UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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Lakeside Holding Limited
FORM 10-Q
For the Quarterly Period Ended December 31, 2024
INDEX
i
EXPLANATORY NOTE
As used in this Quarterly Report on Form 10-Q, unless otherwise indicated or the context otherwise requires, references to “Lakeside,” “the Company,” “we,” “us,” and “our” refer to Lakeside Holding Limited together with its consolidated subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain statements related to future results, or states our intentions, beliefs, and expectations or predictions for the future, all of which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent management’s expectations or forecasts of future events. Forward-looking statements are typically identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “project,” “intend,” “plan,” “probably,” “potential,” “looking forward,” “continue,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will,” and “would.” You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Forward-looking statements in this Form 10-Q may include, for example, statements concerning:
| ● | our future operating and financial performance, ability to generate positive cash flow and ability to achieve and sustain profitability; |
| ● | our competitive position; |
| ● | the sufficiency of our existing capital resources to fund our future operating expenses; |
| ● | the timing of the introduction of new solutions and services; |
| ● | the likelihood of success in and impact of litigation; |
| ● | our protection or enforcement of our intellectual property rights; |
| ● | our expectation with respect to securities, options and future markets and general economic conditions; |
| ● | our ability to keep up with rapid technological change; |
| ● | the impact of future legislation and regulatory changes on our business; and |
| ● | our anticipated use of proceeds from our initial public offering. |
Any or all of our forward-looking statements may turn out to be inaccurate, and there are no guarantees about our performance. The factors identified above are not exhaustive. We operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, readers should not place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We are under no (and expressly disclaim any) obligation to update or alter any forward-looking statement that we may make from time to time, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LAKESIDE
HOLDING LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As of (unaudited) | As of (audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable – third parties, net | ||||||||
| Accounts receivable – related party, net | ||||||||
| Prepayment and other receivable | ||||||||
| Contract assets | ||||||||
| Inventory, net | ||||||||
| Due from related parties | ||||||||
| Loan to a third party | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Investment in other entity | ||||||||
| Property and equipment at cost, net of accumulated depreciation | ||||||||
| Intangible asset, net | ||||||||
| Right of use operating lease assets | ||||||||
| Right of use financing lease assets | ||||||||
| Deferred tax asset | ||||||||
| Deferred offering costs | ||||||||
| Deposit and prepayment | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payables – third parties | $ | $ | ||||||
| Accounts payables – related parties | ||||||||
| Accrued liabilities and other payables | ||||||||
| Current portion of obligations under operating leases | ||||||||
| Current portion of obligations under financing leases | ||||||||
| Loans payable, current | ||||||||
| Dividend payable | ||||||||
| Tax payable | ||||||||
| Due to shareholders | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Loans payable, non-current | ||||||||
| Deferred tax liabilities | ||||||||
| Obligations under operating leases, non-current | ||||||||
| Obligations under financing leases, non-current | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Commitments and Contingencies | ||||||||
| EQUITY | ||||||||
| Common stocks, $ | ||||||||
| Subscription receivable | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Deficits | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
LAKESIDE
HOLDING LIMITED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Six Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue from cross-border freight solutions – third party | $ | $ | $ | $ | ||||||||||||
| Revenue from cross-border freight solutions – related parties | ||||||||||||||||
| Revenue from distribution of pharmaceutical products – third parties | - | - | ||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue from cross-border freight solutions – third party | ||||||||||||||||
| Cost of revenue from cross-border freight solutions – related party | ||||||||||||||||
| Cost of revenue from pharmaceutical products – related parties | - | - | ||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss from deconsolidation of a subsidiary | ||||||||||||||||
| Provision (reversal) of allowance for expected credit loss | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income | ||||||||||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense (credit) | ||||||||||||||||
| Net (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: net loss attributable to non-controlling interest | ( | ) | ||||||||||||||
| Net (loss) income attributable to the Company | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation income | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: comprehensive loss attributable to non-controlling interest | ( | ) | ||||||||||||||
| Comprehensive (loss) income attributable to the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| (Loss) earnings per share – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted Average Shares Outstanding – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
LAKESIDE
HOLDING LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2024 AND 2023
(UNAUDITED)
| For The Three Months Ended December 31, 2023 | ||||||||||||||||||||||||||||||||
| Common Shares | Amount | Subscription Receivable | Additional Paid in Capital | Retained Earnings (Deficits) | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total | |||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| For The Six Months Ended December 31, 2023 | ||||||||||||||||||||||||||||||||
| Common Shares | Amount | Subscription Receivable | Additional Paid in Capital | Retained Earnings (Deficits) | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total | |||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net income (loss) for the period | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Termination of S Corporation upon reorganization | — | ( | ) | |||||||||||||||||||||||||||||
| Deconsolidation of a subsidiary | — | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | |||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| For The Three Months Ended December 31, 2024 | ||||||||||||||||||||||||||||
| Common Shares | Amount | Subscription Receivable | Additional Paid in Capital | Retained Earnings (Deficits) | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| For The Six Months Ended December 31, 2024 | ||||||||||||||||||||||||||||
| Common Shares | Amount | Subscription Receivable | Additional Paid in Capital | Retained Earnings (Deficits) | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||
| Paid in capital | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Initial public offering, net of share issuance costs | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
LAKESIDE
HOLDING LIMITED
CONDENSSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation – G&A | ||||||||
| Depreciation – cost of revenue | ||||||||
| Amortization and interest expense of operating lease assets | ||||||||
| Depreciation of right-of-use finance assets | ||||||||
| Provision of allowance for expected credit loss | ||||||||
| Deferred tax expense | ||||||||
| Loss from derecognition of shares in subsidiary | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable – third parties | ( | ) | ||||||
| Accounts receivable – related parties | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Inventories, net | ( | ) | ||||||
| Due from related parties | ( | ) | ||||||
| Prepayment, other deposit | ( | ) | ( | ) | ||||
| Accounts payables – third parties | ||||||||
| Accounts payables – related parties | ( | ) | ||||||
| Accrued expense and other payables | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of furniture and equipment | ( | ) | ||||||
| Payment for leasehold improvement | ( | ) | ||||||
| Net cash payment for asset acquisition | ( | ) | ||||||
| Loan to a third party | ( | ) | ||||||
| Payment made for investment in other entity | ( | ) | ||||||
| Net cash outflow from deconsolidation of a subsidiary (Appendix A) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans | ||||||||
| Repayment of loans | ( | ) | ( | ) | ||||
| Repayment of equipment and vehicle loans | ( | ) | ( | ) | ||||
| Principal payment of finance lease liabilities | ( | ) | ( | ) | ||||
| Payment for deferring offering cost | ( | ) | ||||||
| Advances from Hupan Pharmaceutical prior to acquisition | ||||||||
| Proceeds from initial public offering, net of share issuance costs | ||||||||
| Advanced to related parties | ( | ) | ||||||
| Proceeds from shareholders | ||||||||
| Repayment to shareholders | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase in cash | ||||||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH IN INVESTING AND FINANCING ACTIVITIES | ||||||||
| Deferred offering costs within due to shareholders | $ | $ | ||||||
| Deferred offering costs within accrued expense and other payables | $ | $ | ||||||
| Additions to property and equipment included in loan payable | $ | |||||||
| Additions to leasehold improvement and furniture and fixture through account payable | $ | $ | ||||||
| Settlement of due to shareholder and advance to related party | $ | $ | ||||||
| NON-CASH ACTIVITIES | ||||||||
| Right of use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Right of use assets obtained in exchange for finance lease obligation | $ | $ | ||||||
| APPENDIX A – Net cash outflow from deconsolidation of a subsidiary | ||||||||
| Working capital, net | $ | |||||||
| Investment in other entity recognized | ( | ) | ||||||
| Elimination of NCl at deconsolidation of a subsidiary | ||||||||
| Loss from deconsolidation of a subsidiary | ( | ) | ||||||
| Cash | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Lakeside
Holding Limited (the “Company”), is a holding company established on August 28, 2023 under the laws of the State of
Nevada. The Company, acting through its subsidiary, is primarily engaged in providing customized cross-border ocean freight solutions
and airfreight solutions. On July 1, 2024, the Company closed its initial public offering (“IPO”) of
As of December 31, 2024, the Company’s subsidiaries are as follows:
| Name | Date
of | Jurisdiction of Formation | Percentage of direct/indirect Economic Ownership | Principal Activities | ||||
| Parent Company | ||||||||
| Lakeside Holding Limited | ||||||||
| Subsidiaries/companies with ownership | ||||||||
| American Bear Logistics Corp. (“ABL Chicago”) | ||||||||
| Sichuan Hupan Jincheng Enterprise Management Co., Ltd (“Sichuan Hupan”)* | ||||||||
| Hupan Pharmaceutical (Hubei) Co., Ltd (“Hupan Pharmaceutical”)** | ||||||||
| Wuhan Hupan New Energy Technology limited Co., Ltd (“Hupan New Energy”) | ||||||||
| Wuhan Ruixinda Technology Limited Co., Ltd (“Wuhan Ruixinda”) |
| * |
| ** |
Reorganization
A reorganization of the legal structure was completed on September 23, 2023 (“The Reorganization”). The Reorganization involved the incorporation of Lakeside Holding Limited and the transfer the shares of American Bear Logistics Corp (“ABL Chicago”) to the Company.
5
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)
Reorganization (continued)
Prior
to the Reorganization, Mr. Henry Liu, the Chairman of the Board and Chief Executive Officer (“CEO”), and Mr. Shuai
Li, the President, each owned
As
part of the series of reorganization transactions to be completed before the offering, a
Before and after the Reorganization, the Company, together with its subsidiaries, is effectively controlled by the same Controlling Group, and therefore the Reorganization is considered as a recapitalization of entities under common control in accordance with Accounting Standards Codification (“ASC”) 805-50-25. The consolidation of the Company and its subsidiaries have been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements in accordance with ASC 805-50-45-5.
On
July 1, 2024, the Company closed its IPO of
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Lakeside Holding Limited and its wholly owned subsidiaries (collectively the “Company”). In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these unaudited condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”) requires the use of management estimates. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
6
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Use of estimates and assumptions
In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the condensed consolidated financial statements. Significant accounting estimates required to be made by management include allowance for credit losses, the percentage of performance obligation completed at the reporting period. The Company evaluates its estimates and assumptions on an ongoing basis and its estimates on historical experience, current and expected future conditions and various other assumptions that management believes are reasonable under the circumstances based on the information available to management at the time these estimates and assumptions are made. Actual results and outcomes may differ significantly from these estimates and assumptions.
Cash
Cash
consist of unrestricted balances held with banks and deposits at banks or other financial institutions, which are available for withdrawal
or use and have original maturities of three months or less. The Company maintains its bank accounts in the United States, which
are insured by Federal Deposit Insurance Corporation (“FDIC”) and in mainland China, which are insured by the People’s
Bank of China Financial Stability Department (“FSD”) while there is a RMB
As
of December 31, 2024 and June 30, 2024, the Company had approximately $
Accounts receivable, net
Accounts
receivables are carried at the original invoiced amount less an estimated allowance for expected credit losses based on the probability
of future collection. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when
there is doubt as to the collectability of individual balances. The Company grant credit to customers, without collateral, under normal
payment terms. The Company uses a loss rate method to estimate the allowance for credit losses. For those past due balances over
Inventories, net
Inventories are stated at the lower of cost or net realizable value, using the first-in, first out (FIFO) method. Costs include the cost of pharmaceutical products or solutions. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is estimated using selling price in the normal course of business less any costs to complete and sell products.
7
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Investment in Other entity
The Company assesses its investment in ABL Wuhan and determines that no significant influence over investee existed, as defined in ASC 323-10-15-6, and therefore accounts for the investment using the cost method of accounting. Under the cost method of accounting, the investment is measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income. The investment in other entity that does not report net asset value is subject to qualitative assessment for indicators of impairments.
On
August 4, 2023, ABL Wuhan ceased to be the Company’s subsidiary and became the Company’s long-term investment.
As of December 31, 2024 and June 30, 2024, the Company’s investment in ABL Wuhan amounted to $
Property and equipment
Property
and equipment are stated at cost less accumulated depreciation.
| Useful life | ||
| Furniture and fixtures | ||
| Machinery equipment | ||
| Vehicles | ||
| Leasehold improvement |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in other income or expenses in the condensed consolidated statements of income (loss) and other comprehensive income (loss).
Intangible Assets, net
Intangible assets consist primarily of business license purchased from a third-party. It grants the Company the right of selling and distributing pharmaceutical products and solutions.
Intangible
assets are stated at cost less accumulated amortization. The license is amortized using the straight-line method over the estimated useful
economic life of
Accounts payable
The account payables are derived from logistic services and forwarding service providers. The balances arise from logistics services provider are usually settled within 7 to 30 days.
