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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
For the transition period from to .
Commission File Number. 001-42140
Lakeside Holding Limited
(Exact name of registrant as specified in its charter)
| Nevada | 82-1978491 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1475 Thorndale Avenue,
Suite A
Itasca, Illinois 60143
(Address of principal executive offices, including zip code)
(224) 446-9048
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| Common Stock, par value US$0.0001 per share | LSH | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by checkmark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The Nasdaq Stock Market LLC on December 29, 2023, the last business day of the Registrant’s most recently completed second fiscal quarter, was $0.00. The Registrant’s shares of common stock began trading on June 28, 2024.
As of September 25, 2024, the Registrant had 7,500,000 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
EXPLANATORY NOTE
As used in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding guidance, our future results of operations or financial condition, our future stock repurchase programs or stock dividends, business strategy and plans, user growth and engagement, product initiatives, objectives of management for future operations, and advertiser and partner offerings, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “going to,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. We caution you that the foregoing may not include all of the forward-looking statements made in this report.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends, including our financial outlook, macroeconomic uncertainty, geo-political conflicts, and pandemics, that we believe may continue to affect our business, financial condition, results of operations, and prospects. These forward-looking statements are subject to risks, uncertainties, and other factors, including among other things:
| ● | changes in the competitive environment, due to macroeconomic conditions or otherwise, or damage to our reputation; |
| ● | fluctuations in currency exchange, interest or inflation rates that could impact our financial condition or results; |
| ● | changes in our accounting estimates and assumptions on our financial statements; |
| ● | the impact of, and potential challenges in complying with, laws and regulations of the jurisdictions in which we operate, particularly given the possibility of differing or conflicting laws and regulations, or the application or interpretation thereof, across such jurisdictions; |
| ● | failure to protect intellectual property rights or allegations that we have infringed on the intellectual property rights of others; |
| ● | the failure to retain, attract and develop experienced and qualified personnel; |
| ● | the effects of natural or man-made disasters, including the effects of the COVID-19 and other health pandemics and the impacts of climate change; |
| ● | any system or network disruption or breach resulting in operational interruption or improper disclosure of confidential, personal, or proprietary data, and resulting liabilities or damage to our reputation; |
| ● | our ability to develop, implement, update and enhance new technology; |
| ● | the actions taken by third parties that perform aspects of our business operations and client services; and |
| ● | our ability to continue, and the costs and risks associated with, growing and developing our business, and entering into new lines of business or products. |
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Annual Report on Form 10-K. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, including future developments related to geo-political conflicts, pandemics, and macroeconomic conditions, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, dispositions, joint ventures, restructurings, legal settlements, or investments.
Investors and others should note that we may announce material business and financial information to our investors using our filings with the U.S. Securities and Exchange Commission, or SEC, and press releases. We encourage investors and others interested in our company to review the information that we make available through the aforementioned channels.
PART I
Item 1. Business.
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 June 30, 2024, we had served over 300 customers to fulfill over 41,000 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 June 30, 2024, we had collaborated with almost all major global ocean and air carriers to forward over 31,300 twenty-foot equivalent unit, or TEU, of container loads and 47,800 tons of air cargo. As of June 30, 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 two 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 98,220 square feet and 39 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 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 June 30, 2024, we had assisted with the customs clearance of cross-border freight of an aggregate assessed value of over $38.0 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 markets, we have been able to build up our brand and reputation and have achieved fast growth since our inception. For the fiscal years ended June 30, 2024 and 2023, our revenues amounted to $18.3 million and $12.9 million, respectively, and our gross profit amounted to $3.7 million and $2.6 million during the same periods, respectively. As of June 30, 2024, we had fulfilled over 41,000 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.
Corporate History and Corporate Structure
We commenced our operations in February 2018 through American Bear Logistics Corp., a corporation established under the laws of the State of Illinois. From August to September 2023, we completed a reorganization and established our holding company, Lakeside Holding Limited, under the laws of the State of Nevada on August 28, 2023.
On July 1, 2024, we completed our initial public offering, or IPO, and listed our common stock on the Nasdaq Capital Market under the symbol “LSH.” We raised gross proceeds of approximately US$6.8 million from this offering. The gross proceeds were not reflected in our audited consolidated financial statements with respect to the fiscal year ended June 30, 2024 included elsewhere in this Report, and will be reflected in our audited consolidated financial statements with respect to the fiscal quarter ended September 30, 2024 upon the filing of our periodic report on Form 10-Q.
In July 2024, we established a wholly-owned subsidiary in the PRC with an aim to further expand our global footprints.
Our Solutions and Services
We primarily offer cross-border ocean freight solutions and airfreight solutions in the U.S. that are specifically tailored to our customers’ requirements and needs in transporting goods into the U.S.
Services under our cross-border ocean freight solutions and cross-border airfreight solutions typically include (i) cross-border freight consolidation and forwarding services, (ii) customs clearance services, (iii) warehousing and distribution services and (iv) U.S. domestic ground transportation.
Cross-border Freight Consolidation and Forwarding Services
As a licensed non-vessel operating common carrier, or NVOCC and indirect air carrier, we provide cross-border ocean and air freight consolidation and forwarding services either as a freight consolidator or agent for an ocean or air shipping carrier. Solutions under our cross-border freight consolidation and forwarding services include:
Ocean freight consolidation and forwarding: As an ocean freight forwarder, we contract with ocean shipping carriers and/or other sizeable ocean freight forwarders to obtain transportation for a fixed number of containers between various points during a specific time period at agreed-upon rates. We handle both full container loads and less-than-container load freight, offering a wide range of shipping options and rates than available with carriers directly.
Airfreight consolidation and forwarding: As an airfreight forwarder, we purchase cargo capacity from airlines and/or other sizeable airfreight forwarders on a volume basis and resell the space to our customers. We determine the routing, consolidate individual, unconsolidated shipments bounds for a particular airport distribution point, and then select the airline for transportation to the distribution point, where we then arrange for the consolidated lot to be broken into its component shipments and for the transportation of each individual shipments to its final destination.
Through long-term cooperations with almost all major global ocean carriers and air carriers, we offer our freight consolidation and forwarding service customers a wide footprint globally to cater to their shipping and space needs throughout the year, including during peak periods. Since our inception and as of June 30, 2024, through cooperations with almost all major global ocean carriers and air carriers, we had served over 300 customers to forward cross-border shipments consisting of over 31,800 TEU of container loads and 47,800 tons of air cargo.
Customs Clearance Services
We provide customs clearance services to our customers in conjunction with our other service offerings. We typically collaborate with licensed customs brokerage experts to help our customers clear shipments importing into the U.S. through customs by preparing and filing required documentation, calculating and providing for payment of duties, taxes and fees on behalf of our customers as well as arranging for any required inspections by governmental agencies such as the U.S. Customs and Border Protection, or CBP. Our customs clearance services include screening commercial documentation for assessed value, country of origin, application for special trade programs and classification. Since our inception and as of June 30, 2024, we had assisted with the customs clearance of cross-border freight of an aggregate assessed value of over $38.0 million.
Warehousing and Distribution Services
For cross-border freight we pick up at ocean ports and airports that require storage, fulfilment, trans-loading, palletizing, packaging or distribution, we offer ancillary warehousing and distribution services at our two regional warehousing and distribution centers in Illinois and Texas, adjacent to the O’Hare International Airport and Dallas Fort Worth International Airport, respectively, and are connected to almost all major U.S. domestic railroads and/or ports. With an aggregate gross feet area of approximately 98,220 square feet and 39 docks, our regional warehousing and distribution centers have an aggregate daily operation capacity of up to 3,000 cubic meters of freight for storage, packaging and other fulfilment services. Our regional warehousing and distribution centers are generally utilized by multiple customers at a time so that such customers may benefit from cost savings related to shared space, labor, equipment and other efficiencies.
U.S. Domestic Ground Transportation Services
We provide flexible, cost-competitive full-truckload and less-than-truckload ground transportation of cross-border freight to businesses and residences in the U.S. either directly from port to door, or from our regional warehousing and distribution centers to such domestic addresses. Our U.S. domestic ground transportation services are offered through an extensive network in collaboration with our ground transportation service providers.
As of June 30, 2024, we had established a ground transportation network in collaboration with over 200 domestic ground transportation carriers, including almost all major U.S. domestic ground transportation carriers, capable of delivering to thousands of business and residential addresses in approximately 48 U.S. states, on a long-term, short-term or order basis, as the case may be.
In addition, through establishing in-depth and long-standing partnerships with leading supply chain service providers in Asia for domestic supply chain services in the U.S., we have opened pathways to e-commerce and social commerce and have empowered several Asia-based e-commerce and social commerce platform giants to sell into the U.S. more easily and to deliver small-package goods to end consumers in the U.S. more smoothly.
Market Opportunity
The cross-border supply chain solutions industry is highly fragmented with thousands of companies of various sizes competing in domestic and international markets. The overall opportunities in the cross-border supply chain solutions sector are significant. According to McKinsey1, the cross-border supply chain solutions sector is expected to see a significant growth in the coming years. It is estimated that the market size of cross-border e-commerce will expand to around $1 trillion in merchandise value by 2030, from a current value of approximately $300 billion.
We maintain a strong focus on the Asian market. According to McKinsey2, Asia is expected to account for 57% of the growth of the global e-commerce logistics market between 2020 and 2025, making it one of the most important regions for global trade and logistics activities going forward. Our concentration on the Asian market enables us to develop in-depth expertise in serving Asian countries such as China and South Korea and provides us an edge in understanding the nuances and demands in this rapidly evolving market.
Partnering with almost all major global ocean and air carriers, our vast network of global freight carrier partners and in-depth connections with U.S. ground transportation providers can offer customers consistent services, even during peak periods. Such service reliability can be significantly beneficial for e-commerce platforms, social commerce platforms and manufacturers that often times may face supply chain disruptions during peak seasons.
| 1 | McKinsey,
Signed, sealed, and delivered: Unpacking the cross-border parcel market’s promise
(March 2022),https://www.mckinsey.com/industries/travel-logistics- and-infrastructure/our-insights/signed-sealed-and-delivered-unpacking-the-cross-border-parcel-markets-promise#. |
| 2 | McKinsey, Asia: The highway of value for global logistics (May 2021), https://www.mckinsey.com/featured-insights/asia-pacific/asia-the-highway-of-value-for-global-logistics |
Strengths
We believe the following strengths contribute to our success and differentiate us from our competitors:
Fast-growing U.S.-based cross-border supply chain solution provider with a unique focus on the Asian market
We are an integrated cross-border supply chain solution provider based in the U.S. with a strategic focus on the Asian market. Leveraging our strong cross-border supply chain service capabilities, superior service quality, 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 provide our Asia-based customers with individually-tailored solutions that specifically cater to their requirements and needs in transporting goods into the U.S. Our solutions encompass a wide variety of services such as cross-border ocean and air freight consolidation and forwarding, customs clearance, warehousing and distributing as well as U.S. domestic ground transportation.
We have grown our business rapidly since our inception in 2018. As an Asian American-owned business deeply rooted in the U.S., our accumulated insights and deep understanding of both the U.S. and Asian international trading and logistics service markets have enabled us to build up our brand and reputation cross-border and achieve fast growth since our inception. As of June 30, 2024, we operated two regional warehousing and distribution centers in the U.S., in Illinois and Texas, and we had served over 300 customers and fulfilled over 41,300 cross-border supply chain solution orders for ocean freight and airfreight of an aggregate assessed value of $1.0 billion delivered to thousands of business and residential addresses in approximately 48 U.S. states.
Our revenues increased from $12.9 million for the fiscal year ended June 30, 2023 and to $18.3 million for the fiscal year ended June 30, 2024. The total number of our cross-border supply chain solution orders fulfilled increased significantly from over 10,000 for the fiscal year ended June 30, 2023 to over 16,000 for the fiscal year ended June 30, 2024, while the total number of our customers increased from approximately 190 to 206, respectively, during the same periods.
Extensive service provider network of global freight carriers and U.S. ground transportation carriers
We have established an extensive, long-standing service provider network of global freight carriers for our cross-border freight consolidation and forwarding services. Since inception and as of June 30, 2024, we had collaborated with almost all major global ocean and air carriers to serve over 300 customers to forward cross-border shipments consisting of over 31,800 TEU of container loads and 47,800 tons of air cargo. We have also established a massive, in-depth and long-standing U.S. domestic ground transportation service provider network in collaboration with domestic ground transportation carriers. As of June 30, 2024, we had 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 believe such extensive collaboration network has enabled us to provide our customers with more flexible and optimized options of origin ports, shipping routes, shipping frequency and delivery times that suit their needs better.
Symbiotic relationships with a large base of customers with high demands for supply chain solutions
We forge symbiotic relationships with a large base of customers that 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 June 30, 2024, we had served over 300 customers with over 41,300 cross-border supply chain solution orders fulfilled. We believe our solutions have become a vital, indispensable part of our customers’ international trading and/or service value chain. Our solutions lift the burden associated with searching for, contracting with, coordinating with and paying various freight carriers, customs brokers and U.S. domestic transportation brokers on individual basis and enable our customers to commit their limited operational and managerial resources to their core business activities and achieve their business objectives cost-effectively. For example, we are among the earliest U.S.-based third-party supply chain service suppliers of a top integrated logistics service provider headquartered in China and have served this customer for over three years, enabling this customer to effectively obtain integrated supply chain capabilities and expertise in the U.S. without having devoted substantial operational resources and costs. Leveraging our strong supply chain service capabilities and deep understanding of the Asian market, we have been able to provide our Asia-based customers with customized solutions that specifically cater to their needs. We believe our customized cross-border supply chain solutions offer compelling value propositions to our customers, allowing us to become their go-to third-party service suppliers for exporting and transporting into the U.S.
Persistent focus on providing superior service efficiency and quality
We are driven by a persistent focus on providing highly efficient quality services to our customers. We have standardized, unified and streamlined the protocols and criteria of our wide variety of supply chain service offerings, aiming to provide reliable and best-quality services to customers. For example, we manage our cross-border freight consolidation and forwarding services and our U.S. domestic ground transportation services to specific objectives, such as high customer service scores for on-time delivery and damage-free freight. During the fiscal years ended June 30, 2023 and 2024, among our overall cross-border ocean freight and airfreight supply chain solution orders, the damage rate of the total shipments delivered through our service network of global freight carriers and U.S. domestic ground transportation carriers consistently maintained less than 1.0%. We have also established a customer support regime that is available from 8am to 11pm, seven days a week, to address the needs of our international customers. During the fiscal years ended June 30, 2023 and 2024, over 40.0% and 46.0% of our customers were repeat customers.
Visionary and accomplished young management team with strong industry expertise and in-depth understanding of Asian market
We were founded by two Asian American entrepreneurs who have worked closely together for over seven years. Mr. Henry Liu, our co-founder, chairman of the board of directors and chief executive officer, is a successful Asia-born, U.S.-educated entrepreneur. Mr. Shuai Li, our co-founder, president and chief operating officer, is also of an Asian descent. We benefit from the leadership of such management team with prominent strategic visions, in-depth industry expertise, extensive managerial and operational experience as well as deep understanding of both the U.S. and Asian market. The key members of our management have an average of more than ten years of experience in the logistics service industry. We believe our management’s industry expertise, coupled with their vision and entrepreneurial spirit, has enabled us and will continue to enable us to navigate in the cross-border supply chain solution market successfully.
Our Growth Strategies
We believe that we have a significant opportunity before us, both to further our mission and to strengthen our business and grow our revenues. We are focused on the following strategies to drive our growth:
Solidify our competitive edge and further grow customer base
We have established a global ocean freight and airfreight carrier collaboration network as well as an extensive U.S. domestic ground transportation collaboration network that cater to the needs of our large base of customers in Asia seeking integrated cross-border supply chain solutions, and we have achieved a robust revenue growth during the past few years. We intend to solidify our competitive edge in the cross-border ocean freight solution sector and further grow the scale of our cross-border airfreight solution operations. We seek to deepen the strategic long-term relationships with our global ocean and air carrier service provider as well as U.S. domestic transportation service providers, tap into new markets with them and explore new ways of collaborations. On the other hand, we strive to strengthen our branding and sales efficiencies, increase our presence in Asia and the globe as a U.S.-based integrated cross-border supply chain solution provider, capitalize on the massive opportunities for cross-border supply chain solutions within the thriving global social commerce market driven by consumer purchases directly through social media channels, and expand our customer base globally. We will also continue to optimize our service quality and enhance the experience and loyalty of our customers.
Expand our global footprints more extensively
We seek to provide integrated supply chain solutions to customers globally. We believe there are significant opportunities in the merchandise trade between the U.S. and emerging economies in Southeast Asia and South America, which we intend to leverage on and further expand our global footprints. For example, in addition to our two existing regional warehousing and distribution centers in Illinois and Texas, we plan to establish new hubs and centers in other major border cities in the U.S., such as Houston, Texas and Miami, Florida to cater to the needs in cross-border supply chain solutions from customers in Canada and South America. We also plan to expand our already extensive coverage of Asia-to-U.S. shipping routes provided by our ocean carrier service providers and allow our customers in Asia to have more flexible and optimized options of origin ports, shipping routes and shipping frequency. Moreover, we aim to extend our carrier collaboration network’s reach to penetrate Europe and bring our integrated and streamlined cross-border supply chain solutions to European customers, facilitating the flow of goods from Europe to the U.S. as well as elsewhere in the world.
Diversify and increase the breadth and depth of our service offerings through an organic growth and/or mergers and acquisitions
We intend to expand our portfolio of supply chain solutions and diversify our service offerings to more upstream and downstream sectors throughout the entire international trade value chain through an organic growth and/or mergers and acquisitions. For example, leveraging our existing extensive cross-border logistics network and strong supply chain management capabilities, we plan to expand into the prospective trading market and establish integrated cross-border trading businesses in free-trade zones with a focus on the export of U.S.-made consumer goods to the Asian market and the import of Asia-made consumer goods into the U.S. In addition, we plan to continue to deepen and broaden our current supply chain service offerings by (i) expanding the categories of cargo transported through our cross-border ocean freight solutions and airfreight solutions to cover special cargo, including dangerous goods such as lithium batteries, perishable cargo, wet cargo, and temperature-sensitive goods, and (ii) launching new services such as last mile, inventory management and one-stop multi-model solutions, with an aim to bring more value-adds to our customers.
Optimize operational efficiency and maintain premier service quality
We aim to drive further the operational efficiency of each service offering under our cross-border ocean freight and airfreight solutions, reduce costs and maximize the overall profitability. For example, in addition to utilizing a core technology platform which streamlines and monitors our various service offerings in real time, we plan to upgrade the standardization machinery, systems and functions at our regional warehousing and distribution centers, including to further invest in automation equipment such as industrial conveyor belts to advance the automation processes of sorting, packaging, distribution and trans-loading at these regional centers. We will also continue to strengthen the training of our personnel among the various function departments and adopt a holistic yet rigorous service quality management approach to ensure the premier quality of each service offering under our integrated cross-border supply chain solutions.
Continue to invest in and advance our technologies
We plan to continue to invest in and further digitize our technology platform to address our needs or those of our customers. We believe that efficient and effective use of information technology and advanced automation systems will allow us to further enhance our competitive position and drive our continued growth and profitability. We intend to establish a core technology platform which encompasses our warehousing and distribution system, pricing engine, cross-border ocean and air carrier interface as well as U.S. domestic ground transportation carrier interface, allowing our customers to track the movement of their cross-border freight from end to end. In addition, we aim to develop a proprietary suite of intelligent tools and analytics, incorporating dynamic data science, predictive analytics and machine learning, to aid our daily operations and drive further productivity across our various cross-border supply chain service offerings.
Service Provider Network
We have established an extensive and long-standing service provider network of (i) global freight carriers and (ii) U.S. domestic ground transportation carriers. Since inception and as of June 30, 2024, we had collaborated with almost all major global ocean and air carriers to serve over 300 customers to forward cross-border shipments consisting of over 31,800 TEU of container loads and 47,800 tons of air cargo. We had also cooperated with over 200 domestic ground transportation carriers including almost all major U.S. domestic ground transportation carriers with a domestic ground transportation network of approximately 60,000 drivers and 150 terminals as of June 30, 2024, on a long-term, short-term or order basis, as the case may be. We also collaborate with licensed customs brokerage experts to help our customers clear shipments.
Under our extensive collaboration network, we enable and empower global ocean freight carriers, airfreight carriers, licensed cross-border customs brokers as well as U.S. ground transportation carriers to connect and collaborate, providing reliable, timely and integrated services to our customers.
Our ability to provide services to our customers is highly dependent on good working relationships with these service providers. Maintaining acceptable working relationships with these service parties has gained increased importance in particular as a result of the effect of the pandemic, ongoing concern over terrorism, security, changes in governmental regulation and oversight of international trade. We use a consistent approach in selecting and managing the service suppliers across all of our solution and service offerings, beginning with a rigorous qualification and risk-based diligence process. We only select and engage compliance-focused, efficiently-run and growth-oriented service providers with superior service quality based upon defined value elements and are intentional in our relationship and performance management activities. We consider our current working relationships with these service providers to be satisfactory. However, changes in the financial stability and operating capabilities and capacity of asset-based carriers, capacity allotments available from carriers, governmental regulation or deregulation efforts, modernization of the regulations governing customs brokerage, and/or changes in governmental restrictions, quota restrictions or trade accords could affect our business in unpredictable ways.
Technology
One of the ways in which we deliver superior service to our customers is by empowering our employees with technology. Our industry is evolving, and customers tend to de-risk their supply chains by forming relationships with reliable service providers that have invested in innovation.
We have built a highly scalable proprietary technology platform on the cloud — the American Bear Logistics Data Tool Management Platform, which streamlines our variety of service offerings and promotes our overall operating efficiency. Our technology platform, powered by sophisticated analytics of the massive amounts of route and price data derived from the past provision of our solutions and services, (i) optimizes the route-building and pricing for both our cross-border freight forwarding and domestic ground transportation services, (ii) allows for automated, real-time fee quotes for our cross-border ocean freight solutions and airfreight solutions between almost any origin and destination ports at any time and (iii) provides for automatic contractual account management, document generation and recordkeeping.
In addition, for our two regional warehousing and distribution centers, we developed an intelligent warehousing system which allows us to manage our storage remotely, prevents stockouts and overstocking and enables intelligent replenishment and order fulfilment. For example, this warehousing system automatically sends alerts when inventory levels reach predetermined thresholds, ensuring timely restocking and promoting operational efficiency.
We have developed reliable and stable network infrastructure to ensure high availability and a low risk of downtime. We primarily utilize third-party cloud service providers to host our network infrastructure for core operational functionality, data backup, and intelligence application.
We process a large amount of freight-related data on our platform. We take the privacy of personal data and confidential information seriously and have implemented an internal data security management policy. We also utilize a system of firewalls to prevent unauthorized access to our internal systems. Our technology department monitors the performance of our websites, technology systems and network infrastructure and responds promptly to potential problems. We also review, improve and iterate our data privacy policies and security foundation on a continued basis.
Competition
The market for integrated cross-border supply chain solution providers is a highly fragmented market with fierce competition. We face competition with other cross-border supply chain solution providers, particularly those with a focus on the Asian market.
We compete primarily on the following factors:
| ● | customer relationships; |
| ● | caliber and quality of services; |
| ● | modes of transportation; |
| ● | technology infrastructure and capabilities; and |
| ● | industry experience and expertise. |
We are well-positioned to effectively compete based on the factors listed above. However, some of our current or future competitors may have greater financial or operational resources, greater brand recognition, or a longer operating history, which could enable them to respond more quickly to changes in market dynamics and customer demands and preferences, devoting greater resources towards seizing this market than we can.
Sales and Marketing
We believe brand recognition is critical to our ability to acquire or retain our existing or new customers, and our general marketing efforts are designed to enhance our brand awareness and reputation among them. We primarily attract new customers with testimonials of our cross-border supply chain solutions and referrals by our existing customers. We also approach prospective customers by attending international trade fairs, exhibitions and conferences as well as events held by local chambers of commerce. We regularly conduct key performance indicator reviews with our customers and take measures to maintain close rapport with them.
Intellectual Property
Our ability to obtain and maintain intellectual property protection for our proprietary technology platform, preserve the confidentiality of our trade secrets, and operate without violating the intellectual property rights of others is important to our success. We have adopted a number of measures to protect our intellectual property and brand, including trademarks, confidentiality procedures, non-disclosure agreements and employee non-disclosure agreements, to establish and protect our proprietary rights. Despite these efforts, there can be no assurance that we will adequately protect our intellectual property.
As of June 30, 2024, we had obtained the trademark registration for our key trademark, American Bear Logistics. In addition, we have registered domain names for websites that we use in our business, such as www.americanbearlogistics.com.
Insurance
We maintain insurance for commercial automobile and trucker’s liability, commercial general liability and cargo legal liability, as well as property coverage with coverage limits, deductibles and self-insured retention levels that we believe are reasonable given the varying historical frequency, severity and timing of claims.
Seasonality
Our revenue and profitability in the fourth quarter are typically higher than those during the first, second and third quarters of the calendar year. We believe the surge in the fourth quarter of the calendar year is in part due to the increase in demand experienced by many of our customers as a result of the increased purchases during the holiday season, which leads to higher need for our supply chain solutions and services. It is not possible to reliably predict whether our historical revenue and profitability trends will continue to occur in future periods.
Employees
Our people are key to our success. As of June 30, 2024, we had a workforce of 50 full-time employees across various functions. None of our employees are represented by labor unions or work under any collective bargaining agreements. We have not experienced any work stoppages, and we believe that our employee relations are strong.
We work diligently to create an equitable and inclusive work environment for our diverse group of people who are young, energetic, highly educated and multi-lingual. As of June 30, 2024, our overall workforce is 100% of a minority ethnicity and 62% of female. In addition, among such workforce, 30% holds a bachelor’s degree, 46% holds an advanced degree such as a master’s degree, and 98% is bi-lingual. We provide equal opportunities for growth, success, promotion, learning and development, and aim to achieve parity in the way we organize and manage operations. We are focused on building support across all functions and individuals, ensuring everyone has a voice, and treats each other with respect.
Government Regulations
As a U.S.-based integrated cross-border supply chain solution provider offering customized ocean freight solutions and airfreight solutions in the U.S. that specifically cater to customers’ requirements and needs in transporting goods into the U.S., our operations are substantially governed by U.S. laws and regulations. We are required to obtain certain licenses, permits and approvals from the relevant governmental authorities in order to operate our business, including but not limited to licenses of an ocean transportation intermediary (sometimes referred to as an NVOCC), an indirect air carrier, a container freight station, and licenses issued by the International Air Transport Association. To the extent material to our understanding, as of the date of this report, we believe that we have obtained all licenses, permits and approvals from the relevant governmental authorities necessary for our business operations in the U.S. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, and the promulgation of new laws and regulations and amendment to the existing ones, we may be required to obtain additional licenses, permits, registrations, filings or approvals for our business operations in the future. We cannot assure you that we will be able to obtain, in a timely manner or at all, or maintain such licenses, permits or approvals, and we or the affiliated entities may also inadvertently conclude that such permissions or approvals are not required. Any lack of or failure to maintain requisite approvals, licenses or permits applicable to us or the affiliated entities may have a material adverse impact on our business, results of operations, financial condition and prospects and cause the value of any securities we offer to significantly decline or become worthless.
This section provides an overview of the key regulations and legal considerations in the U.S. pertaining to our cross-border ocean freight solutions and cross-border airfreight solutions. To the extent material to our understanding, we do not believe any current foreign governmental regulations impose material restraints on our business operations as of the date of this report. We further acknowledge that in the course of our operations, we are committed to complying with applicable data protection laws and regulations that govern the privacy and security of data it handles, which are increasingly global in scope due to the nature of cross-border supply chain solutions.
Regulations Relating to Labor and Employment
Pursuant to federal and state laws, we adhere to labor and employment laws at the federal and state levels. This includes fair employment practices, wage and hour regulations, worker safety, and anti-discrimination law. We are committed to providing a fair and inclusive workplace environment that respects the rights of our employees and fosters a culture of diversity and equality.
Regulations Regarding Cross-border Freight Forwarding Services
Interstate and international transportation of freight is highly regulated under U.S. law, and failure to comply with these regulations can have significant consequences, including substantial fines or the revocation of operating permits and authorities for both transportation intermediaries and their shipper customers. As a freight forwarder in operating the cross-border freight forwarding services by collaboration with the shipping carriers, the regulations that currently impact our operations and those that may affect us in the future are as follows.
Air Freight Forwarding Services
In accordance with the Federal Aviation Act enforced by the Federal Aviation Administration within the U.S. Department of Transportation, and the Transportation Security Administration (the “TSA”) within the Department of Homeland Security (the “DHS”), an air freight forwarder is classified as an indirect air cargo carrier. Even if air freight forwarders enjoy exemptions from the majority of the Federal Aviation Act’s requirements through compliance with the Economic Aviation Regulations, the industry remains under the constant scrutiny of evolving regulatory and legislative developments, and these developments have the potential to significantly impact the industry’s economic landscape, necessitating adjustments to operational practices and exerting influence on both service demands and associated costs. Regarding our involvement in the air transportation sector within the United States, we are subject to regulatory oversight by the TSA within the DHS as an indirect air carrier. All indirect air carriers operating in the United States must adhere to mandated security protocols and undergo periodic audits conducted by the TSA. According to Federal Code 71 FR 33255, each indirect air carrier must allow the TSA, at any time or place, to make any inspections or tests, including copying records, to determine compliance of an airport operator, aircraft operator, foreign air carrier, and indirect air carrier. At the request of the TSA, each indirect air carrier also has to provide evidence of compliance with this subchapter and its indirect air carrier security program, including copies of records. The TSA may enter and be present with in areas where security measures required by the TSA are carried out without access media or identification media issued or approved by the indirect air carrier, an airport operator, or aircraft operator, in order to inspect or test compliance, or perform other such duties as the TSA may direct.
Ocean Freight Forwarding Services/NVOCC
As a licensed NVOCC, we fall within the regulatory purview of the FMC, a regulatory authority that oversees and licenses ocean forwarding operations. This oversight includes compliance with FMC tariff filing and surety bond mandates, as well as adherence to the Shipping Act of 1984, which contains provisions that specifically prohibit rebating practices.
Pursuant to FMC rules, all NVOCCs based in the U.S. and all international ocean freight forwarding agencies and their branches are required to obtain a license from the FMC’s Bureau of Certification and Licensing by filing Form FMC-18. Entities engaging in international freight forwarding operations or conducting business as NVOCCs who do not complete or maintain the filing may result in denial, revocation or suspension of an ocean transportation intermediary license. We hold the license as an Ocean Transportation Intermediary (“OTI”), which is sometimes interchangeably referred to as an NVOCC, and persons who operate without the proper license may be subject to civil penalties not to exceed $9,000 for each violation. Additionally, the FMC has also established precise criteria for shipping agents, inclusive of specific surety bonding prerequisites, and it is responsible for the economic regulation of OTI/NVOCC activity originating or terminating in the United States as well. In order to comply with these economic regulations, OTI/NVOCC entities, such as our company, are mandated to electronically submit tariffs, delineating the rates applicable to the transportation of specified commodities to and from the United States, and the FMC possesses the authority to enforce these regulations, including the imposition of penalties for non-compliance.
Freight Forwarder Liability
Generally, the limitation of liability of freight forwarders is identical to the international agreements that are applicable to carriers. There are multiple conventions that restrict the carriers’ liability such as by setting as specific monetary limit per package or weight. For instance, ocean carriers can incorporate the Carriage of Goods by Sea Act into their Bills of Lading to limit their liability to $500 per unit. The Montreal Convention imposes a limit on the air carrier’s liability, capping it at a maximum of 22 special drawing rights per gross kilogram of the cargo that has been lost or damaged.
Freight forwarder’s liability also depends on their insurance coverage. In situations where goods get damaged or lost during transportation without an All Risk Cargo Policy or if the shipper chooses not to initiate a claim, the shipper will seek damages from all parties engaged in the transportation of goods, including carriers, warehouse operators, and the freight forwarders. If the insurance coverage is “All Risk,” then the shipper will recover through the insurance. However, if the losses exceed the amount recovered, shippers will go after the outstanding parties.
Furthermore, the extent of a freight forwarder’s liability is determined by the roles it assumes. When a freight forwarder issues a House Bill of Lading stating itself as the carrier, it assumes the role of principal, subjecting itself to the laws, regulations, and limitations applicable to carriers. When a freight forwarder issues a House Bill of Lading designating the common carrier (not the freight forwarder) as the carrier, the freight forwarder takes on the role of a broker or agent. In this scenario, the freight forwarder is often exempted from legal liabilities.
Forwarding agents must comply with the Export Administration Regulations (the “EAR”), a set of United States export guidelines and prohibitions that regulate the export restrictions of sensitive goods. It is essential to note that regardless of whether they are freight forwarders or other agents, their involvement in various tasks does not exempt them from their compliance obligations. Agents are accountable for the representations they make when filing export data. No individual, including an agent, may engage in any transaction if they have knowledge that it violates the EAR, has the potential to violate it, or is intended to do so. Pursuant to the Supplement No. 1 to Part 732 of the EAR, agents and exporters must assess the presence of red flags, exercise due diligence in investigating them, and ensure they do not overlook suspicious circumstances. Neglecting these responsibilities could result in a violation of the EAR. Additionally, it’s worth noting that the primary responsibility for EAR compliance rests with the principal parties in interest (the “PPI”) involved in a transaction. The EAR stipulates that the U.S. PPI must provide the foreign PPI and its agent with the correct Export Control Classification Number (the “ECCN”) or sufficient technical information to determine it, upon request. The U.S. PPI is obligated to furnish any information that could impact the determination of licensing authority as well. Under the Foreign Trade Regulations (15 C.F.R. Part 30), the U.S. PPI must supply specific data to the agent for electronic export information filing purposes.
Further, in a routed export transaction, the U.S. agent representing the foreign PPI is considered the “exporter” under the EAR. They are responsible for determining licensing authority and obtaining the necessary license or authorization for the export. In such cases, the agent representing the foreign PPI must obtain a power of attorney or written authorization to act on their behalf. However, if the U.S. PPI fails to obtain the required authorization from the foreign PPI, they become the “exporter” and must handle licensing authority and obtain the appropriate license, even in the context of a routed export transaction for electronic export information filing. However, in a non-routed transaction, if the U.S. PPI authorizes an agent to prepare and file the export declaration on their behalf, the U.S. PPI assumes the role of the “exporter” under the EAR. In this scenario, the U.S. PPI is obliged to: (i) provide the agent with necessary information for the Automated Export System (the “AES”) submission, which is a system the U.S. exporters use to electronically declare their international exports, known as the Electronic Export Information (the “EEI”), to the Census Bureau to help compile U.S. export and trade statistics; (ii) authorize the agent to complete the AES submission through a power of attorney or written authorization; and (iii) maintain documentation supporting the information provided to the agent for the AES submission.
If authorized by either the U.S. or foreign PPI, the agent bears responsibility for: (i) preparing the AES submission based on information from the U.S. PPI; (ii) maintaining documentation supporting the AES submission information; and (iii) furnishing a copy of the AES filing to the U.S. PPI upon request. It is crucial to highlight that both the agent and the authorized PPI share responsibility for the accuracy of entries in an AES submission. Agents should exercise caution in using “No License Required” designations and avoid unsupported entries. In cases where agents lack technical expertise for commodity classifications, they should obtain supporting documentation for ECCNs.
Regarding documentation requirements in EAR’s Part 762, which applies to all transactions subject to the EAR, it outlines records that must be maintained, those exempt from maintenance, requirements for producing records, and the retention period. Additionally, various other recordkeeping requirements apply, including those from Customs (19 CFR Part 163), the Department of State (ITAR and 22 CFR Part 122.5), the Census Bureau (15 CFR 30.66(c)), and Treasury’s OFAC (31 CFR Part 501). Further details on EAR rules and regulations applicable to freight forwarders can be consulted in Sections 758.1 through 758.6, 748.4, and 750.7(d) within the EAR.
