F-1/A: Softto, Inc. Faces Going Concern Doubts Amidst Declining Revenue

Softto, Inc., a Cayman Islands holding company operating in China's personal care market, reported continued net losses and declining revenues, raising substantial doubt about its ability to continue as a going concern.

Summary

• Softto, Inc. is a Cayman Islands holding company that develops, sells, and distributes hair care, skin care, personal care, and beauty products in China through its operating subsidiaries.
• The company reported a net loss of approximately $1.3 million for the six months ended June 30, 2025, an increase from $0.8 million for the same period in 2024.
• Revenues decreased by 44% to $3.1 million for the six months ended June 30, 2025, from $5.5 million in the prior year period.
• For the fiscal year ended December 31, 2024, revenues were approximately $10.2 million, down 31.5% from $15.0 million in 2023, with a net loss of $1.7 million compared to $2.3 million in 2023.
• The company's auditors have expressed substantial doubt about its ability to continue as a going concern due to recurring losses and a net capital deficiency.
• This filing is for the resale of 54,100 Ordinary Shares by selling stockholders, from which Softto, Inc. will not receive any proceeds.
• The company operates under an omni-channel sales model, including offline wholesale and online retail, with brands such as Softto, Softto Oriental Herbs, i-softto, Dakeshu, Qingyuan, and Welltop.
• Softto, Inc. does not manufacture its products but contracts third-party OEM manufacturers, with Kouyan Cosmetics and Jiugong Cosmetics being the top two suppliers in 2025, accounting for approximately 50% and 21% of total procurement volume, respectively.
• The company is involved in several legal proceedings, including a significant arbitration award from the Bank of China for an outstanding loan of RMB 49.99 million plus interest and penalties, which remains unpaid.
• Management plans to address the going concern risk through equity financing, other debt financing, increasing cash from operations, and collecting receivables from related parties.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing with a negative sentiment due to significant financial deterioration, including substantial revenue decline, increased net losses, and a going concern warning from auditors, compounded by unresolved legal liabilities and high customer/supplier concentration risks.

Positives

• The company has a long-standing brand history in China, with the Softto brand established in 1988 and recognized as a 'Well Known Chinese Trademark' in 2004.
• Softto, Inc. possesses a market-driven R&D team with an average of 10 years of experience, holding seven design patents and one invention patent in China.
• A collaborative research project with Zhongshan Wuhan University of Technology Advanced Engineering Research Institute was initiated in January 2025 to develop a natural botanical anti-hair loss shampoo formula.
• The company has an attractive product pricing strategy, offering economical and competitive prices to mass price-sensitive consumers.
• Implementation of a comprehensive management system, including the Amoeba management system and an ERP system, aims to enhance efficiency, stimulate creativity, and optimize supply and demand processes.
• The company has a strict quality control system for contract manufacturers and requires new products to pass third-party quality inspections.
• The company's auditor, Simon & Edward, LLP, is headquartered in the U.S. and is subject to PCAOB inspections, mitigating risks related to the Holding Foreign Companies Accountable Act (HFCA Act).

Negatives

• Softto, Inc. incurred net losses of approximately $1.3 million for the six months ended June 30, 2025, an increase from $0.8 million in the prior year period.
• Revenues significantly decreased by 44% from $5.5 million for the six months ended June 30, 2024, to $3.1 million for the six months ended June 30, 2025, primarily due to intensified industry competition and new brand emergence.
• Gross profit decreased by 58% from $1.7 million to $0.7 million, and gross profit margin declined from 31.5% to 23.7% for the six months ended June 30, 2025, partly due to reduced e-commerce sales proportion and price reductions to clear inventory.
• General and administrative expenses increased by 100.9% from $0.5 million to $1.0 million for the six months ended June 30, 2025, driven by higher senior management salaries, operating personnel costs, audit fees, and attorney fees.
• The company has an accumulated deficit of approximately $8.7 million as of June 30, 2025, and its auditors have expressed substantial doubt about its ability to continue as a going concern.
• A significant portion of accounts receivable (58% as of June 30, 2025) is concentrated with one customer, posing a substantial risk if that customer is unable to pay.
• The company has outstanding judgments and ongoing litigation, including an unpaid Bank of China arbitration award of RMB 49.99 million principal plus interest and penalties, which has led to asset preservation measures and restrictions on high-value consumption for certain subsidiaries and legal representatives.
• The Alliance Agreement with large distributors, which accounted for 34.4% of total sales in 2023, was not renewed at the end of 2024, leading to a shift to separate agreements with individual distributors to increase margins, but potentially impacting sales volume.
• The company relies on a limited number of OEM manufacturers, with the top two accounting for 71% of procurement volume in 2025, creating supply chain risk if these relationships are disrupted or prices increase.

