F-1/A: PomDoctor Faces Going Concern Doubts Amidst IPO Launch

PomDoctor Limited, a Cayman Islands holding company operating an online medical services platform in China, is launching an initial public offering of 5,000,004 ADSs despite its auditor expressing substantial doubt about its ability to continue as a going concern.

Summary

• PomDoctor is a leading online medical services platform for chronic diseases in China, ranking sixth in the Internet hospital market by contracted doctors in 2022.
• The company plans to offer 5,000,004 American Depositary Shares (ADSs) at an estimated price range of US$4.00 to US$6.00 per ADS, aiming to raise approximately US$21.4 million in net proceeds.
• Net revenues increased by 12.4% from RMB304.9 million in 2023 to RMB342.6 million (US$46.9 million) in 2024.
• The company incurred net losses of RMB36.9 million in 2023 and RMB37.4 million (US$5.1 million) in 2024.
• Working capital deficit was RMB112.6 million as of December 31, 2023, and increased to RMB141.6 million (US$19.4 million) as of December 31, 2024.
• The auditor, Marcum Asia CPAs LLP, has expressed substantial doubt about the company's ability to continue as a going concern.
• The company operates through a Variable Interest Entity (VIE) structure in China due to foreign ownership restrictions in certain sectors like value-added telecommunication services and medical institutions.
• As of December 31, 2024, the cumulative number of contracted doctors was over 212,800, and transacting patients increased from 654,817 in 2023 to 699,338 in 2024.
• Contracted doctors issued approximately 3.13 million prescriptions in 2024.
• The 90-day patient repurchase rate was 63.7% in 2023 and 66.2% in 2024, with hepatopathy department showing a repeat purchase rate of 73.9% in 2024.
• Average revenue per paying patient increased from RMB714 in 2023 to RMB766 in 2024.
• The company identified three material weaknesses in its internal control over financial reporting.
• Mr. Zhenyang Shi, Chairman and CEO, will collectively exercise 76.0% of the aggregate voting power after the offering due to a dual-class share structure and voting proxy from Ms. Li Xu, making the company a 'controlled company' under Nasdaq rules.

Sentiment

Score: 3

Explanation: The company exhibits strong growth in revenue and user engagement, and operates in a promising industry. However, significant financial distress, including persistent net losses, negative operating cash flows, a growing working capital deficit, and a 'going concern' opinion from its auditor, overshadow these positives. Material weaknesses in internal controls and ongoing regulatory compliance risks in China further contribute to a highly cautious outlook, despite the capital raise attempt.

Positives

• Net revenues increased by 12.4% from RMB304.9 million in 2023 to RMB342.6 million (US$46.9 million) in 2024, indicating business growth.
• Net revenues from the Internet hospital segment grew by 25.4% from RMB71.0 million in 2023 to RMB89.0 million (US$12.2 million) in 2024, primarily from online pharmacy sales.
• The net loss rate decreased from 12.0% in 2023 to 11.0% in 2024, suggesting some improvement in operational efficiency relative to revenue.
• The cumulative number of contracted doctors stabilized at over 212,800, and transacting patients increased from 654,817 in 2023 to 699,338 in 2024.
• High retention rate for mature doctors (99.4% in both 2023 and 2024) and a strong 90-day patient repurchase rate (66.2% in 2024) indicate strong user stickiness.
• Average revenue per paying patient increased from RMB714 in 2023 to RMB766 in 2024.
• The company has a well-established pharmaceutical supply chain with 42,493 SKUs as of December 31, 2024, including 13,267 prescription drugs, exceeding traditional public hospital offerings.
• Proprietary technology includes 77 software copyrights, five patents, and two patent applications, supporting AI-empowered services and supply chain management.
• The company has an experienced management team with an average of 17 years of industry experience.
• Received investments from industry leaders and institutional investors like Shandong Buchang Pharmaceuticals, JD Group, Focus Media, Beijing HongShan, and Greenwoods Asset.
• Completed the required filings with the CSRC for this offering, with results published on January 17, 2025, addressing a key regulatory uncertainty for overseas listings.