8
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Impairment of long-lived asset
Long-lived assets, including plant, property and equipment and intangible asset, are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. The Company reviews the impairment of its right-of-use assets and intangible asset consistent with the approach applied for its other long-lived assets. No impairment charge was recognized for the three and six months ended December 31, 2024 and 2023, respectively.
Deferred offering costs
Pursuant to ASC 340-10-S99-1, incremental offering costs directly attributable to an offering of equity securities are deferred and would be charged against the gross proceeds of the offering as a reduction of additional paid-in capital. These costs include legal fees related to the registration drafting and counsel, consulting fees related to the registration preparation, audit fees, SEC filing and print related costs and exchange listing costs. The deferred offering costs are offset against additional paid-in capital upon receipts of the capital raised at IPO closing date.
Asset Acquisition
When an acquisition is related to a single asset or a group of similar assets, or does not meet the definition of a business combination, as the acquired entity does not have an input and a substantive process that together significantly contribute to the ability to create outputs, we account for the acquisition as an asset acquisition. In an asset acquisition, any direct acquisition-related transaction costs are capitalized as part of the purchase consideration. Deferred taxes are recorded on temporary book/tax differences in an asset acquisition using the simultaneous equations method and adjusted the assigned value of the non-monetary assets acquired to include the deferred tax liability.
Leases
The Company evaluates the contracts it entered into to determine whether such contracts contain leases at inception. A contract contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee.
Operating Leases
A lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lease as an operation lease. Operating leases are included in the line items right-of-use (ROU) asset, lease liabilities, current, and lease liabilities, non-current in the consolidated balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. For operating leases, the Company measures its lease liabilities based on the present value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Company uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. The Company measures ROU assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Company begins recognizing lease expense when the lessor makes the underlying asset available to the Company. Lease expenses for lease payments are recognized on a straight-line basis over the lease term.
For leases with lease term less than one year (short-term leases), the Company has elected not to recognize a lease liability or ROU asset on its consolidated balance sheet. Instead, it recognizes the lease payments as expenses on a straight-line basis over the lease term. Short-term lease costs are immaterial to its consolidated statements of operations and cash flows.
9
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Finance leases
Leases that transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as finance leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. Lease cost for finance leases where the Company is the lessee includes the amortization of the ROU asset, which is amortized on a straight-line basis and recorded to “Depreciation of right-of-use finance asset” and interest expense on the finance lease liability, which is calculated using the interest method and recorded to “Interest expense”. Finance lease ROU assets are amortized over the shorter of their estimated useful lives or the terms of the respective leases. If the Company is reasonably certain to exercise the option to purchase the underlying asset at the end of lease term, the finance lease ROU assets are amortized to the end of useful life of the assets on a straight-line basis.
Related parties
The Company adopted ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Fair value of financial instruments
ASC 820, “Fair Value Measurements” (ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
| Level 1 — | Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities | |
| Level 2 — | Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. | |
| Level 3 — | Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
The carrying value of cash and cash equivalent, accounts receivable from third parties and related parties, amount due from related parties, due to shareholders, other receivables, contract assets, loan receivable balance from a third party, accounts payable, other payables, dividend payable and accrued expenses and other current liabilities approximate fair value due to their short-term nature. For lease liabilities and loans payable, their carrying value approximate the fair value at the year-end, as the interest rates used to discount the host contracts approximate market rates. The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring nor non-recurring basis as of December 31, 2024 and June 30, 2024.
10
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue recognition
The Company adopted ASC Topic 606 “Revenue from Contracts with Customers” and all subsequent ASUs that modified ASC 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies the following steps:
Step 1: Identify the contract (s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The Company generates revenue from providing cross-border ocean and airfreight solutions. No practical expedients were used when adoption ASC606. Revenue recognition policies are as follow:
Revenue from cross-border freights solutions
The Company provides comprehensive services in the United States for customers to transport goods from overseas to the United States and from the United States to overseas. Operating under service contracts, for goods entering the United States, after the goods arrive at a U.S. seaports or airports, the Company offers customs clearance, container unloading, storage, unpacking, packing, and transportation services to the locations specified by the customers. For customers shipping goods overseas, the Company provides cargo space arrangements, storage, packing, export customs clearance, and arranges transportation to seaports or airports for loading.
The transaction price is determined based on the range of services provided and the volume of goods. The Company considers these comprehensive services as one performance obligation since these promises are not distinct within the context of the contract, and the bundle of integrated services represents a combined output. This performance obligation is satisfied over time as customers receive the benefits of these services during the process of transporting goods from one location to another.
For goods entering the United States, the Company determines that the performance period for revenue recognition is between the pickup date and the date of completing delivery. For customers shipping goods overseas with cargo space booking service, the Company determines that the performance period for revenue recognition is between the container or cargo space confirmed date and the date of arrival at destination. For customers shipping goods overseas without cargo space booking service, the Company determines that the performance period for revenue recognition is between pickup date and the date when the goods are departed from airport or port. The performance period may be estimated if the date of completing delivery or the departure date or arrival date has not occurred by the reporting date. Determining the performance period and the progress of the transportation as of the reporting date requires management’s estimation and judgement, which may impact the timing of revenue recognition.
11
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue recognition (cont.)
Revenue from distribution of pharmaceutical products
During the three and six months ended December 31, 2024, the Company started to generate revenue from the distribution of pharmaceutical and medical products. The Company orders products from the manufacturer, receives and carries the product at a designated warehouse, and delivers the product directly to its customers’ warehouses or designated locations. Revenue is recognized when control of goods is transferred to the customers upon goods delivered to the customers and acceptance by the customers.
Principal and agent considerations
In the Company’s transportation business, the Company utilizes independent contractors and third-party carriers and related party carriers in the performances of some transportation services as and when needed. U.S. GAAP requires us to evaluate, using a control model, whether the Company itself promises to provide services to the customers (as a principal) or to arrange for services to be provided by another party (as an agent). Based on the Company’s evaluation using a control model, the Company determined that in all of its major business activities, it serves as a principal rather than an agent within their revenue arrangements. Revenue and the associated purchased transportation costs are both reported on a gross basis within the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
In the Company’s distribution of pharmaceutical products business, the Company determined that in all of its major business activities, it serves as a principal rather than an agent within their revenue arrangements.
Disaggregation of revenues
The Company disaggregates its revenue from types of services providing and the customer geographic of its customers, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors.
The Company’s disaggregation of revenues for three months ended December 31, 2024 and 2023 is disclosed as below:
By service/product type
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cross-border ocean freights solutions | $ | $ | ||||||
| Cross-border airfreights solutions | ||||||||
| Distribution of pharmaceutical products | ||||||||
| Total revenue | $ | $ | ||||||
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Timing of revenue recognition: | ||||||||
| Service transferred over time | $ | $ | ||||||
| Product sales at a point in time | ||||||||
| Total revenue | $ | $ | ||||||
12
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Disaggregation of revenues (cont.)
By customer geographic location
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Asia-based customers | $ | $ | ||||||
| U.S.-based customers | ||||||||
| Total revenue | $ | $ | ||||||
The Company’s disaggregation of revenues for six months ended December 31, 2024 and 2023 is disclosed as below:
By service type
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cross-border ocean freights solutions | $ | $ | ||||||
| Cross-border airfreights solutions | ||||||||
| Distribution of pharmaceutical products | ||||||||
| Total revenue | $ | $ | ||||||
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Timing of revenue recognition: | ||||||||
| Services transferred over time | $ | $ | ||||||
| Product sales at a point in time | ||||||||
| Total revenue | $ | $ | ||||||
By customer geographic location
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Asia-based customers | $ | $ | ||||||
| U.S.-based customers | ||||||||
| Total revenue | $ | $ | ||||||
Contract assets
Contract assets represent estimated amounts for which the Company has the right to consideration for the services provided while a delivery is still in-transit and has not yet invoiced the customer. Upon completion of the performance obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified within accounts receivable.
Cost of revenues
In the Company’s transportation business, cost of revenue primarily consists of the transportation and delivery costs, warehouse service charges, custom declaration and terminal charges, freight arrangement charges and other overhead cost allocation, which includes operating and financing lease-related costs, the depreciation expenses of property and equipment, and others miscellaneous items.
In the Company’s distribution of pharmaceutical products business, cost of revenues primarily consists of cost of products, freights arrangement charges and other overhead cost allocation.
13
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
General and administrative expenses
General and administrative expenses primarily include salaries and staff benefits, repair and maintenance expense, depreciation on property and equipment, lease expenses, travelling and entertainment, bank charges, legal and professional fees, insurance expenses and other office expenses.
401(k) benefit plan
401(k) benefit
plan covers substantially all employees and allows voluntary employee contributions up to the annually adjusted Inland Revenue Service
(“IRS”) dollar limit. These voluntary contributions are matched equal to
Employee defined contribution plan
Full-time employees of the Company in the PRC participate in a government-mandated
multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing
fund and other welfare benefits are provided to them. Chinese labor regulations require that the Company make contributions to the government
for these benefits based on government prescribed percentage of the employee’s salaries. The Company has no legal obligation for
the benefits beyond the contributions. The total amount was expensed as incurred. For the three and six months ended December 31, 2024
and 2023, employee welfare contribution expenses amounted to approximately $
Value added tax (“VAT”)
Revenue
represents the invoiced value of goods and service, net of VAT. The VAT is based on gross sales price and VAT rates range up to
Rental income
The
Company subleased portion of its offices area, warehouse and parking lots to third parties and related parties. The Company recognizes
rental income over the sublease period. For the three months ended December 31, 2024 and 2023, the Company recognized rental income amounted
to $
14
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Income taxes
Before
the Reorganization, the Company has elected to be taxed as an S Corporation for federal and state income tax purposes. As an S Corporation,
the Company is not subject to federal income tax and state tax in Illinois. However, Illinois allows subchapter S corporations to elect
to pay the Pass-through Entity (PTE) tax at entity level for tax years ending on or after December 31, 2021 and beginning
prior to January 1, 2026. The PTE tax rate is equal to
The
Company’s PRC subsidiary is governed by the income tax laws of the PRC and the income tax provision in respect to operations in
the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations
and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises
and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
The
Company accounts for uncertain tax positions in accordance with FASB ASC Topic No. 740, Accounting for Uncertainty in Income Taxes. A
tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in
a tax examination, with a tax examination being presumed to occur.
Statutory reserves
The Company’s PRC subsidiaries are required to allocate at least 10% of their after-tax profit to the general reserve in accordance with the PRC accounting standards and regulations. The allocation to the general reserve will cease if such reserve has reached to 50% of the registered capital of respective company. These reserves can only be used for specific purposes and are not transferable to the Company in form of loans, advances, or cash dividends. There is no such regulation of providing statutory reserve in United States.
15
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of equity but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar as its functional currencies.
Basic and diluted earnings (loss) per share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Foreign currency transactions
Our reporting currency is the U.S. dollar. The functional currency of our operations, except for Lakeside Sichuan and Hupan Pharmaceutical, is the U.S. dollar. The functional currency of Lakeside Sichuan and Hupan Pharmaceutical is the RMB. The assets, liabilities, revenues, and expenses of Lakeside Sichuan and Hupan Pharmaceutical are remeasured in accordance with ASC 830. For the period ended December 31, 2024, assets and liabilities of Lakeside Sichuan and Hupan Pharmaceutical are translated into U.S. dollars based upon exchange rates prevailing at the end of each period. Revenues and expenses of Lakeside Sichuan and Hupan Pharmaceutical are translated at average exchange rates during the reporting period. The resulting translation adjustment is included in accumulated other comprehensive loss.
The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:
| December 31, 2024 | ||
| Balance sheet items, except for equity accounts | US$ | |
| Items in the statements of income and cash flows | US$ |
Commitments and contingencies
In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, which cover a wide range of matters. Liabilities for contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
If the assessment of a contingency indicates that it is probable that a material loss is incurred and the amount of the liability can be estimated, then the estimated liability is accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingency liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
16
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Concentrations and risks
a. Concentration of credit risk
The Company estimates credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents, accounts receivable, contract assets, other receivable, loan receivable balance from a third party and amounts due from related parties. The Company has designed their credit policies with an objective to minimize their exposure to credit risk.
The maximum exposure of such
assets to credit risk is their carrying amounts at the balance sheet dates. The Company maintains majority of bank accounts in mainland
China, where there is a RMB
The Company also has the
bank accounts at financial institutions in the United States, where there is $
The
Company has adopted a credit policy of dealing with creditworthy counterparties to mitigate the credit risk from defaults. The management
team conducts credit evaluations of its customers, and generally does not require collateral or other security from them. The Company
establishes an accounting policy to provide for allowance for credit loss based on the individual customer’s financial condition,
credit history, and the future economic conditions. Due from related parties’ balances and loan receivable balance from a third
party are monitored on an ongoing basis with the result that the Company’s exposure to impairment is not significant. As of December
31, 2024 and June 30, 2024,
b. Foreign exchange risk
Our subsidiary in PRC has functional currency in RMB. PRC subsidiaries’ expense transactions are denominated in RMB and their assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the Chinese Yuan against the U.S. dollar is affected by the changes in China and United States economic conditions. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Also, considering the volume of its business, the impact of foreign exchange risk is limited.