Risks

• Substantial doubt about the ability to continue as a going concern due to recurring net losses and accumulated deficit, requiring additional capital that may not be available on acceptable terms.
• Uncertain economic or social conditions in China may adversely impact demand for products or cause financial hardship for customers and business partners.
• Reliance on a limited number of vendors, with the loss of a significant vendor (e.g., Tianwen, which accounted for 79.4% of purchases in 2024) or price increases from current top suppliers (Kouyan and Jiugong) could harm the business.
• Significant change in customer relationships or demand, including concentration of accounts receivable with one customer (58% as of June 30, 2025), could adversely impact business.
• Outstanding judgments and ongoing litigation, particularly the unpaid Bank of China arbitration award of RMB 49.99 million, could result in significant cash outflows, enforcement actions, and reputational damage.
• Erosion of company or brand reputation due to product recalls, defects, misuse, negative publicity, or failure to manage environmental, social, and governance (ESG) issues.
• Disruptions in the supply chain due to reliance on third-party contract manufacturers and distributors, or external factors like natural disasters or trade policy changes.
• Financial results and profitability are subject to prevailing prices and raw material costs, and inability to offset cost increases through pricing could decrease margins.
• Increased scrutiny, criticism, and negative publicity involving U.S.-listed China-based companies could harm business operations, reputation, and stock price.
• Intense and growing competition in the Chinese beauty and personal care products market from both domestic and international brands.
• Seasonality of sales for certain products (shampoo, soap, body wash) may cause operating results and working capital requirements to fluctuate.
• Need for additional capital in the future, which may not be available on acceptable terms or at all, leading to potential dilution for shareholders if equity is issued.
• Potential for substantial debt in the future, which could lead to default, acceleration of obligations, and restrictions on operations.
• Fluctuations in interim results due to various factors, making period-to-period comparisons difficult and potentially affecting share price.
• Inability to effectively and cost-efficiently promote and maintain the brand, despite marketing efforts.
• Risks associated with strategic investments or acquisitions, including integration difficulties, failure to achieve expected benefits, and diversion of management attention.
• Dependence on continued efforts of senior management; loss of key executives could severely disrupt business.
• Potential labor disputes or additional compensation costs if employee basic salaries fail to meet local minimum standards or if employment practices violate regulations.
• Lack of business interruption, product liability, or other business insurance coverage, leading to uninsured losses.
• Exposure to greater than anticipated tax liabilities due to complex tax structure and potential reclassification as a PRC resident enterprise.
• Cybersecurity incidents could disrupt operations, result in loss of information, and adversely impact reputation and results.
• Product liability claims if customers are harmed by products, with limited recourse against third-party contractors and no product liability insurance.
• Inability to prevent unauthorized use of intellectual property, which could harm business and competitive position.
• Exposure to intellectual property infringement claims from third parties, which may be expensive to defend and disrupt business.
• Lack of public company experience of the management team, potentially impairing compliance with legal and regulatory requirements.
• Malfunction of information systems could harm ability to conduct business operations.
• Increasing focus on environmental, social, and governance (ESG) matters may impose additional costs or expose the company to risks.
• Lack of requisite approvals, licenses, or permits applicable to the business could have a material adverse impact.
• Changes in China's economic, political, or social conditions or government policies could have a material adverse effect on business and results of operations.
• Reliance on dividends from PRC subsidiaries, which may be limited by PRC regulations on profit distribution and currency conversion.
• PRC regulation of loans and direct investment by offshore holding companies may restrict or prevent the use of offering proceeds to fund PRC subsidiaries.
• Uncertainty regarding the ability to obtain certain treaty benefits on dividends paid by the WFOE to the Hong Kong subsidiary.
• Difficulty for U.S. investors to bring actions against the company or its officers/directors in the United States or enforce judgments due to Cayman Islands and PRC legal systems.
• Potential delisting from OTC Markets under the Holding Foreign Companies Accountable Act (HFCA Act) if the PCAOB is unable to inspect the auditor for two consecutive years, despite the current auditor being U.S.-based and inspected.
• Fluctuations in exchange rates between the U.S. dollar and RMB could adversely affect results of operations and investment value.
• Governmental control of currency conversion may limit the ability to utilize net revenues effectively and affect investment value.
• Uncertainty regarding PRC tax reporting obligations and consequences for indirect transfers of equity interests.
• Volatility in the market price for Ordinary Shares due to broad market factors, industry performance, and perception of U.S.-listed Chinese companies.
• Potential for substantial dilution to shareholders if additional securities are issued to raise funds.
• No anticipated cash dividends in the foreseeable future, as earnings will be retained for business expansion.
• Difficulties in protecting shareholder interests due to less developed securities laws in the Cayman Islands compared to the United States.
• Increased costs as a public company, particularly after ceasing to qualify as an emerging growth company.
• Obligation to develop and maintain proper and effective internal control over financial reporting, with potential for material misstatements if controls are ineffective.
• Classification as a passive foreign investment company (PFIC) could result in adverse United States federal income tax consequences for U.S. taxpayers.

