F-1/A: Linkage Global Inc. Navigates Revenue Decline with Strategic Shift to E-commerce Services and Southeast Asia Expansion

Linkage Global Inc. reported a significant 19.19% decrease in total revenue for the fiscal year ended September 30, 2024, primarily driven by a sharp decline in cross-border sales, while simultaneously launching new fully managed e-commerce operation services and securing new capital to fund international expansion.

Summary

• Total revenues decreased by approximately $2.44 million, or 19.19%, from $12.73 million in fiscal year 2023 to $10.29 million in fiscal year 2024.
• Cross-border sales revenue declined by approximately $4.11 million, or 38.82%, to $6.48 million in fiscal year 2024, primarily due to the depreciation of the Japanese yen and reduced consumer purchasing power for non-essential goods.
• Integrated e-commerce services revenue increased by approximately $1.67 million, or 77.64%, to $3.81 million in fiscal year 2024, largely driven by the new fully managed e-commerce operation services which contributed $3.28 million in revenue.
• Digital marketing services revenue decreased from $1.53 million in fiscal year 2023 to $0.31 million in fiscal year 2024, attributed to Google's stricter incentive policies and a 40.76% decrease in merchants.
• Gross profit increased by approximately $2.31 million, or 123.91%, to $4.17 million in fiscal year 2024, with the gross margin improving from 14.61% to 40.49%, mainly due to the high gross margin (89.62%) of the new fully managed e-commerce operation services.
• Operating expenses increased by 74.49% to $4.24 million in fiscal year 2024, primarily due to a 155.23% increase in general and administrative expenses, driven by allowance for credit loss and post-IPO consulting fees.
• Net loss decreased by $0.21 million, or 32.69%, from $0.65 million in fiscal year 2023 to $0.44 million in fiscal year 2024.
• The company completed its initial public offering in December 2023, issuing 1,500,000 Class A Ordinary Shares at $4.00 per share, generating net proceeds of approximately $5.4 million.
• Issued convertible promissory notes in September 2024 for an aggregate principal amount of $10.83 million, bearing 8% interest per annum with a one-year term, and issued 9,300,000 Class A Ordinary Shares for pre-delivery.
• The company regained compliance with Nasdaq's minimum bid price requirement in April 2025.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative. While the company shows strategic initiative with new e-commerce services and international expansion plans, the significant decline in overall revenue and core business, coupled with continued net losses and identified material weaknesses in internal controls, presents substantial financial and operational challenges. The reliance on a few key customers and suppliers, along with the complex and uncertain regulatory environment in China and Hong Kong, adds considerable risk. The capital raise through convertible bonds, while providing liquidity, also introduces potential dilution and debt obligations. The positive gross profit trend is offset by the overall revenue contraction and increased G&A expenses.

Positives

• Launch of new 'fully managed e-commerce operation services' in April 2024, which significantly contributed to revenue and gross profit, demonstrating successful diversification.
• Significant increase in gross profit by 123.91% and gross margin to 40.49% in fiscal year 2024, driven by the high profitability of the new e-commerce operation services (89.62% gross margin).
• Net loss narrowed by 32.69% in fiscal year 2024, indicating an improvement in overall financial performance despite revenue decline.
• Successful completion of an initial public offering in December 2023, raising approximately $5.4 million in net proceeds, enhancing capital resources.
• Regained compliance with Nasdaq's minimum bid price requirement in April 2025, ensuring continued listing.
• Auditor, HTL International, LLC, is PCAOB inspected, mitigating immediate delisting risks under the HFCA Act.
• Strategic plans for international expansion into Southeast Asian markets (Thailand, Malaysia, Indonesia, Philippines) and active layout of social e-commerce channels (TikTok Shop partner).
• Continued investment in research and development for ERP system upgrades and new short-form video editing tools to enhance service offerings.

