F-1/A: Chanson International Files Amended Public Offering for Up to 25 Million Units Amid Nasdaq Delisting Concerns and VIE Structure Risks

Chanson International Holding is offering up to 25 million units, each comprising Class A Ordinary Shares or Pre-Funded Warrants, and two types of Series Warrants, aiming to raise approximately $11.1 million, while facing a Nasdaq minimum bid price deficiency and inherent risks from its Variable Interest Entity (VIE) structure in China.

Summary

• Chanson International Holding is conducting a best-efforts public offering of up to 25,000,000 Units at an assumed initial public offering price of $0.50 per Unit.
• Each Unit consists of one Class A Ordinary Share (or a Pre-Funded Warrant in lieu thereof), one Series A Warrant, and one Series B Warrant.
• The company expects to receive net proceeds of approximately $11.1 million from this offering, assuming all securities are sold and excluding proceeds from warrant exercises.
• Proceeds are intended to be used for opening new stores in China and the U.S.
• The company reported total revenue of $18,227,537 in 2024, up from $17,252,662 in 2023 and $13,272,075 in 2022.
• Net income for 2024 was $756,285, a significant increase from $33,588 in 2023, and a turnaround from a net loss of $1,288,205 in 2022.
• PRC Stores accounted for 88.5% of total revenue in 2024, while U.S. Stores contributed 11.5%.
• The company operates primarily through a Variable Interest Entity (VIE) structure in China, which accounted for 62% of total revenue in 2024.
• As of December 31, 2024, the net tangible book value was $0.67 per ordinary share, which is expected to decrease to $0.56 per ordinary share pro forma after the offering.
• The company received a Nasdaq notice on March 10, 2025, for failing to meet the $1 minimum bid price requirement, with a compliance period until September 8, 2025.
• Mr. Gang Li, Chairman and CEO, will hold approximately 86.7% of the aggregate voting power post-offering, maintaining controlled company status.
• The Series B Warrants include a 'zero exercise price option' allowing holders to receive up to 75,000,000 Class A Ordinary Shares, from which the company does not expect to receive any proceeds, leading to substantial potential dilution.
• There is no established public trading market for the Pre-Funded Warrants, Series A Warrants, or Series B Warrants, and the company does not intend to list them.

Sentiment

Score: 4

Explanation: The sentiment is cautiously negative. While the company shows improved profitability and revenue growth, the significant risks associated with its VIE structure, the Nasdaq delisting notice, and the highly dilutive nature of the Series B warrants (zero exercise price option) outweigh the positives. The 'best-efforts' offering also adds uncertainty to capital raising.

Positives

• The company achieved significant growth in total revenue, increasing from $13,272,075 in 2022 to $18,227,537 in 2024.
• Chanson International successfully transitioned from a net loss of $1,288,205 in 2022 to a net income of $756,285 in 2024, demonstrating improved profitability.
• PRC Stores, which constitute the majority of the company's revenue (88.5% in 2024), have not been materially impacted by inflation or supply chain disruptions.
• The company highlights competitive strengths including a trendy brand, strict quality control, advanced industry research, constant product innovation, an advantageous information management system, a well-developed distribution network in Xinjiang, and experienced management.
• The company's auditor, Assentsure PAC, is headquartered in Singapore and is regularly inspected by the PCAOB, mitigating risks related to the Holding Foreign Companies Accountable Act (HFCA Act) for now.

Negatives

• The company received a Nasdaq notice on March 10, 2025, for failing to meet the minimum bid price of $1 per share, with the last reported sale price on June 6, 2025, being $0.494.
• The offering is on a 'best-efforts' basis with no minimum amount required, meaning the company may not raise sufficient capital to fund its business plans, and investors will not receive a refund.
• The Series B Warrants include a 'zero exercise price option' that could result in the issuance of up to 75,000,000 Class A Ordinary Shares without the company receiving any proceeds, leading to substantial dilution for existing shareholders.
• There is no established public trading market for the Pre-Funded Warrants, Series A Warrants, or Series B Warrants, limiting their liquidity.
• The U.S. Stores have been materially and adversely affected by rising inflation and geopolitical conflicts (e.g., Russia-Ukraine war), leading to higher raw material, fuel, freight, warehousing, and labor costs.
• The company's reliance on a Variable Interest Entity (VIE) structure in China exposes it to significant legal and operational risks, including uncertainties in PRC laws and potential disallowance of the structure by the PRC government, which could render shares worthless.
• The VIE Agreements have not been tested in a court of law in China, adding to the uncertainty of control over the VIEs.
• Cash transfers from PRC entities may be restricted by the PRC government, limiting the availability of funds for operations or other uses outside of China.
• The concentrated ownership by Mr. Gang Li (approximately 86.7% voting power post-offering) means he can determine all matters requiring shareholder approval, potentially leading to decisions not aligned with other shareholders' interests.
• The company does not anticipate paying any cash dividends in the foreseeable future, as it intends to reinvest earnings into business expansion.

