20-F: Linkage Global Reports Steep Revenue Decline, Widening Losses

Linkage Global Inc. reported a significant decrease in revenue and a substantial increase in net loss for the fiscal year ended September 30, 2025, alongside ongoing internal control weaknesses and Nasdaq listing concerns.

Summary

• Total revenues decreased by 50.45% to $5.10 million for the fiscal year ended September 30, 2025, from $10.29 million in 2024.
• Cross-border sales revenue plummeted by 81.10% to $1.22 million in 2025, from $6.48 million in 2024, primarily due to insufficient competitiveness of 3C electronic products.
• Net loss increased significantly by 1577.10% to $7.37 million in 2025, compared to a net loss of $0.44 million in 2024.
• Operating expenses surged by 95.90% to $8.31 million in 2025, driven by increased general and administrative, selling and marketing, and research and development expenses.
• General and administrative expenses rose by 79.20% to $6.28 million, largely due to a $1.95 million allowance for credit loss, $1.21 million in stock-based compensation, and financial/legal consulting fees post-IPO.
• Selling and marketing expenses increased by 232.11% to $1.44 million, attributed to substantial advertising investments on platforms like Facebook to boost overseas business.
• Research and development expenses increased by 93.63% to $0.59 million, due to external firm engagement for ERP system optimization and development of overseas e-commerce independent sites.
• The company received a Nasdaq notice on October 31, 2024, for non-compliance with the $1 minimum bid price requirement, with a compliance period until April 29, 2025.
• HQT NETWORK, a subsidiary providing digital marketing services, ceased operations in April 2025, leading to a decrease in digital marketing revenue from $0.31 million in 2024 to $0.08 million in 2025.
• The company identified material weaknesses in internal control over financial reporting related to a lack of formal policies, independent supervision, and sufficient accounting staff with U.S. GAAP and SEC reporting knowledge.
• Issued $10 million convertible notes in October 2024 with an 8% interest rate and an effective annual interest rate of 42.52%, which were fully converted into equity shares on July 1, 2025.
• Issued an additional $3.5 million senior unsecured convertible note in July 2025 with a 10% interest rate and an effective annual interest rate of 54.61%.
• The company is a holding company incorporated in the Cayman Islands, conducting operations through subsidiaries in Japan, Hong Kong, and mainland China.
• Mr. Zhihua Wu, Chairman of the Board, holds 91.22% of the company's voting power, making it a controlled company under Nasdaq listing rules.
• The company plans to expand into Southeast Asian markets, including Thailand, Malaysia, Indonesia, and the Philippines, and has invested approximately $0.2 million from IPO proceeds for this expansion.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this as a highly negative report due to significant declines in revenue and net income, coupled with critical internal control weaknesses and Nasdaq listing compliance issues. While strategic shifts and capital raises are noted, the underlying financial performance and operational challenges present substantial concerns.

Positives

• Gross profit margin for integrated e-commerce related services increased from 85.52% in 2024 to 90.74% in 2025, primarily driven by fully managed e-commerce operation services.
• The gross profit of fully managed e-commerce operation services increased from $2.94 million to $3.40 million, with a gross profit margin of 91.41%, due to low operational costs as ERP system development expenses were recognized in prior years.
• The company is actively pursuing growth strategies, including diversifying customer and merchant bases, expanding into Southeast Asian markets, and developing a wider selection of private label smart products.
• Linkage Electronic achieved top-tier TikTok guild status in Thailand in December 2022, indicating successful initial penetration into the Southeast Asian social e-commerce market.
• The company has a deep understanding of consumer tastes and preferences, enabling it to identify, incubate, and promote fashionable smart electronic product brands.
• The company has an experienced management team with extensive industry knowledge in cross-border e-commerce markets in Japan and China.
• The company has established controls and procedures for cash flows and cybersecurity risk management, including internal protocols and real-time monitoring.
• Successfully raised approximately $1 million in gross proceeds from a private placement offering of Class A ordinary shares in December 2025.
• Entered into a non-binding Letter of Intent to acquire 100% of Cicada Tech Limited for an aggregate consideration of $60 million, indicating potential strategic expansion into tokenizing real-world assets.

