111(US:YI)2025-04-29 10:05Part I Item 3. Key Information This section outlines the company's holding structure, operational risks in China, key financial and operational information, including VIE termination and HFCAA implications - 111, Inc. is a Cayman Islands holding company with primary operations in China, which terminated its VIE structure in February 2022, making former VIEs directly owned subsidiaries2829280 - The company was previously identified under the HFCAA but does not believe it is currently at risk of delisting unless the PCAOB makes a new determination regarding its auditor's inspection3132 - Transfers of funds out of the PRC are subject to government restrictions, and the company has not paid and does not plan to pay dividends, intending to retain earnings for business expansion373839 - The company is subject to new PRC regulations, including CSRC and CAC rules on overseas listings and data security, potentially requiring CSRC filings for future offerings464849 Risk Factors This subsection details principal risks, including evolving regulations, intense competition, operating losses, cybersecurity threats, PRC government oversight, potential HFCAA delisting, and concentrated voting power from its dual-class share structure - The company has a history of net losses, recording RMB 376.1 million in 2022, RMB 353.4 million in 2023, and RMB 20.8 million in 2024, with future profitability not guaranteed due to expected increases in operating costs84 - The business is subject to evolving PRC regulations in internet, healthcare, and pharmaceutical industries, where non-compliance or changes, especially concerning online prescription drug sales and data security, could adversely affect operations7375100 - The company faces significant risks in China, including legal interpretation uncertainties, potential government intervention, and CSRC and CAC regulations on overseas listings and data security, which could hinder securities offerings69182186 - The dual-class share structure grants founders Dr. Gang Yu and Mr. Junling Liu approximately 91.46% of aggregate voting power, limiting other shareholders' influence on corporate matters240241 - A redemption obligation related to the planned STAR Market listing of its subsidiary, 1 Pharmacy Technology, exists, with RMB 1.08 billion recorded as of December 31, 2024, and agreements reached with most investors to reschedule repayments110277 Item 4. Information on the Company This section provides a detailed overview of the company's history, business operations, and regulatory environment, covering its evolution, IPO, VIE termination, and its digital healthcare platform connecting pharmaceutical companies, pharmacies, and consumers History and Development of the Company This section details the company's corporate history, including its 2018 IPO, capital injections, VIE termination in February 2022, withdrawal of a going-private proposal, and recent regulatory changes - The company terminated its VIE contractual arrangements in February 2022, resulting in direct equity ownership of its former VIEs, which accounted for 40.6% of total net revenues in 2021 prior to termination280 - In 2020, subsidiary 1 Pharmacy Technology received capital injections tied to a proposed STAR Market listing, with RMB 1.08 billion owed as of December 31, 2024, due to unfulfilled listing conditions, and repayment schedules are being negotiated277 - A preliminary non-binding going-private proposal from a buyer group including the co-founders, received on September 9, 2022, was formally withdrawn on February 27, 2024281 - The company is subject to new PRC regulations, including the Cybersecurity Review Measures and the CSRC's Overseas Offering and Listing Measures, which may require filings for future securities offerings283288289 Business Overview The company operates a digital healthcare platform in China, connecting patients, pharmacies, and pharmaceutical companies through its online retail and wholesale pharmacies, leveraging proprietary technology and a smart supply chain under a complex PRC regulatory framework - The company's digital healthcare platform aims to connect patients with medicine and healthcare services, digitizing the value chain for pharmaceutical companies, pharmacies, and consumers292295 - As of December 31, 2024, the company's online wholesale pharmacy, 1 Pharmacy, served over 488,000 offline pharmacies305 - The "1 Health Membership" program, launched in May 2021, connects pharmaceutical companies with pharmacies and patients, promoting sales and providing digital commercialization and marketing services301310 - The business operates under two main models: a direct sales model for product procurement and sales, and a marketplace model for third-party sellers earning commissions and platform fees308309321322 - The company has a significant intellectual property portfolio, including 30 software copyrights, 334 registered trademarks (including "1药网"), and 33 granted patents as of December 31, 2024375 Organizational Structure This section presents the corporate structure of 111, Inc., a Cayman Islands holding company, detailing the ownership of its principal PRC operating subsidiary, 1 Pharmacy Technology (Shanghai) Co., Ltd., and other PRC subsidiaries - 111, Inc. is a Cayman Islands holding company operating through its subsidiaries in Hong Kong and the PRC57 - The main operating entity, 1 Pharmacy Technology, is approximately 89.04% owned by the company's Hong Kong subsidiaries, with the remaining ownership held by unaffiliated third-party investors and employee equity incentive platforms5960452 Property, Plant and Equipment The company's physical assets primarily consist of leased properties, including approximately 160,804 square meters for fulfillment centers and over 7,000 square meters for office space as of December 31, 2024 Leased Property Areas as of Dec 31, 2024 | Property Type | Area (sq. meters) | | :--- | :--- | | Fulfillment Centers | 160,803.65 | | Office Space (Shanghai) | 2,703.92 | | Office Space (Other) | 4,374.78 | | Yi Hao Pharmacies | 1,483.95 | Item 5. Operating and Financial Review and Prospects This section provides management's discussion and analysis of the company's financial condition and results, detailing revenue trends, cost structures, profitability, liquidity, capital resources, and critical accounting estimates Key Financial Performance (RMB in billions) | Metric | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Total Net Revenues | 13.5 | 14.9 | 14.4 | | B2B Product Revenues | 13.0 | 14.5 | 14.0 | | Net Loss | (0.376) | (0.353) | (0.021) | - The company's revenue is increasingly dominated by its B2B segment, which accounted for 97.5% of product revenues in 2024, serving over 488,000 pharmacy customers474 - Net loss as a percentage of net revenues improved from 2.8% in 2022 to 2.4% in 2023, and further to 0.1% in 2024, driven by cost control measures across selling, general, and technology expenses464492 - The company has significant material cash requirements, including operating lease commitments of RMB 101.3 million and a redemption obligation of RMB 1.08 billion related to a subsidiary's financing as of December 31, 2024542544 Operating Results This subsection analyzes the company's operational performance from 2022 to 2024, highlighting a 3.7% decrease in total net revenues to RMB 14.4 billion in 2024, and a significant reduction in net loss to RMB 20.8 million due to decreased operating expenses Consolidated Results of Operations (RMB in thousands) | | 2022 | 2023 | 2024 | |:---|---:|---:|---:| | Total net revenues | 13,516,698 | 14,948,129 | 14,401,249 | | Cost of products sold | (12,676,722) | (14,099,151) | (13,572,020) | | (Loss) Income from operations | (371,001) | (350,097) | 2,114 | | Net loss | (376,069) | (353,433) | (20,776) | - In 2024, net revenues decreased by 3.7% to RMB 14.4 billion from RMB 14.9 billion in 2023, primarily due to a 3.1% decrease in B2B product revenues and a 27.0% decrease in B2C product revenues487488 - Operating expenses were significantly reduced in 2024 compared to 2023, with Selling and marketing expenses decreasing by 30.0%, General and administrative expenses by 68.4%, and Technology expenses by 44.0%, primarily due to decreased payroll, share-based compensation, and increased efficiency494495496 - In 2023, net revenues increased by 10.6% to RMB 14.9 billion from RMB 13.5 billion in 2022, driven by an 11.5% growth in B2B product revenues498499 Liquidity and Capital Resources The company's liquidity is primarily financed through operations, private placements, IPO, and credit facilities, with RMB 462.3 million in cash as of December 31, 2024, and a significant RMB 1.08 billion redemption obligation being renegotiated, while generating RMB 263.0 million in positive operating cash flow in 2024 Cash and Cash Equivalents (RMB in millions) | As of Dec 31 | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 673.7 | 603.5 | 462.3 | Summary of Cash Flows (RMB in millions) | | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | (23.2) | (447.2) | 263.0 | | Net cash from investing activities | (47.2) | 151.7 | 37.4 | | Net cash from financing activities | 22.7 | 206.0 | (406.2) | - The company has a significant redemption liability of RMB 1.08 billion as of December 31, 2024, related to its subsidiary's uncompleted STAR Listing, with agreements reached with investors representing 96.79% of the total amount to reschedule repayments527542 - The company utilizes various credit facilities and structured payment arrangements, including revolving credit from China Merchant Bank and Industrial Bank, and factoring programs to manage working capital517518525 Item 6. Directors, Senior Management and Employees This section provides information on the company's leadership, compensation, board structure, and workforce, profiling co-founders Dr. Gang Yu and Mr. Junling Liu, detailing executive compensation and share incentive plans, and highlighting the co-founders' significant voting control through a dual-class share structure - The company is led by co-founders Dr. Gang Yu and Mr. Junling Liu, who serve as Co-Chairmen, with Mr. Liu also holding the CEO position553554 - For the year ended December 31, 2024, aggregate cash compensation to directors and executive officers was approximately RMB 9.89 million559 - As of March 31, 2025, the co-founders beneficially own all Class B ordinary shares, granting