17
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Concentrations and risks (cont.)
c. Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Our exposure to interest rate risk primarily relates to the interest rates from our lessors and our private lenders. The shareholder loans bear no interest. We have not been exposed to material risks due to the fact that our leasing obligations’ interest rates and private loan’s interest are fixed at commence date of the leases and loans and we have not used any derivative financial instruments to manage our interest risk exposure. However, we cannot provide assurance that we will not be exposed to material risks due to changes in market interest rate in the future.
d. Liquidity risk
Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. Our objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet our liquidity requirements at any point in time. The Company monitors and analyze its cash flow position, its ability to generate sufficient revenue sources in the future and its operating and capital expenditure commitments. The Company is historically funded the working capital needs primarily from operations, loans, as well as shareholder advances to the Company. The Company will use the capital from its offering closed in July 2024 to fund the further working capital needs.
Recent accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In November 2023, the FASB issued ASU No. 2023-07, “Improvements to Reportable Segment Disclosures” (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. Management is currently evaluating the provisions of this ASU and expect to adopt them for the year ending June 30, 2025.
In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures” (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income tax paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will likely result in the required additional disclosures being included in the Company’s consolidated financial statements, once adopted.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows.
18
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| Accounts receivable – third-party customers | $ | $ | ||||||
| Less: allowance for credit loss – third-party customers | ( | ) | ( | ) | ||||
| Accounts receivable from third-party customers, net | $ | $ | ||||||
| Add: accounts receivable – related party customers | $ | $ | ||||||
| Less: allowance for credit loss – related party customers | ( | ) | ( | ) | ||||
| Total accounts receivable, net | $ | $ | ||||||
Approximately $
Approximately $
The movement of allowance for credit loss for the six months ended December 31, 2024 and the year ended June 30, 2024 is as follows:
| December 31, 2024 | June 30, 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Addition of provision | ||||||||
| Ending balance | $ | $ | ||||||
The Company recorded reversal
allowance for credit loss of $
NOTE 4 — INVENTORIES, NET
Inventories, net consists of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| Finished goods | $ | $ | ||||||
| Less: inventory allowance | ||||||||
| Inventories, net | $ | $ | ||||||
19
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 — LOAN TO A THIRD PARTY
On October 8, 2024, the Company
entered into a loan agreement with a third party for a principal amount up to $
NOTE 6 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| Furniture and Fixtures | $ | $ | ||||||
| Machinery equipment | ||||||||
| Vehicles | ||||||||
| Leasehold improvement | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense recorded
in general and administrative expense was $
Depreciation expense recorded
in general and administrative expense was $
NOTE 7 — INTANGIBLE ASSETS, NET
Net intangible assets consists of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| License | $ | $ | ||||||
| Less: accumulated amortization | ||||||||
| Intangible asset, net | $ | $ | ||||||
On November 5, 2024, the Company purchased a license of pharmaceutical
distribution in Mainland China through its acquisition of
20
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 — LEASES
The Company has multiple lease agreements for warehouses, warehouse machinery and equipment and offices. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As of December 31, 2024 and
June 30, 2024, balance of lease liabilities was $
As of December 31, 2024,
the Company recognized additional finance lease liabilities of $
Total
operating lease expenses on offices, warehouses, and warehouse equipment for the three months ended December 31, 2024 and 2023 were
$
Total
finance lease expenses on warehouse machinery and equipment for the three months ended December 31, 2024 and 2023 were $
Total
finance lease expenses on warehouse machinery and equipment for the six months ended December 31, 2024 and 2023 were $
The following table includes supplemental cash flow and non-cash information related to leases:
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid of amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from finance leases | $ | $ | ||||||
| Financing cash flows from finance leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Finance lease liabilities | $ | $ | ||||||
| Operating lease liabilities | $ | $ | ||||||
21
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 — LEASES (cont.)
The weighted average remaining lease terms and discount rates for all of operating lease and finance leases is as follows:
| December 31, 2024 | June 30, 2024 | |||||||
| Weighted-average remaining lease term (years): | ||||||||
| Operating lease | ||||||||
| Finance lease | ||||||||
| Weighted average discount rate: | ||||||||
| Operating lease | % | % | ||||||
| Finance lease | % | % | ||||||
The following is a schedule of maturities of operating and finance lease liabilities as of December 31, 2024:
Operating leases
| Twelve months ending December 31, | Repayment | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total future minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
Financing leases
| Twelve months ending December 31, | Repayment | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total future minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total finance lease liabilities | $ | |||
22
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 — ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables comprise the following amounts relating to the operation of the Company
| December 31, 2024 | June 30, 2024 | |||||||
| Credit card payables | $ | $ | ||||||
| Payroll liabilities | ||||||||
| Accrued expense (a) | ||||||||
| Other payables (b) | ||||||||
| Total | $ | $ | ||||||
Note
(a):
(b):
NOTE 10 — LOANS PAYABLE
The Company obtained multiple loans to finance the purchase of vehicles and warehouse machinery and obtained other loans to support its working capital needs.
The loan balance consists of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| Equipment loans | $ | $ | ||||||
| Vehicle loans | ||||||||
| Other loans | ||||||||
| Total | ||||||||
| Less: loan payable, current | ( | ) | ( | ) | ||||
| Loan payable, non-current | $ | $ | ||||||
Equipment loans
On
December 7, 2020, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $
On
March 9, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $
On
April 7, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $
23
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 — LOANS PAYABLE (cont.)
On
June 4, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $
On
June 14, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $
On
July 13, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $
On
September 28, 2021, the Company entered into another equipment loan with Toyota Commercial Finance for a principal amount of $
On
February 21, 2023, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $
On
June 10, 2021, the Company entered into an equipment loan with Amur Equipment Finance for a principal amount of $
On
September 9, 2021, the Company entered into an equipment loan with Hatachi Capital America Corp. for a principal amount of $
The Company made the total principal repayments of $
The Company made the total principal repayments of $
Vehicle loans
On
May 20, 2020, the Company entered into a vehicle loan with BMW Financial Services for a principal amount of $
On
July 29, 2021, the Company entered into a vehicle loan with AutoNation Honda O’Hare for a principal amount of $
24
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 — LOANS PAYABLE (cont.)
On
June 3, 2022, the Company entered into a vehicle loan with Tesla, Inc. for a principal amount of $
On
January 23, 2023, the Company entered into a vehicle loan with Tesla, Inc. for a principal amount of $
On October 4, 2024, the
Company entered into a vehicle loan with Tesla, Inc. for a principal amount of $
The Company made the total
principal repayments of $
The Company made the total principal repayments of $
Other loans
| December 31, 2024 | June 30, 2024 | |||||||
| Loan A | $ | $ | ||||||
| Loan B | ||||||||
| Loan C | ||||||||
| Loan D | ||||||||
| Loan E | ||||||||
| Loan F | ||||||||
| Loan G | ||||||||
| Total | $ | $ | ||||||
| (a) |
| (b) |
25
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 — LOANS PAYABLE (cont.)
| (c) | The Company entered a loan agreement of |
On October 26, 2022, both parties agreed to extend the loan term to on demand.
| (d) | The Company entered a loan agreement of $ |
On
April 10, 2024, the Company entered another loan agreement of $
The
Company made repayment of $
| (e) |
|
| (f) |
|
| (g) |
The Company made the total
principal repayments of $
The repayment schedule for the Company’s loans is as follows:
| Twelve months ending December 31, | Vehicle loans | Equipment loans | Others | Total | ||||||||||||
| 2025 | $ | |||||||||||||||
| 2026 | ||||||||||||||||
| 2027 | ||||||||||||||||
| 2028 | ||||||||||||||||
| 2029 | ||||||||||||||||
| 2030 | ||||||||||||||||
| Total undiscounted borrowings | ||||||||||||||||
| Less: imputed interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total | $ | |||||||||||||||
26
LAKESIDE
HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 — GENERAL AND ADMINISTRATIVE EXPENSES
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Payroll expense | $ | $ | ||||||
| Staff benefit expense | ||||||||
| Professional expense | ||||||||
| Travelling and entertainment | ||||||||
| Office expense | ||||||||
| Lease expense | ||||||||
| Insurance | ||||||||
| Other expense | ||||||||
| Repair and maintenance | ||||||||
| Depreciation expense | ||||||||
| Advertising | ||||||||
| Motor expense | ||||||||
| Bank charges | ||||||||
| Management fee | ||||||||
| Total | $ | $ | ||||||
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Payroll expense | $ | $ | ||||||
| Staff benefit expense | ||||||||
| Professional expense | ||||||||
| Travelling and entertainment | ||||||||
| Other expense | ||||||||
| Office expense | ||||||||
| Lease expense | ||||||||
| Insurance | ||||||||
| Repair and maintenance | ||||||||
| Depreciation expense | ||||||||
| Advertising | ||||||||
| Motor expense | ||||||||
| Bank charges | ||||||||
| Total | $ | $ | ||||||
27
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 — RELATED PARTY TRANSACTIONS
The relationship of related parties is summarized as follow:
| Name of Related Party | Relationship to the Company | |
| Mr. Henry Liu | ||
| Mr. Shuai Li | ||
| Weship Transport Inc. (“Weship”) | ||
| American Bear Logistics (Wuhan) Co., Ltd. (“ABL Wuhan”) | ||
| American Bear Logistics (Shenzhen) Co., Ltd. (“ABL Shenzhen”) | ||
| LLL Intermodal Inc. (“Intermodal”) | ||
| ABL LAX LLC. (“ABL LAX”) |
a) Summary of balances with related parties
Due from related parties consist of mainly the accumulated rent, storage fees and the salaries of contractors charged from the following parties:
| December 31, 2024 | June 30, 2024 | |||||||
| Due from Weship | $ | $ | ||||||
| Due from Intermodal | ||||||||
| Due from ABL LAX LLC. | ||||||||
| Total | $ | $ | ||||||
The Company has collected approximately $
b)
| December 31, 2024 | June 30, 2024 | |||||||
| Account payable to Weship | $ | $ | ||||||
| Account payable to ABL Wuhan | ||||||||
| Account payable to Intermodal | ||||||||
| Total | $ | $ | ||||||
28
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 — RELATED PARTY TRANSACTIONS (cont.)
c)
| December 31, 2024 | June 30, 2024 | |||||||
| Account receivable from Weship | $ | $ | ||||||
| Account receivable from ABL Shenzhen | ||||||||
| Account receivable from ABL Wuhan | ||||||||
| Total | $ | $ | ||||||
The Company has collected approximately $
d)
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue from Weship | $ | $ | ||||||
| Revenue from ABL Wuhan | $ | $ | ||||||
| Revenue from ABL Shenzhen | $ | $ | ||||||
| Cost of revenue charged by Weship | $ | $ | ||||||
| Rental income from Weship | $ | $ | ||||||
| Cost of revenue charged by Intermodal | $ | $ | ||||||
| Cost of revenue charged by ABL Wuhan | $ | $ | ||||||
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue from Weship | $ | $ | ||||||
| Revenue from ABL Wuhan | $ | $ | ||||||
| Revenue from ABL Shenzhen | $ | |||||||
| Cost of revenue charged by Weship | $ | $ | ||||||
| Rental income from Weship | $ | $ | ||||||
| Cost of revenue charged by Intermodal | $ | $ | ||||||
| Cost of revenue charged by ABL Wuhan | $ | $ | ||||||
During the three and months ended December 31, 2024 and 2023, the Company had the following transactions with its related parties — Weship, ABL Wuhan, ABL Shenzhen and Intermodal
| (a) | The Company provides logistic forwarding services to Weship, ABL Wuhan and ABL Shenzhen and charges Weship, ABL Wuhan and ABL Shenzhen at its regular market rate for the services provided. |
| (b) | Weship is one of the Company’s vendors for truck delivery service. |
| (c) | The Company subleased portion of its warehouse space to Weship for rental income. The Company subleased its warehouse in Chicago to Weship in July 2023 and again for the period from January 2024 to December 2024. The Company also subleased another warehouse in Los Angeles beginning in August 2023 and ending in October 2024. |
| (d) | Intermodal is one of the Company’s vendors for truck delivery service. |
| (e) | ABL Wuhan provides labor force and certain cross-border freight consolidation and forwarding services and is one of our cross-border freight consolidation and forwarding service providers. |
29
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 — RELATED PARTY TRANSACTIONS (cont.)