Negatives

• Overall total revenue decreased significantly by 19.19% in fiscal year 2024, continuing a downward trend from fiscal year 2022.
• Cross-border sales, the company's primary revenue source, experienced a substantial 38.82% decline in fiscal year 2024, primarily due to external economic factors like Japanese yen depreciation and reduced consumer spending.
• Digital marketing services revenue sharply decreased due to Google's updated agreements with more stringent incentive criteria and a 40.76% reduction in merchants.
• E-commerce operation training and software support services revenue also decreased in fiscal year 2024.
• The company reported a net loss for the second consecutive year in fiscal year 2024, following a net income in fiscal year 2022.
• General and administrative expenses increased significantly by 155.23% in fiscal year 2024, partly due to a substantial increase in allowance for credit loss and post-IPO consulting fees.
• 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 dual-class share structure concentrates 94.29% of voting power with the Chairman, Mr. Zhihua Wu, potentially limiting the influence of other shareholders.
• The company does not intend to pay dividends in the foreseeable future, limiting investor returns to share price appreciation.
• Significant operational and legal risks associated with doing business in mainland China and Hong Kong due to evolving and uncertain regulatory environments, including data security, cybersecurity reviews, and potential government intervention.
• PRC subsidiaries have not made adequate social insurance and housing provident fund contributions for all employees, potentially leading to penalties.
• Uncertainty regarding the enforceability of U.S. court judgments in the Cayman Islands, Japan, Hong Kong, and mainland China.
• Potential for the company to be classified as a Passive Foreign Investment Company (PFIC) for U.S. taxpayers, leading to adverse tax consequences.
• Issuance of convertible bonds and pre-delivery Class A shares could lead to future dilution for existing shareholders.

Risks

• Operating in a highly-competitive cross-border e-commerce service provider market in Japan and China, with potential failure to compete effectively.
• Historical performance may not be sustainable or indicative of future growth, with revenues declining for two consecutive fiscal years.
• System interruptions or performance failures in technology infrastructure could damage reputation and results of operations.
• Cybersecurity risks and cyber incidents could disrupt operations, compromise confidential information, and damage business relationships.
• Substantial transactions with related parties present possible conflicts of interest that could materially and adversely affect business.
• Fluctuation of the Japanese yen against foreign currencies may materially affect results of operations.
• Failure to obtain and maintain required licenses and permits or to comply with regulations regarding liquor, pharmaceuticals, medical devices, or secondhand goods.
• Potential product liability claims if customers are harmed by products sold through distribution channels, as the company does not maintain product liability insurance.
• Dual class share structure may be dilutive to the voting power of Class A Ordinary Shareholders.
• As a controlled company, the company may follow certain exemptions from 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 lead to inaccurate financial reporting and affect investor confidence.
• The market price of Class A Ordinary Shares may be volatile or decline regardless of operating performance, and could be subject to rapid and substantial volatility due to small capitalization and public float.
• Substantial future sales of Class A Ordinary Shares or the anticipation of such sales could cause the share price to decline.
• The company does not intend to pay dividends for the foreseeable future, limiting investor returns to share price appreciation.
