board of directors may decline to register transfers of Class A Ordinary Shares in certain circumstances.
• As an emerging growth company, the company may not be subject to requirements that other public companies are, potentially affecting investor confidence.
• The laws of the Cayman Islands may not provide shareholders with benefits comparable to those provided to shareholders of U.S. corporations.
• Shareholders may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.
• Certain judgments obtained against the company by shareholders may not be enforceable.
• Potential classification as a passive foreign investment company (PFIC) could have adverse U.S. federal income tax consequences for U.S. taxpayers.
• Shareholders may be held liable for claims by third parties against the company to the extent of distributions received upon redemption of their shares.

Future Outlook

The company anticipates increased operating expenses in the future due to hiring additional personnel and business expansion, as well as significant legal, accounting, and public company-related costs. Capital expenditures are expected to increase moderately over the next two to three years to support growth, funded primarily by operating and financing activities. The company plans to reinforce collaborations with mainstream media platforms and expand its healthcare industry advertiser base, aiming to acquire 150-200 new advertisers annually. Continued investment in R&D for Bidding Compass is planned to enhance data analytical capabilities and efficiency. Livestreaming agency services, launched in April 2025, are still in the R&D phase and have not yet generated revenue.

Management Comments

• We believe the current cash and cash equivalents and the anticipated cash flows from the equity financing will be sufficient to meet our anticipated working capital requirements and expenditures and bank loan repayment requirements for the next 12 months.
• We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.
• We believe this division of responsibilities [for cybersecurity risk management] is the most effective approach for addressing our cybersecurity risks and that our board leadership structure supports this approach.
• Notwithstanding the identified material weaknesses, management, including our chief executive officer and chief financial officer, believes the CFS included in this annual report on Form 20-F present fairly, in all material respects, our financial condition, results of operations, and cash flows in conformity with U.S. GAAP.

Industry Context

The company operates in China's online marketing industry, primarily serving the rapidly growing healthcare sector, which benefits from increasing average income and an aging population. The industry is characterized by the quick rise of news feed ads and constant development of digital technology. It is highly fragmented and competitive, with top-tier service providers leveraging distribution channels and technology. The market increasingly values accuracy and cost-efficiency, driving investment in digital tools and data management, especially with the growth of e-commerce and short video platforms. The company's focus on the healthcare industry is seen as a differentiator.

Management Changes

Corporate Governance

Legal Proceedings

• The operating entity is currently not a party to, and is not aware of any threat of, any legal or administrative proceeding that is likely to have a material adverse effect on its business, financial condition, cash flow, or results of operations.
• The company faces risks of government actions and civil claims related to false, fraudulent, misleading, or otherwise illegal marketing content for which it provides agency services, potentially leading to fines, penalties, or business suspension.
• Potential penalties may arise from the operating entity's failure to make adequate contributions to various employee benefit plans (social insurance and housing provident fund) and withhold individual income tax for all employees in fiscal years 2025, 2024, and 2023.

Related Party Transactions

• Amounts due to related parties (Zhen Fan and Lei Xu) totaled $62,120 as of June 30, 2025.
• Bonuses awarded to CEO Zhen Fan and COO Lei Xu were $290,000 and $200,000, respectively, in fiscal year 2025.
• Mr. Lei Xu provided a guarantee for a loan from the Bank of China.

Stakeholder Impact

• Shareholders face potential share price volatility, dilution from future equity issuances, and reduced protections due to the dual-class voting structure and foreign private issuer exemptions from certain Nasdaq governance standards.
• Employees may be impacted by the company's non-compliance with PRC regulations regarding social insurance and housing provident fund contributions, potentially leading to penalties for the company.
• Customers (advertisers) face risks if the company's marketing services are ineffective, if media partner relationships deteriorate, or if advertising performance data is inaccurate, potentially leading to loss of business.
• Suppliers, particularly Ocean Engine, are critical to the company's operations, and any deterioration in this relationship could severely impact the company's ability to procure user traffic and ad inventory.
• Creditors may be affected by the company's ability to generate sufficient cash flow from operations to service debt, and PRC regulations may restrict the transfer of funds from subsidiaries to the holding company for debt repayment or dividends.

Next Steps

• Continue to implement additional measures to remediate identified material weaknesses in internal controls over financial reporting (ICFR) in the fiscal year ending June 30, 2026.
• Continue to invest in and develop the self-owned software, Bidding Compass, enhancing R&D efforts and recruiting more R&D engineers to improve data analytical capabilities and efficiency.
• Reinforce collaboration with mainstream media platforms and expand the advertiser base in the healthcare industry, with a goal of acquiring 150-200 new advertisers each year.
• Utilize proceeds from IPO and follow-on offerings for working capital, general corporate purposes, acquiring or investing in complementary technologies/solutions/businesses, and hiring experienced employees for internal control and U.S. GAAP compliance.

Key Dates

Recommendation

The company's core business performance shows significant deterioration, with a substantial decline in revenue and gross profit, coupled with worsening operating cash flow. While net income increased, this was primarily due to a non-operating gain from warrant liability fair value adjustment, which is not indicative of sustainable operational health. The identified material weaknesses in internal controls, high reliance on a single supplier, and ongoing non-compliance with employee benefit contributions present significant governance and operational risks. The stock is highly volatile, and the fundamental operational challenges outweigh the temporary boost from non-operating items, suggesting a negative outlook for investors.

Keywords

Online Marketing, Healthcare Advertising, Digital Advertising, China, SEC Filing, Form 20-F, Nasdaq, HAO, Bidding Compass, Short Video Marketing, Corporate Governance, Risk Factors, Financial Performance, Internal Controls, PRC Regulations, Ocean Engine, Livestreaming Services