them approximately 91.46% of the total voting power due to the dual-class structure241604 Employee Count by Function as of Dec 31, 2024 | Function | Number | % of Total | | :--- | :--- | :--- | | Wholesale pharmacy business | 503 | 40.6% | | Retail pharmacy business | 134 | 10.8% | | Supply chain | 120 | 9.7% | | Procurement | 245 | 19.8% | | Research and development and IT | 144 | 11.6% | | General and administrative | 92 | 7.5% | | Total | 1,238 | 100.0% | Item 7. Major Shareholders and Related Party Transactions This section details the company's major shareholders and related party transactions, primarily focusing on the termination of VIE contractual arrangements in January 2022, and referencing executive employment and indemnification agreements - Major shareholders are detailed in Item 6.E, highlighting significant control by the company's founders610 - In January 2022, the company terminated its VIE contractual arrangements, with 1 Pharmacy Technology acquiring 100% of the equity in Yihao Pharmacy, converting former VIEs into direct subsidiaries610 - The company has entered into standard employment and indemnification agreements with its directors and executive officers612 Item 8. Financial Information This section contains key financial disclosures, including legal proceedings, specifically an arbitration over a RMB 38.7 million redemption claim, and confirms no dividends have been paid or are planned, as earnings will be retained for business expansion - The company is currently in legal arbitration with an investor in 1 Pharmacy Technology over a redemption dispute amounting to approximately RMB 38.7 million615 - The company has not declared or paid any cash dividends and has no plan to do so in the near future, intending to retain all available funds for business operations and expansion616 - As a holding company, its ability to pay dividends depends on receiving dividends from its PRC subsidiaries, which are subject to PRC regulations on profit distribution and statutory reserve requirements617 Item 9. The Offer and Listing This section details the listing of the company's American Depositary Shares (ADSs) on The Nasdaq Global Market under symbol "YI" since September 12, 2018, and notes a change in the ADS to ordinary share ratio effective January 2025 - The company's ADSs have been listed on The Nasdaq Global Market under the ticker symbol "YI" since September 12, 2018619 - On January 24, 2025, the ADS to Class A ordinary share ratio was changed from 1-for-2 to 1-for-20619 Item 10. Additional Information This section provides supplementary details on the company's corporate governance and legal framework, including its dual-class share structure, material contracts, exchange controls, and taxation implications, with a focus on Passive Foreign Investment Company (PFIC) risk - The company's ordinary shares are divided into Class A (1 vote per share) and Class B (15 votes per share), with Class B shares held by founders and convertible to Class A, concentrating their voting control628636 - The company is an exempted company under Cayman Islands law, which differs significantly from U.S. corporate law regarding shareholder rights, mergers, and director's fiduciary duties655660 - The company believes it was not a Passive Foreign Investment Company (PFIC) for the 2024 taxable year, but its status is subject to change based on income, asset composition, and market capitalization, which could result in adverse U.S. federal income tax consequences for U.S. investors271706707 Item 11. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk from borrowings and deposits, and foreign exchange risk from RMB/USD fluctuations, with a 10% RMB depreciation potentially decreasing RMB-denominated cash by US$5.4 million - The company's primary market risks are interest rate risk from borrowings and deposits, and foreign exchange risk from currency fluctuations between the RMB and USD723724 - The value of an investment in the company's ADSs is affected by the USD/RMB exchange rate, as the business is denominated in RMB while ADSs are traded in USD724 - As of December 31, 2024, a hypothetical 10% depreciation of the RMB against the USD would result in a decrease of US$5.4 million in the value of the company's RMB-denominated cash and cash equivalents727 Item 12. Description of Securities Other Than Equity Securities This section focuses on the company's American Depositary Shares (ADSs), outlining fees payable to the depositary, The Bank of New York Mellon, for services like issuance and cash distributions, and noting the depositary's agreement to reimburse certain investor relations expenses ADS Holder Fees | Fee | For | | :--- | :--- | | Up to $5.00 per 100 ADSs | Issuance or cancellation of ADSs | | Up to $0.05 per ADS | Cash distributions | | Up to $0.05 per ADS per year | Depositary services | - The depositary, The Bank of New York Mellon, has agreed to reimburse the company for certain expenses related to its investor relations programs and ADS facility733 Part II Item 15. Controls and Procedures This section addresses the company's internal controls, with management concluding that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, and noting that an auditor's