e)
| December 31, 2024 | June 30, 2024 | |||||||
| Due to shareholders, end | $ | $ | ( | ) | ||||
The balance with the shareholders
is unsecured, interest free, and due on demand. The Company had balance of due to shareholder Henry Liu of $ and $
f)
| December 31, 2024 | June 30, 2024 | |||||||
| Dividend payable to Mr. Henry Liu | $ | $ | ( | ) | ||||
| Dividend payable to Mr. Shuai Li | ( | ) | ||||||
| Total | $ | $ | ( | ) | ||||
non-taxable dividend
was declared to shareholders for the three and six months ended December 31, 2024. As of December 31, 2024, dividends payable of $
g)
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Mr. Henry Liu | $ | $ | ||||||
| Mr. Shuai Li | ||||||||
| Total | $ | $ | ||||||
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Mr. Henry Liu | $ | $ | ||||||
| Mr. Shuai Li | ||||||||
| Total | $ | $ | ||||||
30
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 13 — TAXES
Corporate Income Taxes
Before the Reorganization,
the Company was elected to be taxed as an “S Corporation” under the provisions of the Internal Revenue Code and comparable
state income tax law. As an S Corporation, the Company is not subject to Federal income tax and Illinois State tax. Taxable income “pass
through” to the personal tax returns of the owners. However, Illinois allows subchapter S corporations to elect to pay the Pass-through Entity
(“PTE”) tax at entity level for tax years ending on or after December 31, 2021 and beginning prior to January 1,
2026. The PTE tax rate is equal to
The Company terminated its
status as a Subchapter S Corporation as of September 23, 2023, in connection with its Reorganization. As a C Corporation, the Company
combined statutory income tax rate is
The Company’s PRC subsidiary,
is governed by the income tax laws of the PRC and is subjected to
In conjunction with the termination
of the Subchapter S corporation status, the C Corporation deferred tax assets and liabilities were estimated for future tax consequences
attributable to difference between the financial statement carrying amounts of the Company’s existing assets and liabilities and
their respective tax bases. The deferred tax assets and liabilities were measured using tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of the change in tax rates resulting from becoming a C Corporation was recognized as a $
As of December 31, 2024 and June 30, 2024, the Company did not have an accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. For the period ended December 31, 2024 and 2023, no amounts were incurred for income tax uncertainties or interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company’s tax years since its formation remain subject to possible income tax examination by its major taxing authorities for all periods.
The provision for income tax for the six months ended December 31, 2024 and 2023 consists of the following:
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Current income tax expense | $ | $ | ||||||
| Deferred income tax expense | ||||||||
| Deferred state tax adjustment – change of tax rates | ||||||||
| Total income tax expense | $ | $ | ||||||
31
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 13 — TAXES (cont.)
The following table reconciles the statutory tax rate to the Company’s effective tax the six months ended December 31, 2024 and 2023:
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Loss before tax | $ | ( | ) | $ | ( | ) | ||
| Statutory state tax rate | % | % | ||||||
| Income tax recovery at the federal statutory rate | ( | ) | ( | ) | ||||
| Illinois state tax/PET tax recovery | ( | ) | ( | ) | ||||
| Illinois replacement tax recovery | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Tax benefit as S corporate | ||||||||
| Tax effect on other tax jurisdiction | ( | ) | ||||||
| Total income tax expense | $ | $ | ||||||
The provision for income tax for the three months ended December 31, 2024 and 2023 consists of the following:
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Current income tax expense | $ | $ | ||||||
| Deferred income tax expense | ||||||||
| Total income tax expense | $ | $ | ||||||
The following table reconciles the statutory tax rate to the Company’s effective tax the three months ended December 31, 2024 and 2023:
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| (Loss) income before tax | $ | ( | ) | $ | ||||
| Statutory state tax rate | % | % | ||||||
| Income tax (recovery) expense at the federal statutory rate | ( | ) | ||||||
| Illinois state tax/PET tax (recovery) expense | ( | ) | ||||||
| Illinois replacement tax (recovery) expense | ( | ) | ||||||
| Change in valuation allowance | ||||||||
| Tax effect on other tax jurisdiction | ( | ) | ||||||
| Total income tax expense | $ | $ | ||||||
The Company’s deferred tax assets and liabilities consist of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for credit loss | $ | $ | ||||||
| Lease liability – operating | ||||||||
| Lease liability – financing | ||||||||
| Non-capital loss carried forward | ||||||||
| Valuation allowance | ( | ) | ||||||
| Total deferred tax assets | $ | $ | ||||||
| Deferred tax liabilities: | ||||||||
| Right of use assets – operating | ( | ) | ( | ) | ||||
| Right of use assets – financing | ( | ) | ( | ) | ||||
| Intangible asset - license | ( | ) | ||||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Deferred tax (liability) assets, net | $ | ( | ) | $ | ||||
32
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 14 — STOCKHOLDERS’ EQUITY
Common Stocks
The Company was incorporated
under the laws of the State of Nevada on August 28, 2023. In accordance with the Company’s Articles of Incorporation, the Company
is authorized to issue
On October 25, 2023,
the Company amended its Articles of Incorporation to increase its number of authorized common stocks from
On March 29, 2024, a
On July 1, 2024, the Company
closed its IPO of
As of December 31, 2024 and
June 30, 2024,
Additional Paid-in Capital
The Company transferred its accumulated retained earnings as of September 23, 2023 from retained earnings to additional paid-in capital as the original owners’ contribution to the capital of the Company upon the Reorganization and the termination of S corporation for ABL Chicago. For the period ended December 31, 2024, the Company closed its IPO and net proceed from offering, deducted by the IPO deferring cost and par value was transferred to additional paid-in capital.
Representative’s Warrants
Pursuant to the Underwriting
Agreement, the Company issued to the Representative and its designee warrants (the “Representative’s Warrants”) to purchase
Management determined that
these warrants meet the requirements for equity classification under ASC 815-40 because they are indexed to their own shares and meet
the requirements for equity classification. The warrants were recorded at their fair value on the date of grant as a component of shareholders’
equity. The fair value of these warrants was $
As of December 31, 2024,
33
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 — EARNINGS (LOSS) PER SHARE
For the three and six months ended December 31, 2024, the Company has no stock option issued and its warrants are considered to be antidilutive. Thus, no impact on diluted earnings per share. For the three and six months ended December 31, 2023, the Company has no stock options and warrants issued and no impact on diluted earnings per share.
| For the three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net (loss) income attributable to the Company | $ | ( | ) | $ | ||||
| Weighted average number of common shares outstanding – Basic and Diluted | ||||||||
| (Loss) earnings per share – Basic and Diluted | $ | ( | ) | $ | ||||
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding – Basic and Diluted | ||||||||
| Loss per share – Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
NOTE 16 — CONCENTRATIONS RISK
The Company had two and two third-party customers individually generated over 10% of the Company’s total revenue for the six months ended December 31, 2024 and 2023, respectively. The Company had no and no related-party customer individually generated over 10% of the Company’s total revenue for the six months ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and June 30, 2024, the Company had one and one third-party customers and no and one related-party customer individually represented over 10% of account receivables, respectively.
The Company had no and no third-party suppliers individually represented over 10% of the Company’s cost of revenue for six months ended December 31, 2024 and 2023, respectively. The Company had no and one related-party suppliers individually represented over 10% of the Company’s cost of revenue for six months ended December 31, 2024 and 2023, respectively. The Company had three and one third-party supplier and no and one related-party supplier represented over 10% of the Company’s accounts payable as of December 31, 2024 and June 30, 2024, respectively.
34
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 17 — SEGMENT REPORTING
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.
Management of the Company
concludes that it has
For the six months ended December
31, 2023, the Company’s CEO reviews consolidated results when making decisions about allocating resources and assessing performance
of the Company, rather than by service types or customer geographic location; hence the Company concluded it has only
The summary of key information by segments for the six months ended December 31, 2024 was as follows:
| Cross-border freight solutions (U.S.) | Pharmaceutical distribution (China) | Others | Total for the six months ended December 31, 2024 | |||||||||||||
| Revenue from external customers | $ | $ | $ | $ | ||||||||||||
| Revenue from related parties | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Depreciation & amortization | $ | $ | $ | $ | ||||||||||||
| Income tax provision | $ | $ | $ | $ | ||||||||||||
| Capital expenditure | $ | $ | $ | $ | ||||||||||||
| Long-lived assets | $ | $ | $ | $ | ||||||||||||
| Segment assets | $ | $ | $ | $ | ||||||||||||
| Segment loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
35
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 18 — COMMITMENTS AND CONTINGENCIES
Contractual Commitments
As of December 31, 2024, the Company’s contractual obligations consist of the following:
| Contractual Obligations | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | |||||||||||||||
| Operating lease obligations | $ | $ | $ | $ | $ | |||||||||||||||
| Finance lease obligations | ||||||||||||||||||||
| Construction-in-progress project | ||||||||||||||||||||
| Vehicle loans | ||||||||||||||||||||
| Equipment loans | ||||||||||||||||||||
| Other loans | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Contingencies
The Company may be involved in certain legal proceedings, claims and disputes arising from the commercial operations, which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the Company can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on the Company’s consolidated financial position or results of operations or liquidity as of December 31, 2024 and June 30, 2024.
NOTE 19 — ASSETS ACQUISITION
Hupan Pharmaceutical (Hubei) Co., Ltd acquisition
On November 5, 2024, the Company
entered into an equity transfer agreement (the “Equity Transfer Agreement”) with Hubei Haoyaoshi Zhenghe Pharmacy Chain Co.,
Ltd and Hubei Huayao Pharmaceutical Co., Ltd to acquire
Pursuant to the Equity Transfer
Agreement, Sichuan Hupan will acquire the entirety of the equity interests that Hubei Haoyaoshi Zhenghe Pharmacy Chain Co., Ltd and Hubei
Huayao Pharmaceutical Co., Ltd. hold in Hupan Pharmaceutical, for a total consideration of RMB
The acquisition was accounted for as an asset acquisition because the
acquisition was related to the pharmaceutical distribution license, a single asset. The acquisition was closed on November 21, 2024.
| Amount | ||||
| Cash | $ | |||
| Payable to Hupan Pharmaceutical | ( | ) | ||
| Net consideration | $ | |||
| Assets acquired and liabilities assumed: | ||||
| Cash acquired | ||||
| Intangible assets – license of pharmaceutical distribution | ||||
| Other payables | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Total net assets acquired | $ | |||
The Company recorded impairment of intangible assets of and , respectively, for the three and six months ended December 31, 2024 and 2023
NOTE 20 — SUBSEQUENT EVENTS
The Company evaluated all events and transactions that occurred after December 31, 2024 up through the date the Company issued these condensed consolidated financial statements, and unless disclosed below, there are not any material subsequent events that require disclosure in these condensed consolidated financial statements.
36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements.
Overview
We are a U.S.-based integrated cross-border supply chain solution provider with a strategic focus on the Asian market including China and South Korea. We primarily provide customized cross-border ocean freight solutions and airfreight solutions in the U.S. that specifically cater to our customers’ requirements and needs in transporting goods into the U.S. We offer a wide variety of integrated services under our cross-border ocean freight solutions and cross-border airfreight solutions, including (i) cross-border freight consolidation and forwarding services, (ii) customs clearance services, (iii) warehousing and distribution services and (iv) U.S. domestic ground transportation services.
Founded in Chicago, Illinois in 2018, we are an Asian American-owned business rooted in the U.S. with in-depth understanding of both the U.S. and Asian international trading and logistics service markets. Our customers are typically Asia- and U.S.-based logistics service companies serving large e-commerce platforms, social commerce platforms and manufacturers to sell and transport consumer and industrial goods made in Asia into the U.S. Since inception and as of December 31, 2024, we had served over 300 customers to fulfill over 48,000 cross-border supply chain solution orders.
We have established an extensive collaboration network of service providers, including global freight carriers for our cross-border freight consolidation and forwarding services as well as domestic ground transportation carriers for our U.S. domestic transportation services. Since inception and as of December 31, 2024, we had collaborated with almost all major global ocean and air carriers to forward 33,800 TEU of container loads and 59,600 tons of air cargo. As of December 31, 2024, we had also cooperated with over 200 domestic ground transportation carriers, including almost all major U.S. domestic ground transportation carriers, on a long-term, short-term or order basis, as the case may be.
We operate three massive and hyper-busy regional warehousing and distribution centers in the U.S., in Illinois and Texas. With an aggregate gross feet area of approximately 142,484 square feet and 52 docks, our regional warehousing and distribution centers have an aggregate daily floor load of up to 3,000 cubic meters of freight. In addition to our self-operated regional centers, we maintain close contact with over 150 warehouses and distribution terminals in almost all transportation hubs in the U.S. which we have cooperated in the past to support the warehousing and distributing services of our cross-border freight in case such freight requires storage, fulfilment, transloading, palletizing, packaging or distribution in states other than Illinois and Texas. As of December 31, 2024, we had assisted with the customs clearance, in conjunction with our other service offerings, of cross-border freight of an aggregate assessed value of over $46.5 million.
Leveraging our strong cross-border supply chain service capabilities, extensive service provider network of cross-border freight carriers and U.S. domestic ground transportation carriers, massive and hyper-busy regional warehousing and distribution centers as well as deep understanding of the Asian market, we have been able to build up our brand and reputation and have achieved fast growth since our inception. As of December 31, 2024, we had fulfilled over 48,000 cross-border supply chain solution orders for freight of an aggregate assessed value of $1.0 billion, delivered to thousands of business and residential addresses in approximately 48 U.S. states.
