20-F: Big Tree Cloud Reports Steep FY2025 Loss Amid Strategic Shift

Big Tree Cloud Holdings Limited reported a significant net loss of $32.5 million for fiscal year 2025, driven by a sharp revenue decline and substantial share-based compensation expenses, despite strategic asset disposals and recent capital raises.

Summary

• Net revenue decreased by 65.1% to $2.56 million for the fiscal year ended June 30, 2025, down from $7.32 million in 2024.
• The company incurred a net loss of $32.53 million in FY2025, a significant reversal from net incomes of $0.64 million in FY2024 and $0.28 million in FY2023.
• Operating loss widened dramatically to $38.21 million in FY2025, compared to an operating loss of $0.03 million in FY2024 and a profit of $0.67 million in FY2023.
• Selling expenses surged by 2614.0% to $34.71 million in FY2025, primarily due to a $34.2 million share-based compensation expense for distributors.
• Gross profit decreased by $4.1 million to $0.82 million in FY2025, with gross margin falling to 32.2% from 66.9% in FY2024, mainly due to lower margins on new hygiene materials.
• Net cash used in operating activities was $6.49 million in FY2025, following a negative cash flow of $1.51 million in FY2024.
• The company completed the disposal of its manufacturing facilities (Dongguan Dashuyun Daily Necessities Co., Ltd.) in September 2024 for approximately $5.27 million, realizing a gain of $4.8 million, as part of a strategy to become asset-light.
• Big Tree Cloud also disposed of its 51% equity interest in Guangdong Yunjia Innovative Materials Co., Ltd. in October 2025 for approximately $0.71 million, citing strategic transformation and resource optimization.
• The company adopted a 2024 Equity Incentive Plan in October 2024, granting 9,892,382 restricted shares to distributors and employees, resulting in a $34.2 million expense.
• Big Tree Cloud discontinued its Big Tree Cloud convenience store operations due to a challenging brick-and-mortar retail environment in China.
• The company successfully regained compliance with Nasdaq's minimum market value of publicly held shares (MVPHS) requirement twice during the reporting period, on September 23, 2024, and July 11, 2025.
• As of June 30, 2025, the company had an accumulated deficit of $37.43 million, raising substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The company's financial performance for FY2025 is severely negative, with a substantial net loss, significant revenue decline, and negative operating cash flow. While strategic shifts and recent capital raises are positive steps, the magnitude of the losses and identified internal control weaknesses indicate significant challenges and high risk.

Positives

• Successfully regained compliance with Nasdaq's minimum market value of publicly held shares (MVPHS) requirement twice, indicating stability in listing status.
• Strategic shift to an asset-light model by disposing of manufacturing facilities and focusing on R&D in advanced hygiene materials (SAP) could lead to improved operational efficiency and product innovation.
• Realized a significant gain of $4.8 million from the disposal of Dongguan Dashuyun Daily Necessities Co., Ltd., optimizing asset structure.
• Secured additional capital through a strategic capital increase of approximately $4.2 million from Shenzhen Wengu Development Investment Partnership in May 2025.
• Completed a registered direct offering in September 2025, raising net proceeds of approximately $4.5 million, enhancing liquidity.
• Ongoing R&D efforts in super absorbent polymer (SAP) materials have shown important interim progress, with a new high-performance SAP sample developed at the laboratory stage.

Negatives

• Reported a substantial net loss of $32.53 million for the fiscal year ended June 30, 2025, a significant decline from net income in prior years.
• Experienced a sharp decrease in net revenue by 65.1% to $2.56 million in FY2025, primarily due to reduced sales volume of feminine hygiene and body/oral care products, and suspension of accessory sales.
• Gross margin significantly declined to 32.2% in FY2025 from 66.9% in FY2024, mainly due to lower margins on new hygiene materials.
• Operating expenses dramatically increased by 1,526.5% to $39.04 million in FY2025, largely driven by a $34.2 million share-based compensation expense.
• Continued negative net cash flows from operating activities for two consecutive years ($6.49 million in FY2025 and $1.51 million in FY2024).
• Accumulated deficit reached $37.43 million as of June 30, 2025, raising substantial doubt about the company's ability to continue as a going concern.
• Identified two material weaknesses in internal control over financial reporting, indicating deficiencies in financial reporting and accounting personnel expertise and procedures.