Negatives

• The company incurred net losses of RMB36.9 million in 2023 and RMB37.4 million (US$5.1 million) in 2024.
• Negative cash flows from operating activities were RMB45.8 million in 2023 and RMB16.1 million (US$2.2 million) in 2024.
• Working capital deficit increased from RMB112.6 million in 2023 to RMB141.6 million (US$19.4 million) in 2024.
• The independent auditor expressed substantial doubt about the company's ability to continue as a going concern.
• Identified three material weaknesses in internal control over financial reporting, including lack of sufficient accounting personnel, inadequate financial reporting policies, and insufficient system logical access security.
• Gross profit margin for the Internet hospital segment decreased from 50.1% in 2023 to 42.7% in 2024, mainly due to increased online pharmacy sales of lower-margin products.
• Sales and marketing expenses increased by 29.0% from RMB43.7 million in 2023 to RMB56.4 million (US$7.7 million) in 2024, outpacing revenue growth.
• The company has a limited operating history in an emerging and dynamic Internet + healthcare industry, making future performance uncertain.
• Significant reliance on a limited number of key suppliers, with one supplier accounting for 39.1% of total purchases in 2024, posing supply chain risk.
• Not in full compliance with PRC labor laws and regulations regarding social insurance and housing provident fund contributions for some employees, with unpaid amounts of RMB2.6 million for both 2023 and 2024.
• Reliance on related party loans for working capital, some with high interest rates (up to 20%) or non-cash repayment terms.
• The company currently does not have cash management policies in place that dictate how funds are transferred between the Company, its Hong Kong subsidiary, its WFOE, the VIE, and investors.