Regulations Relating to Cargo Examinations
One of the integral functions performed by freight forwarders is to handle customs examinations. Regulations enforced by CBP mandate that all cargo entering the U.S. from any foreign territories undergo physical examination by the U.S. government to ensure compliance with U.S. laws and regulations. Under the Title 19 of the United State Code (19 U.S.C.), CBP is authorized to inspect, examine and search all goods entering the U.S., including but not limited to cargo transported by air, sea, land, or mail. CBP facilitates this process through the use of an electronic system, allowing importers, brokers, and other trade partners to submit data and documentation, as well as providing the cargo information, including entry summaries and customs declarations to CBP. Additionally, the TSA established rules for air cargo security, mandating screening and inspection to mitigate the potential threats. Pursuant to 49 CFR part 1549, TSA-certified cargo screening facilities across the United States to screen cargo before it is transported on passenger flights. Certified facilities must adhere to strict security programs and chain of custody requirements to secure cargo from screening until it is loaded onto passenger aircraft.
Regulations Regarding Warehousing and Distribution Services
Container Freight Stations (“CFS”) Regulations
Our operations encompass warehousing and distribution services conducted within our regional warehousing and distribution centers. We own a CFS, which is licensed and certified by U.S. Customs. CFS facilities are an integral part of the logistics and shipping industry, where cargo containers are consolidated, deconsolidated, and temporarily stored during the import and export process. Besides consolidation and storage, CFS provide aspect rum of supplementary services, including documentation, custom examination, export clearance procedure. CFS facilities often handle imported and exported goods, so they must comply with customs regulations specific to the country or region in which they are located. This can include procedures for customs clearance, documentation, and security measures to prevent smuggling and ensure compliance with trade laws.
Pursuant to 19 CFR Part 19, the establishment of a container station, independent of the importing carrier, is subject to application submission and approval by the port director. Additionally, a Customs Form 301 must be filed, featuring bond conditions as stipulated in § 113.63 of such chapter, with the bond amount determined by the port director. Any alterations to or relocation of a container station require permission from the relevant port director. Furthermore, an application fee will be assessed by customs, with charges based on the average time required by customs officers to perform the service.
For containerized cargo, whether it needs transportation from the point of unloading to a designated container station or is received directly at the container station from a bonded carrier following in-bond transportation, an entry of merchandise must be filed. Permission is sought for the purpose of breaking bulk and redelivery of the cargo. In addition, concerning the transfer of containers, our container station operator must file an application for the transfer of merchandise with the customs authorities or customs inspector at the location where the container is unloaded, or for merchandise transported in-bond, at the designated facility of the bonded carrier as determined by the port director. Such filings must adhere to the prescribed format as per regulations. As outlined in 39 FR 4876, when the container station operator utilizes their own vehicle to transfer merchandise to their station, the merchandise may only be transferred by a bonded cartman or bonded carrier. The station operator, cartman, or carrier must issue a receipt for the merchandise on both copies of the application.
Regulations of Transportation Security Administration
Pursuant to 49 CFR part 1548, we, as an indirect air carrier, must adopt and carry out a TSA-approved security program that meets current TSA requirements and is renewed annually. TSA principal security inspectors are the primary point of contact for the application process and approval of certification. Moreover, the TSA requires us to conduct known shipper programs and as the TSA’s known shipper management system requires, we must comply with a range of specific security requirements to qualify our clients as known shippers.
Regulations Relating to Intellectual Property, Data Protection and Security
In the rapidly digitizing landscape of supply chains, data protection has emerged as a significant challenge for the logistics sector. The Privacy Act of 1974 and the General Data Protection Regulation (the “GDPR”) have been enacted to ensure data privacy, regulatory frameworks and laws in order to safeguard this valuable information. Companies like us now shoulder the added responsibility of overseeing the proper collection and utilization of the vast volumes of customer data circulating within the logistics supply chain.
The Privacy Act of 1974, with amendments up to the present day, including Statutory Notes (5 U.S.C.552a), plays a vital role in protecting records about individuals, retrieved by personal identifiers such as names, social security numbers, or other identifying information. It dictates how federal agencies collect and use data related to individuals in their records systems. The act unequivocally bars agencies from disclosing personal information without written consent from the individual, except under specific circumstances, such as for statistical purposes by the Census Bureau. Individuals also retain the right to access their records, request corrections if inaccuracies exist, and demand protection against unwarranted invasions of their privacy. Additionally, we also recognize the importance of data privacy and security and comply with applicable regulations, including the GDPR, where applicable. Companies implement measures to safeguard customer and employee data, ensuring proper collection, storage, and usage practices. Non-compliance with these regulations carries the potential for legal consequences that could impact the company’s operations and financial performance. We are unwavering in our commitment to upholding the highest standards of regulatory compliance to ensure the long-term success and sustainability of our business operations.
Third-Party Logistics Providers, or 3PLs, like us, commonly find themselves privy to sensitive or confidential information about shippers or carriers, often protected by statutes or contractual agreements. Even in cases where no negligence is involved, 3PLs can be held accountable for disclosing such private and safeguarded information. Given their substantial involvement in a shipper’s operations while providing logistics services, contracts between shippers and 3PLs often incorporate confidentiality provisions. These provisions are essential safeguards to protect the integrity of sensitive data in the complex landscape of logistics, where trust and security are paramount.
Available Information
Our website address is www.lakeside-holding.com and our subsidiary's website address is www.americanbearlogistics.com. The information on, or that can be accessed through, our websites is not part of this report and is not incorporated by reference herein. We have included our websites address as inactive textual reference only.
Item 1A. Risk Factors.
We are a smaller reporting company and are not required to provide the information required under this item. For risks relating to our Company and our operations, see the section titled “Risk Factors” contained in our prospectus dated June 27, 2024, filed with the Securities and Exchange Commission, or the SEC, pursuant to Rule 424(b)(4) under the Securities Act.
Item 1B. Unresolved Staff Comments.
We are a smaller reporting company and are not required to provide the information required under this item.
Item 1C. Cybersecurity.
Risk Management and strategy
As part of our broader risk management system and processes, we maintain procedures for identifying, assessing, and managing material risks from cybersecurity threats that is designed to protect the confidentiality, integrity, and availability of our critical systems and information.
We track and log security incidents across our company and our customers to remediate and resolve any such incidents. Significant incidents, if any, shall be reviewed by chief executive officer and chief operating officer, with the assistance from our information technology department, to assess and determine its materiality or potentiality of becoming material. Our senior management makes the final materiality determinations and disclosure and other compliance decisions.
As of the date of this annual report, we have not experienced any material cybersecurity incidents or identified any material cybersecurity threats that have affected or are reasonably likely to materially affect us, our business strategy, results of operations or financial condition.
Governance
Our board of directors does not have a standing risk management committee, but rather directly administers its oversight function as a whole. Our board of directors will (i) lead in a direction that minimizes the risk of unauthorized and malicious use, disclosure, potential theft, alteration or damaging effects of our operations while concurrently enabling the sharing of information in cyberspace, and (ii) ensure that risks to the confidentiality, integrity or availability of Company-owned information assets are managed appropriately, and (iii) review disclosure concerning cybersecurity matters in our annual report on 10-K presented by our chief executive officer, chief financial officer, and other personnel in charge of cybersecurity matters.
Item 2. Properties.
We lease approximately 65,981 square feet in Itasca, Illinois, including approximately 8,838 square feet for our U.S. headquarters and 57,143 square feet for a regional warehousing and distribution center. The lease of our facility in Itasca, Illinois expires in April 2026 with an option to extend the lease for an additional five-year term. We also lease approximately 46,657 square feet in Irving, Texas, where we operate another regional warehousing and distribution center. The lease of this facility expires in May 2029 with an option to extend the lease for an additional five-year term. We may add additional offices as we expand our business to other states and countries. We believe that our facilities are sufficient for our current needs and that, should it be needed, additional facilities will be available to accommodate the expansion of our business.
Item 3. 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 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock trades on the Nasdaq Capital Market under the symbol “LSH.” On September 25, 2024, the closing sale price of our common stock was $2.25 per share.
Holders of Record
As of September 25, 2024, we had approximately six holders of record of our common stock.
Dividend Policy
We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors that our board of directors may deem relevant.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Performance Graph
We are a smaller reporting company and are not required to provide the information required under this item.
Recent Sale of Unregistered Securities and Use of Proceeds
None.
Use of Proceeds from Initial Public Offering of Common Stock
On July 1, 2024, we completed our IPO of 1,500,000 shares of common stock, at a price of $4.50 per share, before underwriting discounts and commissions. The offering was registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-278416), which was declared effective by the SEC on June 27, 2024.
As of the date of this annual report, with the proceeds of the IPO, we used approximately $1.8 million for in marketing activities and business expansion and used approximately $1.3 million for working capital needs.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There were no purchases of the issuer’s securities by the issuer or affiliated purchasers, as defined in Rule 10b-18(a) (3) the Exchange Act, during the fourth quarter of the fiscal year ended June 30, 2024.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. All amounts included herein with respect to the fiscal years ended June 30, 2024 and 2023 are derived from our audited consolidated financial statements included elsewhere in this Report. Our financial statements have been prepared in accordance with the U.S. GAAP.
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 June 30, 2024, we had served over 300 customers to fulfill over 41,000 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 June 30, 2024, we had collaborated with almost all major global ocean and air carriers to forward 31,300 TEU of container loads and 47,800 tons of air cargo. As of June 30, 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 two 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 75,014 square feet and 34 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 June 30, 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 $38.0 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. For the fiscal years ended June 30, 2024 and 2023, our revenues amounted to $18.3 million and $12.9 million, respectively, and our gross profit amounted to $3.7 million and $2.6 million during the same periods, respectively. As of June 30, 2024, we had fulfilled over 41,000 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.
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 June 30, 2024, we had served over 300 customers to fulfill over 41,000 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.
Impact of COVID-19
The global spread of COVID-19 and the efforts to control it have slowed global economic activity and disrupted, and reduced the efficiency of, normal business activities in much of the world. The pandemic has resulted in authorities around the world implementing numerous unprecedented measures such as travel restrictions, quarantines, shelter in place orders, and factory and office shutdowns. These measures have impacted and will likely continue to impact our workforce and operations, and those of our customers and suppliers.
Delays and congestions at various ports as a result of the COVID-19 restrictions during the pandemic also prolonged the delivery times for certain of our cross-border freight. Additionally, ocean freight carriers have consolidated with the potential for more to occur in the future. COVID-19 has placed significant stress on our global ocean and air freight carriers, U.S. domestic ground transportation carriers as well as other service providers, which may result in reduced carrier capacity or availability, pricing volatility or more limited carrier transportation schedules and other services that we utilize, which could adversely impact our business, financial condition and results of operations.
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.
Cost of Revenues. Our cost of revenues 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.
Selling Expenses. Our selling expenses mainly represent commissions paid to unrelated parities for customer referrals.
General and Administrative Expenses. Our 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.
Other Income. Our other income primarily consists of rental income and employee retention credit received, 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 paid for credit card.
Income Tax Expenses. Our income tax expenses consist primarily of U.S. federal, state income taxes and replacement tax in the state of Illinois.
Fiscal Year Ended June 30, 2024 Compared to Fiscal Year Ended June 30, 2023
Results of Operations
The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the fiscal years ended June 30, 2024 and 2023. The operating results in any historical period are not necessarily indicative of the results that may be expected for any future period.
| For the fiscal year ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Revenues | Amount | % of total Revenues |
Amount | % of total Revenues |
Amount Increase (Decrease) |
Percentage Increase (Decrease) |
||||||||||||||||||
| Cross-border ocean freight solutions | $ | 7,873,835 | 43.0 | % | $ | 8,073,685 | 62.7 | % | $ | (199,850 | ) | (2.5 | )% | |||||||||||
| Cross-border airfreight solutions | 10,441,320 | 57.0 | % | 4,799,206 | 37.3 | % | 5,642,114 | 117.6 | % | |||||||||||||||
| Total revenues | 18,315,155 | 100.0 | % | 12,872,891 | 100.0 | % | 5,442,264 | 42.3 | % | |||||||||||||||
| Cost of revenues | 14,599,198 | 79.7 | % | 10,308,602 | 80.1 | % | 4,290,596 | 41.6 | % | |||||||||||||||
| Gross profit | $ | 3,715,957 | 20.3 | % | $ | 2,564,289 | 19.9 | % | $ | 1,151,668 | 44.9 | % | ||||||||||||
Revenues
Our total revenues increased by $5.4 million, or 42.3%, from $12.9 million in the fiscal year ended June 30, 2023, to $18.3 million in the fiscal year ended June 30, 2024. The significant increase was primarily driven by higher revenues from our cross-border air freight solutions, partially offset by a decrease in revenues from our cross-border ocean freight solutions.
Revenues generated from our cross-border ocean freight solutions decreased by $0.2 million, or 2.5%, from $8.1 million in the fiscal year ended June 30, 2023, to $7.9 million in the fiscal year ended June 30, 2024. The volume of cross-border ocean freights processed and forwarded increased from 4,218 TEU in the fiscal year ended June 30, 2023, to 5,458 TEU in the fiscal year ended June 30, 2024. However, due to fierce competition in ocean freight market and lower customer demand post COVID-19 pandemic, we offered more customized services that involved only one or a few stages of the freight solution process for individual customers. This led to a decreased unit revenue per TEU compared to the same period in the prior year. As a result, the gross revenue generated from our cross-border ocean freight solution slightly decreased compared to the same period in the prior year.
Revenues generated from our cross-border airfreight solutions increased by $5.6 million or 117.6% from $4.8 million in the fiscal year ended June 30, 2023, to $10.4 million in the fiscal year ended June 30, 2024. The increase was primarily due to a rise in the volume of cross-border air freight processed, from approximately 12,966 tons for the fiscal year ended June 30, 2023, to approximately 26,160 tons for the fiscal year ended June 30, 2024. This surge can be attributed to our heightened focus on cross-border airfreight solutions in the second half of the fiscal year ended June 30, 2023, in response to the growing demand for our services, fueled by the continued expansion of the e-commerce industry.
We expect our revenues to continue growing due to the resurgence of the U.S. economy post-COVID-19, ongoing reductions in ocean freight charges stimulating import and export activities, and the persistent trend of online purchases. This trend highlights the need for prompt delivery to end-consumers with competitive pricing.
Revenues by Customer Geographic
| For the fiscal year ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Revenues | Amount | % of total Revenues |
Amount | % of total Revenues |
Amount Increase (Decrease) |
Percentage Increase (Decrease) |
||||||||||||||||||
| Asia-based customers | $ | 13,081,165 | 71.4 | % | $ | 5,531,468 | 43.0 | % | $ | 7,549,697 | 136.5 | % | ||||||||||||
| U.S.-based customers | 5,233,990 | 28.6 | % | 7,341,423 | 57.0 | % | (2,107,433 | ) | (28.7 | )% | ||||||||||||||
| Total revenues | 18,315,155 | 100.0 | % | 12,872,891 | 100.0 | % | 5,442,264 | 42.3 | % | |||||||||||||||
Revenues generated from the Asia-based customers increased by $7.5 million, or 136.5%, from $5.5 million in the fiscal year ended June 30, 2023, to $13.1 million in the fiscal year ended June 30, 2024. Revenues generated from the U.S.-based customers decreased by $2.1 million, or 28.7%, from $7.3 million in the fiscal year ended June 30, 2023 to $5.2 million in the fiscal year ended June 30, 2024.
The increase in revenues from Asia-based customers in the fiscal year ended June 30, 2024, was driven by a surge in volume from these customers, particularly those serving large e-commerce platforms. This growth can primarily be attributed to the rising demand for our services, which is a direct result of the overall expansion of the e-commerce market in the U.S.
The decrease in revenue from the U.S.-based customers in the fiscal year ended June 30, 2024, compared to the fiscal year ended June 30, 2023, was primarily due to our shift in focus toward Asia-based e-commerce customers. Additionally, special projects with larger shipment volumes from U.S. customers were completed in the fiscal year ended June 30, 2023, with no similar projects in the fiscal year ended June 30, 2024.
Cost of Revenues
A breakdown of our cost of revenues for the fiscal years ended June 30, 2024 and 2023 is as follows:
| For the fiscal year ended June 30, | Amount Increase |
Percentage Increase |
||||||||||||||
| 2024 | 2023 | (Decrease) | (Decrease) | |||||||||||||
| Transportation and delivery costs | $ | 7,477,986 | $ | 5,860,066 | $ | 1,617,920 | 27.6 | % | ||||||||
| Warehouse service charges | 2,886,406 | 1,391,081 | 1,495,325 | 107.5 | % | |||||||||||
| Custom declaration and terminal charges | 2,374,101 | 1,580,615 | 793,486 | 50.2 | % | |||||||||||
| Freight arrangement charges | 486,357 | 416,068 | 70,289 | 16.9 | % | |||||||||||
| Overhead cost | 1,374,348 | 1,060,772 | 313,576 | 29.6 | % | |||||||||||
| Total cost of revenue | $ | 14,599,198 | $ | 10,308,602 | $ | 4,290,596 | 41.6 | % | ||||||||
Our cost of revenues increased by $4.3 million, or 41.6%, from $10.3 million in the fiscal year ended June 30, 2023, to $14.6 million in the fiscal year ended June 30, 2024. The increase in cost of revenues was mainly due to the combined effects of:
| (i) | an increase in transportation and delivery costs, including trucking, drayage, chassis rental, freight and delivery cost during the fiscal year ended June 30, 2024, which was consistent with the increase in revenues during the same period; |
| (ii) | an increase in our warehouse service charges, mainly representing labor costs at our regional warehousing and distribution centers during the fiscal year ended June 30, 2024, due to (a) extended service hours to process higher volumes of cross-border airfreight, and (b) the hiring of additional employees at our regional warehousing and distribution centers to support our growing business; |
| (iii) | an increase in custom declaration and terminal charges, consisting of customs fees, handling charges, and entry service fees charged by ports and terminals during the fiscal year ended June 30, 2024, resulting from the higher assessed value of cross-border freight, 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 fiscal year ended June 30, 2024, primarily due to increased business for cross boarder shipping from the U.S. to China; and |
| (v) | a slight increase in overhead costs, mainly comprising warehouse and equipment lease expenses, utilities, depreciation of property and equipment, and other direct costs during the fiscal year ended June 30, 2024. The increase was mainly attributable to a rise in warehouse and equipment lease expenses, from $1,010,345 in the fiscal year ended June 30, 2023, to $1,195,808 in the fiscal year ended June 30, 2024. |
Gross Profit
Our gross profit increased by $1.2 million, or 44.9%, from $2.6 million in the fiscal year ended June 30, 2023, to $3.7 million in the fiscal year ended June 30, 2024. Our gross profit margin was 20.3% for the fiscal year ended June 30, 2024, compared to 19.9% for the fiscal year ended June 30, 2023. The slight increase in gross profit margin was primarily attributable to the rise in sales and our promotion of a diverse range of services, including warehousing, distribution, and customs clearance services, which we offered to current customers with a higher mark-up.
Selling Expenses
Our selling expenses decreased by $77,322, or 96.9%, from $79,822 in the fiscal year ended June 30, 2023, to $2,500 in the fiscal year ended June 30, 2024. The decrease was mainly driven by fewer customer referrals from third parties during the fiscal year ended June 30, 2024.
General and Administrative Expenses
Our general and administrative expenses increased by $1.8 million, or 77.5%, from $2.3 million in the fiscal year ended June 30, 2023, to $4.1 million in the fiscal year ended June 30, 2024. These expenses represented 22.6% and 18.1% of our total revenues for the fiscal years ended June 30, 2024 and 2023, respectively. The increase was primarily attributed to higher salary and employee benefit expenses, office expense and professional fee:
Our salaries and employee benefits expenses represented 66.1% and 61.4% of our total general and administrative expenses for the fiscal years ended June 30, 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. For our salaries and employee benefits expenses, (i) our payroll expenses increased by $1.1 million, or 94.5%, from $1.2 million in the fiscal year ended June 30, 2023, to $2.3 million in the fiscal year ended June 30, 2024, and (ii) our employee benefit expenses, which mainly consist of 401(k) company contribution, meal allowance and health insurance expenses, increased by $0.2 million, or 73.6%, from $0.2 million in the fiscal year ended June 30, 2023, to $0.4 million in the fiscal year ended June 30, 2024, representing 9.9% and 10.1% of our total general and administrative expenses for the fiscal years ended June 30, 2024 and 2023, respectively. The increase was mainly due to higher meal allowance for overtime compensation and rising employee health insurance premiums.
Our professional fee increased by $0.3 million, or 266.6%, from $0.1 million in the fiscal year ended June 30, 2023, to $0.4 million in the fiscal year ended June 30, 2024. Our professional fee represented 9.2% and 4.5% of our total general and administrative expenses for the fiscal years ended June 30, 2024 and 2023, respectively. The increase was primarily due to accrued audit fees, legal fees, and financial reporting service fees of approximately $0.3 million for the annual audit for the fiscal year ended June 30, 2024. In the fiscal year ended June 30, 2023, these expenses were not included in professional fees, as they were accounted for as deferred initial public offering assets.
Our office expense represented 9.5% and 7.7% of our total general and administrative expenses for fiscal years ended June 30, 2024 and 2023, respectively. The increase was mainly due to office hardware including monitors and keyboard, printer ink, printer kits and charger purchased and more office supplies consumed due to more staff hired.
Other Income, Net
Our other income decreased by $0.6 million, or 61.8%, from $0.9 million in the fiscal year ended June 30, 2023, to $0.3 million in the fiscal year ended June 30, 2024. The decrease was primarily attributable to the termination of a sublease agreement for certain office and warehouse space with a related party, which occurred from August 2023 to December 2023. Additionally, we received an employee retention credit of $0.3 million in the fiscal year ended June 30, 2023, but we did not have such income in the fiscal year ended June 30, 2024.
Interest Expenses
Our interest expenses for the fiscal year ended June 30, 2024, remained relatively stable compared to same period in last year.
Income (Loss) Before Income Taxes
We had loss before income taxes of $295,614 for the fiscal year ended June 30, 2024, compared to income before taxes of $1,008,798 for the fiscal year ended June 30, 2023. We were in a loss position before income taxes for the fiscal year ended June 30, 2024, was primarily attributable to the net effects of: (i) the increase in gross profit, (ii) the rise in operating expenses; and (iii) the decrease in other income for the fiscal year ended June 30, 2024 as mentioned above.
Income Tax Expense
We had income tax credit of $67,337 and income tax expense of $65,068 in the fiscal year ended June 30, 2024 and 2023, respectively. We recognized a current income tax provision of $46,996 for the fiscal year ended June 30, 2024, due to net assessable income, and a deferred income tax credit $186,485 due to temporary differences recognized and a deferred income tax expense of $72,152 due to the change from an S Corporation to a C Corporation upon the completion of our reorganization on September 23, 2023. For the fiscal year ended June 30, 2024 and 2023, the Company was taxed at rates of 2.5% and 7.0% and 2.5% and 4.95% for the Illinois replacement tax and pass-through-entity tax, respectively. Since our transition to a C Corporation on September 23, 2023, we are now obligated to pay federal tax at a rate of 21%. This tax obligation was previously exempt for us as an S Corporation.
Net Income (Loss)
As a result of the foregoing, we had a net loss of $225,252 for the fiscal year ended June 30, 2024, compared to our net income of $983,602 in the fiscal year ended June 30, 2023.
Liquidity and Capital Resources
As of June 30, 2024, we had a cash balance of $0.1 million. Our current assets were $3.5 million, and our current liabilities were $5.9 million, resulting in a current ratio of 0.6:1. Total stockholders’ equity as of June 30, 2024 was $0.6 million.
As of June 30, 2024 and 2023, we had accounts receivable net of allowance of $2.8 million and $1.4 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 June 30, 2024 and 2023, we provided a credit loss allowance of $54,066 and $25,909, 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.
As of June 30, 2024, we had a working capital deficit of $2.3 million. We are currently focused on improving our liquidity and securing additional capital sources through various short-term and long-term strategies. In the short term, we intend to primarily focus on the followings:
| (i) | enhancing the collection of outstanding accounts receivable balance, as a result of which, subsequent to June 30, 2024 and through the report date, we had collected approximately $2.8 million, representing 95.8% of the accounts receivable balance as of June 30, 2024, and our accounts receivable turnover days was 42 days for the fiscal year ended June 30, 2024; |
| (ii) | collecting the balance of due from related parties in full of approximately $0.4 million by December 31, 2024; |
| (iii) | continued expansion of our business and service scope to achieve anticipated levels of revenues, while continuing to control costs; |
| (iv) | commitments by our stakeholders in providing working capital loans to us when needed; and |
| (v) | actively seeking favorable equity financings, including through IPO with approximately $5.79 million which was closed on July 1, 2024, and obtaining additional bank loans to meet our capital requirements. |
Our IPO was closed in July 2024, which is subsequent to the end of the fiscal year of this report, we will have sufficient funds to fulfill its short-term financial obligations. In the long term, we anticipate generating sufficient cash flow from our operations, obtaining additional bank loans and other borrowings to meet our capital requirements to fund our operations and growth plans. Based on our current operating plan, our management is confident that we will have sufficient working capital and other financial resources to fund its operations and fulfill financial obligations for at least twelve months from the issuance date of the consolidated financial statement.
Cash Flows
The following table sets forth summary of our cash flows for the periods indicated:
| For the fiscal years ended June 30, |
||||||||
| 2024 |
2023 (revised)* |
|||||||
| Net cash (used in) provided by operating activities | $ | (53,640 | ) | $ | 39,303 | |||
| Net cash used in investing activities | (78,799 | ) | (18,288 | ) | ||||
| Net cash provided by (used in) financing activities | 78,755 | (253,088 | ) | |||||
| Effect of exchange rate changes on cash | 3,216 | 32,560 | ||||||
| Net decrease in cash | (50,468 | ) | (199,513 | ) | ||||
| Cash, beginning of the year | 174,018 | 373,531 | ||||||
| Cash, end of the year | $ | 123,550 | $ | 174,018 | ||||
| * | Revised to reflect reclassification of cash flows described in Note 2 in the accompanying consolidated financial statements included elsewhere in this Report |
Operating Activities
Net cash used in operating activities was $53,640 in the fiscal year ended June 30, 2024, including net loss of $228,277, adjusted for non-cash items for $1,168,010 and changes in working capital of negative $993,373. The non-cash items primarily included $1,005,686 non-cash operating lease expense, $144,637 depreciation, $30,712 depreciation of right-of-use finance assets and $28,157 from provision of allowance for expected credit loss, offset by an increase of $114,333 from deferred tax credit. The adjustments for changes in working capital mainly included an increase of $722,522 and $732,769 in accounts receivable — third parties and related parties, respectively, due to significant increase of revenues in the fiscal year ended June 30, 2024, and an increase of $846,992 in operating lease liabilities, partially offset by an increase of $468,284 in accrued liabilities and other payables due to unpaid IPO related expense, a decrease of $328,820 in due from related parties because of settlement of rental income, an increase of $699,644 in accounts payable — third parties and an increase of $46,996 in tax payable.
Net cash provided by operating activities was $39,303 in the fiscal year ended June 30, 2023, including net income of $943,730, adjusted for non-cash items for $927,316 and changes in working capital of negative $1,831,743. The non-cash items primarily included $826,284 non-cash operating lease expense, $130,755 depreciation, $31,780 depreciation of right-of-use finance assets, offset by $93,742 from reversal of allowance for expected credit loss, and impacted by an increase of $32,239 from deferred state tax expense. The adjustments for changes in working capital mainly included an increase of $506,152 in accounts receivable — third parties due to significant increase of revenues in the fiscal year ended June 30, 2023, an increase of $579,496 in due from related parties because of unpaid rental income, a decrease of $101,896 in accounts payable — related parties, and a decrease of $833,365 in operating lease liabilities, partially offset by an increase of $57,701 in accrued liabilities and other payables, a decrease of $54,441 in contract assets, an increase of $32,829 in tax payable and a decrease of $18,672 in prepayment and other deposit.
The $92,943 decrease in cash used in operating activities in the fiscal year ended June 30, 2024 compared to the prior year was primarily due to a net loss of $228,227 in the fiscal year ended June 30, 2024 compared to a net income of $943,730 in the prior fiscal year, offset by a decrease of $838,370 in cash outflow from working capital due to timing of vendor payments, client payments and related parties payment.
In our ordinary course of business, we typically grant a credit term of 15 days to customers that are independent third parties for their accounts receivable balances, while our major vendors generally provide us with a credit term of 30 days. Historically, our credit terms with related parties were more flexible. The decrease of $838,370 in cash outflow from the working capital in the fiscal year ended June 30, 2024 compared to the prior fiscal year was primarily attributable to:
| (i) | a faster collection cycle from related-party customers for both accounts receivable and advances from the related parties for the fiscal year ended June 30, 2024; and |
| (ii) | an increase in accounts payable to related parties as of June 30, 2024, |
| (iii) | a significant increase in our revenue near fiscal year ended and completed shipment that we not invoiced to our customers, which resulted in significantly higher accounts receivable balances from non-related-party customers as of June 30, 2024, thereby impacting our cash flow position. |
Investing Activities
Net cash used in investing activities was $78,799 in the fiscal year ended June 30, 2024, compared to $18,288 in the fiscal year ended June 30, 2023. On August 4, 2023, we reduced our unpaid registered capital contribution in our investee company in China, ABL Wuhan, while the third-party shareholders increased their registered capital contribution accordingly. As a result, the third-party shareholders now hold 80% of equity interest and we hold 20% of equity interest in ABL Wuhan. Consequently, ABL Wuhan ceased to be our subsidiary after August 4, 2023. This change resulted in a cash outflow of $48,893 due to the deconsolidation of the subsidiary and a payment for registered capital of $29,906 during the fiscal year ended June 30, 2024. Net cash used in investing activities for the fiscal year ended June 30, 2023, was primarily attributable to our purchases of property and equipment.
Financing Activities
Net cash provided by financing activities was $78,755 in the fiscal year ended June 30, 2024, compared to $253,088 net cash used in the fiscal year ended June 30, 2023. The increase in net cash provided by financing activities was mainly due to the net proceeds of $185,014 from loans borrowed and proceeds of $237,302 from stockholders, partially offset by payment of IPO related cost of $170,000, the repayment of equipment and vehicle loans and principle payment of finance leases totaling of $149,592 during the fiscal year ended June 30, 2024. The net cash used in financing activities for the fiscal year ended June 30, 2023, was primarily attributable to payment of IPO related cost of $90,000, the repayment of equipment and vehicle loans amounting to $104,598, repayment of loans of $100,864 and net proceeds from stockholders totaling $63,014.
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 nil and $18,288 in the fiscal years ended June 30, 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 and the proceeds from our IPO which was closed in July 2024.
Commitments and Contractual Obligations
As of June 30, 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 | $ | 4,236,202 | $ | 1,391,267 | $ | 1,774,692 | $ | 1,070,243 | $ | — | ||||||||||
| Finance lease obligations | 57,109 | 38,961 | 18,148 | — | — | |||||||||||||||
| Vehicle loans | 157,032 | 62,169 | 72,520 | 22,343 | — | |||||||||||||||
| Equipment loans | 91,714 | 53,988 | 37,726 | — | — | |||||||||||||||
| Other loans | 660,680 | 648,440 | 12,240 | — | — | |||||||||||||||
| Total | $ | 5,202,737 | $ | 2,194,825 | $ | 1,915,326 | $ | 1,092,586 | $ | — | ||||||||||
Off-Balance Sheet Commitments and Arrangements
There were no off-balance sheet arrangements as of and for the fiscal years ended June 30, 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.
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
We consider the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews newly issued accounting standards.
In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. This ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The new standard will become effective for us beginning January 1, 2024, using either a modified retrospective or a fully retrospective method of transition and early adoption is permitted. Management is currently evaluating the impact of the new standard on our financial statements.
In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for years beginning after December 15, 2023 and interim periods within those years. We do not expect the adoption to have a material impact on our consolidated financial statements.
We do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company and are not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary Data.
LAKESIDE HOLDING LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Lakeside Holding Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Lakeside Holding Limited and its subsidiaries (the “Company”) as of June 30, 2024 and 2023, and the related consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2024, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ ZH CPA, LLC | |
| We have served as the Company’s auditor since 2023. | |
| Denver, Colorado | |
| September 30, 2024 | |
999 18th Street, Suite 3000, Denver, CO, 80202 USA Phone: 1.303.386.7224 Fax: 1.303.386.7101 Email: admin@zhcpa.us LAKESIDE HOLDING LIMITED CONSOLIDATED BALANCE SHEETS
F-
| As
of June 30, 2024 |
As
of June 30, 2023 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 123,550 | $ | 174,018 | ||||
| Accounts receivable – third parties, net | 2,082,152 | 1,373,676 | ||||||
| Accounts receivable – related party, net | 763,285 | 44,627 | ||||||
| Prepayment and other receivable | 52,623 | |||||||
| Contract assets | 129,506 | 44,740 | ||||||
| Due from related parties | 441,279 | 746,130 | ||||||
| Total current assets | 3,539,772 | 2,435,814 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Investment in other entity | 15,741 | |||||||
| Property and equipment at cost, net of accumulated depreciation | 344,883 | 489,520 | ||||||
| Right of use operating lease assets | 3,471,172 | 2,271,070 | ||||||
| Right of use financing lease assets | 37,476 | 48,206 | ||||||
| Deferred tax asset | 89,581 | |||||||
| Deferred offering costs | 1,492,798 | 90,000 | ||||||
| Prepayment, deposit and other receivable | 202,336 | 137,336 | ||||||
| Total non-current assets | 5,653,987 | 3,036,132 | ||||||
| TOTAL ASSETS | $ | 9,193,759 | $ | 5,471,946 | ||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payables – third parties | $ | 1,161,858 | $ | 462,214 | ||||
| Accounts payables – related parties | 227,722 | 365,413 | ||||||
| Accrued liabilities and other payables | 1,335,804 | 325,701 | ||||||
| Current portion of obligations under operating leases | 1,186,809 | 769,782 | ||||||
| Current portion of obligations under financing leases | 37,619 | 42,889 | ||||||
| Loans payable, current | 746,962 | 586,688 | ||||||
| Dividend payable | 98,850 | 98,850 | ||||||
| Tax payable | 79,825 | 32,829 | ||||||
| Due to shareholders | 1,018,281 | 90,000 | ||||||
| Total current liabilities | 5,893,730 | 2,774,366 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Loans payable, non-current | 136,375 | 231,599 | ||||||
| Deferred tax liability | - | 24,752 | ||||||
| Obligations under operating leases, non-current | 2,506,402 | 1,564,633 | ||||||
| Obligations under financing leases, non-current | 17,460 | 21,836 | ||||||
| Total non-current liabilities | 2,660,237 | 1,842,820 | ||||||
| TOTAL LIABILITIES | $ | 8,553,967 | $ | 4,617,186 | ||||
| Commitments and Contingencies | ||||||||
| EQUITY | ||||||||
| Common stocks, $0.0001 par value, 200,000,000 shares authorized, 6,000,000 and 6,000,000 issued and outstanding as of June 30, 2024 and 2023, respectively* | 600 | 600 | ||||||
| Subscription receivable | (600 | ) | (600 | ) | ||||
| Additional paid-in capital | 642,639 | |||||||
| Accumulated other comprehensive income (loss) | 2,972 | (244 | ) | |||||
| (Deficits) Retained earnings | (5,819 | ) | 862,072 | |||||
| Total stockholders’ equity | 639,792 | 861,828 | ||||||
| Non-controlling interests in subsidiary | (7,068 | ) | ||||||
| Total equity | 639,792 | 854,760 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 9,193,759 | $ | 5,471,946 | ||||
| * | Shares and per share data are presented on a retroactive basis to reflect the issuance of 6,000,000 common stocks. |
The accompanying notes are an integral part of these consolidated financial statements.