Risks

• Limited operating history and significant challenges in a fast-changing personal care industry with more established competitors.
• Dependence on a limited number of major customers (four customers accounted for 35%, 15%, 11%, and 10% of FY2025 revenue).
• Reliance on a limited number of suppliers, exposing the company to supply chain disruptions and increased costs.
• Need to raise additional funds, which may not be available on favorable terms or at all, potentially diluting shareholders.
• Complex technology and operating systems required for personal care product manufacturing may not be successfully developed or maintained.
• Inability to keep up with evolution in sterilization technology and competition from new entrants or larger manufacturers.
• Limited current customers, consumers, and pending orders for personal care products, with uncertainty regarding demand and growth pace.
• Intense competition in the personal care industry from global, regional, and local manufacturers, potentially leading to market share loss or reduced profitability.
• Success is dependent on the continued popularity of products and the ability to anticipate and respond to changes in industry trends and consumer preferences.
• New product introductions may not be as successful as anticipated, affecting net revenues and margins.
• Product quality, effectiveness, and safety concerns could tarnish brand image, lead to recalls, and result in liability claims.
• Inability to successfully implement growth strategy, including market penetration, product expansion, and technology enhancement.
• Current sales primarily limited to lower-tier cities in the PRC, with potential delays and significant capital requirements for expansion.
• Reliance on business partners and other industry participants for raw materials, manufacturing, marketing, and distribution services, with risks of termination or disputes.
• Inability to manage rapid growth effectively, straining management, financial systems, and supply chain.
• Dependence on continued efforts of executive officers, key employees, and qualified personnel, with risks of talent poaching and disruption.
• Inability to protect intellectual property, potentially diminishing brand value and leading to disputes.
• Harm to brands and reputation from negative publicity regarding the company, products, management, brand promoters, or KOLs.
• The market for personal care products in China may not grow as quickly as expected, or at all.
• Changes to the pricing of products could adversely affect results of operations.
• Significant costs for sales and marketing efforts, with no assurance of cost-effectiveness or efficiency.
• Subject to complex and evolving product safety laws, regulations, and standards, with risks of non-compliance, recalls, and penalties.
• Operating results could be materially harmed by an inability to accurately forecast consumer demand or adequately manage inventory.
• Quarterly operating results may fluctuate due to seasonality and other factors, making results difficult to predict.
• Limited insurance coverage, exposing the company to significant costs and business disruption.
• Operations were affected by the COVID-19 pandemic, with potential for future disruptions.
• Reliance on third-party e-commerce platforms for online sales, with risks of service interruptions or increased costs.
• Subject to the E-Commerce Law of the PRC due to company channels on WeChat.
• Reliance on third-party service providers for logistics services, with risks of unreliable services and reputational harm.
• Delivery, return, and exchange policies may adversely affect results of operations due to additional costs or misuse.
• Failure to successfully manage fulfillment infrastructure expansion or any interruption in warehouse operations.
• Collection, storage, processing, and use of customer data subject to privacy, information security, and data protection laws, with risks of non-compliance and breaches.
• Increasing dependence on information technology, with risks of service interruptions, data corruption, and cyber-attacks.
• Inaccuracies in operating metrics may harm reputation and negatively affect business.
• Payment methods subject to third-party payment-related risks and fraud.
• Content produced and distributed through online platforms may violate PRC laws or regulations.
• Cash from operations may not be sufficient to meet current or future operating needs and expenditures.
• Subject to infringement claims of intellectual property rights or other rights of third parties, which may be expensive to defend.
• Revenues and financial results may be adversely affected by any economic slowdown in China or globally.
• Heightened geopolitical tensions, particularly between the United States and China, may adversely impact business.
• Natural disasters, terrorist activities, political unrest, and other outbreaks could disrupt production, delivery, and operations.
• Unexpected termination of leases, failure to renew, or renewal at unacceptable terms.
• Failure to comply with the terms of indebtedness could have an adverse effect on cash flow and liquidity.
• Uncertainties with respect to how the PRC Foreign Investment Law may impact the viability of the current corporate structure and operations.
• The PRC government has significant authority to exert influence on or intervene in the operation of China-based issuers.
• Changes in China's economic, social, or other conditions or government policies could have a material adverse effect.
• Failure to obtain and maintain requisite licenses, permits, registrations, and filings applicable to the business in China.
• Uncertainties in the changes, interpretation, and enforcement of PRC laws, rules, and regulations.
• Difficulties for overseas regulators to conduct investigations or collect evidence within mainland China (Article 177 PRC Securities Law).
• Ordinary Shares may be delisted under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB is unable to adequately inspect audit documentation located in China.
• Additional disclosure requirements and regulatory scrutiny from the SEC related to China-based operations could increase compliance costs and hinder capital-raising.
• PRC M&A Rules and other regulations could make it difficult to pursue growth through acquisitions in China.
• Regulations in mainland China of loans to and direct investment in PRC domestic companies by offshore holding companies and governmental control of currency conversion may delay or prevent funding.
• Reliance on dividends and other distributions from mainland China subsidiaries, with limitations on their ability to make payments.
• Increases in labor costs and enforcement of stricter labor laws and regulations in China may adversely affect profitability.
• Uncertainties with respect to effecting service of legal process, enforcing foreign judgments, or bringing actions in mainland China against the company or management.
• Fluctuations in exchange rates (RMB/USD) could have a material and adverse effect on results of operations.
• Governmental regulation of currency conversion may affect the utilization of revenues.
• PRC regulations regarding the registration requirements for employee stock incentive plans may subject plan participants or the company to fines.
• Discontinuation of preferential tax treatments and government subsidies or imposition of additional taxes and surcharges.
• Classification as a mainland China resident enterprise for income tax purposes could result in unfavorable tax consequences.
• Inability to obtain certain benefits under relevant tax treaties on dividends paid by mainland China subsidiaries.
• Indirect transfers of equity interests in mainland China resident enterprises by non-mainland China holding companies may result in tax burdens.
• Custodians or authorized users of controlling non-tangible assets (e.g., corporate chops and seals) in mainland China failing their responsibilities or misusing assets.
• The company's share price may be volatile and could decline substantially.
• Sale or availability for sale of substantial amounts of Ordinary Shares could adversely affect their market price.
• If securities or industry analysts do not publish research or publish inaccurate or unfavorable research, share price and trading volume could decline.
• Anti-takeover provisions in the amended and restated memorandum and articles of association could adversely affect shareholder rights.
• Mr. Wenquan Zhu has significant voting power (73.66%) and may take actions not in the best interests of other shareholders.
• Cessation of qualification as a foreign private issuer would incur significant additional legal, accounting, and other expenses.
• Controlled company status allows reliance on exemptions from certain Nasdaq corporate governance requirements, affording public shareholders less protection.
• As a foreign private issuer, not subject to certain U.S. securities law disclosure requirements, limiting publicly available information.
• Requirements of being a public company may strain resources, divert management's attention, and affect ability to attract/retain qualified board members.
• Difficulties with respect to effecting service of legal process in mainland China against the company or its management through shareholder claims.
• Difficulties in protecting interests through U.S. courts due to incorporation under Cayman Islands law.
• Emerging growth company status and reliance on reduced SEC reporting requirements may make Ordinary Shares less attractive to investors.
• Classification as a Passive Foreign Investment Company (PFIC) could have adverse U.S. federal income tax consequences for U.S. taxpayers.

