F-1/A: Chanson International Launches Dilutive Follow-On Offering Amidst Nasdaq Delisting Threat

Chanson International Holding is seeking to raise up to $11.1 million through a best-efforts follow-on offering of units, each comprising Class A Ordinary Shares and highly dilutive warrants, while simultaneously addressing a Nasdaq minimum bid price deficiency.

Summary

• Chanson International Holding is conducting a best-efforts public offering of up to 25,000,000 units at an assumed price of $0.50 per unit, aiming to raise approximately $11.1 million in net proceeds.
• 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, with Series A and B Warrants having an exercise price of $0.525 per share.
• The Series B Warrants include a 'zero price exercise' option, allowing holders to receive up to 75,000,000 Class A Ordinary Shares without additional cash proceeds to the company, which is expected to be the primary exercise method.
• The company's Class A Ordinary Shares are listed on The Nasdaq Capital Market under the symbol CHSN, with a last reported sale price of $0.50 per share on May 29, 2025.
• Chanson International received a Nasdaq notice on March 10, 2025, for non-compliance with the $1 minimum bid price rule, with a compliance period until September 8, 2025, and is considering a share consolidation to regain compliance.
• The company operates as a holding company incorporated in the Cayman Islands, conducting business through subsidiaries in China and the U.S., and Variable Interest Entities (VIEs) in China, which accounted for 62% of total revenue in 2024.
• For the fiscal year ended December 31, 2024, the company reported total revenue of $18,227,537 and a net income of $756,285, an improvement from a net loss of $1,288,205 in 2022.
• The U.S. Stores have been materially impacted by inflation and geopolitical conflicts (Russia-Ukraine war), leading to higher raw material, fuel, freight, warehousing, and labor costs, while PRC Stores have not been materially impacted.
• Mr. Gang Li, the Chairman and CEO, will hold approximately 86.7% of the aggregate voting power post-offering, maintaining significant control over the company.
• The net proceeds from the offering are intended to be used for opening new stores in China and the U.S.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to significant risks associated with the offering structure, including high potential for dilution from zero-price warrants and the 'best-efforts' nature with no minimum raise. The immediate threat of Nasdaq delisting due to low share price is a major concern. While the company shows positive financial trends (revenue growth, return to profitability), these are overshadowed by the capital structure and regulatory uncertainties, particularly regarding the VIE model in China.

Positives

• The company demonstrated significant financial improvement, moving from a net loss of $1,288,205 in 2022 to a net income of $33,588 in 2023 and $756,285 in 2024.
• Total revenue has shown consistent growth, increasing from $13,272,075 in 2022 to $17,252,662 in 2023 and $18,227,537 in 2024.
• 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.
• PRC Stores, which account for the majority of revenue, have not been materially impacted by inflation or supply chain disruptions, maintaining stable raw material, electricity, fuel prices, and labor costs.
• 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 $1 minimum bid price requirement, facing a potential delisting if compliance is not regained by September 8, 2025.
• The offering is on a 'best-efforts' basis with no minimum amount required to be sold, meaning the company may not raise sufficient capital to fund its business plans, and investors will not receive a refund.
• The offering includes Series B Warrants with a 'zero price exercise' option, which is highly dilutive to existing shareholders as the company does not expect to receive any proceeds from their exercise, potentially issuing up to 75,000,000 Class A Ordinary Shares.
• 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 (2.9% in 2024) and geopolitical conflicts, leading to increased costs and potential impact on sales if price increases cannot be passed on to customers.
• The company's management has broad discretion over the use of net proceeds from the offering, which may not align with investors' priorities or best interests.
• Mr. Gang Li, the Chairman and CEO, will control approximately 86.7% of the aggregate voting power post-offering, raising concerns about potential misalignment of interests with other shareholders and discouraging changes in control.