Negatives

• Total revenues decreased by 50.45% from $10.29 million in 2024 to $5.10 million in 2025.
• Cross-border sales revenue decreased by 81.10% from $6.48 million in 2024 to $1.22 million in 2025, primarily due to insufficient competitiveness of 3C electronic products.
• Net loss increased significantly by 1577.10% from $0.44 million in 2024 to $7.37 million in 2025.
• Operating expenses increased by 95.90% to $8.31 million in 2025.
• General and administrative expenses increased by 79.20% to $6.28 million, partly due to a $1.95 million allowance for credit loss.
• Selling and marketing expenses increased by 232.11% to $1.44 million, indicating higher costs to drive sales amidst declining revenue.
• Digital marketing services revenue decreased from $0.31 million in 2024 to $0.08 million in 2025 due to the termination of HQT NETWORK's operations.
• Other e-commerce operation training and software support services revenue decreased from $0.22 million in 2024 to $0.08 million in 2025, partly due to the suspension of TikTok live stream guild business.
• The company incurred significant interest expenses of $3.00 million from convertible notes issued in October 2024 and $0.14 million from notes issued in July 2025.
• Cash and cash equivalents decreased by 63.28% from $2.00 million in 2024 to $0.73 million in 2025.
• Net cash used in operating activities increased by 186.45% to $4.68 million in 2025.
• Net cash used in investing activities increased by 2431.58% to $9.25 million in 2025, primarily due to proceeds of interest-bearing loans to third parties.
• The company received a notice from Nasdaq on October 31, 2024, for non-compliance with the minimum bid price requirement ($1 per share).
• 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.
• Engaged in substantial transactions with related parties, which present potential conflicts of interest.
• The company does not maintain business interruption insurance, product liability insurance, general third-party liability insurance, or key man insurance, exposing it to significant liabilities.
• The PRC subsidiaries have not made adequate social insurance and housing provident fund contributions for all employees, potentially leading to penalties.
• The company does not intend to pay dividends for the foreseeable future, meaning investors may only receive a return through share price appreciation.

Risks

• Operating in a highly-competitive cross-border e-commerce market in Japan and China, with potential for reduced profitability, market share, and brand recognition due to competitors with greater resources.
• Historical performance may not be sustainable or indicative of future growth, with revenues declining for three consecutive fiscal years.
• System interruptions or performance failures in technology infrastructure (e.g., Linkage ERP System, Honeybee product shelving software) could damage reputation and results of operations.
• Cybersecurity risks and incidents could disrupt operations, compromise confidential information, lead to asset misappropriation, and damage business relationships.
• Substantial transactions with related parties present possible conflicts of interest that could materially and adversely affect business, financial conditions, and results of operations.
• Fluctuation of the Japanese yen against foreign currencies may materially affect results of operations, as 88% of 2025 revenue was derived from markets outside Japan.
• Reliance on third-party manufacturers for private label smart products, with risks related to political/economic instability, natural disasters, financial stability, quality issues, and supply chain disruptions.
• Failure to effectively manage growth, especially with international expansion plans into Southeast Asia, could strain existing resources and adversely affect operating results.
• Inability to retain, attract, and motivate key personnel, particularly skilled management, R&D, marketing, and sales staff, could hinder business plan implementation.
• Failure to optimize warehouse and fulfillment networks could lead to excess or insufficient capacity, increased costs, and impairment charges.
• Damage to brand image due to unsatisfactory customer/merchant experiences or negative publicity could materially affect growth strategy and financial results.
• Real or perceived errors, failures, or bugs in services, software, or technology could adversely affect business, financial condition, and results of operations.
• Limited ability to raise capital in the future, with potential for significant dilution to existing shareholders if additional equity or debt securities are issued.
• Increases in rental expenses or termination of leases for warehouses and offices could disrupt operations and incur significant relocation expenses.
• Inability to successfully protect intellectual property and exclusive rights from unauthorized usage or infringement by third parties could harm brand and business.
• Exposure to legal and regulatory proceedings, including intellectual property infringement claims and customer complaints, which could be costly and divert management attention.
• Insufficient insurance coverage for all operational risks, including business interruption, product liability, general third-party liability, and key man insurance, leading to substantial uninsured liabilities.
• Non-compliance with PRC regulations regarding social insurance and housing provident fund contributions for employees, potentially leading to penalties.
• Adverse effects from violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws.
• Dual class share structure concentrates voting control with Class B Ordinary Shareholders, potentially adversely affecting public shareholders.
• As a controlled company, the company may follow exemptions from certain Nasdaq corporate governance requirements, offering less protection to public shareholders.
• Failure to implement and maintain effective internal controls or remediate identified material weaknesses could lead to inaccurate financial reporting and fraud, impacting investor confidence and share price.
• Volatility in the market price of Class A Ordinary Shares, potentially unrelated to operating performance, making it difficult for investors to assess value.
• Risk of delisting from Nasdaq under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditors for two consecutive years.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations, including those related to cybersecurity, data security, and overseas listings, could limit legal protection and affect operations.
• Potential for Chinese government intervention or influence over PRC subsidiaries' operations, which could cause material changes to operations or the value of Class A Ordinary Shares.
• Restrictions and limitations imposed by the PRC government on the transfer of cash or assets out of the PRC, potentially affecting the ability to fund operations or pay dividends.
• PRC regulations relating to offshore investment activities by PRC residents may subject beneficial owners or PRC subsidiaries to liability or penalties, and limit capital injection or profit distribution.
• PRC regulation of parent/subsidiary loans and direct investment by offshore holding companies may delay or prevent the use of offshore offering proceeds to fund PRC subsidiaries.
• Fluctuations in exchange rates between RMB/JPY and USD could materially and adversely affect results of operations and investment value.
• Potential classification as a PRC resident enterprise for tax purposes, leading to unfavorable tax consequences for the company and non-PRC shareholders.
• Uncertainty regarding indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies, potentially leading to additional tax liabilities.
• Chinese regulatory authorities could disallow the holding company structure, resulting in material changes to operations or the value of securities.
• Political risks associated with conducting business in Hong Kong, including potential impacts from the Hong Kong National Security Law and the HKAA, and changes in the legal system.
• Exposure to evolving Hong Kong laws and regulations regarding data security or antimonopoly, potentially leading to government enforcement actions, fines, and operational disruptions.
• Risk of being classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, leading to adverse tax consequences for U.S. taxpayers.

