F-1/A: Zhongchao Inc. Files Amended F-1 for Public Offering

Zhongchao Inc. has filed an amended F-1 registration statement with the SEC, detailing plans for a public offering of units, each consisting of a Class A Ordinary Share or Pre-Funded Warrant and a Warrant.

Summary

• Zhongchao Inc. has filed Amendment No. 1 to its Form F-1 Registration Statement with the SEC.
• The filing outlines a proposed public offering of up to 5,555,555 Units.
• Each Unit comprises one Class A Ordinary Share (or a Pre-Funded Warrant in lieu thereof) and one Warrant to purchase a Class A Ordinary Share.
• The assumed public offering price per Unit is $2.16, based on the closing price of its Class A Ordinary Shares on Nasdaq on April 30, 2026.
• The company is also registering the Class A Ordinary Shares issuable upon exercise of the Pre-Funded Warrants and the Warrants.
• The offering is being conducted on a best-efforts basis, with Univest Securities, LLC acting as the sole placement agent.
• The company has recently regained compliance with Nasdaq's Minimum Bid Price Requirement.
• The filing details the company's VIE structure and associated risks, as well as various PRC regulations impacting its operations.
• The company reported a net loss of $5.8 million for the year ended December 31, 2025, a significant increase from a net loss of $0.3 million in 2024.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the significant revenue decline, increased net loss, and rising administrative costs, despite regaining Nasdaq compliance. The dilutive nature of the offering's warrant structure also presents a considerable risk.

Positives

• Regained compliance with Nasdaq's Minimum Bid Price Requirement on March 17, 2026, avoiding potential delisting.
• The company has a clear structure for its VIE arrangements, which have been in place since August 2019 and subsequently updated.
• The company has a diverse range of services including online healthcare information, professional training, patient management, and previously, pharmaceutical sales.
• The MDMOOC platform is described as a leading brand in China's healthcare training and education sector.
• The company has a strong focus on intellectual property, with numerous registered trademarks and copyrights.

Negatives

• The company reported a net loss of $5.8 million for the year ended December 31, 2025, compared to a net loss of $0.3 million in 2024.
• Revenues decreased by 28.3% from $15.9 million in 2024 to $11.4 million in 2025, primarily due to reduced patient-aid projects and the discontinuation of drug sales.
• Gross margin decreased from 56.2% in 2024 to 45.0% in 2025.
• General and administrative expenses increased significantly by 96.6% from $5.0 million in 2024 to $9.8 million in 2025, largely due to share-based compensation and credit loss expenses.
• The offering involves units with warrants that have a zero exercise price option and cashless exercise provisions, which could lead to substantial dilution and may not generate significant proceeds.
• The company is subject to significant risks related to PRC regulations, including those concerning VIE structures, data security, and foreign investment.
• The company has identified material weaknesses in its internal control over financial reporting.
• There is no public market for the Pre-Funded Warrants and the Warrants, limiting their liquidity.

Risks

• The company depends on the healthcare industry for a significant portion of its revenues, making it vulnerable to adverse developments in the sector.
• Intensified competition in the healthcare information, education, and training services market could reduce revenues and market share.
• The company relies on a small number of major customers, and the loss of any of these customers could significantly harm its business.
• The company's business operations are primarily conducted in China, exposing it to risks associated with China's economic, political, and legal developments, including rapid changes in laws and regulations.
• The VIE structure, while used to comply with PRC foreign ownership restrictions, carries inherent risks related to the validity and enforceability of contractual arrangements and potential government scrutiny.
• The company may be subject to cybersecurity reviews and data security regulations in China, which could impact its operations.
• The company's ability to access and transfer funds between its entities in China and its holding company is subject to PRC foreign exchange controls and regulations.
• The company's auditor's reliance on PCAOB inspections in China could lead to future delisting if access is restricted, as per the Holding Foreign Companies Accountable Act.
• The company's Class A Ordinary Shares are subject to delisting from Nasdaq if they fail to meet continued listing requirements, such as the Minimum Bid Price Requirement.
• The dual-class share structure concentrates voting control with the CEO, potentially limiting the influence of other shareholders.
• The terms of the Warrants, including the zero exercise price option and cashless exercise, could lead to substantial dilution and may not generate meaningful proceeds.
• The company may be classified as a Passive Foreign Investment Company (PFIC), which could result in adverse U.S. federal income tax consequences for U.S. Holders.

Future Outlook

The company intends to use the net proceeds from the offering for general working capital purposes and other general corporate purposes. The company plans to retain future earnings to finance the operation and expansion of its business and does not anticipate paying cash dividends in the foreseeable future.

Industry Context

StockSavvy.ai notes that the company operates in the healthcare information, education, and training sector in China, a market influenced by regulatory changes and evolving technology. The shift away from pharmaceutical sales and the focus on online and offline training services align with broader trends in digital health and professional development.

Corporate Governance

Legal Proceedings

• The company is not currently a party to any legal proceedings that management believes would have a material adverse effect on its financial position, results of operations, or liquidity.

Related Party Transactions

• During the year ended December 31, 2023, the company prepaid $112,980 to Beijing Ougaini Trading Co., Ltd. (controlled by an immediate family member of Mr. Yang Weiguang) for employee welfare and marketing promotion, which was received in January 2023.

Stakeholder Impact

• Shareholders may experience substantial dilution due to the terms of the Warrants, particularly the zero exercise price option.
• Investors in the offering may not receive a refund if insufficient securities are sold to fund business plans, given the best-efforts nature of the offering.
• The concentration of voting power with the CEO due to the dual-class share structure could limit shareholder influence on corporate matters.
• Potential delisting from Nasdaq due to failure to meet listing requirements could reduce liquidity and negatively impact share price.
• PRC regulatory actions and uncertainties surrounding the VIE structure could materially affect the company's operations and the value of its securities.

Next Steps

• Complete filing procedures with the CSRC within three business days after the completion of the offering.
• Continue to monitor and comply with evolving PRC regulations.
• Potentially effect further share consolidations by February 10, 2029.

Key Dates

Recommendation

While the company has regained Nasdaq compliance, the significant increase in net loss, revenue decline, and rising administrative costs are concerning. The dilutive nature of the warrants in the current offering presents a substantial risk. The company's reliance on the VIE structure and the evolving PRC regulatory landscape add further uncertainty. A 'hold' recommendation is appropriate given these mixed signals, pending clearer signs of operational improvement and regulatory stability.

Keywords

Zhongchao Inc., SEC Filing, Form F-1, Public Offering, Units, Class A Ordinary Shares, Warrants, Pre-Funded Warrants, Nasdaq, ZCMD, Healthcare, Education, China, VIE Structure, Financials, Net Loss, Revenue Decline, Share Consolidation, Minimum Bid Price