F-1/A: Linkage Global Reports Soaring Losses, Strategic Shift

Linkage Global Inc. filed an F-1/A to register shares for resale by a convertible note holder, revealing a strategic shift to high-margin e-commerce services despite declining cross-border sales and increased net losses.

Summary

• The filing is an amendment to a registration statement for the resale of up to 9,352,227 Class A Ordinary Shares by a selling shareholder, JAK Opportunities XXII LLC, stemming from a $3,500,000 unsecured convertible note issued on July 17, 2025.
• The company will not receive any proceeds from this resale.
• Net loss increased by 119.62% to $3.09 million for the six months ended March 31, 2025, compared to $1.41 million for the same period in 2024.
• Total revenues decreased by 27.02% to $3.50 million for the six months ended March 31, 2025, from $4.80 million in the prior year period.
• Cross-border sales revenue significantly decreased by 82.35% to $0.80 million, attributed to poor performance of 3C electronic products and a strategic shift.
• Integrated e-commerce services revenue surged by 930.08% to $2.70 million, driven by the new "fully managed e-commerce operation services" business, which contributed $2.59 million in revenue and $2.46 million in gross profit.
• Digital marketing services revenue declined due to the termination of the business agreement with Google in January 2025 and the initiation of HQT NETWORK's deregistration in April 2025.
• Gross profit increased by 280.57% to $2.70 million, and the overall gross margin rose from 14.77% to 77.04%, largely due to the high-margin new e-commerce operation services.
• Operating expenses increased by 91.01% to $4.34 million, primarily due to a $1.34 million allowance for credit loss, $1.21 million in stock-based compensation, and financial/legal consulting fees post-IPO.
• Interest expenses, net, dramatically increased by 2364.35% to $1.50 million, resulting from the issuance of $10 million in convertible notes in October 2024 with an actual interest rate of 42.52%.
• The company 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.
• Mr. Zhihua Wu resigned as CEO on April 14, 2025, but remains Chairman; Ms. Yang (Angela) Wang was appointed CEO on April 15, 2025.
• A 10-for-1 share consolidation was effected on April 7, 2025.
• A private placement of 4,000,000 Class A Ordinary Shares at $0.50 per share, raising $2,000,000, closed on June 6, 2025.

Sentiment

Score: 3

Explanation: The company experienced a substantial increase in net loss and a significant decline in overall revenue, primarily from its traditional cross-border sales. While a new high-margin e-commerce service shows promise, it is currently overshadowed by soaring interest expenses from convertible notes and identified material weaknesses in internal controls. The ongoing regulatory and geopolitical risks associated with its operations in China and Hong Kong, coupled with potential shareholder dilution from convertible notes, present considerable challenges.

Positives

• Significant growth in integrated e-commerce services revenue, increasing by 930.08% to $2.70 million for the six months ended March 31, 2025.
• The new "fully managed e-commerce operation services" business contributed $2.59 million in revenue and $2.46 million in gross profit, demonstrating high profitability with a 95.12% gross margin.
• Overall gross profit increased by 280.57% to $2.70 million, and the gross margin improved from 14.77% to 77.04% for the six months ended March 31, 2025.
• Cross-border sales gross margin improved from 12.70% to 21.31% due to a shift towards high-margin products.
• The company is actively expanding into the Southeast Asian market, including Thailand, Malaysia, Indonesia, and the Philippines, and has become a TikTok Shop partner in Malaysia and a top-tier TikTok guild in Thailand.
• Plans to invest in developing a wider selection of private label smart products and short-form video editing tools to enhance e-commerce capabilities.
• The company has established a new U.S. subsidiary, Linkage Global U.S. Inc., to serve as its agent for service of process in the U.S.
• The company's auditor, HTL International, LLC, is headquartered in Houston, Texas, and is subject to PCAOB inspections, mitigating delisting risks under the HFCA Act.

Negatives

• Total revenues decreased by 27.02% for the six months ended March 31, 2025, primarily due to an 82.35% decline in cross-border sales.
• Net loss increased by 119.62% to $3.09 million for the six months ended March 31, 2025.
• Interest expenses, net, increased by 2364.35% to $1.50 million due to the issuance of $10 million in convertible notes with a high actual interest rate of 42.52%.
• Digital marketing services revenue decreased significantly due to the termination of the business agreement with Google in January 2025 and the subsequent deregistration of HQT NETWORK.
• General and administrative expenses increased by 123.94% to $3.90 million, partly due to a $1.34 million allowance for credit loss and $1.21 million in stock-based compensation.
• The company has identified material weaknesses in its 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 voting control with holders of Class B Ordinary Shares, specifically Mr. Zhihua Wu (91.22% voting power), which could adversely affect public shareholders.
• Substantial related party transactions present potential conflicts of interest.
• The company does not intend to pay dividends in the foreseeable future.