F-
LAKESIDE HOLDING LIMITED
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
| For the Years Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Revenue from third party | $ | 16,450,908 | $ | 12,763,577 | ||||
| Revenue from related parties | 1,864,247 | 109,314 | ||||||
| Total revenue | 18,315,155 | 12,872,891 | ||||||
| Cost of revenue from third party | 12,316,374 | 8,385,222 | ||||||
| Cost of revenue from related parties | 2,282,824 | 1,923,380 | ||||||
| Total cost of revenue | 14,599,198 | 10,308,602 | ||||||
| Gross profit | 3,715,957 | 2,564,289 | ||||||
| Operating expenses: | ||||||||
| Selling expense | 2,500 | 79,822 | ||||||
| General and administrative expenses | 4,138,190 | 2,331,312 | ||||||
| Loss from deconsolidation of a subsidiary | 73,151 | |||||||
| Provision (reversal) of allowance for expected credit loss | 28,157 | (93,742 | ) | |||||
| Total operating expenses | 4,241,998 | 2,317,392 | ||||||
| (Loss) Income from operations | (526,041 | ) | 246,897 | |||||
| Other income (expense): | ||||||||
| Other income, net | 338,435 | 885,501 | ||||||
| Interest expense | (108,008 | ) | (123,600 | ) | ||||
| Total other income, net | 230,427 | 761,901 | ||||||
| (Loss) Income before income taxes | (295,614 | ) | 1,008,798 | |||||
| Credit (Provision) for income taxes | 67,337 | (65,068 | ) | |||||
| Net (loss) income and comprehensive (loss) income | (228,277 | ) | 943,730 | |||||
| Net loss attributable to non-controlling interest | (3,025 | ) | (39,872 | ) | ||||
| Net (loss) income attributable to common stockholders | (225,252 | ) | 983,602 | |||||
| Other comprehensive (loss) income | ||||||||
| Foreign currency translation gain (loss) | 3,122 | (255 | ) | |||||
| Comprehensive (loss) income | (225,155 | ) | 943,475 | |||||
| Less: comprehensive loss attributable to non-controlling interest | (3,119 | ) | (39,883 | ) | ||||
| Comprehensive (loss) income attributable to the Company | $ | (222,036 | ) | $ | 983,358 | |||
| $ | (0.04 | ) | $ | 0.16 | ||||
| 6,000,000 | 6,000,000 | |||||||
| For the Years Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Pro Forma information Statement for Income Tax Provision as a | ||||||||
| C Corporation upon Reorganization | ||||||||
| (Loss) Income before income taxes | $ | (295,614 | ) | $ | 1,008,798 | |||
| Credit (Provision) for income taxes | 239,466 | (307,683 | ) | |||||
| Net (loss) income and comprehensive (loss) income | $ | (56,148 | ) | $ | 701,115 | |||
| Net loss attributable to non-controlling interests | (3,025 | ) | (39,872 | ) | ||||
| Net (loss) income attributable to common stockholders | (53,123 | ) | 740,987 | |||||
| Other Comprehensive income (loss) | ||||||||
| Foreign currency translation (loss) gain | 3,122 | (255 | ) | |||||
| Comprehensive (loss) income | (53,026 | ) | 700,860 | |||||
| Less: net loss attributable to non-controlling interest | (3,119 | ) | (39,883 | ) | ||||
| Comprehensive (loss) income attributable to the Company | $ | (49,907 | ) | $ | 740,743 | |||
| $ | (0.01 | ) | $ | 0.12 | ||||
| 6,000,000 | 6,000,000 | |||||||
| * | Shares and per share data are presented on a retroactive basis to reflect the issuance of 6,000,000 common stocks. |
The accompanying notes are an integral part of these consolidated financial statements.
F-
LAKESIDE HOLDING LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2024 AND 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, 2022 | 6,000,000 | $ | 600 | $ | (600 | ) | $ | $ | 78,470 | $ | $ | $ | 78,470 | |||||||||||||||||||
| Net income (loss) for the year | — | 983,602 | (39,872 | ) | 943,730 | |||||||||||||||||||||||||||
| Capital dividend declared | — | (200,000 | ) | (200,000 | ) | |||||||||||||||||||||||||||
| Capital contribution made by non-controlling shareholders | — | 32,815 | 32,815 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | (244 | ) | (11 | ) | (255 | ) | |||||||||||||||||||||||||
| Balance at June 30, 2023 | 6,000,000 | $ | 600 | $ | (600 | ) | $ | $ | 862,072 | $ | (244 | ) | $ | (7,068 | ) | $ | 854,760 | |||||||||||||||
| Termination of S Corporation upon reorganization | — | 642,639 | (642,639 | ) | ||||||||||||||||||||||||||||
| Net loss for the year | — | (225,252 | ) | (3,025 | ) | (228,277 | ) | |||||||||||||||||||||||||
| Deconsolidation of a subsidiary | — | 10,187 | 10,187 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | 3,216 | (94 | ) | 3,122 | |||||||||||||||||||||||||||
| Balance at June 30, 2024 | 6,000,000 | $ | 600 | $ | (600 | ) | $ | 642,639 | $ | (5,819 | ) | $ | 2,972 | $ | 639,792 | |||||||||||||||||
| * | Shares and per share data are presented on a retroactive basis to reflect the issuance of 6,000,000 common stocks. |
The accompanying notes are an integral part of these consolidated financial statements.
F-
LAKESIDE HOLDING LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended June 30, |
||||||||
| 2024 | 2023 (Revised) |
|||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (228,277 | ) | $ | 943,730 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation – G&A | 71,980 | 130,755 | ||||||
| Depreciation – overhead cost | 72,657 | |||||||
| Non-cash operating lease expense | 1,005,686 | 826,284 | ||||||
| Depreciation of right-of-use finance assets | 30,712 | 31,780 | ||||||
| Provision (Reversal) of allowance for expected credit loss | 28,157 | (93,742 | ) | |||||
| Deferred tax (benefit) expense | (114,333 | ) | 32,239 | |||||
| Loss from derecognition of shares in subsidiary | 73,151 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable – third parties | (722,522 | ) | (506,152 | ) | ||||
| Accounts receivable – related parties | (732,769 | ) | (28,887 | ) | ||||
| Contract assets | (84,766 | ) | 54,441 | |||||
| Due from related party | 328,820 | (579,496 | ) | |||||
| Prepayment, other deposit | (12,377 | ) | 18,672 | |||||
| Accounts payables – third parties | 699,644 | 54,410 | ||||||
| Accounts payables – related parties | (137,691 | ) | (101,896 | ) | ||||
| Accrued expense and other payables | 468,284 | 57,701 | ||||||
| Tax payable | 46,996 | 32,829 | ||||||
| Lease liabilities – Operating lease | (846,992 | ) | (833,365 | ) | ||||
| Net cash (used in) provided by operating activities | (53,640 | ) | 39,303 | |||||
| Cash flows from investing activities: | ||||||||
| Payment made for investment in other entity | (29,906 | ) | ||||||
| Net cash outflow from deconsolidation of a subsidiary (Appendix A) | (48,893 | ) | ||||||
| Acquisition of property and equipment | (18,288 | ) | ||||||
| Net cash used in investing activities | (78,799 | ) | (18,288 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans | 400,000 | |||||||
| Repayment of loans | (214,986 | ) | (100,864 | ) | ||||
| Repayment of equipment and vehicle loans | (119,964 | ) | (104,598 | ) | ||||
| Principal payment of finance lease liabilities | (29,628 | ) | (20,640 | ) | ||||
| Payment for deferred offering cost | (170,000 | ) | (90,000 | ) | ||||
| Advance to related parties | (23,969 | ) | — | |||||
| Proceeds from shareholders | 237,302 | 110,550 | ||||||
| Repayment to shareholders | — | (47,536 | ) | |||||
| Net cash provided by (used in) financing activities | 78,755 | (253,088 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | 3,216 | 32,560 | ||||||
| Net decrease in cash | (50,468 | ) | (199,513 | ) | ||||
| Cash, beginning of the year | 174,018 | 373,531 | ||||||
| Cash, end of the year | $ | 123,550 | $ | 174,018 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Cash paid for interest | $ | 31,161 | $ | 26,474 | ||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH IN FINANCING ACTIVITIES | ||||||||
| Deferred offering costs within due to shareholders | $ | 860,979 | $ | 90,000 | ||||
| Deferred offering costs within accrued expense and other payables | $ | 541,819 | $ | |||||
| NON-CASH ACTIVITIES | ||||||||
| Dividends declared | $ | $ | 200,000 | |||||
| Dividends declared and offset against due from shareholders | $ | $ | 101,150 | |||||
| Property and equipment additions included in loan payable | $ | $ | 98,245 | |||||
| Right of use assets obtained in exchange for operating lease obligations | $ | 2,094,498 | $ | 124,600 | ||||
| Right of use assets obtained in exchange for finance lease obligation | $ | 19,982 | $ | 32,107 | ||||
| APPENDIX A – Net cash outflow from deconsolidation of a subsidiary | ||||||||
| Working capital, net | $ | 29,812 | $ | |||||
| Investment in other entity recognized | (15,741 | ) | ||||||
| Elimination of NCl at deconsolidation of a subsidiary | 10,187 | |||||||
| Loss from deconsolidation of a subsidiary | (73,151 | ) | ||||||
| Cash | $ | (48,893 | ) | $ | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1,500,000 shares of its common stock at an IPO price of $4.50 per share for aggregate gross proceeds of approximately $6.75 million from the offering (Note 11). In connection with the offering, the Company’s common shares began trading on the Nasdaq Capital Market under the trading symbol “LSH.”
Reorganization
A Reorganization of the legal structure was completed on September 23, 2023. The Reorganization involved the incorporation of Lakeside Holding Limited and the transfer the shares of American Bear Logistics Corp (“ABL Chicago”) to the Company.
Prior to the Reorganization, Mr. Henry Liu, the Chairman of the Board and Chief Executive Officer (“CEO”), and Mr. Shuai Li, the President and Chief Operating Officer (“COO”), each owned 50% equity interest of the ABL Chicago (collectively, the “Controlling Group”). On September 23, 2023, the Controlling Group transferred their 100% equity interest in ABL Chicago to the Company for a consideration of $1,000. Upon this Reorganization, the Company ultimately owns 100% equity interest of ABL Chicago. As of the date of this report, the Controlling Group collectively holds 76.0% equity interest of the Company through H&L Logistics International LLC which holds 36.0% equity interest of the Company, and Jiushen Transport LLC, which holds 40.0% equity interest of the Company.
As part of the series of reorganization transactions to be completed before the offering, a 120-for-1 share split was conducted by the Company on March 29, 2024. After the share split and as of the date of this consolidated financial statements, the issued share capital of the Company consists of $600 divided into 6,000,000 common shares, par value of $0.0001 each.
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.
Details of the Company and its subsidiary are set out below upon the Reorganization:
| Name | Date of Incorporation | Jurisdiction of Formation | Percentage of direct/indirect Economic Ownership | Principal Activities | ||||||
| Parent Company | ||||||||||
| Lakeside Holding Limited | August 28, 2023 | Nevada | 100 | % | Holding company | |||||
| Subsidiary | ||||||||||
| American Bear Logistics Corp. (“ABL Chicago”) | February 5, 2018 | Illinois | 100 | % | Logistics services | |||||
| American Bear International Logistics (Wuhan) Corp. (“ABL Wuhan”)* | March 27, 2019 | Wuhan, China | 51 | % | Logistics services | |||||
| * | ABL Wuhan ceased to be the Company’s subsidiary after August 4, 2023. |
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)
On February 5, 2018, American Bear Logistics Corp. (“ABL Chicago”) was established under the laws of the State of Illinois. The Company is providing customized cross-border ocean and airfreight solutions.
On July 8, 2022, ABL Chicago entered into an agreement with two third-party individuals who were the original shareholders of American Bear International Logistics (Wuhan) Corp. (“ABL Wuhan”), to acquire 51% ownership interest of ABL Wuhan with nominal consideration. ABL Wuhan was originally incorporated on March 27, 2019 in Wuhan City, Hubei Province, China, with a total registered capital of RMB 0.5 million (approximately $0.07 million). Prior to the acquisition, ABL Wuhan had no active business operations since its inception and the registered capital had not been paid. Management concluded that this acquisition did not qualify as a business combination under ASC 805 — Business Combinations. ABL Wuhan primarily focuses on facilitating the logistic services for customers in China. On May 18, 2023, ABL Wuhan increased its registered capital to RMB 3.0 million (approximately $0.41 million).
On August 4, 2023, ABL Wuhan further increased its registered capital to RMB 5.0 million (approximately $0.7 million), while ABL Chicago reduced its unpaid registered capital contribution of RMB 530,000 (approximately $75,000). Concurrently, the third-party shareholder increased their registered capital contribution accordingly. Following this change, the third-party shareholder owns 80% of equity interest and ABL Chicago owns 20% of equity interest. Consequently, ABL Wuhan ceased to be the Company’s subsidiary after August 4, 2023.
On February 2, 2024, ABL Chicago reduced its unpaid registered capital contribution of RMB 750,000 (approximately $105,000) in its investee (ABL Wuhan). Concurrently, the third-party shareholder increased their registered capital contribution accordingly. Following this change, the third-party shareholder owns 95% of equity interest and ABL Chicago owns 5% of equity interest.
The Company recognized a loss of $73,151 from deconsolidation of a subsidiary and recorded as investment in other entity of $15,741 on consolidated balance sheets as of June 30, 2024.
The following table summarized the assets and liabilities of ABL Wuhan as of the deconsolidation date:
| Cash | $ | 48,893 | ||
| Working capital (excluding cash), net | 29,812 | |||
| Carrying value of net assets | 78,705 | |||
| Fair value of the consideration received | ||||
| Fair value of the retained noncontrolling investment | 15,741 | |||
| Carrying value of noncontrolling interest deconsolidated | (10,187 | ) | ||
| Loss on deconsolidation of a subsidiary | $ | (73,151 | ) |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied. The accompanying consolidated financial statements include the financial statements of Lakeside Holding Limited and its subsidiaries. All inter-company balances and transactions have been eliminated upon consolidation.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revision of cash flow statement
The Company identified errors in the statement of cash flows for the year ended June 30, 2023 relating to interest expense of $24,172, which were previously included as cash flows from financing activities and have been reclassified as cash flows from operating activities. The Company considered the errors identified in accordance with the SEC’s Staff Accounting Bulletin No. 99 and determined the impact was immaterial to the previously issued consolidated financial statements. Nonetheless, the Company has revised the previously reported consolidated statements of cash flows for the year ended June 30, 2023. This reclassification had no impact on the Company’s operating results or financial positions for the respective years.
Use of estimates and assumptions
In preparing the 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 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 consists of balances with the banks. The Company maintains all of its bank accounts in the United States, which are insured by Federal Deposit Insurance Corporation (“FDIC”).
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 one year and other higher risk receivables identified by the Company are reviewed individually for collectability. The Company evaluates the expected credit loss of accounts receivable based on customer financial condition and historical collection information adjusted for current market economic conditions and forecasts of future economic performance when appropriate. Loss-rate approach is based on the historical loss rates and expectations of future conditions. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected. As of June 30, 2024 and 2023, the Company recorded the allowance of credit loss of $54,066 and $25,909, respectively.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2024, the Company’s investment in ABL Wuhan amounted to $15,741 and no impairment charges was recorded.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
| Useful life | ||
| Furniture and fixtures | 7 years | |
| Machinery equipment | 5 years | |
| Vehicles | 5 years | |
| Leasehold improvement | Lesser of the lease term or estimated useful lives of the assets |
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 consolidated statements of income (loss) and other comprehensive income (loss).
Impairment of long-lived asset
Long-lived assets, including plant, property and equipment, 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 consistent with the approach applied for its other long-lived assets. No impairment charge was recognized for the years ended June 30, 2024 and 2023, respectively.
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.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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, exchange listing costs, and road show related costs.
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.
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.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Related parties
The Company adopted ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Non-controlling interest
The non-controlling interests are presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling interests in the operating results of the Company are presented on the face of the consolidated statements of income (loss) and comprehensive income (loss) as an allocation of the total income or loss between non-controlling interest holders and the shareholders of the Company. As of June 30, 2023, non-controlling interests represent 49% non-controlling shareholders’ interests in ABL Wuhan. On August 4, 2023, ABL Wuhan ceased to be the Company’s subsidiary and became the Company’s investment in other entity. Therefore, the Company did not have non-controlling interest as of June 30, 2024.
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, accounts receivable from third parties and related parties, amount due from related parties, due to shareholders, other receivables, contract assets, 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 June 30, 2024.
Revenue recognition
Revenues were presented under ASC 606 and all subsequent ASUs that modified ASC 606 for the years ended June 30, 2024 and 2023. 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
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue recognition (cont.)
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, 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 customer orders with cargo space booking service. For customers shipping goods overseas, 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 for customer orders without cargo space booking service.. 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.
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 consolidated statements of income (loss) and comprehensive income (loss).
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 years ended June 30, 2024 and 2023 is disclosed as below:
By service type
| June 30, 2024 |
June 30, 2023 |
|||||||
| Cross-border ocean freights solutions | $ | 7,873,835 | $ | 8,073,685 | ||||
| Cross-border airfreights solutions | 10,441,320 | 4,799,206 | ||||||
| Total revenue | $ | 18,315,155 | $ | 12,872,891 | ||||
By customer geographic location
| June 30, 2024 |
June 30, 2023 |
|||||||
| Asia-based customers | $ | 13,081,165 | $ | 5,531,468 | ||||
| U.S.-based customers | 5,233,990 | 7,341,423 | ||||||
| Total revenue | $ | 18,315,155 | $ | 12,872,891 | ||||
By customer geographic
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. Contract assets increased by $84,766 or 189.5% from $44,740 as of June 30, 2023 to $129,506 as of June 30, 2024. The increase was mainly due to more in-transit deliveries that has not yet invoiced the customers near the period ended June 30, 2024.
Cost of revenues
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.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 100% of the first 3% of the employee’s compensation contributed and 50% of contributions exceeding 3% of eligible compensation, not to exceed 5% of the total eligible compensation. The employees’ voluntary contributions and the Company’s matching contributions are 100% vested immediately. The Company adopted the 401(k) benefit plan from April 2022. The expense related to matching employees’ contributions for the years ended June 30, 2024 and 2023 was $30,616 and $32,896, respectively.
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 years ended June 30, 2024 and 2023, the Company recognized rental income amounted to $327,235 and $547,002, respectively.
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 4.95% of the taxpayer’s net income for the taxation year. The S corporation making the election is liable for paying the PTE tax, and the shareholders will receive credit for the amount of PTE tax credit paid but shall be liable to pay any remaining tax based on their share of the pass-through entity’s income and credits. Illinois also taxes 1.5% replacement tax on S corporation’s net taxable income and franchise tax based on the corporation’s paid-in-capital for the 12 months prior to the annual report filing date. The franchise tax is not applicable for the Company. After the Reorganization, the Company is subjected to U.S. federal income tax at 21% and the 7.0% state tax and the 2.5% replacement tax in the state of Illinois.
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. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. As of June 30, 2024 and June 30, 2023, the Company did not have a liability for unrecognized tax benefits. It is the Company’s policy to includes penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company’s historical tax years will remain open for examination by the local authorities until the statute of limitations has passed.
F-
LAKESIDE
HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 ABL Wuhan, is the U.S. dollar. The functional currency of ABL Wuhan is the RMB. The assets, liabilities, revenues, and expenses of ABL Wuhan are remeasured in accordance with ASC 830. For the year ended June 30, 2023, assets and liabilities of ABL Wuhan are translated into U.S. dollars based upon exchange rates prevailing at the end of each period. Revenues and expenses of ABL Wuhan are translated at average exchange rates during the reporting period. The resulting translation adjustment is included in accumulated other comprehensive loss. During the year ended June 30, 2024, ABL Wuhan ceased to be the Company’s subsidiary after August 4, 2023. There is no translated adjustment regarding ABL Wuhan since the date of deconsolidation.
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.
Segment reporting
The Company follows ASC 280, “Segment Reporting.” The Company’s Chief Executive Officer or chief operating decision-maker reviews the consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and hence, the Company has only one reportable segment. The Company operates and manages its business as a single segment. As the Company’s long-lived assets are substantially all located in the United States and substantially all the Company’s revenues are derived from within the United States.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 the bank accounts at financial institutions in the United States, where there is $250,000 standard deposit insurance coverage limit per depositor, per FDIC-insured bank and per ownership category. As of June 30, 2024 and 2023, the cash deposited of $123,550 and $174,018 is within the insurance coverage limit, respectively. To limit the exposure to credit risk relating to deposits, the Company primarily places cash deposits with large financial institutions in the United States.
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 are monitored on an ongoing basis with the result that the Company’s exposure to impairment is not significant. As of June 30, 2024 and 2023, none of the Company’s due from related parties are impaired.
b. Foreign exchange risk
ABL Wuhan which ceased to be our subsidiary on August 4, 2023 has functional currency in RMB. 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, by considering the volume of ABL Wuhan’s business, the impact of foreign exchange risk is limited.
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.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. This ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The new standard will become effective for us beginning January 1, 2024, using either a modified retrospective or a fully retrospective method of transition and early adoption is permitted. Management is currently evaluating the impact of the new standard on our financial statements.
In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. The Company does not expect the adoption to have a material impact on the consolidated financial statements.
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 December 31, 2024.
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 consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Accounts receivable – third-party customers | $ | 2,122,107 | $ | 1,399,585 | ||||
| Less: allowance for credit loss – third-party customers | (39,955 | ) | (25,909 | ) | ||||
| Accounts receivable from third-party customers, net | $ | 2,082,152 | $ | 1,373,676 | ||||
| Add: accounts receivable – related party customers | $ | 777,396 | $ | 44,627 | ||||
| Less: allowance for credit loss – related party customers | (14,111 | ) | ||||||
| Total accounts receivable, net | $ | 763,285 | $ | 44,627 | ||||
Approximately $2.8 million or 95.8% of the accounts receivable balance as of June 30, 2024 has been collected as of the report date.
The movement of allowance for credit loss for the years ended June 30, 2024 and 2023 is as follows:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Beginning balance | $ | 25,909 | $ | 150,459 | ||||
| Written off | (30,808 | ) | ||||||
| Addition (reversal) of provision | 28,157 | (93,742 | ) | |||||
| Ending balance | $ | 54,066 | $ | 25,909 | ||||
The Company recorded addition of allowance for credit loss of $28,157 and reversal of allowance for credit loss of $93,742 for the years ended June 30, 2024 and 2023, respectively.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — PROPERTY AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Furniture and Fixtures | $ | 49,887 | $ | 49,887 | ||||
| Machinery equipment | 281,230 | 281,230 | ||||||
| Vehicles | 324,267 | 324,267 | ||||||
| Leasehold improvement | 82,050 | 82,050 | ||||||
| Subtotal | 737,434 | 737,434 | ||||||
| Less: accumulated depreciation | (392,551 | ) | (247,914 | ) | ||||
| Property and equipment, net | $ | 344,883 | $ | 489,520 | ||||
Depreciation expense recorded in general and administrative expense was $71,980 and $130,755 for the years ended June 30, 2024 and 2023, respectively. Depreciation expense recorded in cost of revenue was $72,657 and $nil for the years ended June 30, 2024 and 2023, respectively.
NOTE 5 — 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 June 30, 2024, the Company recognized additional operating lease liabilities of $1,358,796 compared to the June 30, 2023 balance of $2,334,415, as result of entering into a new operating lease agreement. The ROU asset was recognized at the discount rate of 8.50%, resulting in $2,094,498 on the commencement date.
As of June 30, 2024, the Company recognized additional finance lease liabilities of $19,982, as result of entering into a new finance lease agreement. The ROU asset was recognized at the discount rate of 8.50%, resulting in $19,982 on the commencement date.
Total operating lease expenses on offices, warehouses, and warehouse equipment for the years ended June 30, 2024 and 2023 were $1,005,686 and $826,284, respectively.
Total finance lease expenses on warehouse machinery and equipment for the years ended June 30, 2024 and 2023 were $32,525 and $33,756, respectively. Amortization of finance lease right-of-use assets were $30,712 and $31,780 for the years ended June 30, 2024 and 2023, respectively.
The following table includes supplemental cash flow and non-cash information related to leases:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Cash paid of amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 846,992 | $ | 833,365 | ||||
| Operating cash flows from finance leases | $ | 1,813 | $ | 1,976 | ||||
| Financing cash flows from finance leases | $ | 29,628 | $ | 20,640 | ||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating lease liabilities | $ | 2,094,498 | $ | 124,600 | ||||
| Finance lease liabilities | $ | 19,982 | $ | 32,107 | ||||
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — LEASES(cont.)
The weighted average remaining lease terms and discount rates for all of operating lease and finance leases is as follows:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Weighted-average remaining lease term (years): | ||||||||
| Operating lease | 3.05 years | 1.55 years | ||||||
| Finance lease | 1.31 years | 1.63 years | ||||||
| Weighted average discount rate: | ||||||||
| Operating lease | 6.30 | % | 3.42 | % | ||||
| Finance lease | 6.51 | % | 4.11 | % | ||||
The following is a schedule of maturities of operating and finance lease liabilities as of June 30, 2024:
Operating leases
| Twelve months ending June 30, | Repayment | |||
| 2025 | $ | 1,391,267 | ||
| 2026 | 1,245,608 | |||
| 2027 | 529,084 | |||
| 2028 | 548,629 | |||
| 2029 | 521,614 | |||
| Total future minimum lease payments | 4,236,202 | |||
| Less: imputed interest | (542,991 | ) | ||
| Total operating lease liabilities | $ | 3,693,211 | ||
Financing leases
| Twelve months ending June 30, | Repayment | |||
| 2025 | $ | 38,961 | ||
| 2026 | 14,994 | |||
| 2027 | 3,154 | |||
| Total future minimum lease payments | 57,109 | |||
| Less: imputed interest | (2,030 | ) | ||
| Total finance lease liabilities | $ | 55,079 | ||
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables comprise the following amounts relating to the operation of the Company
| June 30, 2024 |
June 30, 2023 |
|||||||
| Credit card payables | $ | 235,673 | $ | 141,645 | ||||
| Payroll liabilities | 120,379 | 58,853 | ||||||
| Accrued expense | 435,019 | 112,044 | ||||||
| Other payables (a) | 544,733 | 13,159 | ||||||
| Total | $ | 1,335,804 | $ | 325,701 | ||||
Note (a): The balance mainly consists of payable related to initial offering cost of $541,819 and $nil as of June 30, 2024 and 2023, respectively.
NOTE 7 — 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:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Equipment loans | $ | 84,357 | $ | 148,338 | ||||
| Vehicle loans | 146,283 | 202,265 | ||||||
| Other loans | 652,697 | 467,684 | ||||||
| Total | 883,337 | 818,287 | ||||||
| Less: loan payable, current | (746,962 | ) | (586,688 | ) | ||||
| Loan payable, non-current | $ | 136,375 | $ | 231,599 | ||||
Equipment loans
On December 7, 2020, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $48,033 at a fixed interest rate of 3.99% per annum with a maturity date of December 1, 2025. The loan balance was $15,427 and $25,211 as of June 30, 2024 and 2023, respectively.
On December 3, 2020, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $3,150 at a fixed interest rate of 6.75% per annum with a maturity date of December 2, 2023. The loan balance was $nil and $570 for as of June 30, 2024 and 2023, respectively.
On March 11, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $3,150 at a fixed interest rate of 6.75% per annum with a maturity date of March 10, 2024. The loan balance was $nil and $848 as of June 30, 2024 and 2023, respectively.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — LOANS PAYABLE (cont.)
On March 9, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $12,700 at a fixed interest rate of 3.99% per annum with a maturity date of July 6, 2025. The loan balance was $3,642 and $6,867 as of June 30, 2024 and 2023, respectively.
On April 7, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $12,700 at a fixed interest rate of 3.99% per annum with a maturity date of July 6, 2025. The loan was guaranteed by Mr. Henry Liu, the Chairman of the Board and CEO. The loan balance was $3,642 and $6,867 as of June 30, 2024 and 2023, respectively.
On June 4, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $26,800 at a fixed interest rate of 3.79% per annum with a maturity date of June 3, 2025. The loan balance was $7,085 and $13,907 as of June 30, 2024, and 2023, respectively.
On June 14, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $20,724 at a fixed interest rate of 6% per annum with a maturity date of August 06, 2024. The loan balance was $1,252 and $8,504 as of June 30, 2024 and 2023, respectively.
On July 13, 2021, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $8,465 at a fixed interest rate of 6% per annum with a maturity date of June 30, 2024. The loan balance was $256 and $3,234 as of June 30, 2024 and 2023, respectively.
On September 28, 2021, the Company entered into another equipment loan with Toyota Commercial Finance for a principal amount of $23,600 at a fixed interest rate of 3.54% per annum with a maturity date of June 30, 2024. The loan balance was $690 and $8,812 as of June 30, 2024 and 2023, respectively.
On February 21, 2023, the Company entered into an equipment loan with Toyota Commercial Finance for a principal amount of $29,705 at a fixed interest rate of 7.90% per annum with a maturity date of February 20, 2027. The loan balance was $20,823 and $27,571 as of June 30, 2024 and 2023, respectively.
On June 10, 2021, the Company entered into an equipment loan with Amur Equipment Finance for a principal amount of $41,239 at a fixed interest rate of 13.92% per annum with a maturity date of June 9, 2026. The loan is personally guaranteed by Henry Liu, the Chairman of the Board and CEO. The loan term was 5 years. The loan balance was $18,972 and $27,077 as of June 30, 2024 and 2023, respectively.
On September 9, 2021, the Company entered into an equipment loan with Hatachi Capital America Corp. for a principal amount of $28,450 at a fixed interest rate of 9.49% per annum with a maturity date of March 15, 2026. The loan balance was $12,569 and $18,871 as of June 30, 2024 and 2023, respectively.
The Company made the total principal repayments of $73,149 and $68,230 in connection with the above equipment loans during the years ended, 2024 and 2023, respectively. Interest expenses for the above-mentioned equipment loans amounted to $9,168 and $11,511 for years ended, 2024 and 2023, respectively.
Vehicle loans
On May 20, 2020, the Company entered into a vehicle loan with BMW Financial Services for a principal amount of $77,844 at a fixed interest rate of 0.9% per annum with a maturity date of June 4, 2025. The loan balance was $15,853 and $31,567 as of June 30, 2024 and 2023, respectively.
On July 29, 2021, the Company entered into a vehicle loan with AutoNation Honda O’Hare for a principal amount of $41,851 at a fixed interest rate of 1.90% per annum with a maturity date of August 10, 2025. The loan was guaranteed by Mr. Henry Liu, the Chairman of the Board and CEO. The loan balance was $12,540 and $23,076 as of June 30, 2024 and 2023, respectively.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — LOANS PAYABLE (cont.)
On June 3, 2022, the Company entered into a vehicle loan with Tesla, Inc. for a principal amount of $101,050 at a fixed interest rate of 3.24% per annum with a maturity date of June 18, 2027. The loan balance was $62,630 and $82,203 as of June 30, 2024 and 2023, respectively.
On January 23, 2023, the Company entered into a vehicle loan with Tesla, Inc. for a principal amount of $68,540 at a fixed interest rate of 5.34% per annum with a maturity date of February 9, 2029. The loan balance was $55,259 and $65,418 as of June 30, 2024 and 2023, respectively.
The Company made the total principal repayments of $62,169 and $52,233 in connection with the above vehicle loans during the years ended, 2024 and 2023, respectively. Interest expenses for the above-mentioned above vehicle loans amounted to $6,188 and $5,352 for years ended, 2024 and 2023, respectively.
Other loans
| June 30, 2024 |
June 30, 2023 |
|||||||
| Loan A | $ | 150,000 | $ | 300,000 | ||||
| Loan B | 17,684 | |||||||
| Loan C | 200,000 | 100,000 | ||||||
| Loan D | 50,000 | 50,000 | ||||||
| Loan E | 175,000 | |||||||
| Loan F | 77,697 | |||||||
| Total | $ | 652,697 | $ | 467,684 | ||||
| (a) | The Company entered a loan of $300,000 with an unrelated party on March 1, 2022. The loan is unsecured, with a fixed interest of 15% per annum and payable on monthly basis, for 6 months period and matured on September 1, 2022. On September 1, 2022, both parties agreed to extend the loan’s principal payment term to on demand. The Company has made repayment of $150,000 during the year ended June 30, 2024. |
| (b) | The Company entered a loan of $150,000 with an unrelated party on January 28, 2022. The loan is personally guaranteed by Henry Liu, the Chairman of the Board and CEO, with a fixed interest of 9.99% per annum for 18 months period and matured on August 14, 2023. The monthly payment is $9,014 blending of interest and principal. |
| (c) | The Company entered a loan of $200,000 with an unrelated party on July 26, 2021. The loan is unsecured, with no interest bearing for 6 months period and matured on January 25, 2022. The Company paid a principal of $100,000 during the year ended June 30, 2021 and both parties agreed to extend the remaining principal balance of $100,000 payment term to on demand. On April 8, 2024, the Company entered another loan of $100,000 with the same party. The loan is unsecured, with no interest bearing for a 6-month period and matured on September 7, 2024. |
| (d) | The Company entered a loan agreement of 50,000 with an employee on October 27, 2021. The loan is non-interest bearing, for a 12-month period, and matured on October 26, 2022. |
On October 26, 2022, both parties agreed to extend the loan term to on demand.
| (e) | The Company entered a loan agreement of $100,000 with an unrelated party on July 3, 2023. The loan is non-interest bearing, for a 6-month period and both parties agreed to extend the remaining principal balance of $100,000 payment term to on demand. |
On April 10, 2024, the Company entered another loan agreement of $75,000 with same party. The loan is non-interest bearing, for a 6-month period, and matured on September 9, 2024.
| (f) | The Company entered a loan of $125,000 with an unrelated party on August 17, 2023. The loan is personally guaranteed by Henry Liu, the Chairman of the Board and CEO, with a fixed interest of 16.00% per annum for 24 months period and matured on August 16, 2025. The monthly payment is $6,120 blending of interest and principal. |
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — LOANS PAYABLE (cont.)
The Company made the total principal repayments of $228,978 and $125,949 in connection with the above other loans during the years ended, 2024 and 2023, respectively. Interest expenses for the above-mentioned other loans amounted to $76,967 and $104,528 for years ended, 2024 and 2023, respectively.