Risks

• The company's Class A Ordinary Shares may be delisted from The Nasdaq Capital Market if it fails to regain compliance with the $1 minimum bid price requirement by September 8, 2025.
• As a best-efforts offering with no minimum, the company may not raise sufficient capital, potentially hindering its ability to pursue business goals and requiring additional, potentially unavailable, funds.
• Future equity offerings or acquisitions could lead to significant dilution for existing shareholders, especially given the large number of shares issuable upon warrant exercise.
• The absence of a public trading market for the Pre-Funded Warrants, Series A Warrants, and Series B Warrants limits their liquidity and makes it difficult for holders to dispose of them or obtain accurate market value quotations.
• Holders of warrants do not have voting rights until the underlying shares are acquired upon exercise, limiting their influence on corporate matters.
• The 'zero price exercise' option for Series B Warrants could result in substantial dilution to shareholders without the company receiving additional proceeds.
• The terms of the warrants may be adjusted, and the company may redeem them, potentially affecting their value.
• Beneficial ownership limitations (4.99% or 9.99%) on warrants may restrict holders' ability to exercise them when most advantageous.
• The company's operations in China are subject to legal and operational risks due to vague and uncertain PRC laws and regulations, including potential disallowance of the VIE structure.
• Future actions by the PRC government, including changes in cybersecurity review measures, anti-monopoly enforcement, or overseas listing regulations, could materially impact the business and the value of shares.
• Cash in the PRC may not be available for use outside of the PRC due to government restrictions on cash transfers.
• The U.S. Stores face risks from rising inflation and geopolitical conflicts, which increase operating costs and may adversely affect sales and profitability if price increases cannot be passed on.
• There are significant uncertainties under the PRC Enterprise Income Tax Law regarding withholding tax liabilities on dividends from the PRC subsidiary to offshore subsidiaries.
• The company's ability to pay dividends depends on receiving funds from its PRC subsidiary and VIEs, which is subject to PRC regulations and contractual arrangements.
• Enforcement of U.S. court judgments against the company or its directors/officers may be difficult in the Cayman Islands and the PRC due to differences in legal systems and lack of treaties.

Future Outlook

The company intends to use the net proceeds from this offering to open new stores in China and the U.S., with specific allocation based on market conditions. Management will have significant flexibility and discretion in applying these proceeds. The company plans to keep future earnings to finance business expansion and does not anticipate paying cash dividends in the foreseeable future.

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 will have broad discretion over the use of the net proceeds from this offering."
• "The Company is currently evaluating options to regain compliance and intends to timely regain compliance with Nasdaq’s continued listing requirement, including, among other things, to effect a share consolidation."

Industry Context

Chanson International operates in the bakery and beverage industry, with a significant presence in Xinjiang, China, and a smaller footprint in New York City, U.S. The company faces a dual market dynamic, with its PRC operations largely unaffected by recent global inflation and supply chain issues, while its U.S. operations are materially impacted by these macroeconomic factors and geopolitical tensions. The company's reliance on a VIE structure for its China operations places it within a segment of Chinese companies listed overseas that are subject to evolving and uncertain PRC regulatory oversight, particularly concerning data security and overseas listings.

Corporate Governance

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 and transferred cash, 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, and 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 dilution of their ownership interests due to the large number of Class A Ordinary Shares issuable upon exercise of the Pre-Funded Warrants, Series A Warrants, and especially the Series B Warrants with their zero-price exercise option.
• Existing shareholders may experience a decrease in net tangible book value per ordinary share ($0.11 decrease) immediately after the offering.
• The lack of a public trading market for the warrants limits liquidity for warrant holders.
• Investors are exposed to the risk that the company may not raise sufficient capital from this 'best-efforts' offering to adequately fund its business plans, as there is no minimum offering amount.
• The concentration of voting power with Mr. Gang Li (86.7% post-offering) means he can determine all matters requiring shareholder approval, potentially impacting the interests of other shareholders.
• Employees and customers in the U.S. may be indirectly affected by the U.S. Stores' challenges in managing inflation and supply chain disruptions, which could impact product pricing, availability, and service quality.
• The company's ability to pay dividends to shareholders is dependent on funds from its PRC subsidiary and VIEs, which are subject to PRC regulations and potential restrictions on cash transfers.

Next Steps

• Complete the current best-efforts public offering of units.
• Regain compliance with Nasdaq's $1 minimum bid price requirement by September 8, 2025, potentially through a share consolidation.
• Complete necessary filing procedures with the CSRC within three working days after the completion of this offering, as required by the Trial Measures.
• Utilize net proceeds from the offering to open new stores in China and the U.S.

Key Dates

Recommendation

Keywords

Chanson International Holding, F-1/A, SEC Filing, Follow-on Offering, Class A Ordinary Shares, Pre-Funded Warrants, Series A Warrants, Series B Warrants, Nasdaq Delisting, Minimum Bid Price, VIE Structure, China Operations, U.S. Operations, Bakery Industry, Beverage Industry, Financial Performance, Dilution, Capital Raise, PRC Regulations, HFCA Act, Inflation Impact, Supply Chain, Corporate Governance, Controlled Company