F-1: Linkage Global Inc. Files F-1 for Share Resale Amidst Revenue Decline and Strategic Shift to E-commerce Services

Linkage Global Inc. has filed an F-1 registration statement for the resale of up to 4,000,000 Class A Ordinary Shares by existing shareholders, revealing a significant overall revenue decrease but a strategic pivot towards high-margin integrated e-commerce services.

Summary

• Linkage Global Inc., a Cayman Islands holding company, conducts cross-border e-commerce and integrated e-commerce services through subsidiaries in Japan, Hong Kong, and mainland China.
• The F-1 filing is for the resale of up to 4,000,000 Class A Ordinary Shares by identified Selling Shareholders; the company will not receive any proceeds from this specific offering.
• Total revenues decreased by 19.19% from approximately $12.73 million in fiscal year (FY) 2023 to $10.29 million in FY2024, and by 53.3% from $22.03 million in FY2022 to $10.29 million in FY2024.
• Revenue from cross-border sales, the company's traditional core business, significantly declined by 38.82% from $10.59 million in FY2023 to $6.48 million in FY2024, primarily due to Japanese Yen depreciation and consumer austerity.
• Revenue from digital marketing services, a component of integrated e-commerce services, sharply decreased from $3.95 million in FY2022 to $0.31 million in FY2024, attributed to Google's updated, more stringent incentive policies.
• Integrated e-commerce services revenue increased by 77.64% from $2.15 million in FY2023 to $3.81 million in FY2024, driven by the new 'fully managed e-commerce operation services' launched in April 2024, which contributed $3.28 million in FY2024.
• Gross profit increased by 123.91% from $1.86 million in FY2023 to $4.17 million in FY2024, with the gross margin improving from 14.61% to 40.49%, largely due to the high-margin new fully managed e-commerce operation services (89.62% gross margin).
• Net loss decreased by 32.69% from $0.65 million in FY2023 to $0.44 million in FY2024.
• The company completed an initial public offering in December 2023, raising approximately $5.4 million in net proceeds.
• On September 18, 2024, the company entered into a securities purchase agreement for convertible promissory notes totaling $10.83 million in principal amount and issued 9,300,000 Class A Ordinary Shares as pre-delivery shares.
• On May 14, 2025, the company issued 4,000,000 Class A Ordinary Shares to non-U.S. investors for gross proceeds of $2.0 million.
• The company is classified as an 'emerging growth company' and a 'foreign private issuer,' allowing for reduced public company reporting requirements.
• Chairman Mr. Zhihua Wu holds 94.29% of the company's voting power, making it a 'controlled company' under Nasdaq rules, though the company does not currently intend to rely on related exemptions.
• Material weaknesses in internal control over financial reporting have been identified, and remedial measures are being implemented.

Sentiment

Score: 3

Explanation: While the company is attempting to diversify and improve gross margins with new services, the significant decline in overall revenue and key traditional business segments, coupled with ongoing net losses and substantial regulatory and geopolitical risks associated with its operations in China and Hong Kong, indicates a challenging outlook. The F-1 filing itself is for a resale, meaning no new capital for the company from this specific offering, further dampening immediate positive sentiment.

Positives

• Launch of new 'fully managed e-commerce operation services' in April 2024, contributing $3.28 million in revenue and a high gross profit margin of 89.62% in FY2024.
• Overall gross profit increased significantly by 123.91% from $1.86 million in FY2023 to $4.17 million in FY2024, and gross margin improved from 14.61% to 40.49%.
• Net loss decreased by 32.69% from $0.65 million in FY2023 to $0.44 million in FY2024, indicating some improvement in profitability.
• Strategic expansion into the high-growth Southeast Asian e-commerce market, including partnerships with TikTok Shop in Malaysia (December 2022) and top-tier TikTok guild status in Thailand (December 2022).
• Company possesses competitive strengths including a comprehensive service system, diversified product collections, and capability for targeted digital marketing leveraging business data analysis technology.
• The company's auditor, HTL International, LLC, is headquartered in Texas and subject to regular PCAOB inspections, mitigating delisting risks under the HFCA Act.
• Regained compliance with Nasdaq's minimum bid price requirement by April 23, 2025.

Negatives

• Total revenue experienced a significant decline of 19.19% from FY2023 to FY2024, and a substantial 53.3% drop from FY2022 to FY2024.
• Cross-border sales, historically the largest revenue segment, decreased by 38.82% from $10.59 million in FY2023 to $6.48 million in FY2024, primarily due to Japanese Yen depreciation and consumer austerity.
• Digital marketing services revenue plummeted from $3.95 million in FY2022 to $0.31 million in FY2024, largely due to Google's updated, more stringent incentive policies and a decrease in new merchants.
• The company continues to operate at a net loss, reporting $0.44 million in FY2024.
• 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.
• Reliance on a few major customers (one customer accounted for 23.08% of FY2024 revenue) and suppliers (two suppliers accounted for 15.39% and 10.74% of FY2024 purchases), posing concentration risks.
• HQT NETWORK's agency agreement with Google, which accounts for all digital marketing service revenue, expires on January 1, 2025, and Google may unilaterally terminate it with 30-day notice, posing a significant risk to this revenue stream.