During the three and six months ended December 31, 2024, we had a new business segment through acquired 100% equity interest of Hupan Pharmaceutical, a comprehensive pharmaceutical distribution and supply chain service provider headquartered in Wuhan, China with verticals in brand promotion and healthcare technology support. We have partnered with some pharmaceutical manufacturers to supply infusion fluids, which are our major pharmaceutical products sold and distributed during this quarter.
For the six months ended December 31, 2024 and 2023, our total revenues amounted to $7.7 million and $9.1 million, respectively, and our gross profit amounted to $0.5 million and $1.7 million during the same periods, respectively. For the three months ended December 31, 2024 and 2023, our revenues amounted to $3.6 million and $4.9 million, respectively, and our gross profit amounted to negative $0.04 million and $1.1 million during the same periods, respectively.
37
Key Factors Affecting Our Results of Operations
We believe the most significant factors that affect our business and results of operations include the following:
Our Ability to Expand Our Customer Base
Our results of operations are dependent upon our ability to expand and maintain our customer base. Since inception and as of December 31, 2024, we had served over 300 customers to fulfill over 48,000 cross-border supply chain solution orders. We will continue to expand our customer base to achieve a sustainable business growth. We aim to attract new customers and maintain our existing customers. We plan to improve the quality and expand the variety of our services to obtain more customers.
Our Ability to Control Costs
Our results of operations are affected by our ability to control costs including transportation and delivery costs, warehouse service charges, custom declaration and terminal charges, freight arrangement charges and other overhead cost allocation, which may be subject to factors, including, among other things, fluctuations in wage rates, fuel prices, toll fees, and leasing costs. Effective cost-control measures have a direct impact on our financial condition and results of operations. For example, our cross-border freight carrier and U.S. domestic ground transportation carrier services providers use large quantities of fuel to operate vehicles, and therefore, hence the higher fuel cost incurred by them may causes our higher fee rates cost charged on us by such the service providers. The availability and price of fuel and third-party transportation capacity are subject to political, economic, and market factors that are beyond our control. We also incur a significant amount of costs in relation to transportation and labor. Any unexpected increase in these costs, which is subject to factors beyond our control, could adversely impact our profitability. We have adopted, and expect to adopt, additional cost control measures. However, the measures we have adopted or will adopt in the future may not be as effective as expected. If we are not able to effectively control our costs and adjust the level of fee rates based on operating costs and market conditions, our profitability and cash flow may be adversely affected.
Our Ability to Provide High-quality Services
Our results of operations depend on our ability to maintain and further enhance our service quality. Together with our network of service providers, we provide integrated cross-border ocean and air freight supply chain solutions and services to our customers. If we or our service providers are unable to provide express delivery services in a timely, reliable, safe and secure manner, our reputation and customer loyalty could be negatively affected. In additional, if our customer service personnel fail to satisfy customer needs or respond effectively to customer complaints, we may lose potential or existing customers and experience a decrease in customer orders, which could have a material adverse effect on our business, financial condition and results of operations.
Strategic Acquisitions and Investments
Our results of operations also depend on our ability to pursue strategic acquisitions and investments in expanding our global footprints, diversifying our service offerings, and advancing our technologies. We may selectively pursue mergers, acquisitions, investments, joint ventures and partnerships that we believe are strategic and complementary to our operations and technology. However, we cannot assure you that we will make prudent decisions at all times. Our ability to successfully execute or effectively operate, integrate, leverage and grow these investments or strategic partnerships could impact our results of operations and financial conditions.
38
In response to governmental directives and recommended safety measures, we have implemented personal safety measures at all of our facilities. However, these measures may not be sufficient to mitigate the risk of infection by COVID-19. If a significant number of our employees, or third parties performing key functions, including our chief executive officer and members of our board of directors, become ill, our business may be further adversely impacted.
The impact of COVID-19 pandemic on us in the future will depend on future developments which are highly unpredictable and beyond our control, such as the frequency, duration and severity of the resurgence of COVID-19 and the emergence of new variants, as well as the measures that may be taken by governments around the world in response to these developments, the impact of the pandemic on the global economy and the measures taken by governments to stimulate the general economy. Therefore, we cannot guarantee that the pandemic will not continue to have an adverse effect on our business and results of operations in the future, which may be material.
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, service providers and stockholders.
Key Components of Results of Operations
Revenues. We generate revenues primarily by providing customized cross-border ocean freight solutions and airfreight solutions to customers that specifically cater to their requirements and needs in transporting goods into the U.S. Under the service agreements with our customers, we offer a wide variety of integrated services under our cross-border ocean freight solutions and cross-border airfreight solutions, including (i) cross-border freight consolidation and forwarding services, (ii) customs clearance services, (iii) warehousing and distribution services and (iv) U.S. domestic ground transportation services.
From December 2024, we started to generate revenues from the distribution of pharmaceutical and medial products. We order from the manufacturer, receive and carry the products at a designated warehouse, and deliver the products to the customers’ warehouses or designated locations.
Cost of Revenues. Our cost of revenues from customized cross-border ocean and air freight solutions mainly comprises transportation and delivery costs, warehouse service charges, custom declaration and terminal charges, freight arrangement charges and other overhead cost allocation which includes operating and financing lease-related costs, depreciation expenses of property and equipment and other miscellaneous expenses.
Our cost of revenues from the distribution of pharmaceutical and medical products also comprises cost of pharmaceutical products from manufacturers, freight arrangement charges and other overhead costs.
Selling Expenses. Our selling expenses primarily include salaries expense of sales team engaged in developing potential customers and maintaining customer relationships.
General and Administrative Expenses. Our general and administrative expenses primarily include salaries and staff benefits, repair and maintenance expenses, depreciation on property and equipment, lease expenses, travelling and entertainment expenses, bank charges, legal and professional fees, insurance expenses and other office expenses.
Other Income. Our other income primarily consists of rental income, if any.
Interest Expenses. Our interest expenses primarily consist of the interest expenses incurred for finance leases, equipment loans, vehicle loans and other loans and interest for late credit card payment.
Income Tax Expenses. Our income tax expenses consist primarily of U.S. federal, state income taxes, replacement tax in the state of Illinois and PRC enterprise income tax.
39
Results of Operations
The following table summarizes the results of condensed consolidated statements of operations and comprehensive income (unaudited) for the three and six months ended December 31, 2024 and 2023 in U.S. dollars.
| Six Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue from cross-border freight solutions – third party | $ | 6,702,063 | $ | 8,639,983 | $ | 3,102,276 | $ | 4,585,696 | ||||||||
| Revenue from cross-border freight solutions – related parties | 756,994 | 424,596 | 275,227 | 330,407 | ||||||||||||
| Revenue from distribution of pharmaceutical products - third parties | 218,086 | - | 218,086 | - | ||||||||||||
| Total revenue | 7,677,143 | 9,064,579 | 3,595,589 | 4,916,103 | ||||||||||||
| Cost of revenue from cross-border freight solutions – third party | 6,153,994 | 6,329,650 | 3,159,709 | 3,424,053 | ||||||||||||
| Cost of revenue from cross-border freight solutions – related party | 921,050 | 1,022,877 | 356,320 | 427,541 | ||||||||||||
| Cost of revenue from pharmaceutical products - related parties | 121,791 | - | 121,791 | - | ||||||||||||
| Total cost of revenue | 7,196,835 | 7,352,527 | 3,637,820 | 3,851,594 | ||||||||||||
| Gross profit (loss) | 480,308 | 1,712,052 | (42,231 | ) | 1,064,509 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | 54,488 | — | 54,488 | — | ||||||||||||
| General and administrative expenses | 3,749,059 | 1,840,831 | 1,911,853 | 985,053 | ||||||||||||
| Loss from deconsolidation of a subsidiary | — | 73,151 | — | — | ||||||||||||
| Provision (reversal) of allowance for expected credit loss | 1,956 | 49,591 | (10,881 | ) | (2,531 | ) | ||||||||||
| Total operating expenses | 3,805,503 | 1,963,573 | 1,955,460 | 982,522 | ||||||||||||
| Income (loss) from operations | (3,325,195 | ) | (251,521 | ) | (1,997,691 | ) | 81,987 | |||||||||
| Other income | ||||||||||||||||
| Other income, net | 201,541 | 88,449 | 91,753 | 41,500 | ||||||||||||
| Interest expense | (68,992 | ) | (53,864 | ) | (40,882 | ) | (31,079 | ) | ||||||||
| Total other income | 132,549 | 34,585 | 50,871 | 10,421 | ||||||||||||
| (Loss) income before income taxes | (3,192,646 | ) | (216,936 | ) | (1,946,820 | ) | 92,408 | |||||||||
| Income tax expense (credit) | 89,581 | 26,125 | — | 28,184 | ||||||||||||
| Net (loss) income | (3,282,227 | ) | (243,061 | ) | (1,946,820 | ) | 64,224 | |||||||||
| Less: net loss attributable to non-controlling interest | — | (3,025 | ) | — | — | |||||||||||
| Net (loss) income attributable to the Company | (3,282,227 | ) | (240,036 | ) | (1,946,820 | ) | 64,224 | |||||||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation income | (12,186 | ) | 3,122 | (25,179 | ) | — | ||||||||||
| Comprehensive (loss) income | (3,294,413 | ) | (239,939 | ) | (1,971,999 | ) | 64,224 | |||||||||
| Less: comprehensive loss attributable to non-controlling interest | — | (3,119 | ) | — | — | |||||||||||
| Comprehensive(loss) income attributable to the Company | $ | (3,294,413 | ) | $ | (236,820 | ) | $ | (1,971,999 | ) | $ | 64,224 | |||||
| (Loss) earnings per share – basic and diluted | $ | (0.44 | ) | $ | (0.04 | ) | $ | (0.26 | ) | $ | 0.01 | |||||
| Weighted Average Shares Outstanding – basic and diluted | 7,500,000 | 6,000,000 | 7,500,000 | 6,000,000 | ||||||||||||
40
For the Three Months Ended December 31, 2024 Compared to the Three Months Ended December 31, 2023
The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the three months ended December 31, 2024 and 2023, and provides information regarding the dollar and percentage increase or (decrease) during such periods. The operating results in any historical period are not necessarily indicative of the results that may be expected for any future period.
| For the three months ended December 31, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Revenues | Amount | % of total Revenues | Amount | % of total Revenues | Amount Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||||||||
| Revenue from cross-border freight solutions | ||||||||||||||||||||||||
| Cross-border ocean freight solutions | $ | 1,374,805 | 38.2 | % | $ | 1,813,001 | 36.9 | % | $ | (438,196 | ) | (24.2 | )% | |||||||||||
| Cross-border airfreight solutions | 2,002,698 | 55.7 | % | 3,103,102 | 63.1 | % | (1,100,404 | ) | (35.5 | )% | ||||||||||||||
| Subtotal | 3,377,503 | 93.9 | % | 4,916,103 | 100.0 | % | (1,538,600 | ) | (31.3 | )% | ||||||||||||||
| Revenue from distribution of pharmaceutical products | 218,086 | 6.1 | % | - | - | 218,086 | NA | |||||||||||||||||
| Total revenues | 3,595,589 | 100.0 | % | 4,916,103 | 100.0 | % | (1,320,514 | ) | (26.9 | )% | ||||||||||||||
| Cost of revenues – cross-border freight solution | 3,516,029 | 97.8 | % | 3,851,594 | 78.3 | % | (335,565 | ) | (8.7 | )% | ||||||||||||||
| Cost of revenues –pharmaceutical products | 121,791 | 3.4 | % | - | - | 121,791 | NA | |||||||||||||||||
| Total cost of revenues | 3,637,820 | 101.2 | % | 3,851,594 | 78.3 | % | (213,774 | ) | (5.6 | )% | ||||||||||||||
| Gross profit – cross-border freight solution | (138,526 | ) | (3.9 | )% | 1,064,509 | 21.7 | % | (1,203,035 | ) | (113.0 | )% | |||||||||||||
| Gross profit –pharmaceutical products | 96,295 | 2.7 | % | - | - | 96,295 | NA | |||||||||||||||||
| Total gross (loss) profit | $ | (42,231 | ) | (1.2 | )% | $ | 1,064,509 | 21.7 | % | $ | (1,106,740 | ) | (104.0 | )% | ||||||||||
Revenues
Our total revenues from cross-border freight solutions decreased by $1.5 million, or 31.3%, from $4.9 million for the three months ended December 31, 2023, to $3.4 million for the three months ended December 31, 2024. The decrease was primarily driven by a significant decline in volume we handled from our cross-border airfreight solutions.