The repayment schedule for the Company’s loans is as follows:
| Twelve months ending June 30, | Vehicle loans |
Equipment loans |
Others | Total | ||||||||||||
| 2025 | $ | 62,169 | $ | 53,988 | $ | 648,440 | $ | 764,597 | ||||||||
| 2026 | 37,167 | 31,936 | 12,240 | 81,343 | ||||||||||||
| 2027 | 35,353 | 5,790 | 41,143 | |||||||||||||
| 2028 | 13,406 | 13,406 | ||||||||||||||
| 2029 | 8,937 | 8,937 | ||||||||||||||
| Total undiscounted borrowings | 157,032 | 91,714 | 660,680 | 909,426 | ||||||||||||
| Less: imputed interest | (10,749 | ) | (7,357 | ) | (7,983 | ) | (26,089 | ) | ||||||||
| Total | $ | 146,283 | $ | 84,357 | $ | 652,697 | $ | 883,337 | ||||||||
NOTE 8 — GENERAL AND ADMINISTRATIVE EXPENSES
| June 30, 2024 |
June 30, 2023 |
|||||||
| Payroll expense | $ | 2,328,547 | $ | 1,197,082 | ||||
| Staff benefit expense | 407,894 | 235,008 | ||||||
| Office expense | 394,630 | 179,547 | ||||||
| Professional expense | 381,932 | 104,177 | ||||||
| Travelling and entertainment | 188,679 | 161,290 | ||||||
| Repair and maintenance | 151,358 | 112,034 | ||||||
| Lease expense | 91,670 | 102,382 | ||||||
| Depreciation expense | 71,980 | 130,755 | ||||||
| Insurance | 38,470 | 31,337 | ||||||
| Advertising | 29,537 | 11,325 | ||||||
| Other expense | 27,943 | 35,268 | ||||||
| Motor expense | 24,433 | 29,949 | ||||||
| Bank charges | 1,117 | 1,158 | ||||||
| Total | $ | 4,138,190 | $ | 2,331,312 | ||||
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS
The relationship of related parties is summarized as follow:
| Name of Related Party | Relationship to the Company | |
| Mr. Henry Liu | Chairman of the Board, CEO, and an ultimate shareholder of the Company | |
| Mr. Shuai Li | President, COO, and an ultimate shareholder of the Company | |
| Weship Transport Inc. (“Weship”) | Controlled by Mr. Henry Liu | |
| American Bear Logistics (Wuhan) Co., Ltd. (“ABL Wuhan”) |
The Company owns 5% of equity interest | |
| LLL Intermodal Inc. (“Intermodal”) | Controlled by Mr. Henry Liu |
a) Summary of balances with related parties
Due from related parties consist of mainly rent receivables from the following:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Due from Weship | $ | 422,742 | $ | 731,243 | ||||
| Due from Intermodal | 18,537 | 14,887 | ||||||
| Total | $ | 441,279 | $ | 746,130 | ||||
The Company has collected approximately $nil from Weship as of the report date, and is planning to collect the remaining receivable balance from three related parties by the end of December 2024.
b) Summary of balances payable to related parties
| June 30, 2024 |
June 30, 2023 |
|||||||
| Account payable to Weship | $ | 175,172 | $ | 365,413 | ||||
| Account payable to ABL Wuhan | 52,000 | |||||||
| Account payable to Intermodal | 550 | |||||||
| Total | $ | 227,722 | $ | 365,413 | ||||
c) Summary of balances receivable from related parties
| June 30, 2024 |
June 30, 2023 |
|||||||
| Account receivable from Weship | $ | 32,435 | $ | 44,627 | ||||
| Account receivable from ABL Wuhan | 744,961 | |||||||
| Total | $ | 777,396 | $ | 44,627 | ||||
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS (cont.)
d) Summary of related parties’ transactions
| For the years ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Revenue from Weship | $ | 28,870 | $ | 109,314 | ||||
| Revenue from ABL Wuhan | $ | 1,835,377 | $ | |||||
| Cost of revenue charged by Weship | $ | 1,555,680 | $ | 1,598,143 | ||||
| Rental income from Weship | $ | 288,185 | $ | 481,252 | ||||
| Cost of revenue charged by Intermodal | $ | 564,519 | $ | 325,237 | ||||
| Cost of revenue charged by ABL Wuhan | $ | 162,625 | $ | |||||
During the years ended June 30, 2024 and 2023, the Company had the following transactions with its related parties — Weship, ABL Wuhan and Intermodal
| (a) | The Company provides logistic forwarding services to Weship and ABL Wuhan and charges Weship and ABL Wuhan 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 to June 2024. The Company also subleased another warehouse in Los Angeles beginning in August 2023. |
| (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. |
e) Due to shareholders
| June 30, 2024 |
June 30, 2023 |
|||||||
| Due to shareholders, end | $ | (1,018,281 | ) | $ | (90,000 | ) | ||
The balance with the shareholders is unsecured, interest free, and due on demand. The Company had balance of due to shareholder Henry Liu of $986,923 and $90,000 and Shuai Li of $31,358 and $nil as of June 30, 2024 and 2023, respectively.
f) Dividend payable to shareholders
| June 30, 2024 |
June 30, 2023 |
|||||||
| Dividend payable to Mr. Henry Liu | $ | (27,056 | ) | $ | (27,056 | ) | ||
| Dividend payable to Mr. Shuai Li | (71,794 | ) | (71,794 | ) | ||||
| Total | $ | (98,850 | ) | $ | (98,850 | ) | ||
No non-taxable dividend was declared to shareholders for the year ended June 30, 2024. During the year ended June 30, 2023, ABL Chicago declared non-taxable dividend of total $200,000 to its two shareholders from its accumulated retained earnings, of which $101,150 of dividends declared was offset against balances due from shareholders.
F-
LAKESIDE
HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS (cont.)
g) Salaries and employee benefits paid to major shareholders
| June 30, 2024 |
June 30, 2023 |
|||||||
| Mr. Henry Liu | $ | 97,597 | $ | 96,647 | ||||
| Mr. Shuai Li | 104,628 | 101,352 | ||||||
| Total | $ | 202,225 | $ | 197,999 | ||||
NOTE 10 — 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 4.95% of the taxpayer’s net income for the taxable year. The S corporation making the election is liable for paying the PTE tax, and the shareholders will receive credit for the amount of PTE tax credit paid but shall be liable to pay any remaining tax based on their share of the pass-through entity’s income and credits. Illinois also taxes 1.5% replacement tax on S corporation’s net taxable income.
The Company terminated its status as a Subchapter S Corporation as of June 30, 2024, in connection with its Reorganization. As a C Corporation, the Company combined statutory income tax rate is 28% in each period, representing a U.S. federal income tax rate of 21.0% and 7% state income tax for Illinois. Also, as a C Corporation, the Company is subjected to Illinois State replacement tax at rate of 2.5% and no PTE tax is applicable.
The Company’s PRC subsidiary, Wuhan ABL, which ceased to a subsidiary since August 4, 2023, is governed by the income tax laws of the PRC and is qualified as small and micro-sized enterprises with annual taxable income less than RMB 3 million and is subjected to 5% of the preferential tax rate.
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 $72,152 decrease to the net deferred tax assets to $89,581 and an decrease to the provision for income taxes of $186,485 during the year ended June 30, 2024.
As of June 30, 2024 and 2023, 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 years ended June 30, 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.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — TAXES (cont.)
The provision for income tax for the years ended June 30, 2024 and 2023 consists of the following:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Current income tax expense | $ | 46,996 | $ | 32,829 | ||||
| Deferred income tax expense | (114,333 | ) | 32,239 |
|||||
| Total income tax (credit) provision | $ | (67,337 | ) | $ | 65,068 | |||
The following table reconciles the statutory tax rate to the Company’s effective tax for the years ended June 30, 2024 and 2023:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Income (loss) before tax | $ | (295,614 | ) | $ | 1,008,798 | |||
| Statutory state tax rate | 21 | % | 6.45 | % | ||||
| Income tax (credit) expense at the federal statutory rate | $ | (62,079 | ) | $ | 65,068 | |||
| Illinois state tax/PET tax | (2,171 | ) | ||||||
| Illinois replacement tax | (74 | ) | ||||||
| Federal income tax | 32,358 | |||||||
| Non-capital loss not utilized adjustment | (35,371 | ) | ||||||
| Income tax provision | (67,337 | ) | 65,068 | |||||
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — TAXES (cont.)
The Company’s deferred tax assets and liabilities consist of the following:
| June 30, 2024 |
June 30, 2023 |
|||||||
| Deferred tax assets: | ||||||||
| Allowance for credit loss | $ | 16,490 | $ | 1,671 | ||||
| Lease liability – operating | 1,126,429 | 150,570 | ||||||
| Lease liability – financing | 16,799 | 4,175 | ||||||
| Total deferred tax assets | 1,159,718 | 156,416 | ||||||
| Deferred tax liabilities: | ||||||||
| Property and equipment | - | (31,575 | ) | |||||
| Right of use assets – operating | (1,058,707 | ) | (146,484 | ) | ||||
| Right of use assets – financing | (11,430 | ) | (3,109 | ) | ||||
| Total deferred tax liabilities | (1,070,137 | ) | (181,168 | ) | ||||
| Deferred tax assets (liabilities), net | $ | 89,581 | $ | (24,752 | ) | |||
NOTE 11 — 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 50,000 shares of common stock with par value of $0.0001. 50,000 shares of common stocks of the Company were issued on August 28, 2023.
On October 25, 2023, the Company amended its Articles of Incorporation to increase its number of authorized common stocks from 50,000 shares to 200,000,000 shares.
On March 29, 2024, a 120-for-1 share split was conducted by the Company. After the share split and as of the date of this report, the issued share capital of the Company consists of $600 divided into 6,000,000 common shares, par value of $0.0001 each.
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.
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — EARNINGS PER SHARE
For the years ended June 30, 2024 and 2023, the Company has no stock options and warrants issued and no impact on diluted earnings per share.
| For the years ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Net (loss) income attributable to the Company | $ | (225,252 | ) | $ | 983,602 | |||
| 6,000,000 | 6,000,000 | |||||||
| $ | (0.04 | ) | $ | 0.16 | ||||
NOTE 13 — CONCENTRATIONS AND CREDIT RISK
The Company had three and one third-party customers and one and no related-party customer individually generated over 10% of the Company’s total revenue for the years ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and 2023, the Company had one and two third-party customers and no and one related-party customer individually represented over 10% of account receivables, respectively.
The Company had one and no third-party suppliers and one and one related-party suppliers individually represented over 10% of the Company’s cost of revenue for the years ended June 30, 2024 and 2023, respectively. The Company had one and no third-party supplier and one and one related-party supplier represented over 10% of the Company’s accounts payable as of June 30, 2024 and 2023, respectively.
NOTE 14 — COMMITMENTS AND CONTINGENCIES
Contractual Commitments
As of June 30, 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 | $ | 4,236,202 | $ | 1,391,267 | $ | 1,774,692 | $ | 1,070,243 | $ | |||||||||||
| Finance lease obligations | 57,109 | 38,961 | 18,148 | — | ||||||||||||||||
| Vehicle loans | 157,032 | 62,169 | 72,520 | 22,343 | ||||||||||||||||
| Equipment loans | 91,714 | 53,988 | 37,726 | — | ||||||||||||||||
| Other loans | 660,680 | 648,440 | 12,240 | — | ||||||||||||||||
| Total | $ | 5,202,737 | $ | 2,194,825 | $ | 1,915,326 | $ | 1,092,586 | $ | |||||||||||
F-
LAKESIDE HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — COMMITMENTS AND CONTINGENCIES (cont.)
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 June 30, 2024 and 2023.
NOTE 15 — SUBSEQUENT EVENTS
The Company evaluated all events and transactions that occurred after June 30, 2024 up through the date the Company issued these consolidated financial statements, for disclosure or recognition in the consolidated financial statements of the Company as appropriate.
Incorporation of A Subsidiary
On July 10, 2024, the Company incorporated a wholly-owned subsidiary, Sichuan Hupan Jincheng Qiye Guanli Limited, in China, with registered capital of RMB 50 million (approximately $6.9 million).
Initial Public Offering
On July 1, 2024, the Company closed its IPO of 1,500,000 shares of its common stock at an IPO price of $4.50 per share for aggregate gross proceeds of approximately $6.75 million from the offering. The total net proceeds to the Company from the IPO, after deducting discounts, expense allowance, and expenses, were approximately $5.79 million. Pursuant to the terms and conditions of the underwriting agreement, dated as of June 28, 2024, by and between The Benchmark Company, LLC and Axiom Capital Management, Inc., (the “Representative”) and the Company (the “Underwriting Agreement”), the underwriters had an overallotment option, exercisable for 30 days by July 30, 2024, to purchase up to an additional 225,000 shares from the Company at the offering price less of $4.50 the underwriting discount and commissions to cover over-allotments. As of the reporting date, no such option has been exercised.
Representative’s Warrants
Pursuant to the Underwriting Agreement, the Company issued to the Representative and its designee warrants (the “Representative’s Warrants”) to purchase 75,000 shares of common stock. The Representative’s Warrants are exercisable at a per share exercise price of $4.50 equal to IPO price and are exercisable at any time and from time to time, in whole or in part, during the period commencing on December 30, 2024 and terminating on June 30, 2029. Neither the Representative’s Warrants nor any of the shares issued upon exercise of the Representative’s Warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of six months immediately following the commencement of sales of the offering.
F-
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 June 30, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2024, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework). Based on this evaluation under the 2013 Framework, our principal executive officer and principal financial officer have concluded that our internal control over financial reporting was not effective as of June 30, 2024 due to the following material weaknesses:
| ● | 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 AS 2201, 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
There were no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Our executive officers and directors, and their ages and positions as of the date of this report, are set forth below:
| Name | Age | Position(s) | ||
| Henry Liu | 34 | Co-Founder, Chairman of the Board of Directors and Chief Executive Officer | ||
| Shuai Li | 39 | Co-Founder, Director, President and Chief Operating Officer | ||
| Long (Leo) Yi | 47 | Chief Financial Officer | ||
| Yiye Zhou | 40 | Independent Director | ||
| Zhengyi (Janice) Fang | 32 | Independent Director | ||
| Cynthia Vuong | 36 | Independent Director |
Mr. Henry Liu is our co-founder and has served as our chairman of the board of directors and chief executive officer since our establishment. Mr. Liu has over six years of logistics operation experience, especially in freight forwarding, and he has extensive knowledge of the supply chain industry. Mr. Liu has served as the president of American Bear Logistics Corp., our Illinois operating subsidiary, from February 2018 to present and co-lead its operations, client relationships and business development with Mr. Shuai Li. From August 2017 to February 2018, Mr. Liu served as an operator in Hoson Logistics America Inc., an Illinois-based logistics company, where he took charge of import and export of air and ocean freight. Mr. Liu received his bachelor’s degree in bioengineering from Northwest Agriculture and Forestry University in China in June 2013 and his master’s degree in food safety and technology from Illinois Institute of Technology in December 2015. We believe that Mr. Liu’s extensive knowledge of our Company, gained through his services as our co-founder and chief executive officer, and his experience in the supply chain industry, qualify him to serve as the chairman of our board of directors.
Mr. Shuai Li is our co-founder and has served as our president and chief operating officer since our inception and has served as a member of our board of directors since June 2024. As an expert in the logistics and supply chain industry, Mr. Li oversees and manages the overall operations of our company. From February 2018 to present, Mr. Li has served as the president of American Bear Logistics Corp., our Illinois operating subsidiary and co-lead its operations, client relationships and business development with Mr. Henry Liu. From February 2014 to December 2017, Mr. Li served as an executive salesman at Express Distributor Corp, an Illinois-based restaurant supply chain company. From January 2010 to December 2014, Mr. Li worked as a sales consultant at Lala Lulu Online Store, a cross-border trading company that focuses on the export of U.S.-made merchandise to China. Mr. Li received his bachelor’s degree in communications from Wuhan Institute of Physical Education in China in July 2007 and his master’s degree in business administration from Benedictine University in Illinois in December 2013. We believe that Mr. Li’s extensive knowledge of our Company, gained through his service as our co-founder, president and chief operating officer, and his experience in the supply chain industry, qualify him to serve on our board.
Mr. Long (Leo) Yi has served as our chief financial officer since June 2024. Mr. Yi is a certified public accountant in the state of Illinois with 15 years of working experience in the accounting and financing field. From July 2019 to January 2023, Mr. Yi served as the chairman of audit committee in Color Star Technology Co., Ltd. (NASDAQ: ADD), an entertainment technology company focusing on the application of technology and artificial intelligence in the entertainment industry. From January 2018 to July 2021, Mr. Yi served as the chief executive officer of Urban Tea, Inc. (NASDAQ: MYT). From April 2019 to January 2020, he served as the chief financial officer of iFresh Inc (OTC: IFMK). From November 2012 to January 2018, Mr. Yi served as the chief financial officer of TD Holdings, Inc. (NASDAQ: GLG). Mr. Yi received a bachelor’s degree in accounting from Northeastern University (Shenyang, China) in September 1998, a master’s degree in accounting and finance from University of Rotterdam in June 2004 and another master’s degree in accounting and finance from McGill University in August 2006.
Ms. Yiye Zhou has served as an independent director since June 2024. From September 2019 to present, Ms. Zhou served as the investor relations director at Senmiao Technology Ltd., a financing and servicing company focused on the online ride-hailing industry in China in charge of investor relations. From January 2013 to May 2019, Ms. Zhou worked as a business analyst at Gravity Ball, a healthcare startup company based in Los Angeles, California, in charge of research, strategies and risk control From July 2010 to March 2012, Ms. Zhou worked as a research analyst at McKinsey in Shanghai, China. Ms. Zhou received her bachelor’s degree in business management from Regensburg University of Applied Sciences in June 2007 and her master’s degree in management and strategy from London School of Economics & Political Science in December 2008. We believe that Ms. Zhou’s deep knowledge in the business industry qualifies her to serve on our board.
Ms. Zhengyi (Janice) Fang has served as an independent director since June 2024. Ms. Fang is a professional accountant certified by the American Institute of Certified Public Accountants in Washington. From December 2020 to present, Ms. Fang has served as a senior consultant at Ernst & Young in Haikou, China, in charge of, valuation, modeling, and economic consulting services. From September 2018 to November 2020, Ms. Fang worked as an audit associate and assistant manager at KPMG. Ms. Fang received her bachelor’s degree in business administration in accounting in June 2014 and her master’s degree in professional accounting in June 2017 from Seattle University. We believe that Ms. Fang’s significant experience in finance and accounting qualifies her to serve on our board.
Ms. Cynthia Vuong has served as an independent director since June 2024. Ms. Vuong is a program manager professional with over 11 years of experience. From January 2021 to present, Ms. Vuong has served as a game portfolio planner in business operations at Microsoft Corporation. Before that, from October 2018 to January 2021, she served as a launch manager in business operations at Microsoft Corporation. From March 2012 to June 2018, Ms. Vuong worked as a senior consultant at multiple consulting firms, including Unify Consulting, Revel Consulting Services L.L.C. and Sogeti USA. Ms. Vuong received her bachelor’s degree in international studies from the University of Washington in June 2010. We believe that Ms. Vuong’s extensive knowledge of business operations qualifies her to serve on our board.
Board Composition and Election of Directors
Our board of directors currently consists of five members. Each of our current directors will continue to serve until the first annual meeting of the stockholders or until their successor(s) shall have been elected and qualified.
Director Independence
Our common stock is listed on the Nasdaq Capital Market (the “Nasdaq”). Under the rules of the Nasdaq, independent directors may comprise a majority of a listed company’s board of directors within one year following the listing date of the company’s securities. Under the rules of the Nasdaq, a director will only qualify as an “independent director” if that that company’s board of directors affirmatively determines that such person does not have a relationship with the company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has undertaken a review of the independence of each director and, based on the information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that Yiye Zhou, Zhengyi (Janice) Fang and Cynthia Vuong qualify as independent directors in accordance with the Nasdaq rules. Our board of directors has made a subjective determination as to each independent director that no relationships exist that, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each director.
Role of the Board of Directors in Risk Oversight
Risk assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular business functions, operations, or strategies, and presents the steps taken by management to mitigate or eliminate such risks.
Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. While our board of directors has a fiduciary duty to monitor and assess strategic risk exposure, our audit committee is responsible for overseeing our major financial risk exposures and the steps our management has taken to monitor and control these exposures, overseeing cybersecurity risks and assisting the board of directors in its oversight over enterprise risk management. The audit committee also approves or disapproves any related person transactions. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines and manages risks associated with the independence of the board of directors. Our compensation and leadership development committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Board Diversity Matrix
The following table sets forth the diversity information of our board of directors based on voluntary self-identification as of June 30, 2024.
| Total Number of Directors: 5 | ||||
| Male | Female | Non-Binary | Did Not Disclose Gender | |
| Part I: Gender Identity | ||||
| Directors | 2 | 3 | 0 | 0 |
| Part II: Demographic Background | ||||
| African American or Black | 0 | 0 | 0 | 0 |
| Alaskan Native or Native American | 0 | 0 | 0 | 0 |
| Asian | 2 | 3 | 0 | 0 |
| Hispanic or Latinx | 0 | 0 | 0 | 0 |
| Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 |
| White | 0 | 0 | 0 | 0 |
| Two or More Races or Ethnicities | 0 | 0 | 0 | 0 |
| LGBTQ+ | 0 | |||
| Did Not Disclose Demographic Background | 0 | |||
Committees of the Board of Directors
We have established an audit committee, a compensation committee and a nominating and corporate governance committee under the board of directors. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Ms. Yiye Zhou, Ms. Zhengyi (Janice) Fang and Ms. Cynthia Vuong, and is chaired by Ms. Fang. Ms. Zhou, Ms. Fang and Ms. Vuong each satisfies the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq and meet the independence standards under Rule 10A-3 under the Exchange Act, as amended. We have determined that Ms. Fang qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
| ● | selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; |
| ● | reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; |
| ● | reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| ● | discussing the annual audited financial statements with management and the independent registered public accounting firm; |
| ● | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| ● | annually reviewing and reassessing the adequacy of our audit committee charter; |
| ● | meeting separately and periodically with management and the independent registered public accounting firm; and |
| ● | reporting regularly to the board of directors. |
Compensation Committee. Our compensation committee consists of Ms. Zhou, Ms. Fang and Ms. Vuong, and is chaired by Ms. Vuong. Ms. Zhou, Ms. Fang and Ms. Vuong each satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq. The compensation committee assists the board of directors in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our executive officers may not be present at any committee meeting during which their compensation is deliberated upon. The compensation committee is responsible for, among other things:
| ● | reviewing the total compensation package for our executive officers and making recommendations to the board of directors with respect to it; |
| ● | approving and overseeing the total compensation package for our executives other than the three most senior executives; |
| ● | reviewing the compensation of our directors and making recommendations to the board of directors with respect to it; and |
| ● | periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans. |
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Ms. Zhou, Ms. Fang and Ms. Vuong, and is chaired by Ms. Zhou. Ms. Zhou, Ms. Fang and Ms. Vuong each satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board of directors and its committees. The nominating and corporate governance committee is responsible for, among other things:
| ● | recommending nominees to the board of directors for election or re-election to the board of directors, or for appointment to fill any vacancy on the board of directors; |
| ● | reviewing annually with the board of directors the current composition of the board of directors with regards to characteristics such as independence, age, skills, experience and availability of service to us; |
| ● | selecting and recommending to the board of directors the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; and |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation committee interlocks and insider participation
None of the members of our compensation committee is or has been our current or former officer or employee. None of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, including any entity whose executive officers served as a director or member of our compensation committee.
Family Relationships
No family relationships existed among any of our directors or executive officers.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees, executive officers and directors.
Insider Trading Policy
We have adopted an Insider Trading Policy which requires insiders to: (i) refrain from purchasing shares during certain blackout periods and when they are in possession of any material non-public information and (ii) to clear all trades with the compliance officer of the policy prior to execution.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on our review of Forms 3, 4 and 5 and any amendments thereto furnished to us, we believe that during the fiscal year ended June 30, 2024, all filing requirements applicable to our executive officers and directors under the Exchange Act were met in a timely manner.
Item 11. Executive Compensation.
Our named executive officers (“NEOs”) for the fiscal years ended June 30, 2023 and 2024, consisting of our principal executive officers, serving at the end of such years, consisting of our principal executive officer and next most highly compensated officer serving at the end of such fiscal years, were:
| ● | Henry Liu, our chief executive officer; and |
| ● | Shuai Li, our president and chief operating officer. |
Summary Compensation Table
The following table sets forth information with respect to compensation earned by our NEOs for the fiscal years ended June 30, 2023 and 2024.
| Name and Principal Position | For the Fiscal Year Ended June 30, |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation ($) |
All Other ($) |
Total ($) |
|||||||||||||||||||||||||||
| Henry Liu | 2024 | 72,800 | — | — | — | — | — | — | 72,800 | |||||||||||||||||||||||||||
| Chief Executive Officer | 2023 | 72,800 | — | — | — | — | — | — | 72,800 | |||||||||||||||||||||||||||
| Shuai Li | 2024 | 83,548 | — | — | — | — | — | — | 83,548 | |||||||||||||||||||||||||||
| President and Chief Operating Officer | 2023 | 83,548 | — | — | — | — | — | — | 83,548 | |||||||||||||||||||||||||||
Employment Agreements
We have entered into employment agreements with each of our NEOs (collectively, the “Employment Agreements”). The Employment Agreements establish an initial base salary for each of our NEOs and provide that each of our NEOs is eligible to participate in our standard employee benefit plan. The employment of each of our NEOs can be terminated by us at any time with or without cause. Each of the NEOs may (i) resign if such resignation is approved by our board of directors or an alternative arrangement with respect to his services is agreed to by the board of directors, and (ii) terminate his employment at any time with a one-month prior written notice to the Company, if (a) there is a material reduction in his authority, duties and responsibilities, or (b) there is a material reduction in his annual salary.
None of our NEOs is entitled to any cash severance payment upon a termination of their employment for “cause” (as defined in such employment agreement), or for death and disability.
If any of the NEOs’ employment is terminated by us without cause, he will be entitled to severance payments and benefits of: (i) a lump sum cash payment equal to six months of his base salary as of the date of such termination; (ii) a lump sum cash payment equal to a pro-rated amount of his target annual bonus for the year immediately preceding the termination, if any; (iii) payment of premiums for continued health benefits under the Company’s health plans for 12 months following the termination, if any; and (iv) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held, if any.
If any of the NEOs’ employment is terminated by himself due to the above-mentioned reasons, he will receive remuneration equivalent to three months of his base salary that he is entitled to immediately prior to such termination.
In addition, in the event that any of the NEOs is terminated following a change in control of the Company, he shall be entitled to the severance payments and benefits of: (i) a lump sum cash payment equal to three months of his base salary at a rate equal to the greater of his annual salary in effect immediately prior to the termination, or his then current annual salary as of the date of such termination; (ii) a lump sum cash payment equal to a pro-rated amount of his target annual bonus for the year immediately preceding the termination; (iii) payment of premiums for continued health benefits under the Company’s health plans for three months following the termination; and (iv) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held, if any.
Equity-Based Compensation
As of the date of this report, we had not adopted any equity incentive plan, nor had we awarded any equity-based compensation to any employees, including our NEOs.
Other Compensation and Benefits
We maintain a 401(k) plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to defer eligible compensation up to certain limits in the U.S. Internal Revenue Code of 1986, as amended (the “Code”), which are updated annually. We have the ability to make matching and discretionary contributions to the 401(k) plan. Currently, we do not make matching contributions or discretionary contributions to the 401(k) plan. The 401(k) plan is intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and earnings on those amounts are not generally taxable to the employees until withdrawn or distributed from the 401(k) plan.
Our NEOs did not participate in, or earn any benefits under, a non-qualified deferred compensation plan sponsored by us during the fiscal years ended June 30, 2024. Our board of directors may elect to provide our officers and other employees with non-qualified defined contribution or other non-qualified deferred compensation benefits in the future if it determines that doing so is in our best interests.
Our NEOs did not participate in, or otherwise receive any benefits under, any pension or retirement plan sponsored by us during the fiscal years ended June 30, 2024.
Director Compensation
During the year ended June 30, 2024, none of our non-employee directors received any compensation from the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The table below sets forth information, as of the date of this report, with respect to the beneficial ownership of our shares of common stock by: (a) each named executive officer, each of our directors, and our directors and executive officers as a group; and (b) each person or entity known by us to own beneficially more than 5% of our shares of common stock. Percentage ownership is based on an aggregate of 7,500,000 shares of common stock outstanding as of the date of this report. We have determined beneficial ownership in accordance with the rules of the SEC.
| Shares of Common Stock Beneficially Owned |
||||||||
| Name and Address of Beneficial Owner (1) | Number | %† | ||||||
| Executive Officers and Directors | ||||||||
| Henry Liu(2) | 2,700,600 | 36.0 | % | |||||
| Shuai Li(3) | 3,000,000 | 40.0 | % | |||||
| Long (Leo) Yi | — | — | ||||||
| Yiye Zhou | — | — | ||||||
| Zhengyi (Janice) Fang | — | — | ||||||
| Cynthia Vuong | — | — | ||||||
| All Executive Officers and Directors as a group | 5,700,600 | 76.0 | % | |||||
| 5% or Greater Holders | — | — | ||||||
| H&L LOGISTICS INTERNATIONAL LLC(2) | 2,700,600 | 36.0 | % | |||||
| JIUSHEN TRANSPORT LLC(3) | 3,000,000 | 40.0 | % | |||||
| (1) | Unless noted otherwise, the address of all listed stockholder is 1475 Thorndale Avenue, Suite A, Itasca, Illinois 60143. |
| (2) | Represents 2,700,600 shares of common stock held of record by H&L LOGISTICS INTERNATIONAL LLC, a company wholly owned by Mr. Henry Liu organized under the laws of the State of Illinois. The registered address of H&L LOGISTICS INTERNATIONAL LLC is 270 Hearthstone Drive, Bartlett, Illinois 60103. |
| (3) | Represents 3,000,000 shares of common stock held of record by JIUSHEN TRANSPORT LLC, a company wholly owned by Mr. Shuai Li organized under the laws of the State of Illinois. The registered address of JIUSHEN TRANSPORT LLC is 1360 West Walton Street, Chicago, Illinois 60642. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Persons
The following sets forth the transactions we have entered into since July 1, 2022, and any currently proposed transactions, to which we were or are expected to be a participant where (i) the amount involved exceeded or will exceed the lesser of $120,000 or 1% of our total assets at year-end for the last two completed fiscal years, and (ii) any of our executive officers, directors, or holders of more than 5% of any class of our voting securities, or any affiliate or member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than the compensation and other arrangements we describe in “Item 11. Executive Compensation” of this report.
| For the years ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Revenue from Weship | $ | 28,870 | $ | 109,314 | ||||
| Revenue from ABL Wuhan | $ | 1,835,377 | $ | — | ||||
| Cost of revenue charged by Weship | $ | 1,555,680 | $ | 1,598,143 | ||||
| Rental income from Weship | $ | 288,185 | $ | 481,252 | ||||
| Cost of revenue charged by Intermodal | $ | 564,519 | $ | 325,237 | ||||
| Cost of revenue charged by ABL Wuhan | $ | 162,625 | $ | — | ||||
During the years ended June 30, 2024 and 2023, the Company had the following transactions with its related parties — Weship, ABL Wuhan and Intermodal
| (a) | The Company provides logistic forwarding services to Weship and ABL Wuhan and charges Weship and ABL Wuhan 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 to June 2024. The Company also subleased another warehouse in Los Angeles beginning in August 2023. |
| (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. |
Related Party Transaction Policy
Our board of directors have adopted a written related party transaction policy, setting forth the policies and procedures for the review and approval or ratification of related party transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement, or relationship, or any series of similar transactions, arrangements, or relationships, in which we were or are to be a participant, where the amount involved in any fiscal year exceeds the lesser of $120,000 or 1% of our total assets at year-end for the last two completed fiscal years, and a related party had, has, or will have a direct or indirect material interest, including without limitation, purchases of goods or services by or from the related party or entities in which the related party has a material interest, indebtedness, guarantees of indebtedness, and employment by us of a related party.
In reviewing and approving any such transactions, our audit committee has primary responsibility to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related party’s interest in the transaction.
Item 14. Principal Accountant Fees and Services.
The following table represents the aggregate fees from our current principal accounting firm, ZH CPA, LLC for the fiscal years ended June 30, 2023 and 2024, respectively.
| 2023 | 2024 | |||||||
| Audit Fees | $ | 285,000 | $ | 160,000 | ||||
| Audit Related Fees | $ | - | $ | - | ||||
| Tax Fees | $ | - | $ | - | ||||
| All other fees | $ | - | $ | - | ||||
| Total Fees | $ | 285,000 | $ | 160,000 | ||||
Audit Fees — This category includes the services performed for the audit of our annual financial statements, review of the interim financial statements and for the audits of our financial statements in connection with our initial public offering, and comfort letter in connection with the underwritten public offering that are normally provided by the independent auditors in connection with engagements for those fiscal years.
Audit-Related Fees — This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”.
Tax Fees — This category consists of professional services rendered by the Company’s independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees — This category consists of fees for other miscellaneous items.
Pre-Approval Policies and Procedures
All of the services rendered to us by our independent registered public accountants were pre-approved by the Audit Committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
We have filed the following documents as part of this Annual Report on Form 10-K:
| (1) | Index to Consolidated Financial Statements |
| (2) | Financial Statement Schedules: |
| (3) | Exhibits required by Item 601 of Regulation S-K |
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
| # | 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. |
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Date: September 30, 2024 | Lakeside Holding Limited. | |
| By: | /s/ Henry Liu | |
| Henry Liu | ||
| Chairman and Chief Executive Officer | ||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Henry Liu, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934 this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
| Title | Date | |||
| /s/ Henry Liu | Chairman of the Board of Directors and Chief Executive Officer | September 30, 2024 | ||
| Henry Liu | ||||
| /s/ Shuai Li | Director, President and Chief Operating Officer | September 30, 2024 | ||
| Shuai Li | ||||
| /s/ Long (Leo) Yi | Chief Financial Officer | September 30, 2024 | ||
| Long (Leo) Yi | ||||
| /s/ Yiye Zhou | Independent Director | September 30, 2024 | ||
| Yiye Zhou | ||||
| /s/ Zhengyi (Janice) Fang | Independent Director | September 30, 2024 | ||
| Zhengyi (Janice) Fang | ||||
| /s/ Cynthia Vuong | Independent Director | September 30, 2024 | ||
| Cynthia Vuong |
Exhibit 4.2
DESCRIPTION OF SECURITIES
The following descriptions of the capital stock of Lakeside Holding Limited (“we,” “our,” “us,” or the “Company”) and certain provisions of our articles of incorporation and bylaws are summaries and qualified by reference to our articles of incorporation and our bylaws which are included as exhibits to this annual report on Form 10-K and the applicable provisions of the Nevada law.
As of September 25, 2024, we had 7,500,000 shares of common stock issued and outstanding.
Common Stock
Each share of our common stock is entitled to one vote on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law, the holders of common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of common stock that are present in person or represented by proxy. Holders of common stock representing a majority of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. Our articles of incorporation do not provide for cumulative voting in the election of directors. Holders of common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Voting
Holders of shares of our common stock do not have cumulative voting rights; meaning that the holders of 50.1% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, and, in such event, the holders of the remaining shares will not be able to elect any of our directors.
Dividends
As of the date of this prospectus, we have not paid any cash dividends to stockholders. The declaration of any future cash dividend will be at the discretion of our board of directors and will depend upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Liquidation Rights
In the event of our liquidation, dissolution or winding-up, the holders of our common stock shall be entitled to share equally, on a per share basis, in all assets remaining after the payment of any liabilities.
Exchange Listing
Our common stock is listed on the Nasdaq Capital Market under the trading symbol “LSH.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Transhare Corporation.
Our Bylaws and Articles of Incorporation
The following summary of certain provisions of our amended bylaws and articles of incorporation, is qualified by reference to our amended bylaws and articles of incorporation that are filed as exhibits to the registration statement of which this prospectus forms a part and the applicable provisions of the Nevada law.
Our Board of Directors
Under our amended articles of incorporation, the number of directors may be increased or decreased to any number of full-age members by a majority vote of the stockholders as provided in our bylaws, but such number of members shall not be increased above the maximum of ten (10) full-age members nor decreased below a minimum of one (1) full-age member. We currently have five member on our board of directors.
Removal of Directors
Pursuant to the amended bylaws, any one or more of the directors may be removed either with or without cause at any time by the vote or written consent of the shareholders representing not less than two-thirds (2/3) of the issued and outstanding capital stock entitled to voting power.
Special Meetings of Stockholders
Pursuant to the amended bylaws, special meetings of the stockholders shall be held at the registered office of the Company or at such other place as shall be specified or fixed in a notice thereof. Such meetings of the stockholders may be called at any time by the chief executive officer, president or secretary, or by a director, and shall be called by the president on the written request of the holders of record of at least 10% of the number of shares of the Company then outstanding and entitled to vote, which written request shall state the object of such meeting.
Action by Written Consent of the Stockholders in Lieu of a Meeting
Pursuant to the amended bylaws, any action required to be taken at a meeting of the stockholders or any other action which may be taken at a meeting of the stockholders may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the stockholders entitled to vote with respect to the subject matter thereof.
Amendment to Our Bylaws
Pursuant to our amended bylaws, the bylaws may be altered, amended or repealed and new bylaws may be adopted at any regular or special meeting of the stockholders by a vote of the stockholders owning a majority of the shares and entitled to vote thereat. These bylaws may also be altered, amended or repealed and new bylaws may be adopted at any regular or special meeting of the board of directors of the Company (if notice of such alteration or repeal be contained in the notice of such special meeting) by a majority vote of the directors present at the meeting at which a quorum is present, but any such amendment shall not be inconsistent with or contrary to the provision of any amendment adopted by the stockholders.