Future Outlook

The company plans to continue advancing in-depth R&D and commercialization of new super absorbent polymer (SAP) technology to drive high-quality growth. It aims to accelerate the development of other products to diversify its offerings and expects to fund future capital expenditures with existing cash and potentially additional equity or debt financing. The company is committed to improving its fulfillment and logistics systems and addressing identified material weaknesses in internal controls.

Management Comments

• We believe that our current cash and anticipated cash flows from operating and financing activities will be sufficient to meet our anticipated working capital requirements and commitments for at least the next 12 months after the issuance of the accompanying consolidated financial statements, which will mitigate the conditions or events that raise substantial doubt about the Group's ability to continue as a going concern.
• We believe that as our brand continues to grow, it will strengthen our ability to create and capture value across the personal care industry and the feminine hygiene industry in particular, to increase our competitive advantages among industry participants.
• We believe the strength of our brand enables us to continue to grow in the industry in China and seek opportunity in the global market to achieve optimal financial results.
• We continue to explore the application of new materials and production techniques to improve our products quality and efficacy.
• We plan to continue to leverage our proprietary supply chain and warehouse management system to manage our operating costs and expenses and maintain attractive net profit margins.

Industry Context

The personal care industry in China is highly competitive and continuously evolving, driven by consumer preferences, technological innovations, and e-commerce. Big Tree Cloud's strategic shift to an asset-light model and focus on R&D in advanced hygiene materials (SAP) positions it to potentially capture emerging trends, particularly in the premium feminine hygiene segment. However, the discontinuation of convenience stores reflects the broader challenges faced by brick-and-mortar retail in China, including rising costs and declining foot traffic, pushing companies towards more scalable online channels.

Comparison to Industry Standards

• The company's gross margin of 32.2% in FY2025 is significantly lower than its 66.9% in FY2024, indicating a potential struggle to maintain profitability compared to industry leaders who typically achieve higher margins through scale and brand power.
• The substantial net loss of $32.5 million and negative operating cash flow of $6.5 million in FY2025 contrast sharply with profitable and cash-generating peers in the established personal care market, highlighting significant operational challenges.
• The reliance on a limited number of major customers (four customers accounting for 61% of FY2025 revenue) and suppliers (one supplier accounting for 18% of FY2025 purchases) suggests a higher concentration risk compared to diversified industry players like Procter & Gamble (P&G) or Unilever, which have broad customer bases and robust supply chains.
• The company's R&D focus on super absorbent polymer (SAP) materials and ethylene oxide sterilization for feminine pads aims to differentiate its products, similar to how innovative materials are adopted by leading brands like Always (P&G) or Kotex (Kimberly-Clark) to enhance product performance and consumer comfort, but its market penetration is still limited compared to these global giants.
• The shift to an asset-light manufacturing model, relying on third-party manufacturers, is a common strategy for emerging brands to reduce capital expenditure and leverage specialized production, akin to many direct-to-consumer (DTC) brands, but it also introduces dependence on external partners for quality control and supply chain stability.

