F-1: Linkage Global Faces Revenue Decline Amid Strategic Shift

Linkage Global Inc. reports a significant revenue decrease and widening net losses, driven by a decline in cross-border sales and high-interest convertible debt, despite a pivot to higher-margin e-commerce services.

Summary

• Total revenues decreased by 27.02% to $3.50 million for the six months ended March 31, 2025, compared to $4.80 million in the prior year period.
• Cross-border sales revenue sharply declined by 82.35% to $0.80 million for the six months ended March 31, 2025, from $4.54 million, attributed to a poor product portfolio strategy in Japan and a strategic shift.
• Integrated e-commerce services revenue surged by 930.08% to $2.70 million for the six months ended March 31, 2025, primarily due to the new 'fully managed e-commerce operation services' business, which contributed $2.59 million in revenue with a 95.12% gross margin.
• Digital marketing services revenue decreased from $0.13 million to $0.08 million for the six months ended March 31, 2025, following the termination of the business agreement with Google in January 2025 and the initiation of HQT NETWORK's deregistration.
• Net loss increased by 119.62% to $3.09 million for the six months ended March 31, 2025, from $1.41 million in the prior year period.
• Gross profit increased by 280.57% to $2.70 million for the six months ended March 31, 2025, from $0.71 million, largely due to the high-margin new e-commerce operation services.
• Operating expenses rose by 91.01% to $4.34 million for the six months ended March 31, 2025, mainly due to increased general and administrative expenses, including a $1.34 million allowance for credit loss and $1.21 million in stock-based compensation.
• Interest expenses, net, dramatically increased from $0.06 million to $1.50 million for the six months ended March 31, 2025, primarily due to $10 million in convertible notes issued in October 2024 with an actual interest rate of 42.52%.

Sentiment

Score: 3

Explanation: The company faces significant financial challenges, including substantial revenue declines in its traditional business segments and a more than doubling of net losses due to extremely high-interest debt. While a new high-margin business line shows promise, the overall financial health is concerning, compounded by internal control weaknesses and regulatory risks in key operating regions. The high cost of recent capital raises indicates financial distress.

Positives

• The new 'fully managed e-commerce operation services' business line demonstrated strong growth and high profitability, contributing $2.59 million in revenue and a 95.12% gross margin for the six months ended March 31, 2025.
• Overall gross profit significantly increased by 280.57% for the six months ended March 31, 2025, driven by the successful launch of the high-margin e-commerce operation services.
• The company successfully regained compliance with Nasdaq's minimum bid price requirement by April 23, 2025.
• Strategic expansion into Southeast Asian markets (Thailand, Malaysia in 2022; Indonesia and Philippines planned for 2024) and securing TikTok Shop partner credentials indicate new growth avenues.
• The company possesses a substantial intellectual property portfolio, including 14 trademarks in China, 4 in Japan, 1 in the U.S., and 17 software copyrights in China.
• The Chairman of the Board, Mr. Zhihua Wu, maintains significant voting control (91.22%), which can provide stability in corporate decision-making.

Negatives

• Total revenues experienced a significant decline of 27.02% for the six months ended March 31, 2025, and 19.19% for the fiscal year ended September 30, 2024.
• The core cross-border sales business saw a sharp revenue decrease of 82.35% in the recent interim period, attributed to a poor product portfolio strategy and currency depreciation.
• Net loss more than doubled, increasing by 119.62% to $3.09 million for the six months ended March 31, 2025, largely due to a substantial rise in interest expenses.
• Digital marketing services revenue declined due to the termination of the Google business agreement and the ongoing deregistration of the HQT NETWORK subsidiary.
• Operating expenses increased significantly by 91.01% in the recent interim period, partly due to a large allowance for credit loss and stock-based compensation.
• Identified material weaknesses in internal control over financial reporting, including a lack of formal policies and insufficient accounting staff with U.S. GAAP and SEC reporting knowledge.
• The company is highly dependent on a few major customers and suppliers, posing concentration risks.
• PRC subsidiaries have not made adequate social insurance and housing provident fund contributions for all employees, which may lead to future penalties.

