20-F: Garden Stage Limited Reports Soaring Revenue Amid Continued Losses in Fiscal Year 2025

Garden Stage Limited, a Hong Kong-based financial services provider, announced a significant increase in total revenues for fiscal year 2025, primarily driven by a surge in introducing and referral income, despite continuing to report substantial net losses.

Summary

• Total revenues for the fiscal year ended March 31, 2025, increased by 288.1% to US$5,466,243, up from US$1,408,469 in the prior fiscal year.
• The company reported a net loss of US$4,317,642 for FY2025, a slight improvement from the US$4,589,478 net loss recorded in FY2024.
• Introducing and referral income saw a massive increase of 1,667.1%, reaching US$4,681,683 in FY2025, becoming the primary revenue driver.
• Brokerage commissions decreased by 17.3% to US$329,246 in FY2025, mainly due to a reduction in weighted average commission rates in Hong Kong and decreased U.S. market participation.
• Underwriting and placement income declined by 25.3% to US$114,091, attributed to fewer projects and lower weighted average fee rates.
• Expenses rose significantly by 62.8% to US$9,740,651, driven by increased brokerage, clearing and exchange fees (up 1,947.7%), communications and technology costs (up 315.1%), and compensation and benefits (up 13.2%).
• The company successfully completed its initial public offering on Nasdaq in December 2023, raising US$11.5 million gross proceeds.
• Multiple registered direct offerings in April, June, and July 2025 raised additional gross proceeds totaling approximately US$10.36 million.
• As of March 31, 2025, cash and restricted cash stood at US$7,885,624.
• The company identified material weaknesses in its internal control over financial reporting related to a lack of U.S. GAAP expertise.

Sentiment

Score: 3

Explanation: While the company achieved substantial revenue growth in FY2025, it continues to incur significant net losses, indicating a lack of profitability. The increase in revenue was largely offset by a sharp rise in operating expenses, particularly in technology and referral fees. The company also faces high customer concentration and ongoing regulatory uncertainties related to its Hong Kong operations and U.S. listing. However, successful capital raises provide liquidity for strategic initiatives.

Positives

• Achieved substantial revenue growth of 288.1% in FY2025, primarily driven by a significant increase in introducing and referral income.
• Successfully completed an initial public offering on Nasdaq and multiple subsequent registered direct offerings, demonstrating strong capital raising capabilities.
• Net loss slightly decreased by 5.9% in FY2025 compared to FY2024, indicating a marginal improvement in loss containment.
• Introduced a new due diligence service, contributing US$79,543 in revenue in its first year, diversifying the company's income streams.
• Commenced a new investment management fund engagement in September 2024, contributing to investment management fee income.
• Maintained compliance with all Hong Kong regulatory capital requirements for its operating subsidiaries.
• Possesses an experienced management team and established client relationships, which are key competitive strengths.

Negatives

• Continued to incur substantial net losses, with a US$4.32 million loss in FY2025, indicating ongoing unprofitability.
• Experienced significant declines in advisory fees (down 97.5%), brokerage commissions (down 17.3%), and underwriting and placement income (down 25.3%) in FY2025.
• Operating expenses increased sharply by 62.8%, largely offsetting the revenue growth and contributing to the persistent net loss.
• Faces high customer concentration risk, with the top five customers accounting for 88% of total revenues in FY2025.
• Identified material weaknesses in internal control over financial reporting due to a lack of U.S. GAAP understanding among financial and accounting personnel.
• Commission income from securities dealing and brokerage services remains volatile, subject to market conditions and client trading volumes.
• Exposed to substantial risks from client payment defaults and potential losses arising from trading errors.
• Faces competitive pressure from other brokerage firms offering lower or zero brokerage commission rates.