Amendment to Our Articles of Incorporation
Pursuant to our amended articles of incorporation, seventy-five percent (75%) of the voting shares outstanding shall be required to amend, alter, change or repeal any provision contained in our articles of incorporation.
Acquisition of a Controlling Interest
Pursuant to the NRS Sections 78.378 through 78.3793 regulates the acquisition of a controlling interest in an issuing corporation. An issuing corporation is defined as a Nevada corporation with 200 or more stockholders of record, of which at least 100 stockholders have addresses of record in Nevada and does business in Nevada directly or through an affiliated corporation. NRS Section 78.379 provides that an acquiring person and those acting in association with an acquiring person obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of the stockholders. Stockholders who vote against the voting rights have dissenters’ rights in the event that the stockholders approve voting rights. NRS Section 378 provides that a Nevada corporation’s articles of incorporation or bylaws may provide that these sections do not apply to the corporation. Our amended bylaws provide that these sections regarding acquisition of a controlling interest shall not apply to us.
Exhibit 10.6
PROLOGIS CLEAR LEASE
Simplify your lease. Simplify your business.
THIS LEASE AGREEMENT is made between Landlord and Tenant as of the Effective Date below.
| 1. | General Defined Terms. |
| a) | Effective Date: | March 12, 2024 | |
| b) | Landlord: | MORRIS CLIFTON ASSOCIATES I, LLC, a New Jersey limited liability company |
| c) | Landlord Notice Address: | Prologis | With copy to: | Prologis | |
| Attn. Market Officer | 1800 Wazee Street | ||||
| 2021 McKinney Avenue | Suite 500 | ||||
| Suite 1050 | Denver, Colorado 80202 | ||||
| Dallas, Texas 75201 | Attn: General Counsel |
| d) | Tenant: | AMERICAN BEAR LOGISTICS CORP, an Illinois S corporation |
| e) | Tenant Notice Address: | 1475 Thorndale Ave. # A | With copy to | 1475 Thorndale Ave. # A | |
| Itasca, IL 60143 | Itasca, IL 60143 | ||||
| Attn: Henry Liu | Attn: Ryan Li |
| f) | Premises: | That portion of the Building containing approximately 46,657 rentable square feet as shown on Exhibit A. |
| g) | Building: | Freeport Dist Ctr 3 8904 N. Royal Lane Irving, TX 75063 |
| h) | Project: | Freeport Dist Ctr 3 |
| i) | Tenant’s Proportionate Share: | 100.00% |
| j) | Lease Term: | Beginning on the Commencement Date and ending on the day which is 62 full calendar months following the Commencement Date (the “Expiration Date”). |
PLD Property ID: [dal01203]
[TX]
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| k) | Commencement Date: | March 29, 2024 |
| l) | Monthly Base Rent: | Period | Monthly Base Rent | ||||
| 03/29/2024 | through | 05/31/2024 | 1* $0.00 | ||||
| 06/01/2024 | through | 03/31/2025 | $40,241.66 | ||||
| 04/01/2025 | through | 03/31/2026 | $41,851.33 | ||||
| 04/01/2026 | through | 03/31/2027 | $43,525.38 | ||||
| 04/01/2027 | through | 03/31/2028 | $45,266.40 | ||||
| 04/01/2028 | through | 03/31/2029 | $47,077.06 | ||||
| 04/01/2029 | through | 05/31/2029 | $48,960.14 | ||||
| 1* | The Monthly Base Rent of USD$40,241.66 has been abated and has been prorated. |
Monthly FOE and Taxes will be due as provided in the Lease during this period.
| m) | Monthly Fixed Operating Expenses | Operating Expenses: | $6,688.76 | |
| (“Monthly FOE”): | Capital Repairs/Replacements: | $1,263.63 | ||
| Total Monthly FOE: | $7,952.39 |
Monthly FOE is abated on per diem basis from the Commencement Date through 04/30/2024 and shall thereafter be due and payable as provided herein.
| n) | Annual FOE Increase: | 4.30% |
| o) | Initial Estimated Monthly Taxes: |
$6,220.93 |
Monthly Taxes are abated on per diem basis from the Commencement Date through 04/30/2024 and shall thereafter be due and payable as provided herein.
| p) | Security Deposit: | $65,000.00 in the form of Cash |
| q) | Landlord Broker: | Transwestern Commercial Services |
| r) | Tenant Broker: | Colliers International |
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| s) | Exhibits: | Exhibit A | - | Site Plan | |
| Exhibit B | - | Project Rules and Regulations | |||
| Exhibit C | - | Commencement Date Certificate | |||
| Exhibit D | - | Move-out Conditions | |||
| Exhibit E | - | One Renewal Option at Market | |||
| Exhibit F | - | Construction (Turnkey) |
| 2. | Granting Clause. In consideration of the obligation of Tenant to pay rent and of the other terms, covenants, and conditions as herein provided, Landlord leases to Tenant, and Tenant takes from Landlord, the Premises, for the Lease Term, subject to the terms, covenants and conditions of this Lease. Tenant hereby represents and warrants to Landlord that the individual executing this Lease on behalf of Tenant has the full right and authority to enter into this Lease in accordance with the terms hereof, and all corporate action necessary to do so has been duly taken, and no further action or approval is required in order to constitute this Lease as a binding and enforceable obligation of Tenant. |
| 3. | Acceptance of Premises. Tenant accepts the Premises in its condition as of the Commencement Date, subject to all applicable laws, ordinances, regulations, covenants and restrictions. Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises are suitable for Tenant’s intended purposes. In no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. No later than 10 days after the Commencement Date, Tenant shall execute and deliver to Landlord a Commencement Date Certificate in the form of Exhibit C. Any occupation of the Premises by Tenant prior to the Commencement Date shall be subject to all obligations of Tenant under this Lease except for the payment of Base Rent, Monthly FOE, and Taxes. |
| 4. | Use. The Premises shall be used only for the purpose of receiving, storing, shipping and selling (but specifically excluding retail selling) products, and for such other lawful purposes incidental thereto. Tenant shall not conduct any auction, liquidation, or similar activities at the Premises, and will use the Premises, Building, and Project in a safe manner and will not commit waste, overload the floor or structure of the Premises, or subject the Premises to use that would damage the Premises. Tenant shall not permit any outside storage, nuisance or objectionable odors, noise, or vibrations to emanate from the Premises. Tenant shall use the Premises in compliance with all federal, state, local, and municipal laws, orders, judgments, ordinances, regulations, codes, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises (collectively, “Legal Requirements”). The Premises shall not be used as a place of public accommodation under the Americans With Disabilities Act, similar state statutes, local ordinances, or any related regulations, as may be amended from time to time. Tenant shall, at its expense, make any alterations or modifications to the Premises or Project that are required by Legal Requirements as a result of Tenant’s use or occupation of the Premises. |
| 5. | Base Rent. The first month’s Base Rent, Taxes, and Monthly FOE shall be due and payable upon execution of this Lease, which amounts shall be applied to the first month when such amounts become due and payable. Tenant shall pay to Landlord in advance, without demand, subsequent monthly installments of Base Rent on, or before, the first day of each calendar month following the Commencement Date (prorated for any fractional calendar month). All payments by Tenant to Landlord (or to such other party or at such location as Landlord may from time to time specify in writing) shall be made by Electronic Fund Transfer or Automated Clearing House. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall not abate, reduce, or set-off any amounts due and payable hereunder except as may be expressly provided in this Lease. If Tenant is delinquent in any installment of Base Rent, Taxes, the Monthly FOE, or other amounts due and payable for more than 5 days, in addition to all of Landlord’s other rights and remedies (and not as a penalty), Tenant shall pay to Landlord on demand a late charge equal to eight percent (8%) of such delinquent sum. |
| 6. | FOE. In addition to the Base Rent, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to the Monthly FOE provided in Paragraph 1, which Landlord and Tenant agree shall be reimbursement for Landlord’s maintenance, repair, and replacement obligations as provided in Paragraph 11, the property management fee, and the insurance premiums incurred by Landlord as provided in Paragraph 10. Effective on each annual anniversary of the Commencement Date (or, if the first annual anniversary occurs on a date other than the first day of a calendar month, then on the first day of the immediately subsequent calendar month and on each annual anniversary date thereafter), the Monthly FOE shall be automatically increased by the percentage set forth as the Annual FOE Increase. |
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| 7. | Security Deposit. The Security Deposit shall be due and payable to Landlord upon execution of this Lease, and shall be held by Landlord as security for the performance of Tenant’s obligations. The Security Deposit is not an advance rental deposit, or a measure of Landlord’s damages in an Event of Default (as hereinafter defined). Upon any Event of Default, Landlord may use all, or part of, the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided by law. Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to its original amount. Landlord’s obligation respecting the Security Deposit is that of a debtor, not a trustee. The Security Deposit shall be the property of Landlord, and any remaining amount of the Security Deposit and shall be paid to Tenant when Tenant’s obligations under this Lease have been fulfilled. Landlord shall not be required to keep the Security Deposit separate from its general accounts, and no interest shall accrue thereon. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease and the Premises to a person or entity assuming Landlord’s obligations. |
| 8. | Utilities. Tenant shall pay the utility provider directly for all separately metered, or contracted public and private utilities serving the Premises, including, but not limited to, water, gas, electricity, telephone, sewer, and trash collection, along with any taxes, penalties, or surcharges with respect to such utilities. Tenant agrees to limit use of water and sewer to amounts consistent with normal restroom, break room, and office use. In the event Tenant’s use of water and sewer services materially exceeds the foregoing limitations, Landlord may separately meter the water and sewer services at Tenant’s expense and require Tenant to pay the service provider directly. Interruptions or failures of utilities shall not result in a default by Landlord, termination of this Lease, or the abatement of rent. Notwithstanding the foregoing, upon prior Notice to Tenant, and provided that: (a) such utilities are priced at, or below, local utility provider rates, and (b) that there is no reduction of service level for such utility from the service level as of the date of the Landlord transfer, Landlord may transfer utility accounts held by Tenant at the Premises to the name of Landlord, or an appointed intermediary of Landlord. In the event Landlord transfers the utility accounts, Landlord shall timely pay all invoices from such utility service providers. Tenant shall reimburse Landlord, or Landlord’s appointed intermediary, for the utility services consumed at the Premises no later than 30 days from receipt of an invoice for such utility services, which shall include units consumed at the Premises during such billing period. |
Upon request, Tenant shall deliver to Landlord data regarding Tenant’s utility usage at the Premises as required by law, or as reasonably required for Landlord to manage the Project. Tenant can satisfy this requirement by either: (x) providing written consent for Landlord to obtain the information directly from the utility or (y) providing the data to Landlord in an acceptable electronic format.
| 9. | Taxes. Subject to reimbursement as provided below, Landlord shall pay all taxes (including the Texas Margins Tax), assessments, governmental charges, and fees payable to tax consultants and attorneys for consultation and contesting taxes (collectively referred to as “Taxes”) that accrue against the Building or Project during the Lease Term. Landlord may contest the amount, validity, or application of any Taxes. All capital levies or other taxes assessed or imposed upon the rents payable to Landlord under this Lease and any franchise tax, excise, use, margin, transaction, sales or privilege tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from or the value of the Premises and/or the Project or any portion thereof shall be paid by Tenant to Landlord upon demand as additional rent; provided, however, in no event shall Tenant be liable for any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable hereunder. If any tax or excise is levied or assessed directly against Tenant, or the Premises, or results from any Tenant-Made Alterations (defined below), or against any personal property or fixtures placed in the Premises, then Tenant shall pay such tax or excise as required by the taxing authority, even if levied or assessed against the Landlord. |
During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost (prorated for any fractional calendar month), as estimated by Landlord, of Tenant’s Proportionate Share (hereinafter defined) of Taxes for the Project or Building. If Tenant’s total payments of Taxes for any year are less than Tenant’s Proportionate Share of actual Taxes for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall pay such refund to Tenant. Any payment required to be paid by Landlord shall be delivered to the most recent address Tenant has provided to Landlord and, if undeliverable, shall be deemed forfeited by Tenant. Tenant’s “Proportionate Share” shall be the percentage set forth in Paragraph 1 as reasonably adjusted by Landlord for future changes in the physical size of the Premises, Building, or Project. The Taxes set forth in Paragraph 1 is an initial estimate and the accuracy of such estimate is not guaranteed by Landlord.
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| 10. | Insurance. Landlord shall maintain all risk property insurance covering the full replacement cost of the Building and commercial general liability insurance on the Project in forms and amounts customary for properties substantially similar to the Building and Project which may be included in a blanket policy or captive insurance program. Tenant will not use the Premises in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the disallowance of any insurance credits. If an increase in the cost of any insurance on the Building or the Project is caused by Tenant’s use of the Premises, then Tenant shall pay the amount of such increase to Landlord. |
Tenant, at its sole expense, shall at all times maintain the following insurance: (i) commercial general liability insurance, on an occurrence basis, covering Tenant, and its activities at the Project, having a minimum limit of $2,000,000 per occurrence (which requirement may be satisfied by a combination of primary and excess policy limits); and in the event property of Tenant’s invitees or customers are kept in the Premises or Project, Tenant shall maintain warehouser’s legal liability or bailee customers insurance for the full value of such property as determined by the warehouse contract between Tenant and its customer; (ii) all risk property insurance covering the full replacement cost of all property and improvements placed at the Project by, or on behalf of, Tenant; (iii) workers’ compensation insurance as required by the applicable state statute (or equivalent coverage reasonably acceptable to Landlord in the event there is no such statutory requirement) which shall include a waiver of subrogation in favor of Landlord, Prologis, Inc., its affiliates, and property manager (Landlord and such parties are collectively referred to herein as the “Landlord Parties”); (iv) employers liability insurance of at least $1,000,000, (v) business automobile liability insurance having a combined single limit of not less than $2,000,000 per occurrence which can be satisfied by a combination of primary and excess policy limits insuring Tenant against liability arising out of the ownership maintenance or use of any owned, hired or non-owned vehicles, and (vi) business interruption insurance covering at least 6 months of income. Tenant’s insurance companies shall have an A.M. Best rating of not less than A-VIII and provide primary and non-contributory coverage to the Landlord Parties (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies). All commercial general liability policies shall name the Landlord Parties as additional insureds. The limits and types of insurance maintained by Tenant shall not limit Tenant’s liability under this Lease. Tenant shall provide Landlord with certificates of such insurance in forms reasonably acceptable to Landlord prior to the date Tenant is in possession of the Premises, and thereafter at least 15 days prior to the expiration of the insurance coverage, or 15 days following Tenant’s receipt of Landlord’s request for such certificates. Acceptance by Landlord of delivery of any certificates of insurance does not constitute approval or agreement by Landlord that the insurance requirements of this section have been met. In the event any of the insurance policies required to be carried by Tenant under this Lease shall be cancelled, or if Tenant receives notice of any cancellation from the insurer prior to the expiration date of such policy, Tenant shall promptly replace such insurance policy in order to assure no lapse of coverage shall occur.
The all risk property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord, and Landlord Parties or Tenant, and Tenant Parties (as defined in Paragraph 30), in connection with any insured loss or damage. Neither party, nor its Landlord Parties or Tenant Parties (as applicable), shall be liable to the other for loss or damage caused by any risk coverable by all risk property insurance, and each party waives any claims against the other party, and against the Landlord Parties and Tenant Parties (as applicable) for such loss or damage. The failure of a party to insure its property shall not void this waiver. Neither party, nor the Landlord Parties and Tenant Parties, shall be liable to the other for any business interruption loss incurred, and each party waives any claims against the other party, and the Landlord Parties and Tenant Parties, for such business interruption loss from any cause whatsoever, including, but not limited to damage caused in whole or in part, directly or indirectly, by the negligent acts of the other party at the Premises or the Project. Notwithstanding the foregoing to the contrary, with respect to any damage to the Premises caused by Tenant, or Tenant Parties, Tenant shall pay Landlord’s all-risk property insurance deductible, not to exceed $25,000 per occurrence, within thirty (30) days following notice for such amount.
| 11. | Landlord’s Repairs and Maintenance. Landlord shall, at Landlord’s sole cost subject to the express terms hereof, maintain, repair, and replace in good working order the (a) structural elements of the Building (including the exterior walls), (b) roof (including roof membrane), (c) Common Areas (including lighting and snow removal to the extent consistent with market practice), (d) Building fire sprinkler system, (e) existing exterior wall windows, (f) exterior personnel doors, (g) office area ceiling tiles, (h) hot water heaters, (i) below slab water and sewer lines, (j) ventilation, and air conditioning units serving the office area of the Premises, and (k) exterior louvers and ventilation fans for standard warehouse air changes, heating and evaporative cooler systems serving the warehouse area of the Premises ((j) and (k) collectively the “Landlord HVAC”). Landlord shall also complete a bi-annual preventative maintenance service of all dock doors, dock levelers, and dock restraints and bumpers serving the Premises. Tenant shall promptly give Landlord Notice of any required repairs hereunder. |
Landlord’s obligations hereunder shall expressly exclude any work necessary due to misuse or damage by Tenant Parties or resulting from Tenant-Made Alterations or Tenant’s other improvements to the Premises. Subject to Sections 10 and 16, Tenant shall reimburse Landlord within 30 days of Notice for the cost of any such work described in the preceding sentence.
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| 12. | Tenant’s Repairs. Subject to Sections 10, 11, and 16, Tenant, at its expense, shall maintain, repair, and replace in good working order all areas, improvements and systems exclusively serving the Premises including dock equipment, non-structural elements of the floor slab, interior doors, above ground water and sewer lines, and Tenant HVAC and related components. “Tenant HVAC” means HVAC systems installed by Tenant, specialty HVAC equipment (including IT room HVAC and for temperature-controlled product), and warehouse air conditioning systems other than Landlord HVAC. If Tenant fails to perform any work required hereunder within 30 days from Notice, Landlord may perform such work and Tenant shall reimburse Landlord for such cost, along with a 5% administrative fee, within 30 days of Notice. |
| 13. | Tenant-Made Alterations and Trade Fixtures. Any alterations, additions, or improvements made to the Premises by, or on behalf of, Tenant (“Tenant-Made Alterations”) shall be subject to Landlord’s prior written consent and approval of the plans, not to be unreasonably withheld, delayed or conditioned provided that such alteration does not materially affect the structure or the roof of the Building, modify the exterior of the Building, or modify the utility or mechanical systems of the Building or Project. Tenant shall reimburse Landlord for its reasonable out-of-pocket costs in reviewing plans and specifications and for monitoring construction. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with Legal Requirements. Tenant shall cause, at its expense, all Tenant-Made Alterations to: (a) be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord using only good grades of materials, and (b) comply with Landlord’s insurance and Legal Requirements. Tenant shall provide Landlord with the names and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall cause its contractor to provide certificates of insurance for worker’s compensation, including a waiver of subrogation in favor of the Landlord Parties, and commercial general liability in an amount equal to $2,000,000 from an insurance company satisfactory to Landlord, including a provision of additional insured status for the Landlord Parties, from any contractor completing work on Tenant-Made Alterations. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord all final lien waivers from all contractors and subcontractors. Upon surrender of the Premises all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord’s property, except to the extent Landlord requires removal, in which case, at Tenant’s expense, Tenant shall repair any damage caused by such removal. |
Without Landlord’s prior approval, Tenant may erect shelves, racking, bins, machinery and trade fixtures (collectively “Trade Fixtures”) provided that such items do not overload the Premises, may be removed without damaging the floor slab or the Premises, and installation thereof complies with all Legal Requirements. Upon surrender of the Premises Tenant shall remove its Trade Fixtures and shall repair any damage to the floor slab or the Premises caused by such removal.
| 14. | Signs. Tenant shall not install any decorations, flags, pennants, banners, exterior awnings, window or door lettering, placards, advertising media, lights or signs to the exterior of the Building, or interior window blinds, draperies, bars, or other window treatments which are visible from the exterior of the Building, without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole discretion. Prior to the surrender or vacation of the Premises, Tenant shall remove all signs and repair, paint, and/or replace the building facia surface damaged as a result. Tenant, at its expense, shall obtain all applicable governmental permits and approvals for any sign. |
| 15. | Parking. Tenant may park operable vehicles in areas of the Project designated for non-reserved parking and park operable vehicles and trailers overnight at the truck loading docks and designated truck and trailer parking areas for the Premises, provided there is no interference with the access of other tenants to the Building and Project parking lots and truck courts. Landlord may allocate parking spaces among Tenant and other tenants if Landlord reasonably determines such allocation is beneficial to the Project. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties. If Tenant fails to comply with any of the parking requirements or otherwise creates a nuisance for other tenants at the Project as a result of Tenant’s parking or staging of vehicles (a “Parking Default”), and such Parking Default continues for more than 3 days from Landlord’s demand to cease such Parking Default, Landlord may, in addition to any other rights, cause vehicles causing a Parking Default to be towed at Tenant’s cost without liability to Landlord, and Landlord may hire a parking management company to enforce Parking Defaults by Tenant, and Tenant Parties, and Tenant shall reimburse Landlord for all costs incurred with respect to such parking management no later than thirty (30) days from receipt of an invoice for such amount. |
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| 16. | Restoration. If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days after such damage as to the amount of time Landlord reasonably estimates it will take to restore the Premises. If the restoration time is estimated to exceed 6 months, either Landlord or Tenant may elect to terminate this Lease upon notice to the other party given no later than 30 days after Landlord’s notice. If neither party elects to terminate this Lease, or if Landlord estimates that restoration will take 6 months or less, then Landlord shall, subject to delays arising from the collection of insurance proceeds or from events of Force Majeure, restore the Premises, excluding any Tenant-Made Alterations. Tenant at Tenant’s expense shall promptly perform, subject to delays arising from the collection of insurance proceeds, or from Force Majeure events, all repairs or restoration not required to be done by Landlord. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Base Rent, Taxes, and the Monthly FOE shall be abated for the period of repair and restoration commencing on the date of such casualty event in the proportion of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided above, Tenant waives any right to terminate the Lease by reason of damage or casualty loss. |
| 17. | Condemnation. If any part of the Premises or the Project are taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “Taking” or “Taken”), and the Taking would materially interfere with or impair Landlord’s ownership or operation of the Building or Project, then upon written notice by Landlord this Lease shall terminate and Base Rent, Monthly FOE, and Taxes shall be apportioned as of such date. If part of the Premises is Taken, and this Lease is not terminated as provided above, the Base Rent and Monthly FOE shall be proportionately reduced to such extent as may be fair and reasonable under the circumstances. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award. Without diminishing Landlord’s award, Tenant shall have the right to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s Trade Fixtures. |
| 18. | Assignment and Subletting. Except as provided below, Tenant shall not assign this Lease or sublease the Premises or any part thereof, without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, and any attempt to do so without Landlord’s consent shall be void and of no effect. Furthermore, Tenant shall not mortgage, or pledge, its leasehold interest in this Lease. It shall be reasonable for the Landlord to withhold, delay or condition consent to any assignment or sublease if the intended use of the Premises by the assignee or sublessee would impact the operations of other tenants, their use of the Project, or impair Landlord’s ability to re-lease other space in the Building or Project. Tenant shall provide to Landlord all information concerning the assignee or sublessee as Landlord may reasonably request, and any approved assignment or sublease shall be (i) expressly subject to the terms and conditions of this Lease, and (ii) revocable if there is an uncured Event of Default, either at the time of notice or as of the effective date of the assignment or sublease. For purposes of this Paragraph, a transfer of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless such ownership interests are publicly traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a “Tenant Affiliate”), without the prior written consent of Landlord. Landlord may charge Tenant $1,500 in connection with any assignment or sublease for which Landlord’s consent is required. This Lease shall be binding upon Tenant and its successors and permitted assigns. Upon Landlord’s receipt of Tenant’s written notice of a desire to assign or sublet the Premises, or any part thereof (other than to a Tenant Affiliate), Landlord may, by giving written notice to Tenant within 30 days, terminate this Lease as of the commencement date specified in Tenant’s notice, with respect to the space described in Tenant’s notice. |
Notwithstanding any assignment or subletting, Tenant and any guarantor of Tenant’s obligations shall remain liable for the payment of the Base Rent, Taxes, Monthly FOE and any other amounts due, and compliance with all of Tenant’s obligations under this Lease (regardless of whether Landlord’s approval has been obtained for any such assignment or subletting). In the event that the rent due by a sublessee or assignee exceeds the rental payable under this Lease, then Tenant shall pay to Landlord all such excess as additional rent within 10 days following receipt by Tenant.
If this Lease is assigned or if the Premises are subleased (whether in whole or in part), or if the Premises are occupied by anyone other than Tenant, then upon an Event of Default Landlord may collect rent from any occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next rent payable hereunder.
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| 19. | Indemnification. Except for the negligence, or willful misconduct, of the Landlord Parties, Tenant agrees to indemnify, defend and hold harmless the Landlord Parties, and Landlord’s agents, employees, and contractors, from and against all losses, liabilities, damages, costs and expenses (including attorneys’ fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from the use and occupancy of the Premises by Tenant or Tenant Parties, or from any activity, work, or thing done, permitted or suffered by Tenant or Tenant Parties in or about the Project or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Tenant’s obligations under this Paragraph. |
| 20. | Inspection, Data and Access. Landlord and its agents, representatives, and contractors may enter the Premises at reasonable times to inspect the Premises, for any business purpose, and, during the last year of the Lease Term, to show the Premises to prospective tenants. Landlord shall provide Tenant with at least 24 hours’ telephonic and/or email notice prior to entering the Premises, except in the event of an emergency. Landlord may erect signs on the Building stating the Premises are available to lease or that the Project is available for sale. Landlord may grant easements, make public dedications, designate and modify common areas and create restrictions affecting the Project (collectively “Encumbrances”), provided that such Encumbrances do not materially interfere with Tenant’s use or occupancy of the Premises, and Tenant agrees to execute any instruments as may be necessary for such Encumbrances. Upon reasonable prior notice to Tenant, Landlord shall have the right to enter the Premises for the purpose of the installation and maintenance of Devices, and the collection of Data from the Devices during the Lease Term for the purpose of supporting the effective management of Landlord’s building portfolio, provided that such installation and maintenance of the Devices and collection of Data does not materially interfere with Tenant’s use or occupancy of the Premises. Landlord shall not sell or disclose, for commercial purposes, the Data in any way that identifies Tenant, Tenant’s equipment, or Tenant’s personnel. Landlord may disclose Data to the extent required by applicable law, for benchmarking purposes, or in order to provide, maintain, improve, and keep in good working order the properties of Landlord, Prologis, Inc. and its affiliates. Landlord shall own the Data collected from such Devices and maintain as confidential except that Landlord may use for and disclose to governmental and regulatory bodies to fulfill Landlord’s statutory obligations only. Tenant shall not tamper with or interfere with the Devices. The term “Devices” as used herein shall mean any sensors, computers or electronic devices, systems and application software, peripherals, meters, or other data collection devices installed and owned by Landlord. Devices shall not include cameras, video, or voice recording devices. The term “Data” as used herein shall mean any information associated with, created or generated by, or transmitting through a Device. Landlord shall not use the Devices for the collection of personal or employee related Data; Tenant’s business and operational Data, or for the purpose of tracking, or identifying, people, equipment, or inventory of Tenant at the Premises. |
| 21. | Quiet Enjoyment. Absent any Event of Default subject to the terms of this Lease, Tenant shall have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord. |
| 22. | Surrender. Upon the Expiration Date or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received , ordinary wear and tear, casualty loss and condemnation covered by Paragraphs 16 and 17 excepted and otherwise in accordance with the Move Out Conditions attached hereto. Any Trade Fixtures, Tenant-Made Alterations and property not removed by Tenant as required shall either, at Landlord’s election: (i) become the property of Landlord, or (ii) be deemed abandoned in which case it may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and disposition of such property. Any outstanding Tenant obligations under this Lease shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment of Taxes, and all obligations concerning the condition and repair of the Premises. Notwithstanding anything contained herein to the contrary, in the event Tenant fails to surrender the Premises in the condition as provided herein, upon the expiration, or earlier termination, of this Lease, Tenant agrees that Landlord shall have the right, but not the obligation, to complete such modifications, maintenance, repairs, and replacements on Tenant’s behalf, and Tenant shall reimburse Landlord for such costs as estimated by independent contractors, along with a management fee equal to five (5%) of such costs, no later than thirty (30) days from receipt of demand. |
| 23. | Holding Over. If Tenant retains possession of the Premises after the Expiration Date, such possession shall be subject to immediate termination by Landlord, and all terms of this Lease shall be applicable during such holdover period except (i) any expansion, renewal, or similar right or option, and (ii) Base Rent for the holdover period shall be double the then-effective Base Rent. All other amounts payable under this Lease shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over. Holding over by Tenant (with or without consent of Landlord) shall not extend this Lease except as otherwise expressly provided, and this Paragraph shall not be construed as consent for Tenant to retain possession of the Premises. For purposes of this Paragraph, “possession of the Premises” shall continue until Landlord has complete control over the Premises, all keys have been delivered, and Tenant has fulfilled all required obligations upon termination of the Lease concerning the condition and repair of the Premises. |
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| 24. | Events of Default. Each of the following shall be an event of default (“Event of Default”) by Tenant: |
| a) | Tenant fails to pay any installment of Base Rent, Taxes, the Monthly FOE, or any other payment required when due, and such failure shall continue for a period of 5 days from the date such payment was due. |
| b) | Tenant or any guarantor or surety of Tenant’s obligations hereunder shall (i) make a general assignment for the benefit of creditors; (ii) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “proceeding for relief”); (iii) become the subject of any proceeding for relief which is not dismissed within 60 days of its filing or entry; or (iv) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity). |
| c) | Any insurance required to be maintained by Tenant pursuant to this Lease is cancelled or terminated, expires, or is reduced or materially changed (except, in each case, as permitted in this Lease) or Tenant fails to timely deliver to Landlord any certificate of insurance as required under Paragraph 10. |
| d) | Tenant vacates the Premises and fails to make arrangements reasonably acceptable to Landlord to ensure that (i) Tenant’s insurance for the Premises will not be voided or cancelled, (ii) the Premises will be secured, and (iii) the Premises will be properly maintained, including maintaining utility services. Tenant shall inspect the Premises at least monthly and report to Landlord in the event the condition of the Premises has adversely changed. |
| e) | Tenant assigns, subleases or transfers Tenant’s interest in this Lease except as permitted in this Lease. |
| f) | Tenant fails to discharge any lien placed upon the Premises or Building within 20 days after such lien or encumbrance is filed against the Premises or Building. |
| g) | Tenant fails to comply with any provision of this Lease other than those specifically referred to in this Paragraph, and such default shall continue for more than 20 days after Landlord has given Tenant written notice of such default except as otherwise provided in this Lease (said notice being in lieu of, and not in addition to, any notice required as a prerequisite to a forcible entry and detainer or similar action for possession of the Premises). |
| 25. | Landlord’s Remedies. Upon each occurrence of an Event of Default and so long as such Event of Default continues, Landlord may at any time elect to: (i) terminate this Lease or Tenant’s right of possession, (but Tenant shall remain liable as hereinafter provided), and/or (ii) pursue any other remedies at law or in equity. Upon the termination of this Lease or termination of Tenant’s right of possession, Landlord may without formal demand or notice of any kind, re-enter the Premises by summary dispossession proceedings or any other action or proceeding authorized by law and remove Tenant, and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to keep in place and use, or remove and store, all property at the Premises. Notwithstanding anything contained herein to the contrary, in the event Landlord delivers three notices of an Event of Default under this Lease in any twelve month period, any subsequent Event of Default under the Lease shall be deemed an immediate Event of Default, and Tenant shall have no cure period as otherwise provided in this Lease and Landlord may immediately pursue all of its remedies as provided in this Lease. |
If Landlord terminates this Lease, Landlord may recover from Tenant the sum of (i) all Base Rent, Taxes, Monthly FOE, and all other amounts payable by Tenant which have accrued to the date of such termination; (ii) the value of the Base Rent for any periods of abated Base Rent based on the Base Rent amount that immediately follows such period of abatement; (iii) the cost of reletting the Premises, including without limitation brokerage fees and/or leasing commissions incurred by Landlord, costs of removing and storing property, repairing or altering the Premises for a new tenant(s); (iv) all reasonable expenses incurred by Landlord in pursuing its remedies, including reasonable attorneys’ fees and court costs; and (v) the excess of the then present value of the Base Rent, Taxes, Monthly FOE, and other amounts payable by Tenant under this Lease applicable during the period following the termination of this Lease to the Expiration Date, over the present value of any net amounts which Tenant establishes Landlord can reasonably expect to recover by reletting the Premises for such period, taking into consideration the availability of acceptable tenants and other market conditions affecting leasing. Such present values shall be calculated at a discount rate equal to the 90-day U.S. Treasury bill rate at the date of such termination.
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If Landlord terminates Tenant’s right of possession (but not this Lease), Landlord may, but shall be under no obligation to, relet the Premises for the account of Tenant without releasing Tenant from liability and without demand or notice to Tenant. Any reletting of the Premises shall be on such terms and conditions satisfactory to Landlord in its sole discretion (including without limitation a term different than the remaining Lease Term, rental concessions, alterations and repair of the Premises, lease of less than the entire Premises to any tenant and leasing of any other portions of the Project before reletting the Premises). Landlord shall not be liable, nor shall Tenant’s obligations be diminished because of Landlord’s failure to relet the Premises or collect rent from such reletting. For the purpose of such reletting Landlord is authorized to make any repairs, changes, alterations, or additions in or to the Premises as Landlord deems reasonably necessary. If the Premises are not relet, then Tenant shall pay to Landlord as damages a sum equal to the Base Rent, Monthly FOE, and Taxes due and payable by Tenant for such period or periods, plus the cost of recovering possession of the Premises (including attorneys’ fees and costs of suit), the unpaid Base Rent, Taxes, Monthly FOE, other amounts accrued including interest per paragraph 37(k) below at the time of repossession, and the costs incurred by Landlord’s efforts to relet the Premises. If the Premises are relet and a sufficient sum is not realized from such reletting [after first deducting the unpaid Base Rent, Taxes, Monthly FOE, and other amounts accrued under this Lease at the time of reletting, the cost of recovering possession (including attorneys’ fees and legal costs), the costs and expenses of repairs, alterations, and additions, reletting expenses (including leasing commissions and repairs completed by Landlord on Tenant’s behalf) and the cost of rent collection] to satisfy the rent provided for in this Lease, then Tenant shall immediately pay any such deficiency upon demand. Tenant agrees that Landlord may file suit to recover any sums as they become due. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such previous breach.