Risks

• Operating in a highly competitive and rapidly evolving cross-border e-commerce service provider industry.
• Historical performance may not be sustainable or indicative of future growth and financial results.
• System interruptions or performance failures in technology infrastructure could damage reputation and results of operations.
• International operations are subject to various legal, regulatory, political, and economic risks, particularly in mainland China and Hong Kong.
• Failure to maintain and expand relationships with key suppliers could harm revenues and operations.
• The termination of the business agreement with Google could materially affect digital marketing services.
• Reliance on third-party manufacturers for private label smart products exposes the company to supply chain and quality control risks.
• Inability to effectively manage growth, especially international expansion into new markets like Southeast Asia.
• Challenges in retaining, attracting, and motivating key personnel.
• Potential for increased rental expenses or lease terminations for warehouses and offices.
• Inability to successfully protect intellectual property and exclusive rights.
• Risk of being accused of infringing, misappropriating, or violating third-party intellectual property rights.
• Exposure to legal and regulatory proceedings in the ordinary course of business.
• Insufficient insurance coverage for all operational risks, including business interruption and product liability.
• Violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws.
• Cybersecurity risks and incidents could disrupt operations, compromise confidential information, or damage business relationships.
• Substantial related-party transactions present possible conflicts of interest.
• Fluctuations in the value of the Japanese yen against foreign currencies may adversely affect results of operations.
• Failure to obtain and maintain required licenses and permits or to comply with regulations for specific product sales (e.g., liquor, pharmaceuticals).
• Product liability claims if customers are harmed by products sold through distribution channels.
• The dual-class share structure may dilute the voting power of Class A Ordinary Shareholders.
• As a controlled company, the company may follow certain exemptions from Nasdaq corporate governance requirements, potentially affecting public shareholders' protections.
• Failure to implement and maintain an effective system of internal controls or remediate identified material weaknesses could impact reporting accuracy and investor confidence.
• The market price of Class A Ordinary Shares may be volatile or decline regardless of operating performance.
• Substantial future sales of Class A Ordinary Shares could cause the share price to decline.
• No dividends are expected to be paid in the foreseeable future.
• Lack of research or reports from securities analysts could lead to a decline in share price and trading volume.
• Ceasing to qualify as a foreign private issuer would result in significant additional legal, accounting, and other expenses.
• Laws of the Cayman Islands may not provide shareholders with benefits comparable to those in the United States.
• Potential classification as a Passive Foreign Investment Company (PFIC) for U.S. taxpayers.
• The Hong Kong National Security Law and HKAA could impact Hong Kong subsidiaries.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations.
• Difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against the company or management.
• Chinese government's significant oversight and discretion over PRC subsidiaries' business could lead to intervention or influence.
• Actions by the Chinese government could limit or hinder the ability to offer securities to investors or cause their value to decline.
• Recent greater oversight by the Cyberspace Administration of China (CAC) over data security could adversely impact PRC subsidiaries' business.
• The Opinions issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council may subject the company to additional compliance requirements.
• Recent joint statements by the SEC and PCAOB, Nasdaq rule changes, and the HFCA Act could add uncertainties to the ability to remain listed on Nasdaq.
• Restrictions and limitations by the PRC government on the ability of PRC/Hong Kong entities to transfer cash or assets outside of PRC/Hong Kong.
• Increases in labor costs in the PRC may adversely affect business and profitability.
• PRC regulations relating to offshore investment activities by PRC residents may subject beneficial owners or PRC subsidiaries to liability or penalties.
• PRC regulation of parent/subsidiary loans and direct investment by offshore holding companies may delay or prevent the use of offshore offering proceeds.
• Uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies.
• Scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies could harm business operations, share price, and reputation.
• Disclosures in SEC filings are not subject to the scrutiny of any regulatory bodies in the PRC.
• The M&A Rules and other PRC regulations could make it more difficult to pursue growth through acquisitions in China.
• Chinese regulatory authorities could disallow the holding company structure, potentially resulting in a material change in operations or share value.

Future Outlook

The company plans to expand its customer and merchant bases into Southeast Asia, including Thailand, Malaysia, Indonesia, and the Philippines, by partnering with local entities and attending trade shows. It intends to actively develop social e-commerce channels, particularly leveraging TikTok's ecosystem, and broaden its product selection, including launching private label 3C products in October 2024. Significant investment is planned for manpower expansion in Southeast Asia and strengthening supply chain integration, alongside continuous upgrades to its Linkage ERP System for regional localization and development of short-form video editing tools.

Management Comments

• The company has now changed its development strategy, shifting its focus to Fully managed e-commerce operation services business with higher profit margins, and employees have also been transferred from the original cross-border trade business to the store agency operation business.
• For the cross-border sales business, the company is also reselecting products and exploring the possibility of launching Japanese TikTok stores and live-streaming sales.
• In order to cope with the change of policies from Google, we actively engaged in direct and indirect cooperations with other social platforms, such as TikTok and Facebook, and we also focused on the growth of other e-commerce related services.
• 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.
• We believe our current working capital is sufficient to support our operations for the next twelve months.

Industry Context

The company operates in a highly competitive and rapidly evolving cross-border e-commerce service provider industry in Japan and China. It identifies significant growth potential in China's e-commerce market and the rapidly developing Southeast Asian cross-border e-commerce market, particularly in social commerce platforms like TikTok.