• If securities or industry analysts do not publish research or reports, or publish negative reports, the share price and trading volume could decline.
• Ceasing to qualify as a foreign private issuer would require compliance with full U.S. domestic issuer reporting requirements, incurring significant additional expenses.
• Anti-takeover provisions in the amended and restated memorandum and articles of association may discourage, delay, or prevent a change in control.
• As an emerging growth company, the company is subject to reduced reporting requirements, which could affect investor confidence.
• Laws of the Cayman Islands may not provide shareholders with benefits comparable to those provided to shareholders of U.S. corporations, making it difficult to protect interests.
• U.S. taxpayers owning Class A Ordinary Shares may face adverse U.S. federal income tax consequences if the company is classified as a PFIC.
• The Hong Kong National Security Law and the Hong Kong Autonomy Act could impact Hong Kong subsidiaries' business operations and financial position.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations and rapid changes in policies could limit legal protection.
• Difficulties in effecting service of legal process, enforcing foreign judgments, or conducting investigations/collecting evidence in China.
• Chinese government's significant oversight and discretion over PRC subsidiaries' business may lead to intervention or influence at any time.
• Any Chinese government actions, including intervention or control over overseas offerings/foreign investment, may cause material changes to operations or hinder ability to offer securities.
• Recent greater oversight by the Cyberspace Administration of China (CAC) over data security, particularly for companies seeking foreign listings, 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 call for more stringent criteria for emerging market companies' auditors, adding uncertainties to Nasdaq listing.
• Cash or assets in PRC/Hong Kong entities may not be available for use outside due to government restrictions on cash/asset transfers.
• Approval and filing with the CSRC or other PRC government authorities may be required for future offerings, and failure to obtain could lead to sanctions.
• M&A Rules and other PRC regulations establish complex procedures for foreign acquisitions of Chinese companies, making growth through acquisitions more difficult.
• Chinese regulatory authorities could disallow the holding company structure, resulting in material changes to operations or value of securities.
• Increases in labor costs in the PRC may adversely affect business and profitability.
• PRC regulations relating to offshore investment activities by PRC residents (SAFE Circular 37/13) may subject beneficial owners or subsidiaries to liability or penalties.
• PRC regulation of parent/subsidiary loans and direct investment by offshore holding companies may delay or prevent using offshore proceeds for PRC entities.
• Fluctuations in exchange rates (RMB, JPY against USD) could have a material adverse effect on results of operations and investment value.
• Potential classification as a PRC resident enterprise for PRC enterprise income tax purposes could result in unfavorable tax consequences.
• Uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies (SAT Circular 7/37).
• Restrictions on PRC subsidiaries paying dividends or making other payments to the company.
• Governmental control of currency conversion may affect investment value and dividend payments.
• Significant uncertainties under the EIT Law relating to withholding tax liabilities of PRC subsidiaries and eligibility for treaty benefits.
• Direct scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies could harm business, share price, and reputation.
• Disclosures in SEC filings are not subject to scrutiny by any regulatory bodies in the PRC.