Revenues from our cross-border airfreight solutions decreased by $1.1 million or 35.5%, from $3.1 million in the three months ended December 31, 2023, to $2.0 million in the three months ended December 31, 2024. The decrease was primarily due to a decrease in the volume of cross-border air freight processed, from approximately 8,217 tons for the three months ended December 31, 2023, to approximately 4,459 tons for the three months ended December 31, 2024. Some of our customers reduced their orders and uncertainty in political regulations regarding tariffs, leading to a significant decline in our revenue.
Revenues from our cross-border ocean freight solutions decreased by $0.4 million, or 24.2%, from $1.8 million in the three months ended December 31, 2023, to $1.4 million in the three months ended December 31, 2024. This reduction was primarily due to a decrease in the volume of cross-border ocean freights processed and forwarded, dropping from 1,330 TEU in the three months ended December 31, 2023, to 1,046 TEU in the three months ended December 31, 2024. Additionally, a slowdown in consumer spending and business investments, impacted by overall economic downturn, reduced the demand for imported goods, leading to lower container volumes.
41
Starting from December 2024, we established a new revenue stream through the distribution of pharmaceutical products. We procured pharmaceuticals—primarily pharmaceutical solutions—directly from manufacturers and supplied them to distributors, hospitals, and clinics. For the three months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year.
We anticipate a lower revenue in the next quarter in the competitive and uncertain economic environment. Despite of decreasing air freight volume and the upcoming new rules to curtail small package and low value shipment from China to the U.S., we are committed to exploring new customers opportunities while maintaining strong relationship with existing customers. We believe that the ongoing trend toward online shopping highlights the need for timely and competitively priced deliveries to end consumers.
Revenues by Customer Geographic
| For the three months ended December 31, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Revenues | Amount | % of total Revenues | Amount | % of total Revenues | Amount Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||||||||
| Revenue from cross-border freight solutions | ||||||||||||||||||||||||
| Asia-based customers | $ | 2,750,202 | 76.5 | % | $ | 2,602,745 | 52.9 | % | $ | 147,457 | 5.7 | % | ||||||||||||
| U.S.-based customers | 627,301 | 17.4 | % | 2,313,358 | 47.1 | % | (1,686,057 | ) | (72.9 | )% | ||||||||||||||
| 3,377,503 | 93.9 | % | 4,916,103 | 100.0 | % | (1,538,600 | ) | (31.3 | )% | |||||||||||||||
| Revenue from distribution of pharmaceuticals | ||||||||||||||||||||||||
| Asia-based customers | 218,086 | 6.1 | % | - | - | 218,086 | N/A | |||||||||||||||||
| Total revenues | $ | 3,595,589 | 100.0 | % | $ | 4,916,103 | 100.0 | % | $ | (1,320,514 | ) | (26.9 | )% | |||||||||||
Revenues from cross-border freight solutions for the Asia-based customers increased by $0.1 million, or 5.7%, from $2.6 million in the three months ended December 31, 2023, to $2.8 million in the three months ended December 31, 2024. Revenues from cross-border freight solutions for the U.S.-based customers decreased by $1.7 million, or 72.9%, from $2.3 million in the three months ended December 31, 2023 to $0.6 million in the same period in 2024.
The increase in revenues from Asia-based customers in the three months ended December 31, 2024, was driven by a surge in volume from a new Aisa-based customer since June 2024, which was partly offset by decrease in shipments volume from Asia-based customers serving large e-commerce platforms due to the discussion on the amendment of de minimis rule.
The decrease in revenue from the U.S.-based customers in the three months ended December 31, 2024, compared to the same period in 2023, was primarily due to our strategic shift toward Asia-based e-commerce customers, in addition to the overall decline in revenue discussed earlier. Additionally, one-off special projects with larger shipment volumes from U.S. customers were completed in the three months ended December 31, 2023, with no comparable projects in the same period in 2024.
Our customers for the distribution of pharmaceutical products are based in China, as we specifically target the Chinese market. For the three months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year.
42
Cost of Revenues
A breakdown of our cost of revenues for the three months ended December 31, 2024 and 2023 is as follows:
| For the three months ended December 31, | Amount Increase | Percentage Increase | ||||||||||||||
| 2024 | 2023 | (Decrease) | (Decrease) | |||||||||||||
| Cost of revenue from cross-border freight solutions | ||||||||||||||||
| Transportation and delivery costs | $ | 1,401,927 | $ | 1,562,128 | $ | (160,201 | ) | (10.3 | )% | |||||||
| Warehouse service charges | 867,098 | 980,896 | (113,798 | ) | (11.6 | )% | ||||||||||
| Custom declaration and terminal charges | 583,471 | 879,869 | (296,398 | ) | (33.7 | )% | ||||||||||
| Freight arrangement charges | 128,205 | 125,314 | 2,891 | 2.3 | % | |||||||||||
| Overhead cost | 535,328 | 303,387 | 231,941 | 76.5 | % | |||||||||||
| Subtotal | 3,516,029 | 3,851,594 | (335,565 | ) | (8.7 | )% | ||||||||||
| Cost of revenue from distribution of pharmaceuticals | ||||||||||||||||
| Cost of goods sold | 121,791 | - | 121,791 | NA | ||||||||||||
| Total cost of revenue | $ | 3,637,820 | $ | 3,851,594 | $ | (213,774 | ) | (5.6 | )% | |||||||
Our cost of revenues from cross-border freight solutions decreased by $0.3 million, or 8.7%, from $3.9 million in the three months ended December 31, 2023, to $3.5 million in the three months ended December 31, 2024. The increase in cost of revenues was mainly due to the combined effects of:
| (i) | a decrease in transportation and delivery costs, including trucking, drayage, chassis rental, freight and delivery cost during the three months ended December 31, 2024, which was primarily due to a reduction in delivery service provided to customers. However, our reduction in transportation and delivery costs are significantly lower than the decline in revenue, due to high inflation in gasoline and labor cost over past year. Additionally, the forwarding service for airfreights have strict timing requirements, preventing us from fully utilizing the capacity of each delivery, often resulting in trucks operating at half capacity; |
| (ii) | a decrease in custom declaration and terminal charges, consisting of customs fees, handling charges, and entry service fees charged by ports and terminals during the three months ended December 31, 2024, resulting from a drop in volume of cross-border freight we handled, particularly airfreight, during the same period; |
| (iii) |
a decrease in our warehouse service charges, mainly representing labor costs at our regional warehousing and distribution centers during the three months ended December 31, 2024. This was due to a reduction in staffing costs related to unpacking shipments into smaller packages. We gradually reduced the warehouse labor shifts; however, adjusting to new labor schedules takes time;
| |
| (iv) | no material change in freight arrangement charges, mainly representing scheduling and booking fees for cross-border ocean freight during the three months ended December 31, 2024, primarily due to increased business for cross boarder shipping from the U.S. to China; and |
| (v) |
an increase in overhead costs, mainly comprising warehouse and equipment lease expenses, utilities, depreciation of property and equipment, and other direct costs during the three months ended December 31, 2024. The warehouse and equipment lease expenses increased significantly, from $ 255,654 in the three months ended December 31, 2023, to $499,021 in the three months ended December 31, 2024. The increase was primarily because we had two more warehouse lease agreements during the three months ended December 31, 2024, compared to the same period last year. These agreements were negotiated before the significant decline in our revenue. To mitigate costs and improve our gross profit margin, we plan to sublease one of the warehouse at Chicago in the next fiscal quarter. |
43
Gross Profit (loss)
Our overall gross loss was $42,231 in the three months ended December 31, 2024, compared to gross profit of $1,064,509 in same period last year.
The gross loss occurred primarily due to two key factors. First, there was a significant decrease in revenue due to stricter enforcement on the de minimis shipments regulations for the six months ended December 31, 2024. Second, despite this decline in revenue, the company’s fixed overhead costs remained high. These costs, such as rent and warehouse labour are not easily adjusted in the short term. As a result, the fixed overhead costs could not be covered by the ordinary gross margin, leading to a gross loss for the period. Additionally, while other cost of revenue decreased in line with lower revenue, the reduction in costs lagged behind due to time constraints. Our gross margin of cross-border freight business remains a lower but positive number by not taking fixed overhead cost into consideration.
Our gross margin of distribution of pharmaceutical was 44.2% for the three months ended December 31, 2024. It is a new business segment during current quarter and thus no gross margin was noted compared to same period in prior year.
Selling Expenses
Our selling expenses amounted to $54,488 for the three months ended December 31, 2024, compared to nil for the same period in 2023. The increase was primarily driven by salaries for our sales team, which were incurred as part of the new pharmaceutical product business launched during the current quarter.
General and Administrative Expenses
Our general and administrative expenses increased by $0.9 million, or 94.1%, from $1.0 million in the three months ended December 31, 2023, to $1.9 million in the three months ended December 31, 2024. These expenses represented 53.2% and 20.0% of our total revenues for the three months ended December 31, 2024 and 2023, respectively. The increase was primarily attributed to higher salary and employee benefit expenses and professional fee operating as a listed company.
Our salaries and employee benefits expenses increased by $0.4 million, or 64.1%, from $0.6 million in the three months ended December 31, 2023, to $1.1 million in the three months ended December 31, 2024. Our salaries and employee benefits expenses represented 55.8% and 66.0% of our total general and administrative expenses for the three months ended December 31, 2024 and 2023, respectively. The increase was mainly due to the recruitment of additional sales, customer services, and back-office support personnel to support our business growth in first half of 2024, along with the salary expenses associated with the two new subsidiaries in China. For our salaries and employee benefits expenses, (i) our payroll expenses increased by $0.4 million, or 70.7%, from $0.6 million in the three months ended December 31, 2023, to $1.0 million in the three months ended December 31, 2024, and (ii) our employee benefit expenses, which mainly consist of 401(k) company contribution, employee defined contribution plan in China, meal allowance and health insurance expenses, increased by $21,914, or 23.9%, from $91,674 in the three months ended December 31, 2023, to $113,588 in the three months ended December 31, 2024, representing 5.9% and 9.3% of our total general and administrative expenses for the three months ended December 31, 2024 and 2023, respectively. The increase was mainly due to rising employee health insurance premiums.
Our professional fee increased by $0.2 million, or 1,359.3%, from $14,802 in the three months ended December 31, 2023, to $216,012 in the three months ended December 31, 2024. Our professional fee represented 11.3% and 1.5% of our total general and administrative expenses for the three months ended December 31, 2024 and 2023, respectively. The increase was primarily due to audit fee, legal fee, consulting expense, investor-related expenses and financial reporting service fees for the three months ended December 31, 2024. In the three months ended December 31, 2023, most of the expenses directly related to offering that were not included in professional fees, as they were accounted for as deferred initial public offering assets.
Our traveling and entertainment expense increased by $0.2 million, or 224.8%, from $87,900 in the three months ended December 31, 2023, to $285,541 in the three months ended December 31, 2024. Our traveling and entertainment expense represented 14.9% and 8.9% of our total general and administrative expenses for three months ended December 31, 2024 and 2023, respectively. The increase was mainly due to higher entertainment and gift expenses related to networking with our business partners as we started a new business through the new subsidiary acquired.
44
Other Income, Net
Our other income, net, increased by $50,253, or 121.1%, from $41,500 in the three months ended December 31, 2023, to $91,753 in the three months ended December 31, 2024. The increase was primarily becuase we did not rent out part of our warehouse space to our related party, Weship, during the three months ended December 31, 2023.
Interest Expenses
Our interest expenses for the three months ended December 31, 2024, remained relatively stable compared to same period in last year.
Income (Loss) Before Income Taxes
We had loss before income taxes of $1.9 million for the three months ended December 31, 2024, compared to income before income taxes of $92,408 for the three months ended December 31, 2023. We were in a loss position before income taxes for the three months ended December 31, 2024, primarily attributable to the net effects of: (i) the decrease in gross profit, (ii) the rise in operating expenses; and (iii) the increase in other income for the three months ended December 31, 2024 as mentioned above.
Income Tax Expense
We had income tax expense of $nil and $28,184 in the three months ended December 31, 2024 and 2023, respectively. We did not have current income tax provision in the three months ended December 31, 2024, due to net operating loss, and we recognized a net deferred income tax asset of $585,197 due to temporary differences recognized and net operating loss carried forward. We also recognized a valuation allowance of $585,197 to write off our deferred tax asset since we are uncertain that we will be able to utilize the deferred tax asset to offset future taxable income, resulting in a net income tax expense of $nil in the three months ended December 31, 2024.
We did not have current income tax provision in the three months ended December 31, 2023, due to net loss, however, we recognized a deferred income tax asset of $71,909, due to temporary differences recognized and a deferred income tax expense of $28,184 due to temporary differences recognized.
Net Income (Loss)
As a result of the foregoing, we had a net loss of $1.9 million and a net income of $64,224 for the three months ended December 31, 2024 and 2023, respectively.