Future Outlook

The company plans to selectively launch integrated e-commerce related services in Southeast Asia (Thailand, Malaysia, Indonesia, Philippines) over the next two years, leveraging existing business data analysis technology. This includes establishing representative offices, hiring local personnel, and investing in marketing activities. The company also intends to expand its manpower and talent pool, investing approximately $2 million to $3 million annually for a global business team of 30 members to support Southeast Asian expansion. Further investments are planned for strengthening supply chain integration (approximately 30% of IPO net proceeds), broadening product selection, and developing private label smart products, including 3C products like Bluetooth earphones, for launch in October 2024 in Southeast Asia. Research and development efforts will continue to focus on upgrading the Linkage ERP System with localized functions for Southeast Asia and developing short-form video editing tools for customers.

Management Comments

• "The decrease in cross-border sales was mainly due to the following reason that the 3C electronic products sold by the Company mainly include headphones and power banks. In recent years, with the increasingly fierce competition in the cross-border e-commerce market, the sales volume of the Company's products has dropped sharply due to insufficient competitiveness. In response, the Company has shifted its business focus to fully managed e-commerce operation services as well as the development and design of new headphone products."
• "Against the backdrop of business decline, the Company has invested substantial advertising expenses on platforms such as Facebook to drive the development of its overseas business."
• "The reasons for the increase in R&D expenses are that the Company has engaged external firm to enhance the development and optimization of its ERP system in order to drive the growth of its fully managed e-commerce operation services, and has also invested funds in the development of overseas e-commerce independent sites to support the future expansion of its e-commerce platform."
• "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

StockSavvy.ai notes that Linkage Global's strategic pivot towards fully managed e-commerce services and expansion into Southeast Asian social e-commerce platforms like TikTok aligns with broader industry trends of increasing demand for comprehensive e-commerce solutions and the rapid growth of social commerce, particularly in emerging markets. The decline in traditional cross-border sales of 3C electronic products reflects intense competition and evolving consumer preferences in a mature market. The company's investment in ERP system localization and short-form video editing tools indicates an understanding of the technological demands for effective engagement in these new markets. However, the significant increase in marketing expenses amidst declining revenue suggests a challenging competitive landscape where customer acquisition costs are rising, a common trend in highly saturated digital advertising markets.

Comparison to Industry Standards

• The company's shift to fully managed e-commerce operation services with a 91.41% gross profit margin is significantly higher than its traditional cross-border sales (15.23% gross margin), indicating a move towards a more profitable service-oriented model, which is a positive trend seen in many e-commerce support industries.
• The substantial increase in net loss and decline in total revenue contrasts sharply with the general growth trajectory of the broader cross-border e-commerce market, particularly in Southeast Asia, as highlighted by the Frost & Sullivan report commissioned by the company. This suggests the company is struggling to capture market share or maintain profitability despite industry tailwinds.
• The company's non-compliance with Nasdaq's minimum bid price requirement and identified material weaknesses in internal controls are below standard corporate governance and financial health benchmarks for publicly traded companies, especially compared to established e-commerce players or well-managed emerging market companies.
• The high effective annual interest rates on convertible notes (42.52% and 54.61%) are significantly above typical corporate borrowing rates, indicating a higher cost of capital and potentially reflecting increased risk perception by investors compared to industry peers with stronger financial standing.