attestation report is not required for non-accelerated filers - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024739 - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024740 - The annual report does not include an auditor's attestation report on internal control over financial reporting because the company is exempt as a non-accelerated filer742 Item 16. Corporate Governance and Other Matters This section covers corporate governance and compliance, including the audit committee financial expert, code of ethics, principal accountant fees, the change of auditor to Grant Thornton in July 2024, the use of home country practices, and the company's cybersecurity risk management strategy - On July 19, 2024, the company dismissed Deloitte Touche Tohmatsu Certified Public Accountants LLP and engaged Grant Thornton Zhitong Certified Public Accountants LLP as its new independent registered public accounting firm748751 Principal Accountant Fees (USD in thousands) | Year | Audit fees and audit-related fees | | :--- | :--- | | 2022 | 1,223 | | 2023 | 946 | | 2024 | 534 | - The company follows Cayman Islands home country practices in lieu of certain Nasdaq corporate governance requirements, such as not having a majority-independent board or a nominations committee comprised solely of independent directors756 - The company has a comprehensive cybersecurity risk management program overseen by the Board of Directors and managed day-to-day by a team under the Chief Technology Officer, with no material cybersecurity incidents identified in 2024761767766 Part III Item 18. Financial Statements This section contains the complete audited consolidated financial statements for 111, Inc. for fiscal years 2022-2024, including auditor reports, balance sheets, statements of comprehensive loss, changes in equity, cash flows, and detailed notes Report of Independent Registered Public Accounting Firm This subsection includes audit reports from Grant Thornton for 2024 and Deloitte for 2022-2023, with Grant Thornton identifying product revenue as a critical audit matter, and Deloitte's prior report including a going concern paragraph due to recurring losses and potential redemption obligations - The auditor for the 2024 financial statements, Grant Thornton, identified the occurrence of B2B product revenue as a critical audit matter, citing inherent risk due to its significance (97.5% of total revenue) and large transaction volume789790 - The previous auditor's report on the 2022 and 2023 financials included a going concern paragraph, highlighting that recurring losses and a potential redemption of non-controlling interests raised substantial doubt about the company's ability to continue as a going concern794 Consolidated Financial Statements This section presents the company's core financial statements, showing total assets of RMB 2.79 billion and a total deficit of RMB 658.2 million as of December 31, 2024, with a net loss of RMB 20.8 million for 2024 and positive operating cash flow of RMB 263.0 million Consolidated Balance Sheet Highlights (RMB in thousands) | | Dec 31, 2023 | Dec 31, 2024 | |:---|---:|---:| | Total Current Assets | 2,933,331 | 2,649,657 | | Total Assets | 3,089,036 | 2,787,750 | | Total Current Liabilities | 2,745,063 | 2,342,579 | | Total Liabilities | 2,812,932 | 2,406,988 | | Redeemable non-controlling interests | 870,825 | 1,038,914 | | Total Deficit | (594,721) | (658,152) | Consolidated Statement of Comprehensive Loss Highlights (RMB in thousands) | | 2022 | 2023 | 2024 | |:---|---:|---:|---:| | Total net revenues | 13,516,698 | 14,948,129 | 14,401,249 | | (Loss) Income from operations | (371,001) | (350,097) | 2,114 | | Net loss | (376,069) | (353,433) | (20,776) | | Net loss per share (Basic) | (2.50) | (2.33) | (0.38) | Notes to Consolidated Financial Statements These notes provide essential context to the financial statements, including the basis of presentation addressing going concern uncertainty, revenue recognition, segment reporting, accounting for redeemable non-controlling interests, and a breakdown of share-based compensation expenses - Management's plans to address going concern uncertainty include renegotiating redemption obligations, securing bank loan facilities, and implementing cost reduction programs, which resulted in positive operating cash flow in 2024812813 Revenue by Segment (RMB in thousands) | Segment | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | B2C Product Revenues | 408,305 | 357,975 | 261,197 | | B2B Product Revenues | 12,995,131 | 14,483,935 | 14,033,543 | | Service Revenues | 113,262 | 106,219 | 106,509 | | Total | 13,516,698 | 14,948,129 | 14,401,249 | - The redeemable non-controlling interest balance increased to RMB 1.04 billion as of December 31, 2024, from RMB 870.8 million a year prior, primarily due to accretion and reclassification from other liabilities after repayment schedules were renegotiated933 Share-Based Compensation Expense (RMB in thousands) | Expense Category | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | General and administrative | 86,992 | 113,536 | 9,230 | | Selling and marketing | 50,110 | 76,976 | 6,899 | | Technology | 20,282 | 35,658 | 4,020 | | Total | 157,384 | 226,170 | 20,149 |