Landlord’s exercise of any remedies shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance the terms hereof shall not be construed as having created a custom or manner in any way contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to this Lease or at law or in equity, shall not be a waiver of Landlord’s right to enforce one or more of its rights in connection with any subsequent Event of Default. Receipt by Landlord of rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless agreed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives all right of redemption in case the Lease is terminated, or Tenant shall be dispossessed by a judgment or by warrant of any court or judge. In the event Landlord exercises self-help, or lock-out, remedies as provided by law, Tenant hereby waives all claims against Landlord for any business loss or business interruption which Tenant may incur and any property remaining on the Premises shall be deemed abandoned by Tenant and Landlord may store, remove, or disposed of such property at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and disposition of such property. The terms “enter,” “re-enter,” “entry” or “re-entry,” as used in this Lease, are not restricted to their technical legal meanings.
| 26. | Tenant’s Remedies/Limitation of Liability. Landlord shall not be in default unless Landlord fails to perform any of its obligations within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require more than 30 days, then after such period of time as is reasonably necessary). All obligations of Landlord shall be construed as covenants, not conditions; and, except as may be otherwise provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder. All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term “Landlord” in this Lease shall mean only the then current owner of the Premises, and in the event of a transfer of ownership of the Premises, such transferring owner shall be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner’s ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Building, and in no event shall any personal liability or recourse to any other property or assets of Landlord be asserted against Landlord in connection with this Lease. |
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| 27. | Subordination. Without the necessity of any further instrument or act of Tenant, this Lease, and Tenant’s interest and rights hereunder, are, and shall be, subject and subordinate at all times to the lien of any existing or future first mortgage on the Building or any ground lease which the Building is subject to, and all amendments, modifications, assignments and extensions thereof. Tenant agrees, at the election of the holder of any such mortgage, or lessor for any ground lease, to attorn to any such holder or lessor. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant. The term “mortgage” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “holder” of a mortgage shall be deemed to include the beneficiary under a deed of trust. |
| 28. | Mechanic’s Liens. Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon the Building, the Premises or this Lease. Tenant covenants and agrees that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of claims or liens asserted against the leasehold estate, the interest of Landlord in the Premises, or under this Lease. Tenant shall give Landlord immediate written notice of any lien or encumbrance placed against the Premises and cause such lien or encumbrance to be discharged, or bonded over in a manner satisfactory to Landlord, within 20 days of the filing or recording thereof. |
| 29. | Estoppel Certificates. Tenant agrees to execute and deliver to Landlord or Landlord’s designee, within 10 days after Landlord’s request, an estoppel certificate containing customary provisions. No cure or grace period provided in this Lease shall apply to Tenant’s obligations to timely deliver an estoppel certificate. |
| 30. | Environmental Requirements. Except for Hazardous Materials contained in: (i) products used by Tenant in de minimis quantities for ordinary cleaning and office purposes; (ii) forklift propane tanks, and (iii) products stored and/or distributed by Tenant in their original, sealed, and unopened containers, Tenant shall not bring, permit, or cause any party to bring any Hazardous Material onto the Project, or transport, store, use, generate, manufacture, or dispose of any Hazardous Material in, on, or about the Project without Landlord’s prior written consent. Tenant, at its sole cost and expense, shall: (v) operate its business at the Project in strict compliance with all Environmental Requirements, including complying with all reporting obligations imposed by applicable Environmental Requirements in the capacity as “operator” of Tenant’s “facility” and the “owner” (as such terms are used in applicable Environmental Requirements) of all Hazardous Materials brought onto the Project by Tenant, or any Tenant Parties (as defined below), and the wastes, by-products, or residues generated, resulting, or produced therefrom, or extracted from the Project; (w) promptly provide copies of any claims, reports, complaints, notices, letters, warnings or asserted violations relating in any way to Hazardous Materials at the Project which Tenant receives or sends; (x) promptly and diligently remediate in a manner satisfactory to Landlord any Hazardous Materials released on, or from, the Project by Tenant, its agents, employees, contractors, subtenants, licensees, or invitees (collectively, the “Tenant Parties”); (y) promptly notify Landlord in writing of any spill, release, discharge, or disposal of any Hazardous Material in, on, or under the Project; and (z) promptly complete and deliver any disclosure or certification requested by Landlord concerning Tenant’s, or any Tenant Parties’, transportation, storage, use, generation, manufacture or release of Hazardous Materials in, on, or about the Project. Tenant shall be strictly liable to Landlord as a result of Tenant’s, or any Tenant Parties’, transportation, storage, use, generation, manufacturing, disposal, or release of Hazardous Materials at the Project without regard to the fault or negligence of any other party. No cure or grace period provided in this Lease shall apply to Tenant’s obligations to promptly commence and diligently pursue its remediation obligations in accordance with the terms and conditions of this Paragraph. The term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders, or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions, including, without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. The term “Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant regulated by any Environmental Requirements, asbestos, radioactive materials, and petroleum (including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel or mixtures of natural gas and such synthetic gas). |
Tenant shall have no liability of any kind to Landlord as to Hazardous Materials on the Project which arise prior to the Commencement Date, or during the Lease Term, which were caused or permitted by any party other than Tenant, or any Tenant Parties.
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Tenant shall indemnify, defend, and hold the Landlord Parties harmless from and against any and all losses (including diminution in value of the Premises or the Project, and loss of rental income from the Project), claims, demands, actions, suits, damages (including punitive damages), costs and expenses (including reasonable attorney, consultant, and expert fees) which are brought or recoverable against, or suffered or incurred by Landlord as a result of: (i) any release of Hazardous Materials on, or from, the Project by Tenant, or any Tenant Parties, or (ii) Tenant’s, or any Tenant Parties’, breach of, or noncompliance with, this Paragraph, regardless of whether Tenant had knowledge of such noncompliance. Tenant’s obligations under this Paragraph shall survive the Expiration Date or earlier termination of this Lease.
Landlord (including Landlord’s consultants, lenders, or designees) shall have access to, and the right to inspect and perform tests at the Premises to assess the condition of the Premises, or determine Tenant’s compliance with this Paragraph, or any applicable Environmental Requirements. If such inspection reveals noncompliance by Tenant, Tenant shall promptly reimburse Landlord for the reasonable cost of such inspection and testing. Landlord’s receipt of a ‘clean’ environmental assessment shall in no way release Tenant from its obligations under this Paragraph or constitute a waiver by Landlord of its rights and remedies herein.
| 31. | Rules and Regulations. Tenant shall comply with all rules and regulations reasonably established by Landlord covering use of the Premises and the Project provided to Tenant from time to time. The current rules and regulations are attached hereto as Exhibit B. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project. |
| 32. | Security Service. Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any breach of security or loss by theft or any other damage suffered or incurred by Tenant. |
| 33. | Force Majeure. Except for monetary obligations, neither Landlord nor Tenant shall be responsible for delays in the performance of its obligations hereunder caused by labor disputes, acts of God, inability to obtain labor or materials, governmental restrictions or regulations or delay in issuance of permits, enemy or hostile governmental action, civil commotion, casualty, and other causes beyond the reasonable control of Landlord or Tenant, as the case may be (“Force Majeure”). |
| 34. | Entire Agreement. This Lease constitutes the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may only be amended by an instrument in writing signed by both parties hereto. |
| 35. | Severability. If any clause of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties that such clause be replaced with a valid clause of similar meaning and that the remainder of this Lease shall not be affected. |
| 36. | Brokers. Each party represents and warrants to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the Landlord Broker and Tenant Broker, if any, set forth in Paragraph 1 of this Lease, and each party agrees to indemnify and hold the other harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to this leasing transaction. |
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| 37. | Miscellaneous. |
| a) | TIME IS OF THE ESSENCE AS TO THE PERFORMANCE OF TENANT’S AND LANDLORD’S OBLIGATIONS UNDER THIS LEASE. |
| b) | Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease. |
| c) | If the term “Tenant,” includes more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant. |
| d) | All notices provided under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or by hand delivery addressed to Landlord or Tenant at the applicable notice address as provided in Paragraph 1 of this Lease. Either party may, by the above notice, change its notice address for all subsequent notices or add an additional party to be copied on all subsequent notices. Except where otherwise provided to the contrary, notice shall be deemed given upon delivery or refusal of delivery. |
| e) | Except as otherwise provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval. |
| f) | At Landlord’s request, Tenant shall furnish Landlord with true and complete copies of its most recent annual and quarterly financial statements prepared by Tenant or Tenant’s accountants and any other financial information or summaries that Tenant typically provides to its lenders, shareholders or owners. |
| g) | Neither this Lease, nor a memorandum of lease, shall be recorded by or on behalf of Tenant; however, upon request by Landlord, Tenant will execute, and Landlord may record, a memorandum of lease. |
| h) | Construction and interpretation of this Lease shall be governed by the laws of the state in which the Project is located, excluding any principles of conflicts of laws. |
| i) | The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments to the Lease. |
| j) | The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties. |
| k) | Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. |
| l) | Any amount not paid by Tenant when due shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 15 percent per year. |
| m) | All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control. |
| n) | In the event either party initiates litigation to enforce the terms and provisions of this Lease, the non- prevailing party in such action shall reimburse the prevailing party for its reasonable attorney’s fees, filing fees, and court costs. |
| o) | Tenant agrees that Landlord shall have the right, without Tenant’s consent, to place a solar electric generating system on the roof of the Building or enter into a lease for the roof of the Building whereby such roof tenant shall have the right to install a solar electric generating system on the roof of the Building (provided that the exercise of Landlord’s rights does not adversely affect Tenant’s use and occupancy of the Premises or subject Tenant to additional costs). Except as provided otherwise in this Lease, Tenant hereby waives all rights to use, and agrees and acknowledges that Landlord shall retain the exclusive right to the use of the exterior of the Building and Project for any signage purposes, virtual or otherwise. Landlord may request in writing, and Tenant shall deliver to Landlord, at Tenant’s sole cost and expense, data regarding utility usage consumed in the operation of the Premises as required by applicable law and for the purposes of benchmarking or in order to provide, maintain, improve, and keep in good working order the Project. Tenant can satisfy the requirement to provide utility data by either: (a) executing a written consent as necessary for Landlord to obtain such information directly from the utility company, or (b) providing the data to Landlord in an electronic format reasonably acceptable to Landlord. |
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| p) | This agreement may be executed in multiple counterparts, each of which shall be considered an original, but all of which shall constitute one and the same agreement. The signature of a party transmitted electronically (e.g., e-signature) or by facsimile, PDF and/or other electronic image file format shall constitute and have the same force and effect as the original signature of the party. Following execution, a PDF (or similar image file format) of this entire agreement (whether signed electronically or in ink) shall be considered to be the original agreement for all purposes. |
| q) | In the event the Building or Project is subject to mandated building performance standards, energy benchmarking ordinances, or any similar Legal Requirements which intend to regulate the energy usage or emissions at the Building (collectively “Energy Requirements”), and Tenant’s use and operations at the Building or Project contributes to Landlord incurring a penalty, fine, or fee as a result of non-compliance with such Energy Requirement, Tenant shall reimburse Landlord for such penalty, fine, or fee no later than 30 days following receipt of an invoice for such amount. In the event the Premises is less than the entire area of the Building, Tenant’s obligation to reimburse Landlord for such penalty, fine, or fee shall be calculated based on the proportionate share of such penalty, fine, or fee which is attributable to Tenant’s use and operations at the Building as reasonably determined by Landlord. |
| r) | All references and uses of the term “days” in this Lease shall mean calendar days unless otherwise specified. |
| s) | Tenant represents to Landlord and Landlord hereby represents to Tenant that, |
| (i) | such entity, nor any person or entity that directly owns a 10% or greater equity interest in it nor any of its officers, directors or managing members is a person or entity (each, a “Prohibited Person”) with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury, including those parties names on the OFAC’s Specially Designated and Blocked Persons List and those covered pursuant to Executive Order 13224 (the “Executive Order”) signed on September 24, 2001, entitled “Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action; and |
| (ii) | that such entity’s activities do not violate the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or USA Patriot Act or the regulations or orders promulgated thereunder (as amended from time to time, the “Money Laundering Acts”). |
| 38. | WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (IN CONTRACT, TORT, OR OTHERWISE), BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. |
[Remainder of page is intentionally blank; signature page to follow]
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the Effective Date.
| TENANT: | LANDLORD: | |||
| AMERICAN BEAR LOGISTICS CORP. | MORRIS CLIFTON ASSOCIATES I, LLC | |||
| an Illinois S Corporation | a New Jersey limited liability company | |||
| By: Authorized Person | ||||
| By: | /s/ Henry Liu | By: | /s/ Mitch Pruitt | |
| Name: | Henry Liu | Name: | Mitch Pruitt | |
| Title: | PRESIDENT | Title: | VP-Leasing | |
| of Prologis, Inc., a Maryland corporation | ||||
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EXHIBIT A: SITE PLAN
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EXHIBIT B: PROJECT RULES AND REGULATIONS
| 1. | The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises. |
| 2. | Tenant shall not place any personal property or objects in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project. |
| 3. | Except for service dogs, no animals shall be allowed in, or on, any part of the Building or the Project. |
| 4. | If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how any conduit or wires may be introduced; and, without such direction, no boring or cutting of existing wires or conduit is permitted. Any such installation or connection shall be made at Tenant’s expense. |
| 5. | Tenant shall not install or operate any steam or gas boiler. The use of oil, gasoline or flammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. |
| 6. | Parking any type of recreational vehicles or boats is specifically prohibited on or about the Project. Parking any type of trucks, trailers or other vehicles in the Building is specifically prohibited. In no event shall any inoperable vehicles be parked at the Project, nor shall any “For Sale” or other advertising signs be displayed for any parked vehicle. No repair, maintenance or washing of vehicles shall take place on the Project. All vehicles shall be parked in designated parking areas in conformity with all signs and other markings. |
| 7. | Tenant shall maintain the Premises free from rodents, insects and other pests. |
| 8. | Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or should harass or threaten, verbally or physically Landlord’s employees, or contractors, or who shall in any manner do any act in violation of the Rules and Regulations of the Project. |
| 9. | All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas provided, and all trash receptacles shall remain closed at all times. |
| 10. | The Premises shall not be used for lodging, sleeping or cooking (other than kitchenette or break room use) or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises. |
| 11. | Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage. |
| 12. | Tenant shall not permit recreational or medical marijuana to be grown, sold, dispensed, or consumed on the Premises or Project. |
| 13. | Tenant shall not permit smoking in any interior area of the Premises. |
| 14. | Tenant shall provide advance notice to Landlord of the date Tenant, or Tenant Parties, require access to the roof of the Building. Tenant shall follow all Legal Requirements, including, but not limited to, OSHA requirements, when Tenant or Tenant Parties access the roof of the Building, and shall use reasonable and appropriate safety precautions in order to ensure such employees, contractors, or agents are not subject to injury or death. |
| 15. | Tenant shall not use any part of the Premises to store or in any other way handle firearms, firearms accessories, or ammunition. |
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EXHIBIT C: FORM OF COMMENCEMENT DATE CERTIFICATE
Notice Contact Name
Company Name
Notice Street Address
City, State Zip Code
| RE: | Lease dated _________, 20__, between Customer & Owner for Premises Address |
Dear Salutation Notice Contact Last Name:
Welcome to your new facility. We would like to confirm the terms of the above referenced lease agreement:
| Commencement Date: | Date | |
| Expiration Date: | Date | |
| Base Rent Commencement Date: | Date |
We are pleased to welcome you as a customer of Prologis and look forward to working with you. Please indicate your agreement with the above changes to your lease by signing and returning the enclosed copy of this letter to me. If I can be of service, please do not hesitate to contact me.
| Sincerely, | |
| Property Manager Name | |
| Title |
| Accepted | Tenant | Date: | |
| by: | |||
| By: | |||
| Printed: | |||
| Title: | |||
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EXHIBIT D: MOVE-OUT CONDITIONS
Tenant shall surrender the Premises in the same condition as received, ordinary wear and tear, casualty loss, and condemnation covered by Paragraphs 16 and 17 excepted.
Before surrendering the Premises, Tenant shall remove all personal property, trade fixtures, and such alterations or additions to the Premises made by Tenant as may be required herein. The following list is designed to assist Tenant with the move-out procedures but is not intended to be all inclusive. Upon Tenant’s completion of its surrender obligations as provided in this Lease, please contact Landlord’s property manager to coordinate turning in keys, utility and fiberoptic internet changeover, and scheduling an inspection of the Premises. In the event Tenant fails to arrange a joint inspection of the Premises with Landlord upon Tenant’s vacating of the Premises, Landlord’s inspection at, or subsequent to, Tenant’s vacation of the Premises shall be conclusively deemed correct for the purpose of determining Tenant’s responsibilities with respect to the repair and restoration of the Premises.
| 1. | Lights: | All interior office, warehouse, dock, emergency and exit lights will be fully operational with all bulbs, ballasts and fixtures functioning. |
| 2. | Dock Levelers, Service Doors and | |
| Truck Doors: | All truck doors, service doors, and dock levelers shall be serviced and placed in good operating order, including the replacement of any dented or damaged truck door panels and adjustment of door tension to insure proper operation. All door panels which are replaced must be painted to match the building standard. |
| 3. | Dock Seals/Dock Bumpers: | Free of tears and broken backboards repaired. All dock bumpers must be left in place and well secured. |
| 4. | Columns | All columns in the warehouse and office shall be inspected for damage caused by Tenant. Necessary structural repairs must be pre-approved by Landlord prior to implementation. Any markings removed. |
| 5. | Warehouse Floor: | Free of stains and swept clean with no racking bolts and other protrusions or holes left in floor. Cracks, spalling, and racking bolt damage must be repaired with mm-80 (or equivalent) epoxy or polymer to match concrete color and finished smooth with slab surface. All floor striping (including paint or tape) in the Premises shall be removed with no residual staining or other indication that such striping or taping existed. |
| 6. | Tenant-Installed Equipment and Wiring: |
Air lines, conveyor or process electrical distribution, junction boxes, conduit, etc., removed and space returned to the original condition when leased. |
| 7. | Walls: | Sheetrock (drywall) and/ or plywood damage patched and fire- taped so that there are no holes in either office or warehouse walls. Any damage to perimeter concrete or metal walls similarly repaired. |
| 8. | Floor Finishes (Carpet and Tile): | Carpet and vinyl or ceramic tiles should be in a clean condition and absent any holes or chips, ordinary wear and tear excepted provided they have been maintained. |
| 9. | Roof: | Any Tenant-installed equipment must be removed with all roof penetrations properly repaired by a licensed roofing contractor approved by Landlord. Leaks arising from any Tenant-installed equipment or roof penetrations must be fixed in accordance with Landlord’s maintenance and repair recommendations. |
| 10. | Signs: | All exterior signs must be removed with holes patched and painted to match Building standard paint as necessary. All window or other interior signs must be removed. |
| 11. | Electrical & Plumbing: | All electrical and plumbing equipment to be returned in good working condition conforming to code. |
| 12. | Overall Cleanliness: | Clean windows, sanitize bathroom(s), vacuum carpet, and remove all trash and debris from office and warehouse. Remove all pallets and debris from exterior of Premises. All trade fixtures, dumpsters, racking, vending machines and other personal property to be removed. |
| 13. | Odors: | Remove any lingering odor which may exist in the Premises resulting from Tenant’s use and occupancy prior to surrendering or vacating the Premises. |
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EXHIBIT E: ONE RENEWAL OPTION AT MARKET (CLEAR LEASE)
(a) Provided that as of the time of the giving of the First Extension Notice and the Commencement Date of the First Extension Term (as such terms are defined below), (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists, or would exist but for the passage of time or the giving of notice, or both; then Tenant shall have the right to extend the Lease Term for an additional term of five (5) years (such additional term is hereinafter called the “First Extension Term”) commencing on the day following the expiration of the Lease Term (hereinafter referred to as the “Commencement Date of the First Extension Term”). Tenant must give Landlord notice (hereinafter called the “First Extension Notice”) of its election to extend the term of the Lease Term at least 9 months, but not more than 12 months, prior to the Expiration Date.
| (b) | The Base Rent payable by Tenant to Landlord during the First Extension Term shall be the greater of: |
| (i) | the Base Rent applicable to the last year of the initial Lease Term, and |
| (ii) | the then Fair Market Rent as defined below. |
(c) The term “Fair Market Rent” shall mean the Base Rent, expressed as an annual rent per square foot of floor area, which Landlord would have received from leasing the Premises for the First Extension Term to an unaffiliated person which is not then a tenant in the Project, assuming that such space were to be delivered in “as-is” condition, and taking into account the rental which such other tenant would most likely have paid for such premises, including market escalations, provided that Fair Market Rent shall not in any event be less than the Base Rent for the Premises as of the expiration of the Lease Term. Fair Market Rent shall not be reduced by reason of any costs or expenses saved by Landlord by reason of Landlord’s not having to find a new tenant for the Premises (including without limitation brokerage commissions, cost of improvements necessary to prepare the space for such tenant’s occupancy, rent concession, or lost rental income during any vacancy period). Fair Market Rent means only the rent component defined as Base Rent in the Lease and does not include reimbursements and payments by Tenant to Landlord with respect to Monthly FOE, Taxes, or other items payable or reimbursable by Tenant under the Lease. In addition to its obligation to pay Base Rent (as determined herein), Tenant shall continue to pay and reimburse Landlord as set forth in the Lease with respect to such Monthly FOE (subject to increase by Landlord), Taxes, and other items with respect to the Premises during the First Extension Term.
(d) Landlord shall notify Tenant of its determination of the Fair Market Rent for the First Extension Term, along with the Monthly FOE and the Annual FOE Increase, each as determined in Landlord’s reasonable determination based on the Project’s actual operating expenses and Landlord’s expectation of annual increases, applicable to the First Extension Term (the “Fair Market Rent Notice”), and Tenant shall deliver written notice to Landlord within 10 days of receipt of the Fair Market Rent Notice of any objection to the Fair Market Rent Notice. Failure to respond within the 10-day period shall constitute Tenant’s acceptance of such Fair Market Rent, Monthly FOE, and the Annual FOE Increase. If Tenant objects to the Fair Market Rent as provided in the Fair Market Rent Notice as provided above, Landlord and Tenant shall commence negotiations to attempt to agree upon the Fair Market Rent within 30 days of Landlord’s receipt of Tenant’s notice. In the event Landlord and Tenant fail to reach an agreement on such Fair Market Rental Rent, and execute the Amendment (defined below) which provides for the Fair Market Rent, as well as the Monthly FOE payments, and Annual FOE Increase as provided by Landlord at least 8 months prior to the expiration of the Lease, then Tenant’s exercise of the renewal option shall be deemed withdrawn and the Lease shall terminate on the Expiration Date. The negotiation of the Fair Market Rent as provided above shall be limited to the determination of the Base Rent and shall not affect or otherwise reduce or modify the Tenant’s obligation to pay or reimburse Landlord for the Monthly FOE, Taxes, or any other reimbursable items.
(e) Except for the Base Rent, Monthly FOE, and the Annual FOE Increase, Tenant’s occupancy of the Premises during the First Extension Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term; provided, however, Tenant shall have no further right to extend the Lease Term pursuant to this Exhibit or to any allowances, credits or abatements or options to expand, contract, renew or extend the Lease.
(f) If Tenant does not send the First Extension Notice within the period set forth in Paragraph (a), Tenant’s right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the First Extension Notice and the notice of Tenant’s objection under Paragraph (e).
(g) Landlord shall have no obligation to refurbish or otherwise improve the Premises for the First Extension Term. The Premises shall be tendered on the Commencement Date of the First Extension Term in “as-is” condition.
(h) If the Lease is extended for the First Extension Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term, the Base Rent, the Monthly FOE, and the Annual FOE Increase applicable to the First Extension Term, and the other provisions applicable thereto (the “Amendment”).
(i) If Tenant exercises its right to extend the term of the Lease for the First Extension Term pursuant to this Exhibit, the term “Lease Term” as used in the Lease, shall be construed to include, when practicable, the First Extension Term except as provided in (e) above.
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EXHIBIT F: CONSTRUCTION (TURNKEY)
(a) Landlord agrees to perform at Landlord’s sole cost and expense the following improvements (the “Initial Improvements”):
| ● | Deliver space with all mechanicals, HVAC, heating units, plumbing, electrical, dock, dock equipment, and all other building systems in good working order. |
| ● | Install new LED lights with motion sensors in warehouse. |
| ● | New flooring and fresh paint in the office and bathrooms |
| ● | Convert two (2) eastern dock doors to air freight doors. Mutually agreed size and width. |
| ● | Add Levelers to 2 air freight doors. |
| ● | Install a small chainlink fence area next to oversized ramp door for truck driver check in. |
Landlord shall receive a construction management fee of 5.00% of the total hard and soft cost to complete the air freight doors and levelers, payable by Tenant within 30 days following receipt of Landlord’s invoice.
(b) If Tenant shall desire any changes, Tenant shall advise Landlord in writing and Landlord shall determine whether such changes can be made in a reasonable and feasible manner. All costs of reviewing any requested changes, and all costs of making any changes to the Initial Improvements which Tenant may request and which Landlord may agree to shall be at Tenant’s sole cost and expense and shall be paid to Landlord upon demand and before execution of the change order.
(c) Landlord shall proceed with and complete the construction of the Initial Improvements. Landlord shall make commercially reasonable efforts to complete construction of the Initial Improvements by that date which is 90 days after the Commencement Date. As soon as such improvements have been Substantially Completed, Landlord shall notify Tenant in writing of the date that the Initial Improvements were Substantially Completed. The Initial Improvements shall be deemed substantially completed (“Substantially Completed” or “Substantial Completion”) when, in the opinion of the construction manager (whether an employee or agent of Landlord or a third party construction manager) (“Construction Manager”), the Initial Improvements are substantially completed except for punch list items which do not prevent in any material way the use of the Initial Improvements for the purposes for which they were intended. In the event Tenant, its employees, agents, or contractors cause construction of such improvements to be delayed, the date of Substantial Completion shall be deemed to be the date that, in the opinion of the Construction Manager, Substantial Completion would have occurred if such delays had not taken place. Tenant shall be solely responsible for delays caused by Tenant’s request for any changes in the plans, Tenant’s request for long lead items or Tenant’s interference with the construction of the Initial Improvements, and such delays shall not cause a deferral of the Commencement Date. After the date the Initial Improvements are Substantially Completed Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of the Initial Improvements. In the event of any dispute as to the Initial Improvements the certificate of the Construction Manager shall be conclusive absent manifest error.
(d) Notwithstanding anything to the contrary contained herein, in the event Landlord is required to provide electrical service to the Premises as a component of the Initial Improvements, Tenant agrees and understands that the electrical service component of the Initial Improvements shall be deemed Substantially Completed as long as Landlord has delivered temporary electrical service which otherwise meets the specifications for such electrical service to be delivered as a component of the Initial Improvements.
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Exhibit 10.7
PROLOGIS FULL GROSS LEASE
THIS LEASE is made between Landlord and Tenant as of the Effective Date below.
| 1. | General Defined Terms. | |||||||
| a) | Effective Date: | July 18, 2024 | ||||||
| b) | Landlord: | Liberty Property Limited Partnership | ||||||
| c) | Landlord Notice Address: | Prologis | With copy to: | Prologis | ||||
| 6250 North River Rd, | 1800 Wazee Street | |||||||
| Suite 1100 | Suite 500 | |||||||
| Rosemont, Illinois 60018 | Denver, Colorado 80202 | |||||||
| Attn: General Counsel | ||||||||
| d) | Tenant: | American Bear Logistics Corp. an Illinois S Corporation | ||||||
| e) | Tenant Notice Address: | 1475 Thorndale Ave | With copy to: | |||||
| Itasca, IL 60143 | ||||||||
| Attn: | ||||||||
| f) | Premises: | That portion of the Building containing approximately 56,264 rentable square feet as shown on Exhibit A. | ||||||
| g) | Building: | Bensenville Ind Park 19 | ||||||
| 1071 Thorndale Avenue | ||||||||
| Bensenville, IL 60106 | ||||||||
| h) | Project: | |||||||
| i) | Lease Term: | Beginning on the Commencement Date and ending on the day which is 20 full calendar months following the Commencement Date (the “Expiration Date”). | ||||||
| j) | Commencement Date: | 08/15/2024 | ||||
| k) | Monthly Base Rent | Period | Monthly Base Rent | |||
| 08/15/2024 - 08/31/2024 | 1*$31,497.25 | |||||
| 09/01/2024 - 08/31/2025 | $57,436.17 | |||||
| 09/01/2025 - 04/30/2026 | $59,446.44 |
| 1* | Monthly Base Rent of $57,436.17 is prorated for this period. |
| i) | Security Deposit: | $57,436.17 in the form of Cash | ||
| m) | Landlord Broker: | Lee & Associates Commercial Real Estate Services, Inc. | ||
| Tenant Broker: | CORE Industrial Realty | |||
| n) | Guarantor: | N/A | ||
| Exhibits: | Exhibit A: Site Plan | |||
| Exhibit B: Project Rules and | ||||
| Regulations Exhibit C: HVAC | ||||
| Maintenance Contract |
| 2. | Granting Clause. In consideration for performance of Tenant’s obligations under this Lease, Landlord leases to Tenant, and Tenant takes from Landlord, the Premises for the Lease Term, subject to the provisions of this Lease. Each party represents and warrants to the other that the individual executing this Lease on behalf of such party is authorized to do so, and that such party has taken all necessary actions for this Lease to be binding and enforceable. |
PLD Property ID: [chi06419]
[IL]
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| 3. | Acceptance of Premises. Tenant accepts the Premises in its “as-is” condition as of the Commencement Date. Tenant waives any implied warranty that the Premises is suitable for Tenant’s intended purposes. Within 10 days after request, Tenant shall execute and deliver to Landlord a certificate stating the Commencement Date of the Lease. Occupation of the Premises by Tenant prior to the Commencement Date shall be subject to all obligations of Tenant under this Lease except for the payment of Monthly Base Rent. |
| Landlord shall allow Tenant access to the Premises for purposes of preparing the Premises for the commencement of Tenant’s normal business operations, subject to applicable ordinances and building codes governing Tenant’s right to occupy or perform in the Premises (“Early Occupancy”). During such Early Occupancy period prior to the Commencement Date, Tenant shall be bound by its obligations under the Lease, including the obligation to provide evidence of insurance, but shall not be obligated to pay the Monthly Base Rent payable by Tenant to Landlord as set forth in the Lease. |
| 4. | Use. The Premises shall be used only for the purpose of receiving, storing, shipping, and selling (but specifically excluding retail selling) products, and for such other incidental lawful uses. Tenant shall not conduct any public sale at the Premises, use the Premises as a place of public accommodation under the Americans With Disabilities Act or any other Legal Requirements, or permit any nuisance at the Premises. Tenant shall use the Premises in compliance with all federal, state, and local laws, orders, judgments, ordinances, regulations, codes, permits, licenses, covenants, and restrictions now or hereafter applicable to the Premises (collectively, “Legal Requirements”). Tenant shall, at its expense, make any alterations or modifications to the Premises or Project that are required by Legal Requirements due to Tenant’s specific use or occupation of the Premises. |
| 5. | Monthly Base Rent. Upon execution of this Lease, Tenant shall pay to Landlord the first payment of Monthly Base Rent payable under the Lease, and thereafter Tenant shall pay all such payments in advance, without demand, no later than the first day of each calendar month following the Commencement Date (prorated for any fractional calendar month). Tenant shall make all payments to Landlord (or to such other party or at such location as Landlord may from time to time specify in writing) by Electronic Fund Transfer or Automated Clearing House. Tenant’s payment obligations and Landlord’s obligations under this Lease are independent obligations. Tenant shall not abate, reduce, or set-off any amounts payable except as may be expressly provided in this Lease. Without limiting Landlord’s other rights and remedies, if Tenant is delinquent in any payment due for more than 5 days, Tenant shall pay to Landlord on demand as a late charge (and not as a penalty) an amount equal to eight percent (8%) of the delinquent sum. |
| 6. | Intentionally Omitted. |
| 7. | Security Deposit. Tenant shall pay Landlord the Security Deposit upon execution of this Lease as security for the performance of Tenant’s obligations, including the obligation to maintain, repair, and replace as provided herein. The Security Deposit is not an advance rental deposit, or a measure of Landlord’s damages arising from an Event of Default (as hereinafter defined). Upon Tenant’s failure to timely comply with any obligation of Tenant under this Lease, Landlord may use the Security Deposit to satisfy Tenant’s obligations under this Lease, without prejudice to any other remedy provided herein or by law. In such event, Tenant shall pay Landlord, no later than 10 days from demand, an amount that will restore the Security Deposit to the amount required under this Lease. Landlord’s obligation with respect to the Security Deposit is that of a debtor, not a trustee. The Security Deposit shall be the property of Landlord, and any remaining amount of the Security Deposit shall be paid to Tenant no later than 30 days after Tenant’s obligations under this Lease have been fulfilled. Landlord shall not be required to keep the Security Deposit separate from its general accounts, and no interest shall accrue thereon. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease and the Premises to a person or entity assuming Landlord’s obligations. |
| 8. | Utilities. Tenant shall pay the utility provider directly for all separately metered or contracted utilities serving the Premises, along with any taxes, penalties, or surcharges related thereto. Water and sewer services are included in the Monthly Base Rent, and Tenant agrees to limit use of water and sewer to amounts consistent with normal restroom, break room, and office use. In the event Tenant’s use of water and sewer services materially exceeds the foregoing, Landlord may separately meter the water and sewer services, at Tenant’s expense, and may require Tenant to pay the service provider directly. Notwithstanding the foregoing, upon prior written notice to Tenant, and provided that: (i) such utilities are priced at, or below, local utility provider rates, and (ii) that there is no reduction of service level for such utility from the service level as of the date of the Landlord transfer, Landlord may transfer utility accounts held by Tenant at the Premises to the name of Landlord, or an appointed intermediary of Landlord. In the event Landlord transfers the utility accounts, Landlord shall timely pay all invoices from such utility service providers. Tenant shall reimburse Landlord, or Landlord’s appointed intermediary, for the utility services consumed at the Premises no later than thirty (30) days from receipt of an invoice for such utility services, which shall include units consumed at the Premises during such billing period. |
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| 9. | Taxes. Landlord shall pay all taxes, assessments, governmental charges, fees or payments to a governmental authority in lieu of taxes that accrue during the Lease Term against the Building or Project. If any tax is levied or assessed directly against Tenant, or results from any Tenant-Made Alterations (defined below), property, contents, or fixtures placed in the Premises by Tenant, then Tenant shall pay such tax directly to the taxing authority, even if levied or assessed against Landlord. |
| 10. | Insurance. During the Lease Term, Landlord shall maintain all risk property insurance covering the replacement of the Building and commercial general liability insurance on the Project. Landlord’s insurance may be included in a blanket policy or captive insurance program. Tenant will not use the Premises in any manner that would void Landlord’s insurance. |
During the Lease Term, Tenant shall maintain the following insurance policies at Tenant’s expense and without limiting Tenant’s liability under this Lease: (a) commercial general liability, on an occurrence basis, having a minimum limit of $2,000,000 per occurrence naming Landlord, Prologis, Inc., and its property manager as additional insureds; (b) all-risk property covering the full replacement cost of all property and improvements placed in the Premises by, or on behalf of, Tenant; (c) workers’ compensation as required by the applicable state statute which shall include a waiver of subrogation in favor of Landlord Parties; (d) employers liability of not less than $1,000,000, and (v) business automobile liability having a combined single limit of not less than $2,000,000 per occurrence insuring Tenant against liability arising out of the ownership, maintenance, or use of any owned, hired or non-owned vehicles. Tenant’s insurance shall provide primary and non-contributory coverage to Landlord Parties with respect to Tenant’s indemnity obligations under this Lease. Tenant’s insurance requirements may be satisfied by a combination of primary and excess policy limits or an umbrella policy. Tenant shall provide Landlord with certificates of such insurance prior to Tenant taking possession of the Premises, and thereafter prior to the expiration of the insurance coverage, or 15 days following Tenant’s receipt of Landlord’s request.