Risks

• Operating in a highly-competitive cross-border e-commerce service provider market, with potential for reduced profitability and market share.
• Historical performance may not be sustainable or indicative of future growth, with potential for further revenue decline due to economic conditions, competition, or regulatory changes.
• System interruptions or performance failures in technology infrastructure (marketplace, Linkage ERP System, Honeybee product shelving software) could damage reputation and results.
• Cybersecurity risks and cyber incidents could disrupt operations, compromise confidential information, or damage business relationships.
• Substantial transactions with related parties present possible conflicts of interest that could materially and adversely affect business and financial conditions.
• Fluctuation of the Japanese Yen against foreign currencies may materially affect results of operations.
• Failure to maintain and expand relationships with key suppliers could harm revenues and results of operations.
• Failure of HQT NETWORK to maintain its relationship with Google could materially affect digital marketing services.
• Reliance on third-party manufacturers for private label smart products, with risks related to political/economic instability, financial stability, quality issues, and supply disruptions.
• Inability to effectively manage growth, particularly with international expansion plans, could strain resources and harm results.
• Unsuccessful international expansion into new markets (e.g., Southeast Asia) due to varied legal/regulatory restrictions, staffing difficulties, or currency fluctuations.
• Inability to retain, attract, and motivate key personnel could hinder business plan implementation.
• Failure to optimize warehouse and fulfillment network could lead to excess/insufficient capacity and increased costs.
• Damage to brand image from customer/merchant dissatisfaction or negative publicity could adversely affect growth strategy.
• New product or service launches may not be successful or generate satisfactory revenues.
• Real or perceived errors, failures, or bugs in services, software, or technology could adversely affect business.
• Ability to raise capital in the future may be limited, and failure to raise needed funds could prevent growth.
• Increases in rental expenses or termination of leases for warehouses and offices could adversely affect operations.
• Inability to successfully protect intellectual property and exclusive rights could harm brand and business.
• Exposure to legal and regulatory proceedings, including intellectual property infringement claims and customer complaints.
• Insurance coverage may not be sufficient to cover all operational risks, leading to significant liabilities.
• PRC subsidiaries have not made adequate social insurance and housing provident fund contributions, potentially leading to penalties.
• Risk of adverse effects from violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws.
• Dual class share structure may be dilutive to the voting power of Class A Ordinary Shareholders.
• Controlled company status allows reliance on exemptions from certain Nasdaq corporate governance requirements, potentially reducing shareholder protection.
• Failure to implement and maintain an effective system of internal controls or remediate identified material weaknesses could impair reporting and affect investor confidence.
• Market price of Class A Ordinary Shares may be volatile or decline regardless of operating performance, with potential for rapid and substantial volatility due to small public float.
• Risk of delisting under the Holding Foreign Companies Accountable Act (HFCA Act) if PCAOB is unable to inspect auditors for two consecutive years, despite current auditor being inspected.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations, which may change quickly with little advance notice, limiting legal protection.
• Difficulties in effecting service of legal process, enforcing foreign judgments, or conducting investigations in China.
• Chinese government's significant oversight and discretion over PRC subsidiaries' business, with potential for intervention or influence at any time.
• Actions by the Chinese government could cause material changes to operations, limit ability to offer securities, or cause value to decline.
• Recent greater oversight by the Cyberspace Administration of China (CAC) over data security, particularly for companies seeking foreign listing, could adversely impact PRC subsidiaries' business.
• Opinions recently 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.
• Restrictions and limitations on the ability of PRC subsidiaries to distribute earnings to the company and U.S. investors.
• PRC regulation of parent/subsidiary loans and direct investment by offshore holding companies may delay or prevent use of offshore offering proceeds for PRC entities.
• Governmental control of currency conversion may affect investment value and dividend payments.
• Increases in labor costs in the PRC may adversely affect business and profitability.
• Uncertainty regarding indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies.
• Uncertainties under the PRC Enterprise Income Tax Law (EIT Law) regarding withholding tax liabilities and treaty benefits.
• Potential for direct scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies.
• Disclosures in SEC filings are not subject to scrutiny of PRC regulatory bodies.
• Approval and filing with CSRC or other PRC government authorities may be required for future offerings, with potential sanctions for non-compliance.
• M&A Rules and other PRC regulations establish complex procedures for acquisitions, making growth through acquisitions in China more difficult.
• Chinese regulatory authorities could disallow the holding company structure, resulting in material changes to operations or value.
• Political risks associated with conducting business in Hong Kong, including the Hong Kong National Security Law and potential changes to autonomy.
• Evolving Hong Kong laws and regulations regarding data security or antimonopoly could subject subsidiaries to enforcement actions.