Future Outlook

Linkage Global Inc. plans to expand its customer and merchant bases into Southeast Asia, including Thailand, Malaysia, Indonesia, and the Philippines, over the next two years. This expansion will involve partnering with local distributors, attending trade shows, offering promotions, and providing local language support. The company intends to launch 3C products, such as Bluetooth earphones, in Southeast Asian markets by October 2024. It will also actively develop social e-commerce channels, leveraging its TikTok Shop partner status and collaborating with influencers. The company plans to broaden its product selection by deepening cooperation with third-party suppliers and expanding private label smart product offerings. Significant investment is planned for strengthening supply chain integration and expanding manpower, including a global business team for Southeast Asia, with expected annual expenses of $2 million to $3 million. The company will continue to upgrade its Linkage ERP System and develop new short-form video editing tools. Future earnings are expected to be retained to finance business expansion, with no cash dividends anticipated in the foreseeable future.

Management Comments

• "Our mission is to make cross-border transactions easier."
• "We are looking to expand the Customer and Merchant bases into Southeast Asia, including Thailand, Malaysia, Indonesia, and the Philippines."
• "We will monitor popular media, which have already acquired massive traffic, as well as those up-and-coming media with innovative advertising formats, which are expected to attract a significant amount of audience attention in the future, and seek more authorized agency qualifications of them."
• "We believe that TikTok has built a complete closed-loop e-commerce ecosystem based on short-form videos and live broadcasts."
• "Our plan includes leveraging TikToks closed-loop e-commerce ecosystem, utilizing precise user targeting and burst content dissemination mechanisms to create high-quality content that resonates with potential customers, exploring opportunities to integrate our products and services directly into the TikTok app, and developing targeted advertising campaigns on TikTok to reach potential customers in Southeast Asia."
• "We will also continue to invest in developing private label smart products, including but not limited to Bluetooth headphone, digital watches and Bluetooth speaker."
• "We intend to selectively launch our integrated e-commerce related services in Southeast Asia for the following two years, starting from markets such as the Thailand, Malaysia, and Indonesia."
• "We intend to further expand to Indonesia and Philippines in 2024."
• "We plan to launch our 3C products, including Bluetooth earphones, in October 2024 and aim to market these products in Southeast Asian countries, such as Indonesia and the Philippines."
• "We intend to expand the Operating Entities operational teams to serve the growing Customer and Merchant bases and maintain relationships with an increasing number of suppliers."
• "We expect to incur expenses ranging between approximately $2 million and $3 million for each year for a global business team of approximately 30 members to support our expansion into the Southeast Asian market."
• "We expect to invest approximately 30% of the net proceeds of our initial public offering in strengthening our supply chain integration."
• "The Company intends to continue to invest in upgrading the Linkage ERP System, in the way of introducing much more variety of products and integrating more supporting functions, in particular, developing functions that are localized to the Southeast Asia markets."
• "The Company also intends to invest in developing short-form video editing tools, enabling Customers to edit videos to showcase their products with e-commerce related labels."
• "We believe our current working capital is sufficient to support our operations for the next twelve months."
• "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."

Industry Context

Linkage Global Inc. operates within the highly competitive and rapidly evolving cross-border e-commerce service provider industry in Japan and China. The company's shift towards integrated e-commerce services, particularly the new fully managed e-commerce operation services, aligns with the broader trend of e-commerce platforms offering more comprehensive solutions to sellers. The significant decline in digital marketing revenue due to changes in Google's incentive policies highlights the volatility and dependence on major platform partners in the digital advertising sector. The strategic focus on expanding into the Southeast Asian market, including partnerships with platforms like TikTok Shop, reflects the industry's pursuit of high-growth emerging markets and the increasing importance of social commerce. The company's investment in ERP systems and video editing tools indicates a move towards leveraging technology for operational efficiency and enhanced marketing capabilities, a common trend among e-commerce service providers aiming to differentiate themselves.

Comparison to Industry Standards

• The company's overall revenue decline from $22.03 million in 2022 to $10.29 million in 2024 suggests underperformance compared to a growing global e-commerce market, which has seen consistent expansion. For example, global e-commerce sales have generally shown robust growth, with many major players reporting double-digit percentage increases in recent years.
• The high gross margin of 89.62% for the new 'fully managed e-commerce operation services' is exceptionally strong, potentially indicating a highly efficient or nascent service model. This contrasts sharply with the much lower gross margins of 7.82% to 13.99% seen in their traditional cross-border sales, which are more typical of product-based e-commerce businesses.
• The significant decrease in digital marketing services revenue due to Google's stricter incentive policies highlights a vulnerability to platform-specific changes, which is a common challenge for agencies heavily reliant on a single major platform like Google or Meta. Diversification of agency partnerships is an industry best practice to mitigate such risks.
• The company's reliance on a few major customers (e.g., Customer E accounting for 23.08% of 2024 revenue) and suppliers (e.g., Supplier N at 15.39% of purchases in 2024) is a concentration risk that is generally higher than industry standards for diversified e-commerce platforms, which typically aim for a broader customer and supplier base to reduce dependency.
• The identified material weaknesses in internal control over financial reporting, particularly regarding U.S. GAAP and SEC reporting knowledge, indicate a gap in financial infrastructure that is below the expected standards for a publicly traded company on Nasdaq, especially compared to more mature U.S. domestic issuers.
• The dual-class share structure with 94.29% voting power concentrated in one individual is a corporate governance structure that deviates significantly from typical U.S. public company standards, where independent board oversight and broader shareholder voting rights are emphasized. While permitted for controlled companies on Nasdaq, it offers less protection to minority shareholders compared to companies without such structures.