Risks

• The PRC government may exercise significant direct oversight and discretion over business and intervene or influence operations, potentially impacting the value of Ordinary Shares.
• Hong Kong operations may become subject to Mainland China laws and regulations, which could impair profitability and materially impact business.
• Changes in PRC policies, regulations, rules, and enforcement of laws can occur quickly with little advance notice, potentially affecting business operations.
• Potential requirement to comply with cybersecurity, data privacy, or data protection laws from PRC, which if not complied with, could materially and adversely affect business.
• If the Chinese government extends oversight to Hong Kong-based issuers, it could significantly limit or hinder the ability to offer securities and cause share value to decline or become worthless.
• Uncertainties in the Hong Kong legal system could limit available legal protections.
• Political risks associated with conducting business in Hong Kong, including adverse economic, social, and political conditions, and the impact of the Hong Kong National Security Law and Safeguarding National Security Ordinance.
• Subsidiaries may be subject to restrictions on paying dividends or making other payments to the holding company, affecting liquidity and ability to pay dividends to shareholders.
• The Hong Kong regulatory requirement of prior approval for substantial share transfers may restrict future takeovers and other transactions.
• The PCAOB may be unable to inspect or fully investigate auditors, potentially leading to delisting under the HFCAA if non-inspection occurs for two consecutive years.
• The trading price of Ordinary Shares may be volatile, unrelated to operating performance, and subject to extreme price run-ups and rapid declines.
• Investors must rely on price appreciation of Ordinary Shares for return on investment, as no dividends are currently planned.
• Sale or availability for sale of substantial amounts of Ordinary Shares in the public market could adversely affect their market price.
• As a foreign private issuer, the company is exempt from certain U.S. domestic public company provisions, potentially affording less protection to shareholders.
• Difficulties in enforcing foreign civil liabilities in the Cayman Islands and Hong Kong.
• There is no assurance that the company will not be a passive foreign investment company (PFIC) for United States federal income tax purposes, which could subject U.S. investors to significant adverse tax consequences.
• The company will incur increased costs as a public company, particularly after ceasing to qualify as an emerging growth company.
• Risk of delisting from Nasdaq Capital Market if continued listing requirements are not met.
• Nasdaq may impose additional listing requirements on foreign private issuers, increasing compliance burdens or risks to continued listing.
• Unfavorable financial market and economic conditions and material deterioration of the political and regulatory environment in Hong Kong, the PRC, and globally could materially and adversely affect business.
• Subject to extensive and evolving regulatory requirements in Hong Kong; non-compliance may result in penalties, limitations, or license revocation.
• The financial services industry in Hong Kong is intensely competitive, fragmented, and subject to rapid change.
• The company has a relatively short operating history compared to some established competitors, making future prospects difficult to assess.
• Subject to market and financial risks arising from its underwriting business if the securities underwritten are undersubscribed.
• Relies on a limited number of key customers for its business, leading to customer concentration risk.
• Commission income from securities dealing and brokerage services may be volatile and fluctuate significantly.
• May be subject to substantial risks if clients using securities dealing and brokerage services default on payments.
• May have to bear losses resulting from trading errors.
• Other brokerage firms may have a competitive edge by offering zero or lower rates of brokerage commission.
• Fraud or misconduct by directors, officers, employees, agents, AEs, clients, or other third parties could harm reputation and business.
• May be subject to litigation, arbitration, or other legal proceeding risks.
• Professional liabilities, such as claims or lawsuits, could adversely affect financial position and reputation.
• Insufficient insurance coverage may lead to significant costs and business disruption.
• Any failure to protect intellectual property could harm business and competitive position.
• May be affected by the currency peg system in Hong Kong if it changes.
• Increases in labor costs may adversely affect business and results of operations.
• Any future occurrence of force majeure events, natural disasters, or outbreaks of contagious diseases (e.g., COVID-19) may materially and adversely affect business.
• May incur losses or experience disruption of operations as a result of unforeseen or catastrophic events, including pandemics, natural disasters, power loss, telecommunications, break-ins, sabotage, intentional acts of vandalism, and similar misconduct.
• Business is subject to various cyber-security risks and other operational risks, such as failure or malfunction of trading systems and IT infrastructure.
• Failure to comply with data privacy, data protection, or other laws related to data privacy and security, or failure to protect client data, could expose the company to liability or reputational damage.
• New lines of business or new services may subject the company to additional risks.

Future Outlook

The company plans to strengthen its core placing and underwriting services by expanding industry networks and pursuing larger project engagements. It intends to grow its securities dealing and brokerage market presence in the United States through strategic partnerships or by obtaining direct licenses. The company also aims to develop its securities margin financing services by increasing capital resources and expanding its customer base. Furthermore, it plans to enhance its asset management business by diversifying schemes and recruiting research analysts, and to upgrade its IT systems for improved efficiency, client management, and analytical capabilities.

Management Comments

• Management believes that current cash and restricted cash, along with anticipated cash flows from operations, will be sufficient to meet cash needs for general corporate purposes for at least the next 12 months.
• Management considers the company to have strong and adequate capital resources to carry out its operations.
• Management plans to keep the business growing by strengthening advisory, due diligence, introduction and referral, investment management, securities brokerage, underwriting, and placement services, and by sourcing potential customers for asset management and margin financing services.