Risks

• The report of the independent registered public accounting firm expresses substantial doubt about the company's ability to continue as a going concern, and if the business is unable to continue, investors may lose all their investment.
• Maintaining customer trust in the ecosystem is critical, and any failure could severely damage reputation and brand.
• The company is in the early stage of development with a limited operating history in an emerging and dynamic Internet + healthcare industry, making historical results not indicative of future performance.
• Inability to compete effectively in the increasingly competitive PRC Internet healthcare market could materially and adversely affect business, financial condition, and results of operations.
• Improper use or disclosure of the large amount of data generated and processed could harm reputation and have a material adverse effect on business and prospects, especially given evolving PRC data security and privacy laws (Cyber Security Law, Data Security Law, PIPL).
• Failure to drive customer engagement or provide superior customer experience could materially and adversely affect business and reputation.
• Failure to properly manage and create value for various participants in the healthcare value chain (pharmaceutical companies, suppliers, hospitals, medical professionals) may materially and adversely affect the business.
• The digital healthcare market is immature and volatile; if it does not develop as expected or if services do not drive user engagement, business growth will be harmed.
• Failure to attract or retain sufficient users or medical professionals for online healthcare services could materially and adversely affect the business.
• Potential medical liability claims in connection with online healthcare services, as the company does not carry medical malpractice or professional liability insurance for doctors on its platform.
• Risk of penalties or disputes for failure to manage doctors on the platform in compliance with PRC regulations regarding practicing licenses and multi-institution practice.
• Stringent scrutiny on the sale of prescription drugs in China, with evolving regulations (e.g., Measures for Online Pharmaceuticals Sales) that may lead to non-compliance and penalties.
• Inability to develop existing information infrastructure and technologies or recoup investments, and failure to innovate or adapt to changing user requirements or industry standards, could materially and adversely affect the business.
• Self-developed technologies are complex and may contain undetected errors or not operate properly, leading to loss of revenue, reputational damage, and increased costs.
• Failure to maintain optimal inventory levels could increase operating costs or lead to unfulfilled customer orders.
• Liability for content available in the ecosystem that is alleged to be factually incorrect, socially destabilizing, obscene, defamatory, libelous, or otherwise unlawful, especially concerning advertising.
• Reliance on a limited number of key suppliers (one supplier accounted for 39.1% of total purchases in 2024) poses risks of delivery delays or inability to meet obligations.
• Lack of requisite approvals, licenses, or permits applicable to the business, or failure to comply with evolving PRC governmental supervision and regulation, could lead to fines, penalties, and operational disruptions.
• Non-compliance with PRC labor laws and regulations, including social insurance and housing provident fund contributions, could result in penalties and additional costs.
• Failure to renew current leases or locate desirable alternatives for facilities could materially and adversely affect the business.
• Risks related to natural disasters, health epidemics (like COVID-19), and other outbreaks could significantly disrupt operations.
• Potential legal proceedings, claims, and administrative disputes in the ordinary course of business could result in significant costs and reputational damage.
• Future share-based awards may result in increased compensation expenses and dilution to existing shareholders.
• Trading in securities may be prohibited under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB is unable to inspect the auditor for two consecutive years in the future, leading to delisting risk.
• The dual-class voting structure limits the ability of Class A ordinary shareholders to influence corporate matters, as Mr. Zhenyang Shi will control 76.0% of the aggregate voting power.
• Techniques employed by short sellers could drive down the market price of the ADSs.
• No expectation of cash dividends in the foreseeable future; investors must rely on price appreciation for returns.
• Immediate and substantial dilution for new investors due to the initial public offering price being substantially higher than the net tangible book value per share.
• Substantial future sales or perceived potential sales of ADSs in the public market could cause the price to decline.
• Anti-takeover provisions in the post-offering memorandum and articles of association could limit shareholders' ability to influence corporate matters or benefit from change-of-control transactions.
• Voting rights of ADS holders are limited by the deposit agreement; they may not be able to directly exercise voting rights or influence management.
• ADS holders may not receive cash dividends if the depositary deems it impractical to make them available.
• Limitations on transfer of ADSs due to depositary's ability to close its books.
• Dilution of holdings due to future equity issuance and inability to participate in rights offerings.
• Difficulties in protecting interests and limited ability to protect rights through U.S. courts due to incorporation under Cayman Islands law and operations in China.
• Certain judgments obtained against the company by shareholders may not be enforceable in the Cayman Islands or China.
• ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement.
• The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could subject U.S. investors to significant adverse tax consequences.
• Undetermined specific use for a portion of the net proceeds from the offering, giving management considerable discretion.
• Increased costs as a public company, particularly after ceasing to qualify as an emerging growth company.
• Uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules, especially concerning the VIE structure, could lead to severe penalties or forced relinquishment of interests in operations.
• Contractual arrangements with the VIE may not be as effective as direct ownership in providing operational control, and failure by VIE shareholders to perform obligations could materially and adversely affect the business.
• Potential conflicts of interest with VIE shareholders could materially and adversely affect the business and financial condition.
• PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent funding to PRC subsidiaries or VIE.
• Contractual arrangements in relation to the VIE may be subject to scrutiny by PRC tax authorities, potentially leading to additional taxes.
• The current corporate structure and business operations may be affected by the Foreign Investment Law, potentially requiring unwinding of contractual arrangements or disposal of affected businesses.
• Loss of ability to use licenses, permits, and assets held by the VIE if the VIE declares bankruptcy or undergoes liquidation.
• Changes in China's or global economic, political, or social conditions or government policies could have a material and adverse effect on business and operations.
• Significant oversight and discretion of PRC governmental authorities over business operations could result in a material adverse change in operations and ADS value.
• Uncertainties with respect to the enforcement of laws and changes in laws and regulations in China could adversely affect the company.
• Approval or filing of the CSRC or other PRC regulatory agencies may be required for this offering and future capital raising activities, with potential sanctions for non-compliance.
• Difficulty for overseas regulators to conduct investigations or collect evidence within China, limiting protection for investors.
• Subject to consumer protection laws that could require modification of business practices and increased costs.
• Fluctuations in exchange rates between Renminbi and U.S. dollar could have a material and adverse effect on results of operations and investment value.
• Governmental control of currency conversion may limit ability to utilize revenues effectively and affect investment value.
• PRC regulations establish complex procedures for acquisitions of Chinese companies by foreign investors, making growth through acquisitions more difficult.
• Expiration of, or changes to, financial incentives and discretionary policies granted by local governments would have an adverse effect on results of operations.
• Classification as a PRC resident enterprise for PRC income tax purposes could result in unfavorable tax consequences to the company and non-PRC shareholders.
• Uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies, potentially leading to heightened scrutiny and negative impact on future acquisitions.
• Any failure or perceived failure to comply with the enacted Anti-Monopoly Guidelines for Internet Platforms and other anti-monopoly laws and regulations may result in governmental investigations or enforcement actions.
• Lack of sufficient insurance coverage for business risks could expose the company to significant costs and business disruptions.