Future Outlook

Softto, Inc. plans to enhance its competitive position and expand market share by increasing R&D investment for product innovation, expanding its diversified sales network through collaborations with celebrities and KOLs, participating in industry exhibitions, and integrating online explosive products into offline stores and group-buying platforms. The company also aims to strengthen partnerships with platforms like Meituan and explore the U.S. market. Additionally, it intends to attract and retain talented professionals and seek strategic partnerships and acquisitions, including potential mergers with suppliers, competitors, and research institutions, though no specific projects are currently in the pipeline. The company anticipates sales revenue will begin to recover and increase in 2026.

Management Comments

• "Our product and its quality speak for itself." (Company's product development philosophy)
• "We keep up with the development and change of trends in personal care products industry in China and pursue constant improvements of our products."
• "We develop and sell every type and model of our products with high standards to meet market and consumer demands, and to provide quality body skin care brand products for our customers."
• "We anticipate that these initiatives [expanding new sales channels, establishing live-streaming studios, and optimizing sales team] will contribute to revenue growth in 2026."
• "We believe that our current cash and cash equivalents, anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for at least 12 months following this offering, we may need additional cash resources in the future if we experience changes in business conditions or other developments."
• "Management believes that we have adequate resources to continue in operational existence for the foreseeable future."
• "We plan to alleviate the going concern risk through (1) equity financing, (2) other available sources of financing (including debt) from PRC banks and other financial institutions, (3) increasing cash generated from business operations, and (4) collecting receivables and loans from related parties to meet its anticipated working capital requirements for at least the next 12 months."

Industry Context

StockSavvy.ai notes that Softto, Inc. operates in a highly competitive Chinese personal care market, which has seen increasing recognition of domestic brands for quality and innovation, as highlighted by the 2023 McKinsey China Consumer Report. While this trend could favor Softto, the company's declining revenues and market share suggest it is struggling to capitalize on this shift compared to other domestic players like Jahwa, Lovefun, Slek, and Difaso. The company's strategy to leverage online influencers and community group buying aligns with broader e-commerce trends in China, but its recent struggles with high influencer costs and platform traffic policies indicate challenges in effective execution within this dynamic landscape.

Comparison to Industry Standards

• Softto, Inc.'s gross profit margin of 23.7% for the six months ended June 30, 2025, is lower than typical margins for established beauty and personal care brands, which often range from 40% to 60% or higher, indicating significant pricing pressure or cost inefficiencies compared to global benchmarks like L'Oréal or Estée Lauder.
• The company's recurring net losses and accumulated deficit, coupled with a 'going concern' warning from auditors, stand in stark contrast to financially stable industry leaders who consistently generate profits and positive cash flows.
• The high concentration of accounts receivable (58% from one customer) and reliance on a few key OEM suppliers (71% from top two) indicates a higher business risk profile compared to diversified industry players who typically manage broader customer and supplier bases to mitigate such concentrations.
• While the company boasts a long brand history (since 1988) and R&D capabilities (7 design patents, 1 invention patent), its recent financial performance suggests these strengths are not currently translating into sustained market growth or profitability, unlike successful competitors who leverage innovation for consistent revenue expansion.