Risks

• Operating in a highly competitive cross-border e-commerce service provider industry in Japan and China, facing competition from various providers.
• Historical performance may not be sustainable or indicative of future growth, with revenues decreasing from $22.03 million in FY2022 to $10.29 million in FY2024, and further to $3.50 million for the six months ended March 31, 2025.
• System interruptions and cybersecurity risks, including vulnerability to damage, breakdown, breach, or interruption from various events, such as cyber-attacks, affecting operations and reputation.
• Reliance on third-party manufacturers and suppliers, with no long-term supply agreements and dependence on a few key manufacturers for private label products, posing risks of supply disruption or quality issues.
• Loss of Google relationship for digital marketing services, as HQT NETWORK's agreement with Google ceased in January 2025, leading to cessation of related operations and deregistration.
• International operations are subject to legal, regulatory, political, and economic risks in mainland China, Hong Kong, and planned expansion into Southeast Asia, including local economic conditions, government regulations, and foreign currency restrictions.
• Inability to retain key personnel, as success depends on attracting and motivating highly skilled management and technical personnel in a competitive environment.
• Damage to brand image due to negative publicity or unsatisfactory customer/merchant experience, which could harm reputation and business.
• Unsuccessful new product or service launches, requiring significant upfront investments with no assurance of satisfactory revenues.
• Limited ability to raise capital in the future, which may not be available on acceptable terms or at all, potentially leading to dilution or increased debt.
• Increases in rental expenses or lease terminations, as the company depends on leased properties for warehouses and offices, with risks of increased costs or operational disruption.
• Inability to protect intellectual property, relying on trademark, copyright, domain name, and trade secret laws, but without guarantee against unauthorized usage or infringement claims.
• Product liability claims if customers are harmed by third-party manufactured products, with no product liability insurance.
• Insufficient insurance coverage, lacking business interruption, product liability, general third-party liability, or key man insurance.
• PRC subsidiaries have not made adequate social insurance and housing provident fund contributions for all employees, as required by PRC regulations, which may subject them to penalties.
• Potential adverse effects from violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
• Fluctuation of the Japanese Yen against foreign currencies may materially affect financial results, especially with increasing revenue and expenses denominated in non-JPY currencies.
• The dual-class share structure may be dilutive to the voting power of Class A Ordinary Shareholders, as Class B Ordinary Shares have significantly stronger voting power (100 votes per share vs. 1 for Class A).
• As a controlled company, the company may follow certain exemptions from Nasdaq corporate governance requirements, which could adversely affect public shareholders.
• Material weaknesses in internal control over financial reporting could result in inaccuracies in financial statements or fraud.
• 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.
• Risk of delisting under the Holding Foreign Companies Accountable Act (HFCA Act) if the PCAOB is unable to inspect the company's auditors for two consecutive years, although the current auditor is U.S.-based and inspected.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations, including government oversight, data security, cross-border data transfer, CSRC filing requirements for overseas listings, and M&A rules.
• The Chinese government may intervene or influence the operations of PRC subsidiaries at any time, potentially causing material changes to operations or value of Class A Ordinary Shares.
• Restrictions and limitations on the ability of PRC/Hong Kong entities to transfer cash or assets out of the PRC/Hong Kong due to government controls on currency conversion and statutory reserve requirements.
• Uncertainty regarding the enforceability of U.S. court judgments in the Cayman Islands, Japan, PRC, and Hong Kong.
• Potential classification as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. taxpayers.

Future Outlook

The company plans to expand its customer and merchant bases, particularly in Southeast Asia (Thailand, Malaysia, Indonesia, and the Philippines), by replicating its e-commerce service system and launching 3C products by October 2024. It intends to invest significantly in manpower for this expansion and in upgrading its Linkage ERP System with localized functions, as well as developing short-form video editing tools. The company does not anticipate paying cash dividends in the foreseeable future, preferring to retain earnings for business expansion.

Management Comments

• Our mission: To make cross-border transactions easier.
• 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.
• We believe that TikTok has built a complete closed-loop e-commerce ecosystem based on short-form videos and live broadcasts.
• We believe that we can expand into these new markets by leveraging our existing business data analysis technology.
• We believe this division of responsibilities is the most effective approach for addressing our cybersecurity risks and that our board leadership structure supports this approach.

Industry Context

The cross-border e-commerce service provider industry in Japan and China is highly competitive and rapidly evolving. The company is expanding into the Southeast Asian market, which has experienced rapid growth in cross-border e-commerce and social commerce. Social commerce, particularly through platforms like TikTok, is a significant and growing segment of the e-commerce market in Southeast Asia, contributing nearly $48 billion or 44% of the total e-commerce market in 2021. The company is adapting to changes in digital marketing, such as Google's more stringent incentive criteria, by engaging with other social platforms like TikTok and Facebook.