Management Changes

Corporate Governance

Legal Proceedings

• No legal or administrative proceedings are currently pending or threatened that, in management's opinion, would have a material adverse effect on the business, financial condition, operating results, or cash flows.

Related Party Transactions

• Amounts due to related parties were $426,043 as of September 30, 2025, consisting of interest-free loans from Mrs. Qi Xiaoyu ($7,316) and Mr. Fuyunishiki Ryo ($418,727), and expenses paid on behalf of the Group by Ms. Wu Shunyu ($0).
• Amounts due from related parties were $799,917 as of September 30, 2025, primarily from Hermann Limited for prepayment of services.
• Expenses paid on behalf of the Group by related parties totaled $0 in 2025, $446,469 in 2024, and $1,728,398 in 2023.
• Proceeds of interest-free loans from related parties totaled $222,050 in 2025, $3,031,467 in 2024, and $0 in 2023.
• Repayments to (receivable from) related parties totaled $105,601 in 2025, $4,593,092 in 2024, and $(35,990) in 2023.
• Service provided by Hermann Limited, a shareholder, amounted to $684,422 in 2025.
• Stock-based compensation of $1,209,000 was granted to Mr. Wu Zhihua in 2025 through the issuance of Class B ordinary shares.
• Repurchase of Class A Shares by issuing Class B Shares from Smart Bloom Global Limited (owned by Wu Zhihua) amounted to $1,250 in 2025.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from convertible notes and private placements, reduced voting power due to the dual-class structure, and potential delisting from Nasdaq due to bid price non-compliance. The substantial net loss and declining revenue negatively impact investment value. No dividends are anticipated in the foreseeable future.
• **Employees**: PRC subsidiaries have not made adequate social insurance and housing provident fund contributions, potentially leading to future liabilities and affecting employee benefits. The company plans to expand manpower, which could create new opportunities.
• **Customers**: The shift to fully managed e-commerce services and focus on private label smart products aims to enhance customer satisfaction and offerings. However, declining cross-border sales and termination of digital marketing services may impact certain customer segments.
• **Suppliers**: The company's reliance on a few key suppliers (e.g., four suppliers accounted for 19.43%, 14.81%, 17.61%, and 10.74% of purchases in 2025) creates concentration risk. Maintaining strong relationships is critical for product availability.
• **Creditors**: The issuance of convertible notes with high effective interest rates (42.52%, 54.61%) indicates increased financial risk for creditors, although the notes were converted to equity or are unsecured. The company's liquidity position has weakened, with cash on hand decreasing.

Next Steps

• Regain compliance with Nasdaq's $1 minimum bid price requirement by April 29, 2025.
• Remediate identified material weaknesses in internal control over financial reporting, including hiring qualified accounting staff and implementing formal policies.
• Continue expansion into Southeast Asian markets (Thailand, Malaysia, Indonesia, Philippines) over the next two years.
• Invest in upgrading the Linkage ERP System with localized functions for Southeast Asia.
• Develop short-form video editing tools for customers.
• Broaden and deepen cooperation with third-party suppliers and brands, and expand private label product offerings.
• Form a global business team of approximately 30 members to support Southeast Asian market expansion.
• Potentially acquire 100% of Cicada Tech Limited for $60 million, with $3 million in cash and the remainder in Class A ordinary shares.
• Launch 3C products, including Bluetooth earphones, in Southeast Asian countries in October 2024.
• 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's financial performance for fiscal year 2025 is severely concerning, marked by a 50% revenue decline and a 1577% increase in net loss. This is compounded by identified material weaknesses in internal controls, a Nasdaq minimum bid price non-compliance notice, and a high cost of capital from recent convertible note issuances. While strategic shifts and potential acquisitions are noted, the immediate financial deterioration and governance issues present substantial risks. The dual-class share structure further limits public shareholder influence. These factors collectively indicate a highly unfavorable investment outlook.

Keywords

Cross-border e-commerce, Integrated e-commerce services, Digital marketing, Supply chain management, Private label products, Smart electronics, Southeast Asia expansion, Nasdaq listing, Internal control weaknesses, Convertible notes, Related party transactions, PRC regulations, Hong Kong operations, Japan operations, Cybersecurity risks, Dual class shares, Financial performance, Net loss, Revenue decline, Capital raise, TikTok guild, ERP system, Share consolidation