Future Outlook

The company plans to use the net proceeds from the IPO for supply chain stocking, expansion of departmental and geographic coverage, research and development, and general corporate purposes. It aims to continue recruiting quality doctors and attracting more patient users, enhance supply chain capabilities, invest in R&D, explore new B2B patient acquisition channels, utilize big data to empower the industry, and expand its chronic disease management expertise to more medical areas. The company expects continued growth in its Internet hospital business and anticipates that the Chinese government's exploration of integrating the medical system with online medical services platforms will provide clearer access to the national health insurance system in other areas.

Management Comments

• Our mission is to provide effective prevention and treatment solutions to alleviate patients sufferings from illnesses.
• Our vision is to become the most trustworthy medical and healthcare services platform.
• We strategically chose to focus on chronic diseases because they last at least one year, are hard to cure, prone to complications, and require ongoing medical attention, leading to inelastic demand for frequent follow-up visits and drug purchases.
• We believe that doctors are the most important resource in the medical services industry, hence we established an open Internet hospital business model focused on serving them.
• We believe that our business will benefit from the state-promulgated policies to strengthen the prevention and treatment of chronic diseases, as well as the development of China's digital healthcare industry.
• We are in the process of implementing a number of measures to address the material weaknesses and deficiencies that have been identified in our internal control over financial reporting.
• We are currently working to improve our liquidity and capital sources mainly through borrowing from related parties and financial institutions.

Industry Context

The company operates in China's rapidly expanding digital health and wellness market, which is projected to grow from approximately RMB540.7 billion in 2022 to RMB1,525.9 billion in 2027, representing a CAGR of approximately 23.1%. Key drivers include increasing penetration of digital medical services, innovation in digital health technology, favorable government policies, growing health awareness, the transition of hospitals from offline to online, and digitalization of offline pharmacies. The chronic disease management market in China is also experiencing significant growth, with a projected CAGR of 23.7% from 2022 to 2027, reaching RMB778.6 billion. The company's focus on chronic disease management and pharmaceutical supply chain aligns with these trends, leveraging the long-term nature of chronic diseases for patient loyalty and monetization. However, the market is intensely competitive, with many participants exploring various business models, and the monetization strategy for online consultation is still evolving.

Comparison to Industry Standards

• The company ranks sixth in China's Internet hospital market measured by the number of contracted doctors in 2022, according to Frost & Sullivan.
• The average inventory turnover days of the top 5 offline pharmacies in China in 2022 were 87.8 days, compared with 26.3 days in the United States, highlighting an industry-wide inefficiency that the company's digital supply chain aims to address.
• The company's standing inventories of prescription drugs (approximately 6,000 to 7,000 SKUs) are significantly higher than a traditional public hospital (normally 1,000 to 3,000 SKUs), indicating a broader product offering.
• The company's mature doctors registered a top-level retention rate of 99.4% in each of 2023 and 2024 among the industry, suggesting strong doctor loyalty to its platform compared to competitors.

Management Changes

Corporate Governance

Legal Proceedings

• The company is currently not a party to any material legal or administrative proceedings.
• An indirect shareholder received a notice of criticism from the Shanghai Stock Exchange for failure to timely and accurately disclose certain information, which the company believes will not have a material adverse impact on its reputation, business, financial condition, or results of operations.

Related Party Transactions

• Mr. Zhenyang Shi, CEO, provided loans of RMB129.5 million (2023) and RMB135.7 million (US$18.6 million) (2024) at 4.90% annual interest, due December 31, 2026.
• Aixiangbao, a wholly-owned entity by Mr. Zhenyang Shi, assumed RMB221.0 million in advertising liability from Focus Media on behalf of the company in 2021. This debt is non-interest bearing and due August 10, 2026, with non-cash repayment method after five years.
• Ms. Li Xu, CFO and spouse of Mr. Shi, provided loans of RMB5.0 million (2023) and RMB1.5 million (US$0.2 million) (2024), some with 8.88% annual interest and others non-interest bearing.
• Aihua Peng, a close relative of a shareholder's management, provided loans of RMB4.8 million (2023) and RMB4.0 million (US$0.6 million) (2024) at 20.00% annual interest, due on demand.
• Other management members (Guoji Luo, Yongan Zhong, Dexiang Wei, Suna Yan, Yi Zhi) provided various interest-free or low-interest loans to the company.
• The company had drug sales to Guangzhou Zhiyao Cloud Technology Co., Ltd. (a company controlled by management) of RMB123,073 (2023) and RMB1.2 million (US$0.2 million) (2024).
• The company purchased drugs from Guangzhou Aopolikang Biotechnology Co., Ltd. (a company controlled by management) of RMB142,031 (2023) and RMB25,499 (US$3,493) (2024).
• Guarantees for bank loans were provided by Mr. Zhenyang Shi, Ms. Li Xu, Wanmei Shi (CEO's sister), and other management team members, as well as by the VIE and its subsidiaries, and a real property of Mr. Zhenyang Shi.