Management Changes

Corporate Governance

Legal Proceedings

• **Bank of China Limited Arbitration Award (Case No. (2025) Sui Zhong Zi Zi No. 2003):** Final arbitration award issued on August 8, 2025, confirming Softto Smart's obligation to repay a loan principal of RMB 49,990,000, plus interest, penalty interest, and compound interest (totaling RMB 51,892,620.81 as of June 30, 2025). Liang Yuhao, Wang Luhan, and Tianwen bear joint and several liability. The bank has obtained property preservation measures, including freezing bank accounts and seizing properties. The company has not fulfilled its payment obligation, but a repayment agreement with Yuandong and Tianwen was entered on July 14, 2025, for them to assume full responsibility for repayment, expected to be collected in 2026.
• **Guangzhou Railway Case (Case number: (2025) Guangdong 71 Civil Final No. 73):** Concluded on April 15, 2025, ordering Guangzhou Douyue and Tikas Guangzhou to pay RMB 482,225.57 and RMB 239,239.46, respectively, plus liquidated damages, for logistics services. Enforcement proceedings were terminated on November 11, 2025, as no assets were available, leading to high-value consumption restrictions on the companies and their legal representatives. Obligations remain unsatisfied.
• **Guangzhou Yuebang & Softto Smart Logistics Dispute (Case number: (2025) Guangdong 71 Civil Final No. 142):** Concluded on May 15, 2025, ordering Softto Smart and Guangzhou Yuebang to jointly and severally pay RMB 333,583.84 in transportation fees and return RMB 200,000 plus liquidated damages to Zhongmai. Obligations remain unsatisfied.
• **Tikas High-tech Case (Case number: (2025) Yue 0117 Civil 628):** Concluded on May 16, 2025, ordering Zhejiang Jiacheng Media Co., Ltd to return RMB 98,963.7 (including liquidated damages) and pay RMB 5,000 in lawyer's fees to Tikas (Guangzhou) High-tech Co., LTD. Enforcement proceedings were terminated on October 23, 2025, due to no assets available for enforcement.
• **Guangzhou Conghua Liuyin Village Bank Loan Contract Dispute (Case No.: (2025) Yue 0117 Min Chu 3280):** Judgment rendered on August 30, 2025, requiring Guangzhou Softto Snow Muscle Cosmetics Co., Ltd. to repay a RMB 4.5 million loan plus interest, with Softto Smart jointly and severally liable as a guarantor. However, legal opinion suggests Softto Smart will not be required to assume liability due to sufficient pledged property from a related party (Tianwen).
• **Guangzhou Haoyuan & Softto Trading(Guangzhou) v.s. Luo Wenjian (Case [2025] No. 16679 Arbitration Commission):** Arbitration hearing commenced on October 25, 2025, regarding a claim by the company for RMB 290,617.88 in economic losses from an employee, and counter-demands by the employee for RMB 37,471.26 in wages and RMB 94,877.50 in economic compensation for unlawful termination. Judgment is pending.
• **Softto Trading(Guangzhou) Co.,Ltd v.s. Guangzhou Zhongdi Logistics Co. (Defamation lawsuit):** Currently in filing stage, seeking RMB 5.1 million in compensation for reputational damage due to false information dissemination.
• **Guangzhou Douyue Technology Innovation Co., LTD v.s. Zhuzhou Yixuan Digital Technology Co., Ltd. & Changshang Yixuan Enterprise Management Co., Ltd. (Contractual dispute):** Currently in filing stage, seeking return of RMB 202,300 advance payment plus interest.
• **Softto Smart v. Yancheng Perry Trading Co., Ltd. (Contractual dispute):** Currently in filing stage, seeking return of RMB 243,800 information promotion authorization usage fee plus interest and liquidated damages.

Related Party Transactions

• **Amounts due from related parties (as of June 30, 2025):** Totaling $9,663,322, primarily consisting of reclassified advance payments to former suppliers Tianwen ($9,571,001) and Qianlang ($19,930), and advances for business operations from Ms. Luhan Wang ($70,255, collected on December 2, 2025).
• **Amounts due to related parties (as of June 30, 2025):** Nil, as previous amounts due to Mr. Yuhao Liang were settled through offset agreements.
• **Advances to supplier-related parties (as of June 30, 2025):** Totaling $411, primarily from 'Others'. The significant advance to Tianwen ($10,667,309 as of December 31, 2023) was reclassified as 'amounts due from related parties' after cooperation termination.
• **Loan to related parties (as of June 30, 2025):** Totaling $79,895, including interest-free loans to Xueji ($18,081), Xueli ($10,330), and Zhimei ($51,484) for their business operations.
• **Loans from related parties (as of June 30, 2025):** Totaling $422,861, including loans from Zhimei ($362,996) and 'Others' ($59,865) for daily operations.
• **Accounts receivables related parties (as of June 30, 2025):** Totaling $18,264, primarily from Xueli ($15,245) and 'Others' ($3,019).
• **Accounts payable related parties (as of June 30, 2025):** Totaling $657,214, including payables to Tianwen ($426,015), Xueli ($52,211), Zhimei ($110,846), and Qianlang ($68,142).
• **Offset Agreements:** Multiple complex offset agreements were executed in April 2025 and June 2024 to settle mutual claims and obligations between Softto Smart, Softto Investment, Guangzhou Yuebang, Luhan Wang, Huiming, Tianwen, and Guangxi Group, involving significant amounts (e.g., RMB 49,067,000 in payables to Huiming offset against receivables from Tianwen).
• **Repayment Agreement with Tianwen and Yuandong (July 14, 2025):** Tianwen and Yuandong agreed to assume full responsibility for repaying Softto Smart's entire debt to the Bank of China (RMB 53,009,273.63 as of November 30, 2025), which will offset a portion of Softto Smart's receivable from Tianwen, leaving Tianwen owing Softto Smart RMB 15,553,549.68, expected to be collected in 2026.
• **Lease Agreement:** The principal executive office is leased from Guangzhou Tianwen Jiaoyan Cosmetics Co., Ltd., an affiliated company of Mr. Yuhao Liang, at no cost.