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 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 2023 and $1,273,832 in 2022.
• Expenses paid on behalf of the Group by related parties totaled $446,469 in fiscal year 2024, compared to $1,728,398 in 2023 and $1,424,460 in 2022.
• Proceeds from interest-free loans from related parties amounted to $3,031,467 in fiscal year 2024.
• Repayments to related parties totaled $4,593,092 in fiscal year 2024.
• The company has exclusive licensing agreements with Ms. Xiaoyu Qi (spouse of CEO Mr. Zhihua Wu) for ten Japanese trademarks, granted free of charge for ten-year terms.
• The Concerted Actor Agreement, involving Mr. Zhihua Wu and other shareholders, was terminated on August 5, 2024.

Stakeholder Impact

• **Shareholders:** Potential for dilution from convertible bonds and pre-delivery shares. Limited voting power for Class A shareholders due to dual-class structure. No dividends expected in the foreseeable future. Exposure to significant regulatory and geopolitical risks related to operations in China and Hong Kong. Potential for increased share price volatility.
• **Employees:** Salaries of R&D personnel now engaged in new e-commerce operations are included in cost of business. PRC subsidiaries have not made adequate social insurance and housing provident fund contributions, potentially impacting employee benefits and company's financial stability due to penalties. Plans to expand manpower for Southeast Asia expansion.
• **Customers:** New 'fully managed e-commerce operation services' aim to provide comprehensive support, potentially improving customer experience. However, long credit terms for this new business may impact cash flow. Diversified product collections and targeted digital marketing aim to enhance customer value.
• **Suppliers:** Company relies on a few major suppliers, posing a risk if relationships are not maintained. Efforts to strengthen supply chain integration and broaden product selection could benefit suppliers through increased volume and deeper partnerships.
• **Creditors:** The issuance of convertible bonds adds to the company's debt obligations. The company's ability to meet these obligations depends on its future profitability and cash flow generation, especially from new business lines.

Next Steps

• Expand customer and merchant bases into Southeast Asia, including Thailand, Malaysia, Indonesia, and the Philippines.
• Partner with local distributors, retailers, or e-commerce platforms in Southeast Asia.
• Attend relevant trade shows and exhibitions in Southeast Asia to raise brand awareness and make new business connections.
• Offer promotions and discounts attractive to local customers and provide customer support in local languages in new markets.
• Monitor popular media and up-and-coming media with innovative advertising formats to seek more authorized agency qualifications.
• Leverage TikTok's closed-loop e-commerce ecosystem and precise user targeting to create high-quality content and targeted advertising campaigns in Southeast Asia.
• Broaden and deepen cooperation with leading third-party suppliers and brands, and discover more emerging brands globally.
• Continue to invest in developing private label smart products, including Bluetooth headphones, digital watches, and Bluetooth speakers.
• Expand manpower and talent pool, including forming a global business team of approximately 30 members for Southeast Asia expansion.
• Invest approximately 30% of IPO net proceeds in strengthening supply chain integration, including product labeling and logistics partnerships.
• Continue to upgrade the Linkage ERP System, introducing more product varieties and integrating localized functions for Southeast Asian markets.
• Invest in developing short-form video editing tools for customers to create informative and attractive product videos for social media platforms like TikTok.
• Implement additional measures to improve internal control over financial reporting, including hiring qualified accounting/financial personnel, organizing regular training, creating a U.S. GAAP accounting policies and procedures manual, and strengthening corporate governance.

Key Dates

Recommendation

Keywords

Cross-border e-commerce, Integrated e-commerce services, Digital marketing, E-commerce operation training, Software support services, TikTok Shop partner, Southeast Asia expansion, Japan market, China market, Hong Kong market, SEC filing, F-1/A, Convertible bonds, Dual-class shares, Controlled company, PCAOB inspection, HFCA Act, PRC regulations, Data security, Cybersecurity, Supply chain, Financial performance, Revenue decline, Gross profit increase, Net loss, Internal controls, Related party transactions, Foreign private issuer, Nasdaq listing