Stakeholder Impact

• **Shareholders (especially Class A ADS holders):** Will experience immediate and substantial dilution. Voting power will be significantly concentrated with Mr. Zhenyang Shi due to the dual-class structure. Returns will depend on price appreciation as no dividends are expected. Subject to risks related to PRC regulations, VIE structure, and potential delisting under HFCAA.
• **Employees:** The 2025 Share Incentive Plan aims to incentivize and retain key personnel. However, non-compliance with PRC labor laws regarding social insurance and housing provident funds could negatively impact employee benefits and lead to potential claims.
• **Customers (Patients):** Benefit from an expanding online medical services platform for chronic diseases, increased access to doctors and pharmaceutical products, and improved user experience. Potential for online medical insurance reimbursement in more regions could increase affordability.
• **Suppliers:** The company's expanding supplier base and enhanced supply chain capabilities could offer more channels and insights. However, reliance on a limited number of key suppliers poses risks if relationships deteriorate.
• **Creditors:** The company's 'going concern' opinion and significant working capital deficit indicate elevated credit risk. Related party loans, some with high interest rates, are a notable component of liabilities.

Next Steps

• Complete the initial public offering and listing on the Nasdaq Global Market under the symbol POM.
• Utilize net proceeds for supply chain stocking, expansion of departmental and geographic coverage, research and development, and general corporate purposes.
• Continue to recruit quality doctors and attract more patient users, including establishing a professional regional promotion team and enhancing brand awareness.
• Expand and strengthen presence in key cities and provinces across China, leveraging offline medical institutions for Internet hospital qualifications and online medical insurance payments.
• Optimize drug storage, distribution, and management capabilities to improve user experience.
• Continuously update and optimize the Pom Doctor APP and WeChat official account, and enhance AI and big data analysis capabilities.
• Explore new patient acquisition channels via enhanced B2B collaboration, such as partnerships with insurance companies.
• Provide accumulated clinical data to pharmaceutical companies and commercial insurance companies, and governmental authorities.
• Replicate the successful chronic disease management business model to more medical areas and departments.
• Implement measures to address identified material weaknesses in internal control over financial reporting, including hiring personnel, strengthening policies, and improving system security.
• Address non-compliance with PRC labor laws and regulations regarding social insurance and housing provident fund contributions.

Key Dates

Recommendation

Despite some positive growth metrics in revenue and user engagement, the company's financial health presents severe red flags. The auditor's 'going concern' opinion, persistent net losses, negative operating cash flows, and a growing working capital deficit indicate fundamental liquidity and solvency issues. The reliance on related party loans, some with high interest rates, further highlights financial fragility. The identified material weaknesses in internal controls suggest significant operational and reporting risks. While the IPO aims to raise capital, the amount may not be sufficient to address the underlying financial instability, and the dual-class voting structure concentrates control, limiting minority shareholder influence. The complex and evolving PRC regulatory environment, particularly concerning the VIE structure and potential delisting risks under the HFCAA, adds substantial uncertainty. Given these compounding factors, the investment carries an exceptionally high risk of capital loss, making a 'strong sell' recommendation appropriate for any existing holdings and advising against new investment.

Keywords

Online Medical Services, Chronic Disease Management, Internet Hospital, Pharmaceutical Supply Chain, China Healthcare, SEC Filing, IPO, VIE Structure, PRC Regulation, Digital Health, Nasdaq Listing, Healthcare Technology, Prescription Drugs, Telemedicine, Corporate Governance, Risk Factors, Going Concern, Financial Performance