Comparison to Industry Standards

• No specific comparable companies or projects are mentioned for direct comparison within the filing.
• The company highlights its "comprehensive service system" and "diversified internal recommended or strictly selected product collections" as competitive strengths.
• Its "capability of providing targeted digital marketing services by leveraging business data analysis technology" is presented as a differentiator.
• The high gross margin (95.12%) for the new "fully managed e-commerce operation services" is noted as being due to low costs, as ERP system R&D was expensed in prior years, which might not be a sustainable competitive advantage if competitors have similar R&D structures.

Management Changes

Corporate Governance

Legal Proceedings

• No pending or threatened legal or administrative proceedings that would have a material adverse effect on the business as of March 31, 2025.

Related Party Transactions

• Substantial transactions with related parties, including the CEO's spouse (Ms. Xiaoyu Qi), directors (Mr. Fuyunishiki Ryo, Mr. Zhihua Wu), and a department head (Ms. Wu Shunyu).
• Amounts due to related parties decreased from $314,544 as of September 30, 2024, to nil as of March 31, 2025.
• An interest-bearing loan of $99,876 was provided to Ms. Qi Xiaoyu, which was returned in April 2025.
• Service fees of $342,988 were paid to Hermann Limited (a shareholder) for corporate management and consulting services for the six months ended March 31, 2025.
• Stock-based compensation of $1,209,000 was issued to Mr. Zhihua Wu in the form of 5,000,000 Class B ordinary shares on November 7, 2024.
• Repurchase of $500 worth of Class A shares from Smart Bloom Global Limited (owned by Mr. Zhihua Wu) by issuing Class B shares on March 13, 2025.

Stakeholder Impact

• Shareholders: Potential dilution from convertible notes and future equity raises; concentrated voting power with Class B shareholders; risks associated with PRC/Hong Kong operations and internal control weaknesses could negatively impact share value.
• Employees: Personnel shifts from cross-border sales to new e-commerce services; plans for expanding manpower in Southeast Asia; PRC subsidiaries have not made adequate social insurance and housing provident fund contributions, potentially leading to penalties.
• Customers/Merchants: Strategic shift to fully managed e-commerce services aims to better meet their needs; loss of Google partnership impacts digital marketing services; new product offerings and expansion into Southeast Asia aim to diversify and grow customer base.
• Creditors: Convertible notes carry a high actual interest rate (42.52%), increasing debt service obligations.
• Regulatory Bodies: Ongoing compliance efforts with SEC, Nasdaq, and evolving PRC/Hong Kong regulations on data security, overseas listings, and corporate governance.

Next Steps

• Complete the deregistration process for HQT NETWORK.
• Continue expanding and diversifying customer and merchant bases, particularly in Southeast Asia (Thailand, Malaysia, Indonesia, Philippines).
• Seek additional authorized agency qualifications from other media platforms.
• Leverage TikTok's e-commerce ecosystem and collaborate with influencers in Southeast Asia.
• Broaden and deepen cooperation with third-party suppliers and brands.
• Invest in developing private label smart products, including 3C electronics, for the Southeast Asian market by October 2024.
• Invest in upgrading the Linkage ERP System with localized functions for Southeast Asia.
• Develop short-form video editing tools for customers.
• Expand operational teams and form a global business team of approximately 30 members to support Southeast Asia expansion.
• Strengthen supply chain integration by adding product labels and establishing partnerships with logistics companies.
• Remediate identified material weaknesses in internal control over financial reporting by hiring qualified personnel, organizing training, creating U.S. GAAP accounting policies, and strengthening corporate governance.
• 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

The company faces significant financial headwinds, including a substantial increase in net loss and a sharp decline in its traditional cross-border sales revenue. While the new fully managed e-commerce operation services show high gross margins, the overall revenue decline and the dramatic increase in interest expenses from high-yield convertible notes are concerning. The identified material weaknesses in internal controls, coupled with the inherent risks of operating in China and Hong Kong (including regulatory uncertainties and potential delisting under the HFCA Act), create a highly speculative investment environment. The dual-class share structure further limits public shareholder influence. Given the deteriorating financial performance, high debt costs, and significant operational and regulatory risks, a seasoned investor would likely recommend selling to mitigate exposure to these uncertainties.

Keywords

cross-border e-commerce, integrated e-commerce services, digital marketing, fully managed e-commerce operations, convertible notes, SEC filing, F-1/A, Nasdaq, LGCB, Cayman Islands, Japan, Hong Kong, China, PRC regulations, cybersecurity, data privacy, HFCA Act, dual-class shares, related party transactions, financial performance, net loss, revenue decline, gross profit increase, internal controls, management change, Southeast Asia expansion, TikTok Shop, private label products, supply chain