For the Six Months Ended December 31, 2024 Compared to the Six Months Ended December 31, 2023
The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the six months ended December 31, 2024 and 2023, and provides information regarding the dollar and percentage increase or (decrease) during such periods. The operating results in any historical period are not necessarily indicative of the results that may be expected for any future period.
| For the six months ended December 31, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Revenues | Amount | % of total Revenues | Amount | % of total Revenues | Amount Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||||||||
| Revenue from cross-border freight solutions | ||||||||||||||||||||||||
| Cross-border ocean freight solutions | $ | 3,211,396 | 41.8 | % | $ | 3,516,658 | 38.8 | % | $ | (305,262 | ) | (8.7 | )% | |||||||||||
| Cross-border airfreight solutions | 4,247,661 | 55.4 | % | 5,547,921 | 61.2 | % | (1,300,260 | ) | (23.4 | )% | ||||||||||||||
| Subtotal | 7,459,057 | 97.2 | % | 9,064,579 | 100.0 | % | (1,605,522 | ) | (17.7 | )% | ||||||||||||||
| Revenue from distribution of pharmaceutical products | 218,086 | 2.8 | % | - | - | 218,086 | NA | |||||||||||||||||
| Total revenues | 7,677,143 | 100.0 | % | 9,064,579 | 100.0 | % | (1,387,436 | ) | (15.3 | )% | ||||||||||||||
| Cost of revenues – cross-border solution | 7,075,044 | 92.2 | % | 7,352,527 | 81.1 | % | (277,483 | ) | (3.8 | )% | ||||||||||||||
| Cost of revenues –pharmaceutical products | 121,791 | 1.5 | % | - | - | 121,791 | NA | |||||||||||||||||
| Total cost of revenues | 7,196,835 | 93.7 | % | 7,352,527 | 81.1 | % | (155,692 | ) | (2.1 | )% | ||||||||||||||
| Gross profit – cross-border freight solution | 384,013 | 5.0 | % | 1,712,052 | 18.9 | % | (1,328,039 | ) | (77.6 | )% | ||||||||||||||
| Gross profit –pharmaceutical products | 96,295 | 1.3 | % | - | - | 96,295 | NA | |||||||||||||||||
| Gross profit | $ | 480,308 | 6.3 | % | $ | 1,712,052 | 18.9 | % | $ | (1,231,744 | ) | (71.9 | )% | |||||||||||
45
Revenues
Our total revenues from cross-border freight solution decreased by $1.6 million, or 17.7%, from $9.1 million for the six months ended December 31, 2023, to $7.5 million for the six months ended December 31, 2024. The decrease was primarily driven by a significant decline in volume we handled from our cross-border airfreight solutions.
Revenues from our cross-border airfreight solutions decreased by $1.3 million or 23.4%, from $5.5 million in the six months ended December 31, 2023, to $4.2 million in the six months ended December 31, 2024. The decrease was primarily due to a decrease in the volume of cross-border air freight processed, from approximately 16,034 tons for the six months ended December 31, 2023, to approximately 11,732 tons for the six months ended December 31, 2024. Some of our customers reduced their orders and uncertainty in political regulations regarding tariffs, leading to a significant decline in our revenue.
Revenues from our cross-border ocean freight solutions decreased by $0.3 million, or 8.7%, from $3.5 million in the six months ended December 31, 2023, to $3.2 million in the six months ended December 31, 2024. This growth was primarily due to a decrease in the volume of cross-border ocean freights processed and forwarded, dropping from 2,620 TEU in the six months ended December 31, 2023, to 2,476 TEU in the six months ended December 31, 2024. Additionally, a slowdown in consumer spending and business investments, impacted by overall economic downturn, reduced the demand for imported goods, leading to lower container volumes.
Starting from December 2024, we established a new revenue stream through the distribution of pharmaceutical products. We procured pharmaceuticals—primarily pharmaceutical solutions—directly from manufacturers and supplied them to distributors, hospitals, and clinics. For the six months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year.
Revenues by Customer Geographic
| For the six months ended December 31, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Revenues | Amount | % of total Revenues | Amount | % of total Revenues | Amount Increase (Decrease) | Percentage Increase (Decrease) | ||||||||||||||||||
| Revenue from cross-border freight solutions | ||||||||||||||||||||||||
| Asia-based customers | $ | 5,559,837 | 72.5 | % | $ | 4,296,968 | 47.4 | % | $ | 1,262,869 | 29.4 | % | ||||||||||||
| U.S.-based customers | 1,899,220 | 24.7 | % | 4,767,611 | 52.6 | % | (2,868,391 | ) | (60.2 | )% | ||||||||||||||
| 7,459,057 | 97.2 | % | 9,064,579 | 100.0 | % | (1,605,522 | ) | (17.7 | )% | |||||||||||||||
| Revenue from distribution of pharmaceuticals | ||||||||||||||||||||||||
| Asia-based customers | 218,086 | 2.8 | % | - | - | 218,086 | N/A | |||||||||||||||||
| Total revenues | $ | 7,677,143 | 100.0 | % | $ | 9,064,579 | 100.0 | % | $ | (1,387,436 | ) | (15.3 | )% | |||||||||||
Revenues from cross-border freight solutions for the Asia-based customers increased by $1.3 million, or 29.4%, from $4.3 million in the six months ended December 31, 2023, to $5.6 million in the six months ended December 31, 2024. Revenues from cross-border freight solutions for the U.S.-based customers decreased by $2.9 million, or 60.2%, from $4.8 million in the six months ended December 31, 2023 to $1.9 million in the same period in 2024.
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The increase in revenues from Asia-based customers in the six months ended December 31, 2024, was driven by a surge in volume from a new Aisa-based customer since June 2024, which was partly offset by decrease in shipments volume from Asia-based customers serving large e-commerce platforms due to the discussion on the amendment of de minimis rule.
The decrease in revenue from the U.S.-based customers in the six months ended December 31, 2024, compared to the same period in 2023, was primarily due to our strategic shift toward Asia-based e-commerce customers, in addition to the overall decline in revenue discussed earlier. Additionally, one-off special projects with larger shipment volumes from U.S. customers were completed in the six months ended December 31, 2023, with no comparable projects in the same period in 2024.
Our customers for the distribution of pharmaceutical products are based in China, as we specifically target the Chinese market. For the six months ended December 31, 2024, our total revenue from pharmaceutical product distribution amounted to $0.2 million, compared to no revenue from this segment in the same period of the prior year.
Cost of Revenues
A breakdown of our cost of revenues for the six months ended December 31, 2024 and 2023 is as follows:
| For the six months ended December 31, | Amount Increase | Percentage Increase | ||||||||||||||
| 2024 | 2023 | (Decrease) | (Decrease) | |||||||||||||
| Cost of revenue from cross-border freight solutions | ||||||||||||||||
| Transportation and delivery costs | $ | 3,035,817 | $ | 3,523,139 | $ | (487,322 | ) | (13.8 | )% | |||||||
| Warehouse service charges | 1,637,200 | 1,693,810 | (56,610 | ) | (3.3 | )% | ||||||||||
| Custom declaration and terminal charges | 1,025,095 | 1,300,192 | (275,097 | ) | (21.2 | )% | ||||||||||
| Freight arrangement charges | 292,545 | 228,492 | 64,053 | 28.0 | % | |||||||||||
| Overhead cost | 1,084,387 | 606,894 | 477,493 | 78.7 | % | |||||||||||
| Subtotal | 7,075,044 | 7,352,527 | (277,483 | ) | (3.8 | )% | ||||||||||
| Cost of revenue from distribution of pharmaceuticals | ||||||||||||||||
| Cost of goods sold | 121,791 | - | 121,791 | NA | ||||||||||||
| Total cost of revenue | $ | 7,196,835 | $ | 7,352,527 | $ | (155,692 | ) | (2.1 | )% | |||||||
Our cost of revenues decreased by $0.2 million, or 2.1%, from $7.4 million in the six months ended December 31, 2023, to $7.2 million in the six months ended December 31, 2024. The decrease in cost of revenues was mainly due to the combined effects of:
| (i) |
a decrease in transportation and delivery costs, including trucking, drayage, chassis rental, freight and delivery cost during the six months ended December 31, 2024, which was primarily due to a reduction in delivery service provided to customers. However, our reduction in transportation and delivery costs are significantly lower than the decline in revenue, due to high inflation in gasoline and labor cost over past year. Additionally, the forwarding service for airfreights have strict timing requirements, preventing us from fully utilizing the capacity of each delivery, often resulting in trucks operating at half capacity;
| |
| (ii) | a decrease in our warehouse service charges, mainly representing labor costs at our regional warehousing and distribution centers during the six months ended December 31, 2024, due to decrease in staff cost in connection with unpackaging shipment into small packages. We gradually reduced the warehouse labor shifts; however, adjusting to new labor schedules takes time; |
| (iii) | a decrease in custom declaration and terminal charges, consisting of customs fees, handling charges, and entry service fees charged by ports and terminals during the six months ended December 31, 2024，resulting from a drop in volume of cross-border freight we handled, particularly airfreight, during the same period.; |
| (iv) |
an increase in freight arrangement charges, mainly representing scheduling and booking fees for cross-border ocean freight during the six months ended December 31, 2024, primarily due to increased business for cross boarder shipping from the U.S. to China; and
| |
| (v) | an increase in overhead costs, mainly comprising warehouse and equipment lease expenses, utilities, depreciation of property and equipment, and other direct costs during the six months ended December 31, 2024. The warehouse and equipment lease expenses increased significantly, from $527,759 in the six months ended December 31, 2023, to $1,002,820 in the six months ended December 31, 2024. The increase was primarily we had two more warehouse lease agreements during the three months ended December 31, 2024, compared to the same period last year. These agreements were negotiated before the significant decline in our revenue. To mitigate costs and improve our gross profit margin, we plan to sublease one of the warehouse at Chicago in the next fiscal quarter. |
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Gross Profit
Our overall gross profit decreased by $1.2 million, or 71.9%, from $1.7 million in the six months ended December 31, 2023, to $0.5 million in the six months ended December 31, 2024. Our gross margin of cross-border freight solution was 5.1% for the six months ended December 31, 2024, compared to 18.9% for the six months ended December 31, 2023. The decline in gross margin was primarily attributable to (i) revenue from the airfreight and ocean freight solution decreased to a greater extend to decrease in our cost of revenue, such as transportation and delivery cost, warehouse services, custom declaration and terminal charges, and (ii) increased overhead costs allocated, as discussed above.
Our gross margin of distribution of pharmaceutical was 44.2% for the six months ended December 31, 2024. It is a new business segment during current quarter and thus no gross margin was noted compared to same period in prior year.
Selling Expenses
Our selling expenses amounted to $54,488 for the six months ended December 31, 2024, compared to nil for the same period in 2023. The increase was primarily driven by salaries for our sales team, which were incurred as part of the new pharmaceutical product business launched during the current quarter.
General and Administrative Expenses
Our general and administrative expenses increased by $1.9 million, or 103.7%, from $1.8 million in the six months ended December 31, 2023, to $3.7 million in the six months ended December 31, 2024. These expenses represented 48.8% and 20.3% of our total revenues for the six months ended December 31, 2024 and 2023, respectively. The increase was primarily attributed to higher salary and employee benefit expenses, professional fee, office expense and traveling, insurance expense and entertainment expense:
Our salaries and employee benefits expenses increased by $0.8 million, or 63.0%, from $1.2 million in the six months ended December 31, 2023, to $2.0 million in the six months ended December 31, 2024. Our salaries and employee benefits expenses represented 53.1% and 66.3% of our total general and administrative expenses for the six months ended December 31, 2024 and 2023, respectively. The increase was mainly due to (i) the recruitment of additional sales, customer services, and back-office support personnel to support our business in first half 2024, and (ii) salaries of management and operation team for our new business in China. For our salaries and employee benefits expenses, (i) our payroll expenses increased by $0.7 million, or 67.5%, from $1.0 million in the six months ended December 31, 2023, to $1.7 million in the six months ended December 31, 2024, and (ii) our employee benefit expenses, which mainly consist of 401(k) company contribution, employee defined contribution plan in China, meal allowance and health insurance expenses, increased by $0.1 million, or 39.8%, from $0.2 million in the six months ended December 31, 2023, to $0.3 million in the six months ended December 31, 2024, representing 7.4% and 10.8% of our total general and administrative expenses for the six months ended December 31, 2024 and 2023, respectively. The increase was mainly due to rising employee health insurance premiums.
Our professional fee increased by $0.5 million, or 1,619.8%, from $32,337 in the six months ended December 31, 2023, to $556,126 in the six months ended December 31, 2024. Our professional fee represented 14.8% and 1.8% of our total general and administrative expenses for the six months ended December 31, 2024 and 2023, respectively. The increase was primarily due to audit fee, legal fee, consulting expense, investor-related expenses and financial reporting service fees for the six months ended December 31, 2024. In the six months ended December 31, 2023, most of the expenses directly related to offering that were not included in professional fees, as they were accounted for as deferred initial public offering assets.
Our insurance expense increased by $0.1 million, or 1,701.0%, from $6,948 in the six months ended December 31, 2023, to $125,131 in the six months ended December 31, 2024. The increase was primarily due to purchasing insurance premiums for our directors and officers, as we became a public company in July 2024.