Management Changes

Corporate Governance

Legal Proceedings

• Currently not a party to any material legal or administrative proceedings.

Related Party Transactions

• Mr. Wenquan Zhu (Principal shareholder, CEO) provided multiple unsecured loans to the company and its subsidiary DSY HK, totaling approximately $0.6 million (interest-free, 3-year term from Nov 2023), $3.1 million (6.5% interest, 3-year term from May-Aug 2024), $1.1 million (12% interest, from June-Dec 2024), $0.4 million (12% interest, from May-June 2025), $0.35 million (10% interest, 1-year term from June 2025), $0.14 million (interest-free, 1-month term from June 2025), and $0.44 million (12% interest, 3-year term from Aug-Sept 2025). Some of these loans have been repaid in advance.
• The company leased property to Big Tree Cloud Network Technology (Shenzhen) Co., LTD, an entity controlled by Mr. Wenquan Zhu, and received rent in FY2025.
• Guangdong Jiasiwei New Material Technology Co., Ltd. (non-controlling interest in Guangdong Yunjia) was involved in purchases of goods and services (approx. $0.2 million) and sales of products (approx. $0.4 million) with the company in FY2025. The company also borrowed a short-term loan of approximately $0.3 million from Guangdong Jiasiwei in June 2025, which was repaid by September 2025.
• Meitangfang (Foshan) New Material Co., Ltd. (controller of Guangdong Jiasiwei) was involved in purchases of goods and services (approx. $0.2 million) and sales of products (approx. $0.1 million) with the company in FY2025.

Stakeholder Impact

• Shareholders: Significant net loss and negative cash flow could lead to decreased share price and reduced investor confidence. Dilution risk from future equity raises. Mr. Wenquan Zhu's concentrated ownership (73.66%) gives him significant control, potentially conflicting with minority shareholder interests.
• Employees: The company's financial struggles and strategic shifts (e.g., asset-light model, discontinuation of convenience stores) could impact job security and future compensation. Share-based compensation plan aims to incentivize, but overall financial health is a concern.
• Customers: Strategic focus on R&D and quality improvement in personal care products aims to enhance customer experience and brand loyalty. However, dependence on major customers and changes in product offerings (e.g., ceasing dietary supplements) could affect customer base.
• Suppliers: Reliance on a limited number of suppliers creates risk for the company, but also means these key suppliers are highly dependent on the company's business.
• Creditors: The accumulated deficit and negative operating cash flow raise concerns about the company's ability to meet its debt obligations, although recent capital raises provide some liquidity. Pledging of properties as collateral for loans increases risk for the company in case of default.

Next Steps

• Continue to invest significantly in research and development, service network, and sales and marketing to establish and expand the business.
• Accelerate the development of other products to diversify product offerings and achieve optimal financial performance.
• Continue advancing in-depth R&D and commercialization of new super absorbent polymer (SAP) technology.
• Fund future capital expenditures with existing cash balance and potentially additional equity or debt financing.
• Continue to enhance operational, financial, and management systems, including warehouse management and inventory control.
• Implement further measures to improve internal control over financial reporting, including hiring qualified accounting and financial personnel and providing regular training.

Key Dates

Recommendation

The company's financial performance for FY2025 is extremely poor, marked by a substantial net loss, significant revenue decline, and negative operating cash flow, which would typically warrant a 'sell' recommendation. However, the company has undertaken aggressive strategic restructuring, including divesting non-core assets to become 'asset-light' and focusing on R&D in advanced hygiene materials. Crucially, it has recently secured significant capital through a strategic investment and a registered direct offering, which addresses immediate liquidity concerns and mitigates the 'going concern' risk for the next 12 months. While material weaknesses in internal controls are a serious issue, management has outlined plans to address them. Given these contrasting factors – severe past performance versus active strategic and financial remediation efforts – a 'hold' recommendation is appropriate. Investors should monitor the effectiveness of the strategic shifts, the resolution of internal control issues, and the company's ability to translate R&D into profitable growth before considering further investment or divestment.

Keywords

Personal Care Products, Feminine Hygiene, SEC Filing, Annual Report, China Market, E-commerce, Asset-Light Strategy, Share-Based Compensation, Net Loss, Operating Cash Flow, Nasdaq Compliance, Corporate Governance, Risk Factors, R&D, SAP Materials, Capital Raise, Related Party Transactions, Internal Controls