Management Changes

Corporate Governance

Legal Proceedings

• As of the date of this prospectus, the company is not involved in any legal or administrative proceedings that, if determined adversely, would have a material adverse effect on its business, financial condition, operating results, or cash flows.

Related Party Transactions

• Amounts due to related parties decreased from $314,544 as of September 30, 2024, to nil as of March 31, 2025.
• Amounts due from related parties increased from nil as of September 30, 2024, to $1,243,450 as of March 31, 2025, including $1,142,885 prepayment for services from Hermann Limited (which became a shareholder) and a $99,876 interest-bearing loan to Mrs. Qi Xiaoyu (repaid in April 2025).
• Expenses paid on behalf of the Group by related parties totaled $446,469 for the fiscal year ended September 30, 2024, and $312,815 for the six months ended March 31, 2024.
• Proceeds from interest-free loans from related parties amounted to $3,031,467 for the fiscal year ended September 30, 2024.
• Repayments to related parties totaled $4,593,092 for the fiscal year ended September 30, 2024, and $314,238 for the six months ended March 31, 2025.
• Stock-based compensation of $1,209,000 was issued to WU Zhihua (5,000,000 Class B ordinary shares) on November 7, 2024.
• The company repurchased Class A shares ($500) by issuing Class B shares to WU Zhihua on March 13, 2025.
• The Concerted Actor Agreement, which regulated the exercise of rights by certain indirect and direct shareholders, was terminated on August 5, 2024.

Stakeholder Impact

• Shareholders face significant dilution risk from ongoing and future share sales, including conversions of high-interest convertible notes, and have limited voting power due to the dual-class structure.
• Employees in PRC subsidiaries may be impacted by the company's historical underpayment of social insurance and housing provident fund contributions, potentially leading to future penalties.
• Customers and merchants may benefit from the company's strategic pivot to higher-margin fully managed e-commerce services and expanded product offerings, but could be affected by operational disruptions or data security issues.
• Suppliers face concentration risk, as the company relies on a few key suppliers, which could impact their business if relationships are not maintained.
• Creditors, particularly holders of the new convertible notes, are exposed to the company's financial health given the high interest rate and conversion terms, but also have certain redemption rights.

Next Steps

• Transfer all operations conducted by HQT NETWORK to a new Singapore subsidiary, following the deregistration process of HQT NETWORK.
• Re-select products and explore launching Japanese TikTok stores and live-streaming sales for the cross-border sales business.
• Expand Customer and Merchant bases into Southeast Asia, specifically targeting Thailand, Malaysia, Indonesia, and the Philippines.
• Partner with local distributors, retailers, or e-commerce platforms in Southeast Asia to expand product and service reach.
• Attend relevant trade shows and exhibitions in Southeast Asia to raise brand awareness and establish new business connections.
• Offer promotions and discounts attractive to local customers and provide customer support in local languages in new markets.
• Monitor popular and up-and-coming media to secure additional authorized agency qualifications.
• Actively layout social e-commerce channels, leveraging TikTok's closed-loop e-commerce ecosystem for precise user targeting and content dissemination.
• Develop a wider selection of products, including broadening and deepening cooperation with third-party suppliers and brands, and investing in private label smart products (e.g., launching Bluetooth earphones in October 2024).
• Expand manpower and talent pool, including forming a global business team of approximately 30 members to support Southeast Asia expansion, with estimated expenses of $2 million to $3 million annually.
• Strengthen supply chain integration by adding product labels for detailed information and establishing partnerships with logistics companies.
• Continue to invest in upgrading the Linkage ERP System, focusing on integrating more supporting functions and localizing for Southeast Asian markets (e.g., language support, access to local warehouse systems).
• Develop short-form video editing tools to enable customers to create informative and attractive videos for social media platforms like TikTok.
• Remediate identified material weaknesses in internal control over financial reporting by hiring qualified accounting and financial personnel, organizing regular training, creating a U.S. GAAP accounting policies and procedures manual, and strengthening corporate governance through an audit committee.

Key Dates

Recommendation

The company's financial performance shows a concerning trend of declining overall revenue and a significant increase in net losses, largely driven by extremely high-interest debt. While the pivot to a new high-margin service is positive, it has not yet offset the declines in other core areas. The identified material weaknesses in internal controls, coupled with substantial related-party transactions and complex regulatory risks in China and Hong Kong, present significant uncertainties. The high cost of recent capital raises further exacerbates financial pressure. These factors indicate a high-risk investment with a negative short-to-medium term outlook.

Keywords

Cross-border e-commerce, Integrated e-commerce services, Digital marketing, China, Japan, Hong Kong, Southeast Asia expansion, SEC F-1, Convertible notes, Corporate governance, Risk factors, Nasdaq listing, Private placement, Supply chain, ERP system, TikTok Shop, Financial performance, Regulatory risk