The all-risk property insurance obtained by Landlord and Tenant shall include a waiver of subrogation in connection with any insured loss by the insurers and all rights based upon an assignment from its insured, against Landlord, or its agents, employees, contractors, or property manager (collectively the “Landlord Parties”), or Tenant, its agents, employees, contractors, subtenants, assigns, or invitees (collectively the “Tenant Parties”). No Landlord Parties or Tenant Parties shall be liable to any other, for any loss coverable by all risk property insurance, and each party waives claims against the Landlord Parties and Tenant Parties (as applicable) for such loss. Notwithstanding anything contained herein to the contrary, Tenant shall be responsible for all contents, owned or unowned, placed in the Premises by, or on behalf of, Tenant. The failure of either party to insure its property shall not void this waiver. The Landlord Parties and Tenant Parties waive any claims against the other for business interruption loss from any cause whatsoever, including damage caused in whole or in part, directly or indirectly, by the negligent acts of the other party.
| 11. | Landlord’s Repairs and Maintenance. Landlord shall repair, at its expense, the structural soundness of the roof, the roof membrane, parking areas and other common areas of the Building, including, but not limited to driveways, alleys, landscape and grounds surrounding the Premises, the structural soundness of the foundation, and the structural soundness of the exterior walls of the Building, reasonable wear and tear and uninsured losses and damages caused by Tenant Parties excluded. The term “walls” as used in this Section shall not include windows, glass or plate glass, doors or overhead doors, store fronts, dock bumpers, dock plates or levelers, or office entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall have a reasonable opportunity to repair. Subject to Sections 10 and 16, Tenant shall reimburse Landlord no later than thirty (30) days from demand the cost of any repair or replacement resulting from misuse or damage by Tenant Parties. |
| 12. | Tenant’s Repairs. Subject to Landlord’s obligation in Section 11, and subject to Sections 10 and 16, Tenant, at its expense, shall repair, replace and maintain in good condition all areas, improvements and systems exclusively serving the Premises including, without limitation, dock and loading areas, dock doors, dock equipment, plumbing, water and sewer lines up to points of common connection, entries, doors, ceilings, windows, the heating, ventilation, and air conditioning units serving the Premises (the “HVAC”), and interior walls, which repair and replacement obligations include capital repairs whose benefit may extend beyond the Expiration Date. The HVAC systems serving the Premises shall be maintained at Tenant’s expense pursuant to maintenance service contracts entered into by Tenant in accordance with Exhibit C to this Lease. The scope of services and contractors under such maintenance contracts shall be reasonably approved by Landlord. If Tenant fails to perform any Tenant maintenance, repair, or replacement required under this Lease within 30 days from demand, Landlord may perform such work and Tenant shall reimburse Landlord for such costs within 30 days after demand along with a 5% administrative fee. |
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| 13. | Tenant-Made Alterations and Trade Fixtures. Tenant must obtain Landlord’s written consent for any alterations or improvements made to the Premises or Project by, or on behalf of, Tenant (“Tenant-Made Alterations”). Tenant shall be responsible to ensure that all Tenant-Made Alterations comply with Legal Requirements and are constructed in a good and workmanlike manner by reputable contractors. Tenant shall provide Landlord with the names of all contractors performing work or supplying materials prior to beginning construction, and Landlord may post notices of non-responsibility at the Premises. Tenant shall cause its contractor completing Tenant-Made Alterations to provide certificates of insurance for worker’s compensation, including a waiver of subrogation in favor of Landlord Parties, and commercial general liability in an amount equal to $2,000,000, including a provision of additional insured status for Landlord Parties. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord final lien waivers from all contractors and subcontractors which provided services for the Tenant-Made Alterations. Upon surrender of the Premises, Tenant shall remove all Tenant-Made Alterations and any improvements constructed by Tenant, unless Landlord notifies Tenant that they shall remain as Landlord’s property. Tenant shall repair any damage resulting from such removal. Upon Tenant’s written request, Landlord shall provide Tenant a list of Tenant-Made Alterations Landlord will allow to remain upon the Expiration Date. |
Without Landlord’s approval, Tenant may erect shelves, racking, machinery and trade fixtures in the Premises (collectively “Trade Fixtures”), provided such items: (a) do not overload the slab, (b) may be removed without damaging the slab or the Premises, and (c) comply with all Legal Requirements. Upon Lease termination, Tenant, at its expense, shall remove its Trade Fixtures and repair any damage to the Premises caused from such removal.
| 14. | Signs. Tenant must obtain Landlord’s written consent for any exterior signage. Upon Lease termination, Tenant, at its expense, shall remove all such signage and repair, paint, and/or replace any damaged building facia surfaces. Tenant, at its expense, shall comply with all Legal Requirements pertaining to such items. |
| 15. | Parking. Tenant may park operable vehicles in areas of the Project designated for non-reserved parking and may park operable vehicles and trailers overnight at the docks and designated truck and trailer parking areas for the Premises. Tenant shall not park vehicles or trailers in a manner that causes interference with the access to the parking lots and truck courts at the Project. Landlord may allocate parking spaces among Tenant and other tenants in an equitable manner if Landlord reasonably determines such allocation is beneficial to the Project. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties. |
| 16. | Restoration. If at any time during the Lease Term the Premises is damaged by fire or other casualty event (the “Casualty Damage”), within 60 days after such event, Landlord shall notify Tenant of its reasonable estimate for restoration time (the “Restoration Notice”). If the restoration time is estimated to exceed 6 months, either Landlord or Tenant may elect to terminate this Lease upon delivery of written notice to the other party no later than 30 days after delivery of the Restoration Notice. If neither party elects to terminate this Lease, or if Landlord estimates that restoration will take less than 6 months, then Landlord shall, subject to receipt of insurance proceeds, restore the Premises, excluding any Tenant-Made Alterations and Trade Fixtures. Notwithstanding the foregoing, either party may terminate this Lease if the Casualty Damage occurred during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Commencing on the date of the Casualty Damage, Monthly Base Rent shall be abated from the date of Casualty Damage through the period of repair and restoration in the proportion of the Premises, if any, which is not usable by Tenant. Such abatement shall be the sole remedy of Tenant, and Tenant waives any right to terminate this Lease by reason of damage or casualty loss except as provided above. Notwithstanding anything in this Lease to the contrary, with respect to any damage to the Project caused by Tenant Parties, Tenant shall pay Landlord’s all-risk property insurance deductible, not to exceed $25,000 per occurrence, within thirty (30) days following demand. |
| 17. | Condemnation. If the entire Premises is permanently taken by right of eminent domain, or by a purchase in lieu thereof (each a “Taking” or “Taken”), then upon written notice by Landlord this Lease shall terminate and Monthly Base Rent shall be apportioned as of the date of the Taking. If part of the Premises is Taken, then this Lease shall be terminated with respect to the portion so Taken and Monthly Base Rent shall be proportionately reduced to the extent fair and reasonable under the circumstances. In the event of a Taking, Landlord shall be entitled to receive the entire purchase price or award from a Taking, and Tenant shall assign to Landlord Tenant’s interest, if any, in such purchase price or award. Without diminishing Landlord’s purchase price or award, Tenant shall have the right to make a separate claim against the Taking authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant. |
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| 18. | Assignment and Subletting. Tenant shall not assign this Lease, sublease the Premises, or mortgage or pledge its leasehold interest in this Lease without Landlord’s prior written consent, except as provided below, and any attempt to do so shall be an immediate Event of Default. In determining whether to grant, delay or condition its consent, Landlord may consider whether the intended use would adversely impact the value of the Building, the use or operations of other tenants at the Project, or impair Landlord’s ability to lease other space in the Project. Tenant shall provide Landlord the proposed assignee or sublessee’s name, a description of its business, its financial information, and such other information as Landlord may reasonably request. Any approved assignment or sublease shall be expressly subject to: (a) the terms and conditions of this Lease, and (b) revocable if there is an uncured Event of Default, either at the time of notice or as of the effective date of the assignment or sublease. In an Event of Default, Landlord may collect rent from any occupant of the Premises and apply the amount collected to the next installment of rent due under this Lease. For purposes of this Section, a transfer of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless the interests are publicly traded. Notwithstanding the above, without Landlord’s consent, but with prior written notice to Landlord, Tenant may assign this Lease, or sublet the Premises to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a “Tenant Affiliate”). This Lease shall be binding upon Tenant’s successors and assigns. Upon Landlord’s receipt of Tenant’s written notice of a desire to assign this Lease, or sublet the Premises (other than to a Tenant Affiliate), Landlord may terminate this Lease with respect to the area of the Premise described in Tenant’s notice by giving written notice to Tenant within 30 days of Landlord’s receipt of such request. |
Notwithstanding any assignment or subletting (or any Landlord consent thereto), Tenant and any guarantor of Tenant’s obligations shall remain liable for all of Tenant’s obligations under this Lease. In the event that the Monthly Base Rent due by a sublessee exceeds the Monthly Base Rent payable under this Lease, then Tenant shall pay to Landlord 50% of such excess within 30 days following receipt. If the Premises is subleased, or if the Premises are occupied by anyone other than Tenant, then Landlord may collect rent from such subtenant or occupant and, except to the extent set forth in the preceding sentence, apply the amount collected to the next installment rent payable hereunder.
| 19. | Indemnification. Tenant agrees to indemnify, defend, and hold harmless, Landlord Parties from and against all losses, liabilities, damages, costs and expenses (including reasonable attorneys’ fees) resulting from third party claims for personal injuries, or damage, theft, or loss of property occurring at the Project which arises from: (a) the use and occupancy of the Premises by Tenant Parties, or (b) any other act or omission of Tenant Parties, except for the negligence or willful misconduct of Landlord Parties. The furnishing of insurance required hereunder shall not be deemed to limit Tenant’s obligations under this Section. |
| 20. | Inspection, Data, and Access. Landlord and its agents, representatives, lenders, investors, prospective buyers, consultants, and contractors may enter the Premises at reasonable times to inspect the Premises for any reasonable business purpose, and during the last year of the Lease Term, to show the Premises to prospective tenants. Landlord may grant easements, make public dedications, designate or modify common areas, and create restrictions affecting the Project (collectively, “Encumbrances”), provided that Encumbrances do not materially interfere with Tenant’s authorized use or occupancy of the Premises. Tenant agrees to execute any reasonable instruments as may be necessary for Encumbrances. Upon reasonable prior notice to Tenant, Landlord may install and maintain sensors and meters (collectively “Devices”) in the Premises for the purpose of collecting raw Building data regarding the operational efficiency of the HVAC, roof, foundation and exterior walls, temperature, utility, and lighting usage (the “Data”). The Devices shall not: (a) materially interfere with Tenant’s use or occupancy of the Premises, (b) include cameras, video, or voice recording devices, or (c) collect personal or employee data, or otherwise track or identify people, equipment, or inventory. Landlord shall own all rights, title and interest in all the Data collected from Devices. Upon request to Landlord, Tenant shall have the right to access and use the Data for its internal business purposes during the Lease Term. |
| 21. | Quiet Enjoyment. Absent any uncured Event of Default, Tenant shall have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord. |
| 22. | Surrender. Upon the Lease termination, or the termination of Tenant’s possession of the Premises, Tenant shall surrender to Landlord the Premises, and all systems serving the Premises which Tenant is obligated to maintain, repair and replace in the same condition as received, ordinary wear and tear, casualty loss and condemnation excepted, and remove all Trade Fixtures, Tenant-Made Alterations and property. . Tenant shall remove, or cut below the slab surface, all racking bolts, and repair cracks, spalling, and racking bolt damage with mm-80 (or equivalent) epoxy or polymer to match concrete color and finished smooth with slab surface. All floor striping (including paint or tape) shall be removed with no residual staining or other indication that such striping or taping existed. Any such items not removed shall be deemed abandoned. In the event Tenant fails to comply with the requirements above, Landlord may complete such work, and Tenant shall reimburse Landlord for the costs thereof no later than thirty (30) days following receipt of demand. Any outstanding Tenant obligations under this Lease shall survive the termination of the Lease Term. |
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| 23. | Holding Over. Possession of the Premises by Tenant after the termination of this Lease, shall be subject to immediate termination by Landlord, and all terms of this Lease shall be applicable during such holdover period except (a) any expansion, renewal, or similar option shall be null and void, and (b) Monthly Base Rent for the holdover period shall be double the Monthly Base Rent in effect immediately prior to the holdover period. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of the holdover. Holdover shall not extend the Lease Term, and this Section shall not be construed as consent for Tenant to retain possession of the Premises. For purposes of this Section, “possession of the Premises” shall continue until Landlord has legal control over the Premises, all keys have been delivered, and Tenant has surrendered the Premises in the condition and repair as required in this Lease. |
| 24. | Events of Default. Each of the following shall be an event of default (“Event of Default”) by Tenant: |
| a) | Failure by Tenant to pay any installment of Monthly Base Rent, or any other payment required within 5 days after the due date. |
| b) | Tenant or any guarantor: (i) makes an assignment for the benefit of creditors; (ii) commences any action to have an order for relief entered on its behalf as a debtor, or to adjudicate it as bankrupt, or insolvent, or seek reorganization, liquidation, or dissolution of it, or its debts, or seek an appointment of a receiver, trustee, custodian or similar official for it, or its property (collectively a “Proceeding for Relief”); (iii) becomes subject to an involuntary Proceeding for Relief which is not dismissed within 60 days of filing; or (iv) is dissolved or otherwise fails to maintain its legal existence. |
| c) | Failure to maintain any insurance required by this Lease, or to timely deliver any certificate of insurance. |
| d) | Failure to comply with any other provision of this Lease for more than 30 days after Landlord has given Tenant written notice, except as otherwise provided in this Lease (said notice being in lieu of, and not in addition to, any notice required as a prerequisite to a forcible entry, detainer or similar action for possession of the Premises). |
| e) | The occurrence of any Event of Default otherwise specifically set forth in this Lease. |
| 25. | Landlord’s Remedies. For so long as any Event of Default continues, Landlord may at any time elect to: (a) terminate this Lease, (b) terminate Tenant’s right of possession of the Premises (but Tenant shall remain liable as hereinafter provided), and/or (c) pursue any other remedies at law or in equity. Upon the termination of this Lease, or termination of Tenant’s right of possession, Landlord may, without formal demand or notice except as required by Legal Requirements, re-enter the Premises by any action or proceeding authorized by law, and remove Tenant, and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to keep in place, or remove and store, all property at the Premises at Tenant’s expense. In the event Landlord delivers three notices of an Event of Default under this Lease in any twelve-month period, any subsequent failure to comply with this Lease shall be deemed an Immediate Event of Default. The term “Immediate Event of Default” shall mean Tenant has no cure period, and Landlord may immediately pursue all of its remedies. |
If Landlord terminates this Lease, Landlord may recover from Tenant the sum of: (a) all Monthly Base Rent, and all other amounts payable by Tenant which have accrued as of the date of termination; (b) the value of the Monthly Base Rent for any periods of abated Monthly Base Rent; (c) the cost of reletting the Premises, including the unamortized brokerage fees and/or leasing commissions incurred by Landlord, costs of removing and storing property, repairing or altering the Premises to the condition required by Tenant under this Lease; (d) all reasonable expenses incurred by Landlord in pursuing its remedies, including reasonable attorneys’ fees and court costs; and (e) the excess of the then present value of the Monthly Base Rent, and other amounts payable by Tenant under this Lease applicable to the period following the termination of this Lease through the Expiration Date, over the present value of any amounts which Tenant establishes Landlord can reasonably expect to recover by reletting the Premises during such period, taking into consideration the availability of acceptable tenants consistent with Landlord’s leasing criteria and other market conditions. Such present values shall be calculated at a discount rate equal to the 90-day U.S. Treasury bill rate at the date of the termination.
If Landlord terminates Tenant’s right of possession (but not this Lease), Landlord shall use commercially reasonable efforts to relet the Premises without releasing Tenant from any liability hereunder and without notice to Tenant; provided, however, (a) Landlord shall not be obligated to accept a Tenant-proposed tenant, and (b) Landlord shall have the right to lease any other space controlled by Landlord or Landlord’s affiliate first. Any reletting of the Premises shall be on terms and conditions acceptable to Landlord in its sole discretion. Landlord shall not be liable, nor shall Tenant’s obligations be reduced as a result of Landlord not reletting the Premises. Landlord shall have the right to make repairs, changes, alterations, or additions to the Premises as Landlord deems necessary in order to relet the Premises. If the Premises is not relet, then Tenant shall pay to Landlord, as damages, a sum equal to: (1) the Monthly Base Rent due and payable by Tenant for such period that the Premises has not been relet, plus the cost of recovering possession of the Premises (including reasonable attorneys’ fees and court costs); (2) Monthly Base Rent, and other amounts accrued and unpaid at the time of repossession; and (3) the costs incurred by Landlord’s efforts to relet the Premises. If the Premises is relet, and the total rent and expenses payable by such replacement tenant (after first deducting any unpaid amounts payable by Tenant which accrued under this Lease, the cost of recovering possession of the Premises, the costs of repairs and alterations to the Premises completed by Landlord on Tenant’s behalf, and leasing commissions) is not sufficient to satisfy the total rent and expenses payable by Tenant under this Lease, then Tenant shall immediately pay any such deficiency to Landlord upon demand. Notwithstanding any reletting without termination, Landlord may elect to terminate this Lease for a previous Event of Default at any time upon written notice.
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Landlord’s exercise of any remedies shall not be deemed an acceptance of surrender of the Premises and/or a termination of this Lease. Landlord’s failure to enforce its rights under this Lease strictly in accordance the terms hereof shall not modify this Lease or create a custom contrary to the specific provisions of this Lease. Tenant and Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to this Lease, or at law or in equity, shall not waive its rights or remedies in connection with any subsequent Event of Default. No waiver by Landlord of any Lease provision shall be effective unless in writing and signed by Landlord, even if Landlord accepts Tenant’s payments with knowledge of Tenant’s breach of the Lease. Tenant waives all right of redemption following termination of the Lease or Tenant’s right of possession by a judgment or warrant of any court. In the event Landlord exercises self-help or lock-out remedies, as provided by law, Tenant waives all claims against Landlord for business loss, business interruption, or any other damages resulting from Landlord’s self-help or lock-out. The terms “enter,” “re-enter,” “entry” or “re-entry,” as used in this Lease, are not restricted to their technical legal meanings.
| 26. | Tenant’s Remedies/Limitation of Liability. Landlord shall be in default of this Lease if Landlord fails to perform any of its obligations under this Lease within 30 days after written notice from Tenant specifying such failure (unless performance will, due to the nature of the obligation, require more than 30 days, then after a period of time reasonably necessary to cure such default). All obligations of Landlord shall be construed as covenants, not conditions; and, except as otherwise provided in this Lease, Tenant may not terminate this Lease for Landlord’s breach of its obligations. The term “Landlord” shall mean only the then-current owner of the Premises, and in the event of an assignment of the Lease, the assignor shall be released and discharged from all obligations of Landlord under this Lease, and such obligations shall be binding during the Lease Term upon each new assignee for the duration of such owner’s ownership. Any liability of Landlord shall be limited solely to its interest in the Building, and in no event shall any personal liability or recourse to any other property or assets of Landlord be asserted against Landlord. |
| 27. | Subordination. Tenant’s interest and rights under this Lease shall automatically be subject and subordinate to any lien of an existing or future mortgage or any ground lease to which the Premises is subject, and all amendments, modifications, assignments and extensions thereof. Tenant agrees, at the election and after notice of the holder of any mortgage, or lessor under any ground lease, to execute, acknowledge and deliver such instruments to confirm such subordination and attornment. Any such holder may at any time subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant. The term “mortgage” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances. Any reference to the “holder” of a mortgage shall be deemed to include the beneficiary under a deed of trust. |
| 28. | Mechanic’s Liens. Tenant shall not allow any lien or encumbrance of any kind to be placed upon the Building as a result of services or materials provided to the Building at any Tenant Parties’ request. Tenant shall save and hold Landlord harmless from all loss, cost or expense based on or arising out of claims or liens asserted against the Building. Tenant shall give Landlord immediate written notice of any lien or encumbrance placed against the Building and cause the lien or encumbrance to be discharged, or bonded over, in a manner satisfactory to Landlord, within 20 days of the filing or recording thereof or such failure shall be deemed an immediate Event of Default. |
| 29. | Estoppel Certificates. Tenant agrees to execute and deliver to Landlord, or Landlord’s designee, within 10 days after Landlord’s request an estoppel certificate containing customary provisions. Tenant’s failure to timely deliver an estoppel certificate shall constitute an immediate Event of Default. |
| 30. | Environmental Requirements. Tenant shall not allow any party to introduce, transport, store, use, generate, manufacture, or dispose of any Hazardous Material at the Project without Landlord’s prior written consent except for Hazardous Materials contained in: (a) products used by Tenant in de minimis quantities for ordinary cleaning and office purposes; (b) forklift propane tanks, and (c) products stored by Tenant in their original, sealed, and unopened containers. Tenant, at its sole cost and expense, shall: (v) cause its operations at the Project to comply strictly with all Environmental Requirements, including all reporting obligations imposed by applicable Environmental Requirements in the capacity as “operator” of Tenant’s “facility” and the “owner” (as such terms are used in applicable Environmental Requirements) of all Hazardous Materials brought onto the Project by Tenant Parties, and the wastes, by-products, or residues generated, resulting, or produced therefrom, or extracted from the Project; (w) promptly inform and provide copies of any documentation relating in any way to Hazardous Materials at the Project which Tenant receives or sends; (x) promptly and diligently remediate in a manner satisfactory to Landlord’s reasonable requirements, any Hazardous Materials released on, or from, the Project by Tenant Parties; (y) promptly notify Landlord in writing of any spill, release, discharge, or disposal of any Hazardous Material in, on, or under the Project; and (z) promptly complete and deliver any disclosure or certification requested by Landlord concerning Tenant Parties’ transportation, storage, use, generation, manufacture or release of Hazardous Materials in, on, or about the Project. Tenant shall be strictly liable to Landlord for Tenant Parties’ transportation, storage, use, generation, manufacturing, disposal, or release of Hazardous Materials at the Project without regard to the fault or negligence of any other party. Notwithstanding any notice and cure periods provided herein, Tenant shall promptly commence and diligently pursue its remediation obligations in accordance with this Section. The term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders, or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions, including the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. The term “Hazardous Materials” means any substance, material, waste, pollutant, or contaminant regulated by any Environmental Requirements, asbestos, radioactive materials, and petroleum (including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel or mixtures of natural gas and such synthetic gas). |
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Tenant shall have no liability to Landlord as to Hazardous Materials on the Project which arose prior to Tenant’s initial possession of the Premises, or during the Lease Term which were caused or permitted by any party other than Tenant, or Tenant Parties, or for Tenant’s disturbance of known existing Hazardous Materials.
Tenant shall indemnify, defend, and hold Landlord Parties harmless from and against any and all losses, claims, demands, actions, suits, damages, costs and expenses (including reasonable attorney fees, punitive damages, and any reduction in the value of the Project) which are brought or recoverable against, or suffered or incurred by Landlord as a result of: (a) any release of Hazardous Materials on, or from, the Project by Tenant Parties, or (b) Tenant Parties’ breach of, or noncompliance with, this Section, regardless of whether Tenant had knowledge of such noncompliance. Tenant’s obligations under this Section shall survive the Expiration Date or earlier termination of this Lease.
If Landlord’s inspection reveals noncompliance by Tenant, Tenant shall promptly reimburse Landlord for the reasonable cost of such inspection and testing. Landlord’s receipt of a ‘clean’ environmental assessment shall in no way release Tenant from its obligations under this Section or constitute a waiver by Landlord of its rights and remedies herein.
| 31. | Rules and Regulations. Tenant shall comply with all rules and regulations reasonably established by Landlord covering use of the Project. The current rules and regulations are attached hereto as Exhibit B, which may be supplemented from time to time. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project. |
| 32. | Force Majeure. Neither Landlord nor Tenant shall be responsible for delays in the performance of its obligations hereunder caused by labor disputes, acts of God, inability to obtain labor or materials, governmental restrictions or regulations or delay in issuance of permits, enemy or hostile governmental action, civil commotion, casualty, and other causes beyond the reasonable control of Landlord or Tenant, as the case may be (collectively, “Force Majeure”); provided Force Majeure shall not apply to monetary obligations. |
| 33. | Entire Agreement. This Lease constitutes the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may only be amended in writing signed by both parties. |
| 34. | Severability. If any clause of this Lease is deemed to be illegal, invalid or unenforceable under present or future laws, then it is the intention of the parties that such clause be replaced with a valid clause of similar meaning and that the remainder of this Lease shall not be affected. |
| 35. | Brokers. Each party represents and warrants to the other that it has not dealt with any broker or agent in connection with this transaction, other than Landlord Broker and Tenant Broker, if any, set forth in Section 1 of this Lease. Each party agrees to defend, indemnify and hold the other harmless from and against any claims by any other broker or agent claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to this Lease. |
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| 36. | Miscellaneous. |
| a) | TIME IS OF THE ESSENCE AS TO THE PERFORMANCE OF TENANT’S AND LANDLORD’S OBLIGATIONS UNDER THIS LEASE. |
| b) | Any payments or charges due from Tenant to Landlord shall be considered additional rent for all purposes of this Lease. |
| c) | All Lease notices shall be in writing and sent to the applicable party as set forth in Section 1 by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or hand delivery. Either party may, upon written notice, change its notice address(es). Notice shall be deemed given upon delivery or refusal of delivery except where otherwise provided herein. |
| d) | Where approval or consent is required of either Landlord or Tenant, such approval or consent shall not be unreasonably withheld, conditioned or delayed except as otherwise provided herein, or as otherwise required by law. |
| e) | At Landlord’s request, Tenant shall furnish Landlord with true and complete copies of its most recent financial statements. |
| f) | Neither this Lease, nor a memorandum of lease, shall be recorded by Tenant. |
| g) | The laws of the state in which the Project is located shall govern the construction and interpretation of this Lease, without regards to any principles of conflicts of laws. The rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments to this Lease. |
| h) | Landlord’s submission of this Lease shall not constitute an option to lease the Premises, nor be binding or confer any right or impose any obligations upon either party until execution and delivery of this Lease by both parties. |
| i) | The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope, intent, or any provision of this Lease, or in any way affect the interpretation of this Lease. |
| j) | All exhibits and addenda attached hereto are incorporated into, and made a part of, this Lease. In the event of any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control. |
| k) | Any amount not paid by Tenant when due shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 15 percent per year. |
| l) | In the event either party initiates litigation to enforce the terms and provisions of this Lease, the non- prevailing party shall reimburse the prevailing party for its reasonable attorney’s fees, filing fees, and court costs. The phrase “prevailing party” includes a party who substantially receives the relief desired whether by dismissal, summary judgment, or otherwise. |
| m) | Landlord shall have the right to place energy installations, including, but not limited to, solar systems, battery storage facilities, and electric vehicle charging facilities, on the Building or the Project, or to enter into a lease allowing a third party the right to install and operate an energy installation on the Building or the Project; provided such energy installation does not unreasonably and adversely impact Tenant’s use of the Premises, or result in additional costs to Tenant. Tenant waives all rights to any environmental attributes or incentives resulting from an energy technology installation. Tenant hereby waives all rights to, and agrees and acknowledges that Landlord shall retain the exclusive right to the use of the exterior of the Building and Project for any signage purposes, virtual or otherwise except as provided otherwise in this Lease. Landlord may request, and Tenant shall deliver to Landlord, data regarding Tenant’s utility usage at the Premises as required by law or to provide, maintain, improve, and keep in good working order the Project. Tenant can satisfy this requirement by either: (a) providing written consent for Landlord to obtain the information directly from the utility company, or (b) providing the data to Landlord in an electronic format reasonably acceptable to Landlord. |
| n) | This Lease may be executed in multiple counterparts, each of which shall be considered an original, but all of which shall constitute one and the same agreement. The signature of a party transmitted electronically (e.g., e-signature) or by facsimile, PDF and/or other electronic image file format shall constitute and have the same force and effect as the original signature of the party. Following execution, a PDF (or similar image file format) of this entire agreement (whether signed electronically or in ink) shall be considered to be the original agreement for all purposes. |
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| o) | In the event the Building or Project is subject to mandated building performance standards, energy benchmarking ordinances, or any similar Legal Requirements which intend to regulate the energy usage or emissions at the Building (collectively “Energy Requirements”), and Tenant’s use and operations at the Building or Project contributes to Landlord incurring a penalty, fine, or fee as a result of non-compliance with such Energy Requirement, Tenant shall reimburse Landlord for such penalty, fine, or fee no later than 30 days following receipt of an invoice for such amount. In the event the Premises is less than the entire area of the Building, Tenant’s obligation to reimburse Landlord for such penalty, fine, or fee shall be calculated based on the proportionate share of such penalty, fine, or fee which is attributable to Tenant’s use and operations at the Building as reasonably determined by Landlord. |
| p) | The term “days” shall mean calendar days unless otherwise specified, and the term “including” shall mean ‘including, but not limited to’. |
| q) | Landlord and Tenant each represents to the other that: |
| (i) | neither it, nor any person or entity that directly owns a 10% or greater equity interest in it nor any of its officers, directors or managing members is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury, including those parties names on the OFAC’s Specially Designated and Blocked Persons List and those covered pursuant to Executive Order 13224 signed on September 24, 2001, entitled “Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism”, or other governmental action; and |
| (ii) | its activities do not violate the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or USA Patriot Act, or the regulations or orders promulgated thereunder (as amended from time to time). |
| 37. | WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (IN CONTRACT, TORT, OR OTHERWISE), BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. |
[REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the Effective Date.
| TENANT: | LANDLORD: | |||
| American Bear Logistics Corp. | LIBERTY PROPERTY LIMITED PARTNERSHIP | |||
| an Illinois S corporation | a Pennsylvania limited partnership | |||
| By: Liberty Property Trust | ||||
| a Maryland real estate investment trust its | ||||
| general partner | ||||
| By: | /s/ Henry Liu | |||
| Name: | Henry Liu | By: | /s/ Sean Olvany | |
| Title: | PRESIDENT | Name: | Sean Olvany | |
| Title: | Vice President Market Officer | |||
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EXHIBIT A: SITE PLAN
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EXHIBIT B: PROJECT RULES AND REGULATIONS
| 1. | The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises. |
| 2. | Tenant shall not place any property in the parking areas, landscaped areas, or other areas outside of its Premises, or on the roof of the Building. |
| 3. | No animals shall be allowed in the Building except for service dogs. |
| 4. | Tenant shall not install or operate any steam or gas boiler. The use of oil, gasoline or flammable liquids for heating, lighting is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. |
| 5. | Parking any type of recreational vehicles or boats is specifically prohibited at the Project. Parking any cars or trucks inside of the Building is specifically prohibited. In no event shall any inoperable vehicles be parked at the Project nor shall any “For Sale” sign be displayed for any vehicle. No repair, maintenance or washing of vehicles shall take place on the Project. All vehicles shall be parked in designated parking areas in conformity with all signs and other markings. In the event of a failure to comply with any of the parking requirements in this Lease (a “Parking Default”) which continues for more than 3 days from Landlord’s demand to cease such Parking Default, Landlord may, in addition to any other rights, cause the non-compliant vehicles to be towed at Tenant’s cost without liability to Landlord, and Landlord may hire a parking management company to enforce these parking terms, and Tenant shall reimburse Landlord for all costs incurred with respect to such Parking Default no later than thirty (30) days from receipt of an invoice for such amount. |
| 6. | Tenant shall maintain the Premises free from rodents, insects and other pests. |
| 7. | Landlord reserves the right (but not the obligation) to exclude or expel from the Project any person who is intoxicated or under the influence of liquor or drugs, or should harass or threaten, verbally or physically Landlord’s employees, contractors, other occupants, or who otherwise violate the Rules and Regulations. |
| 8. | All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept closed at all times and in the designated trash enclosure areas. |
| 9. | The Premises shall not be used for lodging, sleeping or cooking (other than kitchenette or break room use) or for any immoral or illegal purposes. No gaming devices shall be operated in the Premises. |
| 10. | Tenant shall not permit recreational or medical marijuana to be grown, sold, dispensed, or consumed on the Premises or Project. |
| 11. | Tenant shall not permit smoking in any interior area of the Premises. |
| 12. | Prior to accessing the roof of the Building, Tenant shall provide notice to Landlord of the date of such requested access. When accessing the roof of the Building, Tenant shall follow all Legal Requirements, including OSHA requirements, and use all reasonable and appropriate precautions to ensure safety of such Tenant Parties. |
| 13. | Tenant shall provide advance notice to Landlord of the date Tenant, or Tenant Parties, require access to the roof of the Building. Tenant shall follow all Legal Requirements, including, but not limited to, OSHA requirements, when Tenant or Tenant Parties access the roof of the Building, and shall use reasonable and appropriate safety precautions in order to ensure such employees, contractors, or agents are not subject to injury or death. |
| 14. | Tenant shall not use any part of the Premises to store or in any other way handle firearms, firearms accessories or ammunition. |
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EXHIBIT C: HVAC MAINTENANCE CONTRACT
Tenant agrees to enter into and maintain through the Lease Term, a regularly scheduled preventative maintenance/service contract for servicing all hot water, heating and air conditioning systems and equipment within the Premises. Landlord requires a qualified HVAC contractor perform this work.
The service contract must become effective within 30 days of occupancy, and Tenant shall provide Landlord with a copy of such service contract within such 30-day period. Service visits shall be performed on a quarterly basis. Tenant shall send the following list to a qualified HVAC contractor to be assured that these items are included in the maintenance contract:
| 1. | Adjust belt tension; | |
| 2. | Lubricate all moving parts, as necessary; | |
| 3. | Inspect and adjust all temperature and safety controls; | |
| 4. | Check refrigeration system for leaks and operation; | |
| 5. | Check refrigeration system for moisture; | |
| 6. | Inspect compressor oil level and crank case heaters; | |
| 7. | Check head pressure, suction pressure and oil pressure; | |
| 8. | Inspect air filters and replace when necessary; | |
| 9. | Check space conditions; | |
| 10. | Check condensate drains and drain pans and clean, if necessary; | |
| 11. | Inspect and adjust all valves; | |
| 12. | Check and adjust dampers; and | |
| 13. | Run machine through complete cycle. |
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FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is entered into as of 11 August 2024, by and between Liberty Property Limited Partnership (“Landlord”) and American Bear
Logistics Corp (“Tenant”).
W I T N E S S E T H:
WHEREAS, Landlord and Tenant have entered into a Lease dated July 18, 2024, pursuant to which Landlord leased to Tenant certain premises consisting of approximately 56,264 square feet located at 1071 Thorndale Avenue, Bensenville, IL 60106 (the “Premises”), such lease, as heretofore modified, being herein referred to as the “Lease”; and
WHEREAS, a scrivener’s error occurred in the drafting of the Lease whereby the Building street address was drafted as 1071 Thorndale Avenue; and
WHEREAS, Landlord and Tenant hereby desire to correct the Building street address to 1065 Thorndale Avenue; and
WHEREAS, the parties hereto now desire to amend and modify said Lease as more fully hereinafter set forth.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the Premises and the mutual covenants hereinafter contained, the parties hereto agree as follows:
1. Landlord and Tenant hereby acknowledge and agree that the Building street address is hereby revised to reflect 1065 Thorndale Avenue.
2. Except as herein amended, the terms and conditions of the Lease and any amendments thereto, shall continue in full force and effect and the Lease (and any amendments thereto) as amended herein is hereby ratified and affirmed by Landlord and Tenant.
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IN WITNESS WHEREOF, the parties hereto have signed this Amendment as of the day and year first above written.
| TENANT: | LANDLORD: | |||
| AMERICAN BEAR LOGISTICS CORP. | LIBERTY PROPERTY LIMITED PARTNERSHIP, | |||
| an Illinois S corporation | a Pennsylvania limited partnership | |||
| By: | Liberty Property Trust | |||
| a Maryland real estate investment trust its general partner | ||||
| By: | /s/ Henry Liu | By: | /s/ Sean Olvany | |
| Name: | Henry Liu | Name: | Sean Olvany | |
| Title: | PRESIDENT | Title: | Vice President Market Officer | |
Exhibit 14.1
LAKESIDE HOLDING LIMITED
CODE OF BUSINESS CONDUCT AND ETHICS
This Code of Business Conduct and Ethics (the “Code”) contains general guidelines for conducting the business of Lakeside Holding Limited, a company incorporated under the law of the State of Nevada, and its subsidiaries and affiliates (collectively, the “Company”). The Code, as amended from time to time, is applicable to all of the Company’s directors, officers and employees (to the extent that employees are hired in the future.
The Board of Directors of the Company (the “Board”) has adopted the Code to:
| ● | promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; | |
| ● | promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the U.S. Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company; | |
| ● | promote compliance with applicable laws, rules and regulations; | |
| ● | promote strict prohibition of any bribes or kickbacks; | |
| ● | deter wrongdoing; and | |
| ● | promote prompt internal reporting of violations of the Code. |
The Code does not in any way constitute an employment contract or an assurance of continued employment. It is for the sole and exclusive benefit of the Company and may not be used or relied upon by any other party. The Board may modify or repeal the provisions of the Code or adopt a new Code at any time it deems appropriate.
| I. | HONEST, ETHICAL AND FAIR CONDUCT |
Each person owes a duty to the Company to act with integrity. Integrity requires, among other things, being honest, fair and candid. Deceit, dishonesty and subordination of principle are inconsistent with integrity. Service to the Company should never be subordinated to personal gain and advantage.