Our traveling and entertainment expense represented 11.0% and 8.7% of our total general and administrative expenses for six months ended December 31, 2024 and 2023, respectively. The increase was mainly due to higher entertainment and gift expenses related to networking with our business partners as well as more business trips during recent quarter.
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Other Income, Net
Our other income, net, increased by $0.1 million, or 127.9%, from $0.1 million in the six months ended December 31, 2023, to $0.2 million in the six months ended December 31, 2024. The increase was primarily due to renting out part of our warehouse space to our related party, Weship, for an additional five months during the six months ended December 31, 2024.
Interest Expenses
Our interest expenses increased by $15,128, or 28.1%, from $53,864 in the six months ended December 31, 2024, to $68,992 in the six months ended December 31, 2024. Increase interest expense was mainly due to late credit card payments.
Loss Before Income Taxes
We had loss before income taxes of $3.2 million and $0.2 million for the six months ended December 31, 2024 and 2023. Our loss before income taxes increased primarily attributable to the net effects of: (i) the decrease in gross profit, (ii) the rise in operating expenses; and (iii) the increase in other income for the six months ended December 31, 2024 as mentioned above.
Income Tax Expense
We had income tax expense of $89,581 and $26,125 in the six months ended December 31, 2024 and 2023, respectively. We did not have current income tax provision in the six months ended December 31, 2024, due to net operating loss, and we recognized a deferred income tax asset of $959,094 due to temporary differences recognized and net operating loss carried forward. We also recognized a valuation allowance of $1,048,675 to write off our deferred tax asset since we are uncertain that we will be able to utilize the deferred tax asset to offset future taxable income, resulting in a net income tax expense of $89,581 in the six months ended December 31, 2024.
We did not have current income tax provision in the six months ended December 31, 2023, due to net loss, however, we recognized a deferred income tax asset of $8,231, due to temporary differences recognized and a deferred income tax expense of $17,894 due to the change from an S Corporation to a C Corporation upon the completion of our reorganization on September 23, 2023.
Net Loss
As a result of the foregoing, we had a net loss of $3.3 million and $0.2 million for the six months ended December 31, 2024 and 2023, respectively.
Liquidity and Capital Resources
As of December 31, 2024, we had a cash and cash equivalent balance of $1.1 million. Our current assets were $4.4 million, and our current liabilities were $5.4 million, resulting in a current ratio of 0.81:1 and a negative working capital of $1.1 million. Total stockholders’ equity as of December 31, 2024 was $1.6 million.
As of December 31, 2024 and June 30, 2024, we had accounts receivable net of allowance of $1.9 million and $2.8 million, respectively. We periodically review our accounts receivable and allowance level to ensure our methodology for determining allowances is reasonable and to accrue additional allowances if necessary. For the accounts receivable, as of December 31, 2024 and June 30, 2024, we provided a credit loss allowance of $56,022 and $54,066, respectively.
In assessing our liquidity, we monitor and analyze our cash on hand, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. Historically, we have funded our working capital needs primarily through operations, loans, and working capital loans from stockholders. Our working capital requirements are influenced by the efficiency of our operations, the volume and dollar value of our revenue contracts, the progress or execution of customer contracts, and the timing of accounts receivable collections.
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Cash Flows
The following table sets forth summary of our cash flows for the periods indicated:
| For the six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash (used in) provided by operating activities | $ | (1,933,000 | ) | $ | 257,836 | |||
| Net cash used in investing activities | (1,350,498 | ) | (78,799 | ) | ||||
| Net cash provided by (used in) financing activities | 4,295,361 | (15,538 | ) | |||||
| Effect of exchange rate changes on cash | (11,999 | ) | 3,216 | |||||
| Net increase in cash and cash equivalent | 999,864 | 166,715 | ||||||
| Cash, beginning of the period | 123,550 | 174,018 | ||||||
| Cash, end of the period | $ | 1,123,414 | $ | 340,733 | ||||
Operating Activities
Net cash used in operating activities was $1,933,000 in the six months ended December 31, 2024, including net loss of $3,282,227, adjusted for non-cash items for $1,183,152 and changes in working capital of positive $166,075. The non-cash items primarily included $989,003 amortization and interest expense of operating lease assets, $87,132 depreciation included in G&A and cost of revenue, $15,480 depreciation of right-of-use finance assets and $1,956 from provision of allowance for expected credit loss and a decrease of $89,581 from deferred tax asset due to recognition of valuation allowance. The adjustments for changes in working capital mainly included a decrease of $424,648 and $565,766 in accounts receivable — third parties and related parties, respectively, due to a decrease of revenues near period end and an increase of $312,722 in accrued expense and other payable, partially offset by an increase in prepayment of $112,620, a decrease of $742,649 in operating lease liabilities and a decrease of $156,165 in accounts payable — related parties.
Net cash provided by operating activities was $257,836 for the six months ended December 31, 2023, including net loss of $243,061, adjusted for non-cash items for $674,713, and changes in working capital of negative $173,816. The non-cash items primarily included $439,142 non-cash operating lease expense, $72,319 depreciation and amortization, $49,591 from provision of allowance for expected credit loss, and impacted by a loss of $73,151 from deconsolidation of a subsidiary. The adjustments for changes in working capital mainly included (i) an increase of $192,609 in accounts receivable — related parties, (ii) an increase of $479,056 in accounts receivable — third parties reflecting the impact of revenue growth combined with the timing of payments to third party providers, related parties and collections from clients on net working capital and (iii) an increase of $27,169 in contract assets, partially offset by (i) an increase of $539,542 in accounts payable — third parties, (ii) an increase of $241,721 in accounts payable — related parties and (iii) an increase of $122,547 in accrued expenses and other payables.
The $2,190,836 increase in cash used in operating activities in the six months ended December 31, 2024 compared to the prior year was primarily due to an increase in net loss of $3,039,166 in the six months ended December 31, 2024 compared to same period in the prior year, partly offset by an increase of $339,891 in cash flow from working capital due to timing of vendor payments, client payments and related parties payment.
Investing Activities
Net cash used in investing activities was $1,350,498 and $78,799 for the six months ended December 31, 2024 and 2023, respectively. Net cash used in investing activities for the six months ended December 31, 2024, was primarily attributable to net cash payment of $552,721 for intangible assets through acquisition of 100% equity interest in Hupan Pharmaceutical and we had a loan of $686,697 to a third party. We also purchased property and equipment, conducted office renovation for our operation of subsidiaries in Mainland China. On August 4, 2023, we reduced our unpaid registered capital contribution in our investee company in China, namely ABL Wuhan, and concurrently, the third-party shareholders increased their registered capital contribution accordingly. Following this change, the third-party shareholders own 80% of equity interest and we own 20% of equity interest in ABL Wuhan. Consequently, ABL Wuhan ceased to be the Company’s subsidiary after August 4, 2023. Therefore, we had cash outflow of $48,893 upon deconsolidation of a subsidiary and payment for registered capital of $29,906 during the six months ended December 31, 2023.
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Financing Activities
Net cash provided by financing activities was $4,295,361 for the six months ended December 31, 2024, compared to net cash used in financing activities of $15,538 for same period in prior year, respectively. The increase in net cash provided by financing activities was mainly due to the net proceeds of $5,351,281 from the offering and proceeds from loan borrowing of $195,000 and a loan from a third party of $276,365, partly offset by repayment of $805,345 to shareholders and loans repayment of $339,914 during the six months ended December 31, 2024. The net cash provided by financing activities for the six months ended December 31, 2023, mainly due to the proceeds from loans of $225,000 that we borrowed, and net proceeds from shareholders by $158,455, partially offset by repayment of loans, vehicle loans and equipment loans of $245,564, and the payment for deferred offering cost of 140,000.
Capital Expenditures
Our capital expenditures are incurred primarily in connection with the purchase of fixed assets, including machinery and equipment, furniture and fixtures, leasehold improvement and vehicles. Our capital expenditures amounted to $256,314 and $nil in the six months ended December 31, 2024 and 2023, respectively.
We expect that our capital expenditures will increase in the future as our business continues to develop and expand. We intend to fund our future capital expenditures with our existing cash balance, proceeds of loans, working capitals loans from stockholders.
Commitments and Contractual Obligations
As of December 31, 2024, the Company’s contractual obligations consist of the following:
| Contractual Obligations | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | |||||||||||||||
| Operating lease obligations | $ | 5,051,427 | $ | 2,439,066 | $ | 1,724,121 | $ | 888,240 | $ | — | ||||||||||
| Finance lease obligations | 148,472 | 56,205 | 52,565 | 39,702 | — | |||||||||||||||
| Construction-in-progress project | 87,491 | 54,548 | 32,943 | — | — | |||||||||||||||
| Vehicle loans | 255,933 | 72,858 | 104,298 | 60,206 | 18,571 | |||||||||||||||
| Equipment loans | 63,136 | 45,295 | 17,841 | — | — | |||||||||||||||
| Other loans | 535,306 | 535,306 | — | — | — | |||||||||||||||
| Total | $ | 6,141,765 | $ | 3,203,278 | $ | 1,931,768 | $ | 988,148 | $ | 18,571 | ||||||||||
Off-Balance Sheet Commitments and Arrangements
There were no off-balance sheet arrangements as of and for the six months ended December 31, 2024 and 2023, that have, or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past two years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.
Despite the fact that the management determines there are no critical accounting estimates, the most significant estimates relate to allowance for credit losses, for which we are required to estimate the collectability of accounts receivable, and contract asset relating to shipment in transit.
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The estimates were based on a number of factors including historical experience, the age of the accounts receivable balances, the credit quality of customers, current and reasonably expected future economic conditions, and other factors that may affect our ability to collect from customers.
The estimated contract asset is based on the estimated completion percentage of the performance obligation. We believe that customers simultaneously benefit from the comprehensive services it provides. For customers with goods entering the United States, we offer customs clearance, container unloading, storage, unpacking, packing, and transportation services to customer-specified locations after the goods arrive at a U.S. seaport or airport. For customers shipping goods overseas, we provide cargo space arrangement, storage, packing, export customs clearance, and transportation to the seaport or airport for loading. The performance obligation is satisfied over time as customers receive the benefits of these services during the process of transporting goods from one location to another. As a result, we recognize revenue over time. We believe that the methodology employed is comparable to that of other global logistics companies and offers faithful depiction of the services rendered to customers.
While our significant accounting policies are more fully described in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements, we believe that there were no critical accounting policies that affect the preparation of financial statements.
Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In November 2023, the FASB issued ASU No. 2023-07, “Improvements to Reportable Segment Disclosures” (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. Management is currently evaluating the provisions of this ASU and expect to adopt them for the year ending June 30, 2025.
In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures” (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income tax paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will likely result in the required additional disclosures being included in the Company’s consolidated financial statements, once adopted.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information otherwise required under this item.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.
Based upon this evaluation, our management concluded that as of December 31, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
| ● | We are lacking adequate segregation of duties and effective risk assessment; and |
| ● | We are lacking sufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both the U.S. GAAP, and SEC guidelines. |
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of PCAOB Auditing Standard AS2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We plan to address the weaknesses identified above by implementing the following measures:
| (i) | Continuously hiring additional accounting staffs with comprehensive knowledge of U.S. GAAP and SEC reporting requirements; |
| (ii) | Designing and implementing formal procedures and controls supporting the Company’s period-end financial reporting process, such as controls over the preparation and review of account reconciliations and disclosures in the consolidated financial statements; and |
| (iii) | Ameliorating our internal audit to assist with assessment of Sarbanes-Oxley compliance requirements and improvement of internal controls related to financial reporting. |
Changes in Internal Control over Financial Reporting
During the most recent fiscal quarter, there has not been any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are currently not a party to, nor are we aware of, any legal proceedings, investigations or claims which, in the opinion of our management, are likely to have a material adverse effect on our business, financial condition or results of operations.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information otherwise required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Initial Public Offering of Common Stock
On July 1, 2024, we closed our initial public offering (“IPO”), in which we sold 1,500,000 shares of common stock at a price to the public of $4.50 per share. The offer and sale of the shares in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-278416), which was declared effective by the Securities and Exchange Commission on June 27, 2024. We raised approximately $5.7 million in net proceeds after deducting underwriters’ discounts and commissions as well as offering. As of the date of this report, with the proceeds of the IPO, we used approximately $3.3 million for in marketing activities and business expansion and used approximately $1.9 million for working capital needs. We expect to use the remaining net proceeds for (i) investment in strengthening our cross-border supply chain capabilities, (ii) marketing activities to grow our customer base, (iii) strategic investments and potential mergers and acquisitions in the future, and (iv) general corporate purposes.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q for the quarter ended December 31, 2024.
| # | This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Lakeside Holding Limited | ||
| Dated: February 14, 2025 | By: | /s/ Henry Liu |
|
Henry Liu Chairman and Chief Executive Officer | ||
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