Industry Context

Operating in Hong Kong's intensely competitive and highly regulated financial services industry, the company is susceptible to economic and political conditions in Hong Kong, Mainland China, and globally. It faces competition from larger firms with greater resources and smaller local providers. The company notes increasing client demand for U.S. exchange trading and margin financing services, and recognizes the growing importance of technology in client selection within the brokerage sector. Geopolitical tensions, such as the Russia-Ukraine conflict and Israel-Hamas war, are acknowledged as potential indirect impacts on global financial markets and investor sentiment.

Comparison to Industry Standards

• The company's placing and underwriting commission rates, ranging from 0.75% to 1.5% of the fund-raising size, are considered in line with prevailing market rates and practices.
• The engagement of self-employed Account Executives (AEs) on a commission basis is noted as being in line with industry practice in Hong Kong.
• The company acknowledges that other brokerage firms in Hong Kong may offer zero or lower brokerage commission rates, indicating competitive pressure on pricing.

Management Changes

Corporate Governance

Legal Proceedings

• Not a party to, nor aware of any threat of, any legal proceeding likely to have a material adverse effect on business, financial condition, or operations as of the date of this report.
• No incidents of non-compliance which are likely to materially and adversely affect business, financial condition, or operations.

Related Party Transactions

• Brokerage commissions, handling income, and interest income were generated from transactions with related parties.
• Balances with related parties include receivables from customers (e.g., Tse Tim), amounts due from related party (Oriental Moon Tree Limited), payables to customers (various individuals), and amounts due to related parties (Oriental Moon Tree Limited, Shum Ngan, Sammy).
• Major shareholders forgave debts totaling HK$15,900,000 (approximately US$2,025,475) in November 2022, treated as capital contributions.

Stakeholder Impact

• Shareholders face continued dilution from recent capital raises and ongoing net losses, but also potential for future growth if strategic initiatives are successful. Regulatory and political risks, particularly from PRC intervention and HFCAA, pose significant threats to share value and trading.
• Employees may benefit from increased personnel costs due to headcount expansion and salary adjustments, and the adoption of a share-based compensation plan aims to incentivize performance.
• Customers may experience improved service quality and diversified offerings due to planned IT system enhancements and new service introductions, but could also seek lower commission rates from competitors.
• Suppliers and vendors, particularly IT service providers, are critical to operations, and maintaining these relationships is essential to avoid business disruption.
• Creditors are impacted by the company's continued net losses, although regulatory capital requirements are met and management believes current liquidity is sufficient for the near term.

Next Steps

• Strengthen placing and underwriting services by extending industry networks, exploring larger project engagements, and expanding the team.
• Expand securities dealing and brokerage market presence in U.S. exchanges through long-term partnerships, joint ventures, strategic partnerships, or by obtaining direct licenses/trading rights.
• Commence and develop securities margin financing services by enlarging capital resources and expanding the customer base.
• Enhance and develop asset management business by diversifying schemes and recruiting qualified research analysts to support investment decisions and increase assets under management (AUM).
• Enhance IT systems by upgrading portfolio management and trading systems, implementing new integrated systems (portfolio/risk management), subscribing to a new CRM system, and investing in business continuity planning and market data vendors.

Key Dates

Recommendation

While the company demonstrated impressive revenue growth in FY2025, primarily driven by a surge in referral income, it continues to operate at a significant net loss. The substantial increase in operating expenses, particularly in technology and referral fees, indicates that profitability remains a distant goal. The company has successfully raised significant capital through recent offerings, providing liquidity for its strategic growth initiatives, but these raises have also led to substantial share dilution. Furthermore, the identified material weaknesses in internal controls and the inherent regulatory and political risks associated with operating in Hong Kong under the shadow of evolving PRC oversight introduce considerable uncertainty. Given the mixed financial performance, high customer concentration, and ongoing operational and geopolitical risks, a 'Hold' recommendation is appropriate. Investors should monitor the company's progress in achieving profitability, diversifying its revenue streams, addressing internal control deficiencies, and navigating the complex regulatory landscape before considering a stronger position.

Keywords

Financial services, Hong Kong, Securities brokerage, Underwriting, Asset management, Investment advisory, Due diligence, Referral services, SEC filing, Form 20-F, NASDAQ, IPO, Capital raise, Regulatory compliance, China risks, PCAOB, HFCAA, Internal controls, Financial performance, GSIW