Each person must:
| ● | act with integrity, including being honest and candid while still maintaining the confidentiality of the Company’s information where required or when in the Company’s interests; | |
| ● | observe all applicable governmental laws, rules and regulations; | |
| ● | comply with the requirements of applicable accounting and auditing standards, as well as Company policies, in order to maintain a high standard of accuracy and completeness in the Company’s financial records and other business-related information and data; | |
| ● | adhere to a high standard of business ethics and not seek competitive advantage through unlawful or unethical business practices; | |
| ● | deal fairly with the Company’s customers, suppliers, competitors and employees; | |
| ● | refrain from taking advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice; |
| ● | protect the assets of the Company and ensure their proper use; | |
| ● | Until the earliest of (i) the Company’s initial business combination (as such is defined in the Company’s initial registration statement filed with the SEC), (ii) liquidation, or (iii) such time as such person ceases to be an officer or director of the Company, to first present to the Company for its consideration, prior to presentation to any other entity, any business opportunity suitable for the Company and presented to such person solely in his or her capacity as an officer or director of the Company, subject to any other fiduciary or contractual obligations such officer may have; and |
| ● | Avoid conflicts of interest, wherever possible, except as may be allowed under guidelines or resolutions approved by the Board (or the appropriate committee of the Board) or as disclosed in the Company’s public filings with the SEC. Anything that would be a conflict for a person subject to the Code also will be a conflict for a member of his or her immediate family or any other close relative. Examples of conflict of interest situations include, but are not limited to, the following: |
| ● | any significant ownership interest in any supplier or customer; | |
| ● | any consulting or employment relationship with any supplier or customer; | |
| ● | the receipt of any money, non-nominal gifts or excessive entertainment from any entity with which the Company has current or prospective business dealings; | |
| ● | selling anything to the Company or buying anything from the Company, except on the same terms and conditions as comparable officers or directors are permitted to so purchase or sell; | |
| ● | any other financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving the Company; and | |
| ● | any other circumstance, event, relationship or situation in which the personal interest of a person subject to the Code interferes — or even appears to interfere — with the interests of the Company as a whole. |
| II. | DISCLOSURE |
The Company strives to ensure that the contents of and the disclosures in the reports and documents that the Company files with the SEC and other public communications shall be full, fair, accurate, timely and understandable in accordance with applicable disclosure standards, including standards of materiality, where appropriate. Each person must:
| ● | not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company’s independent registered public accountants, governmental regulators, self-regulating organizations and other governmental officials, as appropriate; and | |
| ● | in relation to his or her area of responsibility, properly review and critically analyze proposed disclosure for accuracy and completeness. |
In addition to the foregoing, the Chief Executive Officer and Chief Financial Officer of the Company and each subsidiary of the Company (or persons performing similar functions), and each other person that typically is involved in the financial reporting of the Company must familiarize himself or herself with the disclosure requirements applicable to the Company as well as the business and financial operations of the Company.
Each person must promptly bring to the attention of the Chairman of the Board any information he or she may have concerning (a) significant deficiencies in the design or operation of internal and/or disclosure controls that could adversely affect the Company’s ability to record, process, summarize and report financial data or (b) any fraud that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.
| III. | COMPLIANCE |
It is the Company’s obligation and policy to comply with all applicable governmental laws, rules and regulations. All directors, officers and employees of the Company are expected to understand, respect and comply with all of the laws, regulations, policies and procedures that apply to them in their positions with the Company. Employees are responsible for talking to their supervisors to determine which laws, regulations and Company policies apply to their position and what training is necessary to understand and comply with them.
Directors, officers and employees are directed to specific policies and procedures available to persons they supervise.
| IV. | REPORTING AND ACCOUNTABILITY |
The Board is responsible for applying the Code to specific situations in which questions are presented to it and has the authority to interpret the Code in any particular situation. Any person who becomes aware of any existing or potential breach of the Code is required to notify the Chairman of the Board promptly. Failure to do so is, in and of itself, a breach of the Code.
Specifically, each person must:
| ● | Notify the Chairman of the Board promptly of any existing or potential violation of the Code | |
| ● | Not retaliate against any other person for reports of potential violations that are made in good faith. |
The Company will follow the following procedures in investigating and enforcing the Code and in reporting on the Code:
| ● |
The Board will take all appropriate action to investigate any breaches reported to it.
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| ● |
Upon determination by the Board that a breach has occurred, the Board (by majority decision) will take or authorize such disciplinary or preventive action as it deems appropriate, after consultation with the Company’s internal or external legal counsel, up to and including dismissal or, in the event of criminal or other serious violations of law, notification of the SEC or other appropriate law enforcement authorities. |
No person following the above procedure shall, as a result of following such procedure, be subject by the Company or any officer or employee thereof to discharge, demotion suspension, threat, harassment or, in any manner, discrimination against such person in terms and conditions of employment.
| V. | WAIVERS AND AMENDMENTS |
Any waiver (defined below) or an implicit waiver (defined below) from a provision of the Code for the principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions or any amendment (as defined below) to the Code is required to be disclosed in a Form 6-K filed with the SEC. In lieu of filing a Form 6-K to report any such waivers or amendments, the Company may provide such information on a website, in the event that it establishes one in the future, and if it keeps such information on the website for at least 12 months and discloses the website address as well as any intention to provide such disclosures in this manner in its most recently filed Form 20-F.
A “waiver” means the approval by the Board of a material departure from a provision of the Code. An “implicit waiver” means the Company’s failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an executive officer of the Company.
An “amendment” means any amendment to the Code other than minor technical, administrative or other non-substantive amendments hereto.
All persons should note that it is not the Company’s intention to grant or to permit waivers from the requirements of the Code. The Company expects full compliance with the Code.
| VI. | INSIDER INFORMATION AND SECURITIES TRADING |
The Company’s directors, officers or employees who have access to material, non-public information are not permitted to use that information for securities trading purposes or for any purpose unrelated to the Company’s business. It is also against the law to trade or to “tip” others who might make an investment decision based on inside company information. For example, using non-public information to buy or sell the Company securities, options in the Company shares or the shares of any Company supplier, customer or competitor is prohibited. The consequences of insider trading violations can be severe. These rules also apply to the use of material, nonpublic information about other companies (including, for example, the Company’s customers, competitors and potential business partners). In addition to directors, officers or employees, these rules apply to such person’s spouse, children, parents and siblings, as well as any other family members living in such person’s home.
| VII. | FINANCIAL STATEMENTS AND OTHER RECORDS |
All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must both conform to applicable legal requirements and to the Company’s system of internal controls. Unrecorded or “off the books” funds or assets should not be maintained unless permitted by applicable law or regulation.
Records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of litigation or governmental investigation, please consult the Board or the Company’s internal or external legal counsel.
| VIII. | IMPROPER INFLUENCE ON CONDUCT OF AUDITS |
No director or officer, or any other person acting under the direction thereof, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any public or certified public accountant engaged in the performance of an audit or review of the financial statements of the Company or take any action that such person knows or should know that if successful could result in rendering the Company’s financial statements materially misleading. Any person who believes such improper influence is being exerted should report such action to such person’s supervisor, or if that is impractical under the circumstances, to any of the Company’s directors.
Types of conduct that could constitute improper influence include, but are not limited to, directly or indirectly:
| ● | Offering or paying bribes or other financial incentives, including future employment or contracts for non-audit services; | |
| ● | Providing an auditor with an inaccurate or misleading legal analysis; | |
| ● | Threatening to cancel or canceling existing non-audit or audit engagements if the auditor objects to the Company’s accounting; | |
| ● | Seeking to have a partner removed from the audit engagement because the partner objects to the Company’s accounting; | |
| ● | Blackmailing; and | |
| ● | Making physical threats. |
| IX. | ANTI-CORRUPTION LAWS |
The Company complies with the anti-corruption laws of the countries in which it does business, including the U.S. Foreign Corrupt Practices Act (“FCPA”). Directors, officers and employees will not directly or indirectly give anything of value to government officials, including employees of state- owned enterprises or foreign political candidates. These requirements apply both to Company employees and agents, such as third party sales representatives, no matter where they are doing business. If you are authorized to engage agents, you are responsible for ensuring they are reputable and for obtaining a written agreement to uphold the Company’s standards in this area.
| X. | VIOLATIONS |
Violation of the Code is grounds for disciplinary action up to and including termination of employment. Such action is in addition to any civil or criminal liability which might be imposed by any court or regulatory agency.
| XI. | OTHER POLICIES AND PROCEDURES |
Any other policy or procedure set out by the Company in writing or made generally known to employees, officers or directors of the Company prior to the date hereof or hereafter are separate requirements and remain in full force and effect.
| XII. | INQUIRIES |
All inquiries and questions in relation to the Code or its applicability to particular people or situations should be addressed to the Company’s Secretary, or such other compliance officer as shall be designated from time to time by the Company.
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PROVISIONS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS
The CEO and all senior financial officers, including the CFO and principal accounting officer, are bound by the provisions set forth therein relating to ethical conduct, conflicts of interest, and compliance with law. In addition to the Code, the CEO and senior financial officers are subject to the following additional specific policies:
1. Act with honesty and integrity, avoiding actual or apparent conflicts between personal, private interests and the interests of the Company, including receiving improper personal benefits as a result of his or her position.
2. Disclose to the CEO and the Board any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest.
3. Perform responsibilities with a view to causing periodic reports and documents filed with or submitted to the SEC and all other public communications made by the Company to contain information that is accurate, complete, fair, objective, relevant, timely and understandable, including full review of all annual and quarterly reports.
4. Comply with laws, rules and regulations of U.S. federal, state and other local governments applicable to the Company and with the rules and regulations of private and public regulatory agencies having jurisdiction over the Company.
5. Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting or omitting material facts or allowing independent judgment to be compromised or subordinated.
6. Respect the confidentiality of information acquired in the course of performance of his or her responsibilities except when authorized or otherwise legally obligated to disclose any such information; not use confidential information acquired in the course of performing his or her responsibilities for personal advantage.
7. Share knowledge and maintain skills important and relevant to the needs of the Company, its shareholders and other constituencies and the general public.
8. Proactively promote ethical behavior among subordinates and peers in his or her work environment and community.
9. Use and control all corporate assets and resources employed by or entrusted to him or her in a responsible manner.
10. Not use corporate information, corporate assets, corporate opportunities or his or her position with the Company for personal gain; not compete directly or indirectly with the Company.
11. Comply in all respects with the Code.
12. Advance the Company’s legitimate interests when the opportunity arises.
The Board will investigate any reported violations and will oversee an appropriate response, including corrective action and preventative measures. Any officer who violates the Code will face appropriate, case specific disciplinary action, which may include demotion or discharge.
Any request for a waiver of any provision of the Code must be in writing and addressed to the Chairman of the Board. Any waiver of the Code will be disclosed as provided in Section 6 of the Code.
It is the policy of the Company that each officer covered by the Code shall acknowledge and certify to the foregoing annually and file a copy of such certification with the Chairman of the Board.
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OFFICER’S CERTIFICATION
I have read and understand the foregoing Code. I hereby certify that I am in compliance with the foregoing Code and I will comply with the Code in the future. I understand that any violation of the Code will subject me to appropriate disciplinary action, which may include demotion or discharge.
Dated:
Name:
Title:
Exhibit 19.1
LAKESIDE HOLDING
LIMITED
INSIDER TRADING POLICY
As set forth in this Policy (the “Policy”), Lakeside Holding Limited (the “Company”) has established rules for directors, officers and employees of the Company and its subsidiaries regarding trading in Company securities.
All directors, officers and employees of the Company and its subsidiaries are subject to, and must strictly adhere to, the rules as applicable to them as set forth in this Policy. All Insiders and Restricted Employees must periodically certify to their understanding of and intent to comply with this Policy. This policy will be reviewed annually by the Company’s Board of Directors. If you have any questions regarding this Policy please contact the General Counsel.
VIOLATIONS OF THE INSIDER TRADING LAWS CAN LEAD TO SIGNIFICANT FINES, IMPRISONMENT AND OTHER PENALTIES FOR THOSE INDIVIDUALS INVOLVED AND FOR THE COMPANY. FAILURE TO ADHERE STRICTLY TO THIS POLICY WILL RESULT IN SERIOUS CONSEQUENCES AND MAY RESULT IN TERMINATION OF YOUR EMPLOYMENT.
EXCEPTIONS TO THIS POLICY MAY BE MADE ONLY WITH THE WRITTEN APPROVAL, PRIOR TO EFFECTING A TRANSACTION, FROM THE COMPANY’S GENERAL COUNSEL AND ONLY IF THE GENERAL COUNSEL DETERMINES THAT THE PROPOSED TRANSACTION IS NOT IN VIOLATION OF APPLICABLE LAW OR REGULATION OR COMPANY POLICY. SUCH APPROVAL MAY CONTAIN RESTRICTIONS ON A TRANSACTION THAT ARE DEEMED NECESSARY OR APPROPRIATE BY THE GENERAL COUNSEL.
USEFUL TERMS
Controlled Entity. “Controlled Entity” means any corporation or other entity controlled or managed by a person or any trust for which a person is the trustee or otherwise has the power to direct transactions in Company securities.
Company securities. As used in this Policy, the term “Company securities” includes:
| ● | Company common stock; |
| ● | put options; |
| ● | call options; |
| ● | units; |
| ● | warrants; |
| ● | any other derivatives of the Company’s common stock (whether or not issued by the Company); and |
| ● | debt securities issued by the Company. |
Family member. “Family member” includes any spouse, parent, child, brother, sister or other person sharing your home (other than household employees).
Insiders. As used in this Policy, “Insiders” include directors, those officers of the Company who, when the Company were not a foreign private issuer, would be subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and certain other employees that may be designated as “insiders” from time to time by the Company’s General Counsel.
Material Nonpublic Information. “Material Nonpublic Information” is information concerning the Company that (a) is not generally known to the public and (b) if publicly known, would be likely to affect either the market price of the Company’s securities or a person’s decision to purchase, sell or hold the Company’s securities. For additional information, see “Types of Material Nonpublic Information.”
Restricted Employees. As used in this Policy, “Restricted Employees” include all assistants and secretaries of Insiders, and certain other employees, consultants and contractors that may be designated as “restricted” from time to time by the Company’s General Counsel. The treatment of any consultant or contractor as a Restricted Employee under this Policy shall not change such person’s status as a consultant or contractor.
Trading and transactions. References to “trading” and “transactions” include:
| ● | purchases and sales of Company securities in the public markets; |
| ● | exercise of Company stock options and exercise of warrants; |
| ● | sales of Company securities obtained through the exercise of stock options or the vesting of performance accelerated restricted stock units or performance share units, or otherwise; |
| ● | making gifts of Company securities (including charitable donations); |
| ● | hedging and other futures transactions involving the Company’s securities; and |
| ● | using Company securities to secure a loan. |
| A. | GENERAL RULES |
Rules applicable to all directors, officers, employees and designated consultants and contractors of the Company and its subsidiaries.
| 1. | Comply with laws and regulations. Directors, officers, employees and designated consultants and contractors of the Company and its subsidiaries shall comply with all laws and regulations applicable to the trading of securities generally. |
| 2. | (a) Trading prohibited if aware of Material Nonpublic Information. No director, officer, employee or designated consultant or contractor of the Company or its subsidiaries may trade Company securities at any time that he or she is aware of Material Nonpublic Information. |
| (b) | Exceptions. The only exceptions to the rule in paragraph 2(a) above are the following: |
| ● | 10b5-1(c) Trading Plans. The purchase or sale of Company securities at any time pursuant to a pre-approved Rule 10b5-1(c) trading plan (as described in Section D below). |
| ● | Option Exercises. An exercise of an “in-the-money” stock option at any time upon payment of the exercise price therefor in cash even though a person may be aware of Material Nonpublic Information at the time of exercise. Each person should be aware, however, that any sale of Company ordinary shares as part of a broker-assisted cashless exercise of a stock option or any other market sale of the underlying ordinary shares for the purpose of generating cash needed to pay the exercise price of an option or the related taxes shall not be an exception from the rule in paragraph 2(a) above. The term “in-the-money” means that the trading price of the Company’s ordinary shares at the time of a transaction is greater than the exercise price of the stock option. |
| ● | Warrant Exercises. An exercise of a warrant at any time upon payment of the exercise price therefor in cash even though a person may be aware of Material Nonpublic Information at the time of exercise. Each person should be aware, however, that any sale of Company ordinary shares as part of a broker-assisted cashless exercise or any other market sale of the underlying ordinary shares for the purpose of generating cash needed to pay the exercise price of a warrant or the related taxes shall not be an exception from the rule in paragraph 2(a) above. |
| 3. | Tipping and unauthorized disclosure of Material Nonpublic Information prohibited. No director, officer, employee or designated consultant or contractor of the Company or its subsidiaries shall directly or indirectly (i) engage in any “tipping” of Material Nonpublic Information to anyone or (ii) communicate any Material Nonpublic Information to anyone outside the Company or otherwise, unless such communication is appropriate under the circumstances and has been properly authorized. Persons with whom a director, officer, employee or designated consultant or contractor has a history, pattern or practice of sharing confidences—such as family members, close friends and financial and personal counselors—may be presumed to act on the basis of information known to the director, officer, employee or designated consultant or contractor; therefore, special care should be taken so that Material Nonpublic Information is not disclosed to such persons. |
| 4. | Trading in other companies’ securities prohibited if aware of Material Nonpublic Information. No director, officer, employee or designated consultant or contractor shall trade the securities of any other company if he or she possesses Material Nonpublic Information that he or she has obtained during the course of his or her employment or other relationship with the Company or its subsidiaries. |
| 5. | Dissemination of Company information. No director, officer, employee or designated consultant or contractor of the Company or its subsidiaries shall make any information about the Company or its subsidiaries publicly available, including by posting information about the Company or its subsidiaries on any Internet message board or social media site, except to the extent specifically authorized to do so. |
| 6. | Family members and Controlled Entities. No director, officer, employee or designated consultant or contractor of the Company or its subsidiaries shall permit any member of his or her family to engage in any of the prohibited activities described in paragraphs 1 through 5 above. Furthermore, each family member of an Insider or Restricted Employee shall comply with the additional rules for Insiders and Restricted Employees set forth in Sections B and C below. In addition, no director, officer, employee or designated consultant or contractor of the Company or its subsidiaries shall permit or utilize any Controlled Entity to engage in any of the prohibited activities described in paragraphs 1 through 5 above. Controlled Entities, like family members, must comply with the additional rules for Insiders and Restricted Employees set forth in Sections B and C below. |
| 7. | Responsibility for compliance. Each director, officer, employee and designated consultant or contractor of the Company or its subsidiaries is responsible for ensuring that he or she is in compliance with this Policy before engaging in any transaction involving Company securities. |
| 8. | Additional rules for Insiders and Restricted Employees. Insiders and Restricted Employees should review the additional prohibitions and restrictions on transactions applicable to them in Sections B and C below. |
| B. | INSIDERS |
Additional rules applicable to Insiders.
In addition to the restrictions generally applicable to all directors, officers, employees and designated consultants and contractors set forth in Section A above, the following additional rules apply to Insiders (as well as their family members and Controlled Entities):
| 1. | Trades must be cleared. Insiders shall not trade any Company securities, except after first consulting and pre-clearing each such transaction with the Company’s General Counsel. If the General Counsel is seeking such pre-clearance for himself or herself, such pre-clearance must be given by the Chief Executive Officer. All requests for pre-clearance must be submitted at least two business days in advance of the proposed transaction, unless otherwise approved by the General Counsel. If a transaction is approved under the pre-clearance policy, it must be executed within five business days, but regardless may not be executed if the Insider acquires Material Nonpublic Information during that time. If a transaction is not completed within five business days, the transaction must be approved again before it may be executed. If a proposed transaction is not approved, the Insider must refrain from initiating any transaction in Company securities and shall not inform anyone within or outside of the Company of the restriction. |
| 2. | Blackout Period. Insiders shall not trade any Company securities during the period commencing seven days prior to the end of each fiscal quarter of the Company and ending at the opening of the second full trading day after the broad public release of the Company’s financial results with respect to the preceding fiscal quarter (the “Blackout Period”). Notwithstanding the foregoing, an Insider may engage in transactions permitted under paragraph 2(b) of Section A above provided that the Insider first requests and obtains the pre-clearance of the General Counsel under the procedures described above in paragraph 1 of this Section B or complies with the provisions of Section D below, as applicable. |
| 3. | Short sales and derivatives prohibited. Insiders shall not engage in short sales of Company securities, nor shall Insiders trade put options, call options or other derivatives of Company securities (other than on broad-based indices that include the Company’s securities). |
| 4. | Hedging and monetization transactions prohibited. Because certain forms of hedging or monetization transactions, such as zero cost collars (which is a type of positive-carry collar that secures a return through the purchase of a cap and sale of a floor) and forward sale contracts (which is a private contract between a buyer and seller in which the buyer agrees to buy and the seller agrees to sell a specific quantity of a security at the price and date specified in the contract) involve the establishment of a short position in Company securities and limit or eliminate the ability to profit from an increase in the value of Company securities, Insiders are prohibited from engaging in any hedging or monetization transactions involving Company securities. |
| 5. | Margin transactions prohibited; use of Company securities as collateral restricted. Except as described below, Insiders shall not purchase Company securities on margin, hold Company securities in a margin account, borrow against any account in which Company securities are held or otherwise pledge Company securities as collateral for a loan. An exception to the prohibition against pledges may be granted by the General Counsel where a person wishes to pledge Company securities as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities. Any Insider who wishes to pledge Company securities as collateral for a loan must submit a request for approval to the General Counsel at least 15 days prior to the execution of the documents evidencing the proposed pledge. In general, in connection with granting an exception to the prohibition against pledges, the General Counsel will require that such documents contain the specific agreement of the pledgee to only dispose of the shares pledged as collateral at such times and in such manner that would be permitted by the Insider entering into the pledge agreement, as if such Insider still owned the shares at the time of the disposition. |
Notwithstanding the foregoing paragraph 5, any such arrangements already in existence as of the initial effective date of this Policy may continue, provided that the Insider has previously disclosed or promptly discloses the arrangement to the General Counsel.
| C. | RESTRICTED EMPLOYEES |
Additional rules applicable to Restricted Employees.
In addition to the restrictions generally applicable to all employees set forth in Section A above, the following additional rules shall apply to Restricted Employees (and their family members and Controlled Entities):
| 1. | Trades should be cleared. Restricted Employees are strongly encouraged to comply with the requirements set forth in paragraph 1 of Section B above. The General Counsel, where practicable, will notify the supervisor of any Restricted Employee who does not comply with paragraph 1 of Section B above of such Restricted Employee’s non-compliance. |
| 2. | Blackout Period. Restricted Employees shall not trade any Company securities during a Blackout Period. Notwithstanding the foregoing, Restricted Employee may engage in transactions permitted under paragraph 2(b) of Section A above, provided that the Restricted Employee first requests and obtains the pre-clearance of the General Counsel under the procedures described above in paragraph 1 of Section B or complies with the provisions of Section D below, as applicable. |
| 3. | Short sales and derivatives prohibited. Restricted Employees shall not engage in short sales of Company securities, nor shall Restricted Employees trade put options, call options or other derivatives of Company securities (other than on broad-based indices that include the Company’s securities). |
| D. | 10b5-1 PLANS |
Pre-planned trading programs pursuant to Rule 10b5-1(c).
Notwithstanding any other guidelines contained in this Policy, it will not be a violation of this Policy to trade Company securities under a pre-planned trading program adopted to trade securities in the future which is in compliance with Rule 10b5-1(c) of the 1934 Act, subject to the additional restrictions set forth below:
| 1. | Plans must be cleared. All trading programs (including any termination or amendment thereof) must be pre-cleared in advance, in writing, by the General Counsel. Any subsequent trades under the program will be considered “pre-cleared” for purposes of the restrictions on Insiders set forth in Section B above. As part of pre-clearing a trading program, you will be expected to certify to the Company that, at the time you enter into a trading program, you are not aware of Material Nonpublic Information. The Company may be aware of Material Nonpublic Information that you are unaware of that may make it imprudent for the General Counsel to pre-clear the trading program at the time of your request. |
| 2. | Plan requirements. Prior to pre-clearing a trading program, the General Counsel may require that the program contain some or all of the following additional restrictions: (i) a delay between the adoption or implementation of a new or amended trading program and the first trade made under the plan; (ii) a minimum period before a trading program may be terminated or materially changed; (iii) public disclosure by the Company of the adoption of a trading program by Insiders; and (iv) clearance by the Company to terminate or materially amend a trading program. |
| 3. | Plan timing and plan amendments. In addition to the restrictions set forth above, Insiders and Restricted Employees may not enter into a trading program during a Blackout Period, and are strongly discouraged from terminating or materially amending a trading program during a Blackout Period (i.e., during a Blackout Period, the General Counsel is unlikely to pre-clear a termination or amendment of a trading program, which pre-clearance is required above under paragraph 1 of this Section D). |
| 4. | Additional trading restricted. If you have adopted a trading program, you generally will not be permitted to trade on the open market outside of the program. |
| E. | SECTION 16 OBLIGATIONS |
Each director and officer should understand that the pre-clearance of a trade or trading program in no way reduces or eliminates such person’s obligations under Section 16 of the 1934 Act, including such person’s disclosure obligations and short-swing trading liabilities thereunder. If any questions arise, such person should consult with his or her own legal counsel.
Types of Material Nonpublic Information
“Material Nonpublic Information” is information concerning the Company and its subsidiaries that (a) is not generally known to the public and (b) if publicly known, would be likely to affect either the market price of the Company’s securities or a person’s decision to purchase, sell, or hold the Company’s securities. Because this standard may be difficult to apply in everyday situations and is fact intensive, the following are examples of the types of information that the SEC has suggested may be material and/or that courts have found to be material in past cases, and which likely would constitute material inside information if not generally known to the public. This list is not all-inclusive and is only intended as a guide. Please keep in mind that both positive and negative information may be material.
| ● | Fundamental Corporate Changes—What is the Company doing? |
| ○ | Information about current, proposed or contemplated transactions, such as acquisitions, tender offers, mergers, spin-offs, joint ventures, restructurings or changes in assets; |
| ○ | Changes in directors, senior management or auditors; |
| ○ | Plans to change the scope or scale of the Company’s business; |
| ○ | Information about major contracts or significant relationships; or |
| ○ | Plans to engage in a new marketing strategy. |
| ● | Financial Reporting—How is the Company doing? |
| ○ | Earnings, profits and losses; |
| ○ | Unpublished financial reports or projections; |
| ○ | Adjustments of reported earnings; |
| ○ | Purchases, sales and revaluations of company assets; |
| ○ | Gain or loss of a significant customer, collaborator or supplier; |
| ○ | Institution of, or developments in, major litigation, investigations, or regulatory actions or proceedings; |
| ○ | The interruption of production or other aspects of a company’s business as a result of an accident, fire, natural disaster, or any similar major event; |
| ○ | Changes in dividend policies or the declaration of a share split proposal; or |
| ○ | Contemplated issuance, redemption or repurchase of securities. |
| ● | Management Integrity—How is the Company being managed? |
| ○ | Knowledge that management has engaged in self-dealing; |
| ○ | Knowledge that the Company has engaged in illegal activity; |
| ○ | Knowledge that the Company is under investigation; or |
| ○ | Knowledge that a governmental body is about to begin an action against the Company. |
LAKESIDE HONLDING LIMITED INSIDER TRADING POLICY
I, _____________________________, hereby certify that I have read and understand the above rules, and agree to adhere strictly to them. I further certify that I understand that failure to adhere to these rules will result in serious consequences and may result in termination of my employment with Lakeside Holding Limited and its subsidiaries.
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| Signature | Date |
9
Exhibit 31.1
CERTIFICATION
I, Henry Liu, certify that:
1. I have reviewed this annual report on Form 10-K of Lakeside Holding Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Date: September 30, 2024 | Lakeside Holding Limited. | |
| By: | /s/ Henry Liu | |
| Henry Liu | ||
| Chairman of the Board of Directors and Chief Executive Officer | ||
Exhibit 31.2
CERTIFICATION
I, Shuai Li, certify that:
1. I have reviewed this annual report on Form 10-K of Lakeside Holding Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Date: September 30, 2024 | Lakeside Holding Limited. | |
| By: | /s/ Shuai Li | |
| Shuai Li | ||
| Director, President and Chief Operating Officer | ||
Exhibit 31.3
CERTIFICATION
I, Long (Leo) Yi, certify that:
1. I have reviewed this annual report on Form 10-K of Lakeside Holding Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Date: September 30, 2024 | Lakeside Holding Limited. | |
| By: | /s/ Long (Leo) Yi | |
| Long (Leo) Yi | ||
| Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION
Pursuant to the requirement set forth in Rule 13(a)-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Henry Liu, Chief Executive Officer of Lakeside Holding Limited (the “Company”), and Long (Leo) Yi, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
1. The Company’s Annual Report on Form 10-K for the period ended June 30, 2024, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Lakeside Holding Limited. | ||
| Date: September 30, 2024 | By: | /s/ Henry Liu |
| Henry Liu | ||
| Chairman of the Board of Directors and Chief Executive Officer | ||
| Date: September 30, 2024 | By: | /s/ Long (Leo) Yi |
| Long (Leo) Yi | ||
| Chief Financial Officer | ||
Exhibit 97.1
LAKESIDE HOLDING LIMITED
EXECUTIVE COMPENSATION CLAWBACK POLICY
The Board of Directors (the “Board”) of Lakeside Holding Limited (the “Company”) has adopted the following executive compensation clawback policy (this “Policy”). This Policy shall supplement any other clawback or compensation recovery policy or policies adopted by the Company or included in any agreement between the Company, or any subsidiary of the Company, and a person covered by this Policy. If any such other policy or agreement provides that a greater amount of compensation shall be subject to clawback, such other policy or agreement shall apply to the amount in excess of the amount subject to clawback under this Policy.
This Policy shall be interpreted to comply with Securities and Exchange Commission (“SEC”) Rule 10D-1 and Listing Rule 5608 (the “Listing Rule”) of The Nasdaq Stock Market, LLC (“Nasdaq”), as may be amended or supplemented and interpreted from time to time by Nasdaq. To the extent this Policy is any manner deemed inconsistent with the Listing Rule, this Policy shall be treated as having been amended to be compliant with the Listing Rule.
DEFINITIONS
Executive Officer. An executive officer is the Company’s chief executive officer and/or president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), chief operating officer, any vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Executive officers of the Company’s parent(s) or subsidiaries are deemed executive officers of the Company if they perform such policy making functions for the Company. Policy-making function is not intended to include policy-making functions that are not significant. Identification of an executive officer for purposes of the Listing Rule would include at a minimum executive officers identified in the Listing Rule.
Financial Reporting Measures. Financial reporting measures are measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock price and total shareholder return are also financial reporting measures. A financial reporting measure need not be presented within the financial statements or included in a filing with the SEC and may be such financial measures as may be determined by the Board or the Compensation Committee thereof (the “Compensation Committee”).
Incentive-Based Compensation. Incentive-based compensation is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure.
Received. Incentive-based compensation is deemed “received” in the Company’s fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if the payment or grant of the incentive-based compensation occurs after the end of that period.
| A. | Application |
This recovery of Incentive-Based Compensation from an Executive Officer as provided for in this Policy shall apply only in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of Company with any financial reporting requirement under the United States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
| B. | Recovery Period |
| 1. | The Incentive-Based Compensation subject to recovery is the Incentive-Based Compensation Received during the three (3) completed fiscal years immediately preceding the date that the Company is required to prepare an accounting restatement as described in Section A above, provided that the person served as an Executive Officer at any time during the performance period applicable to the Incentive-Based Compensation in question. The date that the Company is required to prepare an accounting restatement shall be determined pursuant to the Listing Rule. |
| 2. | Notwithstanding the foregoing, this Policy shall only apply if the Incentive-Based Compensation is received (i) while the Company has a class of securities listed on Nasdaq and (ii) on or after October 2, 2023. |
| 3. | The provisions of the Listing Rule shall apply with respect to Incentive-Based Compensation received during a transition period arising due to a change in the Company’s fiscal year. |
| C. | Erroneously Awarded Compensation |
The amount of Incentive-Based Compensation subject to recovery from the applicable Executive Officers under this Policy (“Erroneously Awarded Compensation”) shall be equal to the amount of Incentive-Based Compensation Received that exceeds the amount of Incentive Based-Compensation that otherwise would have been Received had it been determined based on the restated amounts and shall be computed without regard to any taxes paid. For Incentive-Based Compensation based on stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in an accounting restatement: (a) the amount shall be based on a reasonable estimate by the Company’s Chief Financial Officer (or principal accounting officer, if the office of Chief Financial Officer is not then filled) of the effect of the accounting restatement on the stock price or total shareholder return upon which the Incentive-Based Compensation was received, which estimate shall be subject to the review and approval of the Compensation Committee; and (b) the Company must maintain reasonable documentation of the determination of that reasonable estimate and provide such documentation to Nasdaq if requested. Notwithstanding the foregoing, if the proposed Incentive-Based Compensation recovery would affect compensation paid to the Company’s Chief Financial Officer, the determination shall be made by the Compensation Committee.
| D. | Timing of Recovery |
The Company shall recover any Erroneously Awarded Compensation reasonably promptly except to the extent that the conditions of paragraphs (1), (2), or (3) below apply. The Compensation Committee shall determine the repayment schedule for each amount of Erroneously Awarded Compensation in a manner that complies with this “reasonably promptly” requirement. Such determination shall be consistent with any applicable legal guidance by the SEC, Nasdaq, judicial opinion, or otherwise. The determination of “reasonably promptly” may vary from case to case and the Compensation Committee is authorized to adopt additional rules or policies to further describe what repayment schedules satisfy this requirement.
| 1. | Erroneously Awarded Compensation need not be recovered if the direct expense paid to a third party to assist in enforcing (or making determinations in connection with the enforcement of) this Policy would exceed the amount to be recovered and the Compensation Committee has made a determination that recovery would be impracticable. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of enforcement, the Company shall (i) make a reasonable attempt to recover such Erroneously Awarded Compensation, (ii) document such reasonable attempt or attempts to recover, and (iii) provide appropriate documentation to the Compensation Committee or Nasdaq, if requested. |
| 2. | Erroneously Awarded Compensation need not be recovered if recovery would violate home country law where that law was adopted prior to November 28, 2022. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on a violation of home country law, the Company shall obtain an opinion of home country counsel, in form and substance that would be reasonably acceptable to Nasdaq, that recovery would result in such a violation and shall provide such opinion to Nasdaq, if requested. |
| 3. | Erroneously Awarded Compensation need not be recovered if recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the regulations thereunder (as such provision may be amended, modified or supplemented). |
| E. | Compensation Committee Decisions |
Decisions of the Compensation Committee with respect to this Policy shall be final, conclusive and binding on all Executive Officers subject to this Policy.
| F. | No Indemnification |
Notwithstanding anything to the contrary in any other policy of the Company or any agreement between the Company and an Executive Officer, no Executive Officer shall be indemnified by the Company against the loss arising from the recovery of any Erroneously Awarded Compensation.
| G. | Agreement to Policy by Executive Officers |
The Company shall take reasonable steps to inform Executive Officers of this Policy and obtain their express agreement to this Policy, which steps may constitute the inclusion of this Policy as an attachment to any award that is accepted by an Executive Officer. This Policy shall be deemed to apply to each employment or grant agreement between the Company or any of its subsidiaries and any Executive Officer subject to this Policy.
LAKESIDE HOLDING LIMITEDEXECUTIVE COMPENSATION CLAWBACK POLICY
I, _____________________________, hereby certify that I have received a copy of Lakeside Holding Limited’s Executive Compensation Clawback Policy (the “Executive Compensation Clawback Policy”). Further, I certify that I have reviewed the Executive Compensation Clawback Policy, understand the policies and procedures contained therein and agree to be bound by and adhere to these policies and procedures.
| Signature | Date |