F-1/A: Softto Inc. Files for $18 Million IPO on NASDAQ, Aiming to Expand Personal Care Brand

Softto Inc., a Cayman Islands holding company operating through its Chinese subsidiaries, is seeking to raise $18 million through an initial public offering on the NASDAQ Capital Market to expand its personal care and beauty product business.

Summary

• Softto Inc., a Cayman Islands-based holding company, has filed for an initial public offering (IPO) to list its Ordinary Shares on the NASDAQ Capital Market under the ticker symbol SFTO.
• The company aims to offer 3,000,000 Ordinary Shares with an expected price range of $4 to $6 per share, potentially raising approximately $18 million.
• Softto conducts its business through its operating subsidiaries in China, focusing on the development, sale, and distribution of hair care, skin care, personal care, and beauty products.
• The company's product brands include Softto, Softto Oriental Herbs, i-softto, Dakeshu, Qingyuan, and Welltop, sold in 238 cities across China.
• Softto generates revenue through offline wholesale, online retail, and commission fees (though the latter is no longer a primary channel since 2022).
• For the fiscal year ended December 31, 2023, Softto reported revenues of approximately $15.0 million and a net loss of approximately $2.3 million.
• The company faces risks associated with operating in China, including regulatory changes, currency controls, and potential interventions by the Chinese government.
• Softto is an emerging growth company and will be a controlled company post-IPO, which allows it to take advantage of certain exemptions from corporate governance requirements.
• The company intends to use the IPO proceeds for business operations, strategic investments, product development, and expansion of its online store network.
• Revere Securities LLC is acting as the underwriter for the offering.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While it highlights the company's strengths and growth strategies, it also acknowledges significant risks and challenges, including financial losses and regulatory uncertainties. The overall tone is cautiously optimistic.

Positives

• Softto has a comprehensive sales and marketing management system.
• The company possesses strong R&D capabilities.
• Softto offers attractive product pricing.
• The company has a comprehensive management system and an experienced management team.
• Softto has reliable product quality and continuous product iteration.

Negatives

• The company incurred net losses in the year ended December 31, 2023 and 2022, and may not be able to generate sufficient operating cash flows and working capital to continue as a going concern.
• The company relies on a limited number of vendors, and the loss of our significant vendor could harm our business, and the loss of any one of such vendors could have a material adverse effect on our business.
• The company faces growing competition in beauty and personal care products market in China.
• The company may incur net losses in the future.
• The company may need additional capital, and financing may not be available on terms acceptable to us, or at all.

Risks

• The company is subject to risks related to public health crises such as the global pandemic associated with the coronavirus (COVID-19).
• Uncertain economic or social conditions may adversely impact demand for our products or cause our customers and other business partners to suffer financial hardship, which could adversely impact our business.
• A significant change in customer relationships or in customer demand for our products could have a significant impact on our business.
• If the reputation of the Company or one or more of our brands erodes significantly, it could have a material impact on our financial results.
• We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
• We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
• Changes in Chinas economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
• We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business.
• PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans to our PRC subsidiaries or to make additional capital contributions to our PRC subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business.
• Change of laws in PRC could result in a material and negative impact our business operations, decrease the value of our Ordinary Shares and limit the legal protections available to you and us.
• The Chinese government exerts substantial influence over the manner in which we must conduct our business, and may intervene or influence our operations at any time, which could result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and, and cause the value of our Ordinary Shares to significantly decline or be worthless.
• Because we are a Cayman Islands exempted company and all of our business is conducted in the PRC, you may be unable to bring an action against us or our officers and directors or to enforce any judgment you may obtain. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.
• The Holding Foreign Companies Accountable Act, or the HFCA Act, and the related regulations are evolving quickly. Further implementations and interpretations of or amendments to the HFCA Act or the related regulations, or a PCOABs determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. A potential consequence is that our ordinary shares may be delisted by the exchange. The delisting of our ordinary shares, or the threat of our ordinary shares being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct full inspections of our auditor deprives our investors of the benefits of such inspections.
• The filing with the China Securities Regulatory Commission (CSRC) is required in connection with this public offering, any other future offerings and certain events of the Company under New Overseas Listing Rules, and we cannot assure you that we will be able to timely make such filing, in which case we may face sanctions by the CSRC or other PRC regulatory agencies for failure to timely file with the CSRC.
• Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.
• There has been no public market for our shares prior to this offering, and if an active trading market does not develop you may not be able to resell our shares at or above the price you paid, or at all.
• We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
• We are not likely to pay cash dividends in the foreseeable future.

Future Outlook

The company intends to upgrade and expand product supply through technological innovation, expand its own sales network, enhance its ability to attract, incentivize and retain talented professionals, and seek strategic partnerships and acquisitions.

Management Comments

• Our product and its quality speak for itself.
• We keep up with the development and change of trends in personal care products industry in China and pursue constant improvements of our products.

Industry Context

The personal care products industry in China is experiencing growth driven by rising disposable incomes, urbanization, and increased consumer awareness of personal well-being. The market is competitive, with both international giants and domestic brands vying for market share. E-commerce and digital platforms are playing an increasingly important role in product distribution and marketing.

Comparison to Industry Standards

• The company's revenue of approximately $17.5 million in 2022 accounted for a market share of 0.02% of the personal care market in the PRC.
• Key domestic players in the personal care industry in the PRC include Jahwa (0.8% market share), Lafang (0.1%), Mingchen (0.08%), and Bawang (0.04%).
• The company competes with major international players such as P&G, Unilever, Johnson & Johnson, and LOreal Paris.

Related Party Transactions

• The company has significant related party transactions, including purchases from and loans to related parties.
• A significant portion of the company's accounts receivable and accounts payable are with related parties.
• The company entered into an Offset Agreement to settle debts among related parties.

Stakeholder Impact

• Shareholders face risks related to the company's financial performance, regulatory environment, and potential delisting.
• Employees' job security and compensation may be affected by the company's financial performance and growth strategies.
• Customers may benefit from the company's product development and expansion efforts.
• Suppliers may be affected by the company's sourcing decisions and financial stability.
• Creditors face risks related to the company's ability to repay its debts.

Next Steps

• Complete the IPO process and list Ordinary Shares on the NASDAQ Capital Market.
• Implement growth strategies, including product development, sales network expansion, and strategic partnerships.
• Comply with ongoing regulatory requirements for public companies.

Key Dates