Risks

• The company's Class A Ordinary Shares may be delisted from the Nasdaq Capital Market if it cannot regain compliance with the $1 minimum bid price requirement by September 8, 2025.
• As a 'best efforts' offering, there is no guarantee that the company will raise the intended amount of capital, potentially hindering its business plans.
• Future equity offerings or acquisitions could lead to significant dilution for existing shareholders, especially given the potential issuance of up to 75,000,000 Class A Ordinary Shares via the Series B Warrants' zero exercise price option.
• Management has broad discretion over the use of net proceeds from the offering, which may not align with investors' priorities or maximize shareholder value.
• FINRA sales practice requirements (Regulation Best Interest and suitability rules) may make it more difficult for broker-dealers to recommend speculative, low-priced securities, potentially reducing trading activity in the company's Class A Ordinary Shares.
• There is no public trading market for the Pre-Funded Warrants, Series A Warrants, or Series B Warrants, limiting their liquidity and making it difficult for holders to dispose of them or obtain accurate market value quotations.
• Holders of the Warrants will not have voting rights until the underlying shares are acquired upon exercise, limiting their influence over corporate matters.
• The terms of the Warrants may be adjusted, and the company may redeem Series A and Series B Warrants for a nominal price under certain conditions, potentially leaving holders with out-of-the-money warrants.
• Beneficial ownership limitations (4.99% or 9.99%) on the Warrants may restrict holders' ability to exercise them when most advantageous.
• The company will not receive meaningful additional funds from the exercise of Pre-Funded Warrants or from cashless exercises of Series A and Series B Warrants.
• The company's operations in China through a VIE structure are subject to significant uncertainties and risks related to the interpretation and application of PRC laws and regulations, including potential disallowance of the VIE structure, which could materially change operations and render shares worthless.
• Recent greater oversight by the Cyberspace Administration of China (CAC) over data security and the China Securities Regulatory Commission (CSRC) over overseas listings could impose additional compliance requirements or adversely impact the business.
• The Holding Foreign Companies Accountable Act (HFCA Act) could prohibit trading in the company's Class A Ordinary Shares if the PCAOB is unable to inspect its auditors for two consecutive years, despite current auditor compliance.
• Cash in PRC entities may not be available for use outside of the PRC due to government restrictions on cash transfers.
• The U.S. Stores face ongoing challenges from rising inflation and geopolitical conflicts, leading to increased operating costs and potential adverse effects on sales if price increases cannot be passed on to customers.

Future Outlook

The company intends to use the net proceeds from this offering to expand its business by opening new stores in both China and the U.S. It plans to continue implementing healthy and nutritious diet principles in product development, enhance in-store customer experience, and increase brand awareness. The U.S. Stores also plan to improve operating efficiency and strengthen bargaining power with suppliers to mitigate the impact of rising costs.

Management Comments

• "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."
• "Our management is directly supervising cash management. Our finance department is responsible for establishing the cash management policies and procedures among our departments and the operating entities."
• "The designated management member examines and approves the allocation of cash based on the sources of cash and the priorities of the needs, and submit it to the cashier specialists of our finance department for a second review."

Industry Context

Chanson International operates in the bakery and beverage industry, with a primary focus on China (Xinjiang) and a smaller presence in the U.S. (New York City). The industry has low barriers to entry, implying intense competition. While the PRC operations have remained stable regarding inflation and supply chain, the U.S. operations are significantly impacted by global economic uncertainties, including rising inflation (U.S. annual inflation rate of 2.9% in 2024) and geopolitical conflicts like the Russia-Ukraine war, which affect commodity prices, fuel, freight, warehousing, and labor costs. This divergence highlights regional market resilience and vulnerability within the same company.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• As of the date of the prospectus, the company, its PRC subsidiary, and VIEs have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor have they received any inquiry, notice, or sanction.
• The company has not been notified by relevant government departments or local authorities for data security assessment, and its data has not been publicly released as important data, thus not requiring declaration for security assessment under new PRC cross-border data flow provisions.
• The company is not subject to network data security review by the CAC as it does not conduct network data processing activities that affect or may affect national security.

Related Party Transactions

• During the fiscal year ended December 31, 2024, Xinjiang United Family received raw materials from the VIEs in the approximate amount of $4,197,240.
• During the fiscal year ended December 31, 2024, Xinjiang United Family transferred cash (as working capital), raw materials, and products to the VIEs in the approximate amounts of $661,983, $1,603,664, and $2,983,019, respectively.
• During the fiscal year ended December 31, 2023, Xinjiang United Family received cash and raw materials from the VIEs in the approximate amounts of $1,542,178 and $1,400,536, respectively.
• During the fiscal year ended December 31, 2023, Xinjiang United Family transferred raw materials and products to the VIEs in the approximate amounts of $1,845,098 and $3,413,933, respectively.

Stakeholder Impact

• Shareholders: Face significant potential dilution from the offering, especially from the Series B Warrants' zero exercise price option. Existing shareholders will experience an immediate decrease of $0.11 per ordinary share in net tangible book value. The Nasdaq delisting risk could negatively impact share price and liquidity.
• New Investors: Will experience an immediate increase of $0.06 per ordinary share in net tangible book value. However, they bear the risk of the 'best-efforts' offering not raising sufficient capital and the lack of a public market for the warrants.
• Company Management: Will have broad discretion over the use of offering proceeds, which may not align with all investors' preferences.
• Employees: Not directly mentioned, but the company's ability to expand and maintain operations will impact employment stability and growth opportunities.
• Customers: U.S. customers may face higher product prices due to inflation and supply chain pressures, potentially affecting sales volume.

Next Steps

• The company is required to complete necessary filing procedures with the CSRC within three working days after the completion of this offering.
• The company is evaluating options, including a share consolidation, to regain compliance with Nasdaq's $1 minimum bid price requirement by September 8, 2025.
• The U.S. Stores plan to continue improving operating efficiency and strengthening bargaining power with suppliers to mitigate the impact of rising costs.
• The offering is expected to terminate upon the completion of a single closing, anticipated on or about an unspecified date in 2025.

Key Dates

Recommendation

Keywords

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