Stakeholder Impact

• **Shareholders:** Face significant risks due to recurring net losses, a going concern warning, and potential dilution from future capital raises. The lack of anticipated cash dividends in the foreseeable future means returns will depend solely on share price appreciation. PRC regulatory risks and enforceability issues in Cayman Islands law also pose challenges to protecting shareholder interests.
• **Employees:** The company's ability to attract, incentivize, and retain talented professionals is a stated growth strategy, suggesting a focus on employee development and a positive work environment. However, labor disputes and potential non-compliance with PRC labor regulations could negatively impact employee relations and lead to additional costs.
• **Customers:** The company aims to meet market and consumer demands with high-quality, economically priced products. However, declining sales revenue and intensified competition suggest challenges in maintaining customer loyalty and market share. Product quality issues or negative publicity could further erode customer confidence.
• **Suppliers/Contract Manufacturers:** The company relies heavily on a few OEM manufacturers. Termination of cooperation with a major supplier (Tianwen) and the concentration of procurement with new top suppliers (Kouyan, Jiugong) introduce supply chain risks. Unpaid legal judgments could also strain relationships with business partners.
• **Creditors:** The company has significant outstanding debt, including an overdue RMB 49.99 million loan from the Bank of China, which has led to asset preservation measures. This raises concerns about the company's ability to meet its debt obligations, despite repayment plans involving related parties. Other unpaid judgments also indicate financial strain.

Next Steps

• Complete the necessary government registrations for FDI (Foreign Direct Investment) for Softto Investment and Softto Smart.
• Continue efforts to alleviate going concern risk through equity financing, debt financing from PRC banks, increasing cash from operations, and collecting receivables from related parties.
• Implement strategic adjustments, including optimizing the sales team, expanding new sales channels, and establishing live-streaming studios, with anticipated revenue recovery and increase in 2026.
• Pursue strategic partnerships and acquisitions, including potential mergers with suppliers, competitors, and research institutions, with a plan to explore the U.S. market through online platforms.
• Renew OEM agreements with Kouyan and Jiugong, which are currently in discussion and set to expire in November 2025.

Key Dates

Recommendation

Softto, Inc. presents a highly speculative investment with significant downside risk. The company is operating under a 'going concern' warning from its auditors, indicating substantial doubt about its ability to continue operations. This is underpinned by recurring net losses, a dramatic 44% decline in revenues for the most recent six-month period, and a significant drop in gross profit margin. Furthermore, the company faces substantial legal liabilities, including an overdue RMB 49.99 million loan from the Bank of China, which has resulted in asset freezes and restrictions on its subsidiaries. While management outlines growth strategies and plans to address liquidity, the current financial performance and operational challenges, coupled with the inherent risks of operating in China and the fact that this offering is a resale from which the company receives no proceeds, make the stock a 'strong sell' for seasoned investors. The high concentration of accounts receivable and reliance on a few suppliers further exacerbate the risk profile.

Keywords

Personal Care Products, Beauty Products, Hair Care, Skin Care, China Market, SEC Filing, F-1/A, OTC Markets, Going Concern, Net Loss, Revenue Decline, OEM Manufacturing, PRC Regulations, HFCA Act, Related Party Transactions, Litigation Risk, E-commerce, Offline Wholesale, Cayman Islands Holding Company, Cosmetics