Future Outlook

Linkage Global Inc. plans to expand and diversify its customer and merchant bases into Southeast Asian markets, including Thailand, Malaysia, Indonesia, and the Philippines, by partnering with local distributors, attending trade shows, and offering localized promotions. The company intends to actively leverage social e-commerce channels like TikTok and seek additional authorized agency qualifications with other media. Product development will focus on broadening and deepening cooperation with third-party suppliers and brands, and investing in private label smart products (e.g., 3C electronics like Bluetooth earphones by October 2024). The company will also expand its manpower, forming a global business team for Southeast Asian expansion with estimated annual expenses of $2 million to $3 million for the next two years. Furthermore, Linkage Global Inc. plans to strengthen its supply chain integration, including product labeling and logistics partnerships, and continue investing in upgrading its Linkage ERP System (until 2025) and developing short-form video editing tools.

Management Comments

• "Our mission is to make cross-border transactions easier."
• "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

Linkage Global Inc. operates within a highly competitive and rapidly evolving cross-border e-commerce service provider industry in Japan and China. The company's strategic shift towards integrated e-commerce services, particularly fully managed e-commerce operations and digital marketing, aligns with the significant growth potential identified in China's rapidly developing e-commerce market and the increasing penetration of the Southeast Asian cross-border e-commerce market. The company's efforts to leverage social media platforms like TikTok for marketing and sales reflect a broader industry trend towards social commerce, which contributed nearly $48 billion (44%) to the total e-commerce market in Southeast Asia in 2021. However, the industry is also characterized by intense competition from various providers, evolving technologies, and dynamic regulatory environments, particularly in China and Hong Kong, which can quickly change with little advance notice.

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 were $314,544 as of September 30, 2024, down from $1,413,604 in FY2023 and $1,273,832 in FY2022, consisting of expenses paid by related parties on the company's behalf and interest-free loans.
• Expenses paid on behalf of the company by related parties totaled $446,469 in FY2024, $1,728,398 in FY2023, and $1,424,460 in FY2022.
• Received interest-free loans from related parties totaling $3,031,467 in FY2024.
• Repayments to (receivable from) related parties totaled $4,593,092 in FY2024.
• The company has entered into exclusive licensing agreements with Ms. Xiaoyu Qi (spouse of CEO) for the use of her Japanese trademarks.
• The Concerted Actor Agreement, which regulated the exercise of rights by certain indirect and direct shareholders, was terminated on August 5, 2024.
• Transactions with related parties present potential conflicts of interest, as their interests may not align with those of other shareholders.

Stakeholder Impact

• Shareholders: Face dilution risk from the dual-class share structure, potential stock price volatility, and limited protection due to the company's foreign private issuer and controlled company status. No dividends are anticipated in the foreseeable future. Significant regulatory and geopolitical risks related to China and Hong Kong could adversely affect investment value.
• Employees: PRC subsidiaries' historical underpayment of social insurance and housing provident fund contributions could lead to future penalties. Expansion plans may create new employment opportunities.
• Customers and Merchants: Will be impacted by the company's evolving product offerings, service quality, and digital marketing effectiveness. The new fully managed e-commerce operation services aim to provide enhanced support, while changes in digital marketing partnerships (e.g., Google) could affect service availability.
• Suppliers: The company's ability to maintain strong relationships with its extensive network of suppliers, particularly key ones, is crucial for product sourcing and competitive positioning.
• Creditors: The company's liquidity and ability to service its debts, including recent convertible notes and other borrowings, will affect creditors. The reliance on cash flow from operations and recent capital raises are key factors.

Next Steps

• Expand Customer and Merchant bases into Southeast Asia, including Thailand, Malaysia, Indonesia, and the Philippines, through local partnerships, trade shows, and localized customer support.
• Seek additional authorized agency qualifications with other media beyond Google to diversify digital marketing revenue streams.
• Actively develop social e-commerce channels, leveraging TikTok's closed-loop ecosystem for precise user targeting and content dissemination.
• Broaden and deepen cooperation with third-party suppliers and brands, and expand private label smart product offerings (e.g., launching 3C products like Bluetooth earphones by October 2024).
• Venture into the Southeast Asian market by replicating the e-commerce service system, establishing representative offices, hiring local personnel, and investing in marketing.
• Expand manpower and talent pool, including forming a global business team of approximately 30 members to support Southeast Asian expansion (estimated cost $2M-$3M annually for the next two years).
• Further strengthen supply chain integration by attaching product labels for detailed information and establishing partnerships with logistics companies.
• Continue to invest in upgrading the Linkage ERP System (until 2025) and developing short-form video editing tools for customers.
• Implement remedial measures to address identified material weaknesses in internal control over financial reporting, including hiring qualified accounting staff, providing U.S. GAAP and SEC reporting training, creating a policies manual, and strengthening corporate governance.
• Linkage Holding intends to apply for a tax resident certificate from the Hong Kong tax authority if Linkage Network plans to declare and pay dividends to Linkage Holding.

Key Dates

Recommendation

Keywords

Cross-border e-commerce, Integrated e-commerce services, Digital marketing, Supply chain, Smart products, China, Japan, Hong Kong, SEC F-1, Share resale, Controlled company, Regulatory risk, Cybersecurity, Financial performance, Nasdaq, Private label, E-commerce training, Software support, TikTok Shop, Foreign private issuer