QNME 10-Q
Quanome Technologies, Inc. (QNME)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to .
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(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 | ||
| The |
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. ☒
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
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions 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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company,
indicate by check mark 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
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As of the date of this report,
the Registrant had
Lakeside Holding Limited
FORM 10-Q
For the Quarterly Period Ended March 31, 2026
INDEX
i
EXPLANATORY NOTE
As used in this Quarterly Report on Form 10-Q, unless otherwise indicated or the context otherwise requires, references to “Lakeside,” “the Company,” “we,” “us,” and “our” refer to Lakeside Holding Limited together with its consolidated subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain statements related to future results, or states our intentions, beliefs, and expectations or predictions for the future, all of which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent management’s expectations or forecasts of future events. Forward-looking statements are typically identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “project,” “intend,” “plan,” “probably,” “potential,” “looking forward,” “continue,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will,” and “would.” You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Forward-looking statements in this Form 10-Q may include, for example, statements concerning:
| ● | our future operating and financial performance, ability to generate positive cash flow and ability to achieve and sustain profitability; |
| ● | our competitive position; |
| ● | the sufficiency of our existing capital resources to fund our future operating expenses; |
| ● | the timing of the introduction of new solutions and services; |
| ● | the likelihood of success in and impact of litigation; |
| ● | our protection or enforcement of our intellectual property rights; |
| ● | our expectation with respect to securities, options and future markets and general economic conditions; |
| ● | our ability to keep up with rapid technological change; |
| ● | the impact of future legislation and regulatory changes on our business; and |
| ● | our anticipated use of proceeds from our initial public offering. |
Any or all of our forward-looking statements may turn out to be inaccurate, and there are no guarantees about our performance. The factors identified above are not exhaustive. We operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, readers should not place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We are under no (and expressly disclaim any) obligation to update or alter any forward-looking statement that we may make from time to time, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.
ii
LAKESIDE HOLDING LIMITED
INDEX TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-1
LAKESIDE HOLDING LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2026 (UNAUDITED) AND JUNE 30, 2025
| As of March 31, 2026 (unaudited) | As of June 30, 2025 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable – third parties, net of credit loss allowance of $ | ||||||||
| Note receivable | ||||||||
| Prepayment, deposit and other receivable | ||||||||
| Inventories, net | ||||||||
| Right of return asset | ||||||||
| Loan receivable from a third party, net of credit loss allowance of $ | ||||||||
| Current assets from discontinued operation | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Property and equipment at cost, net of accumulated depreciation | ||||||||
| Intangible assets, net | ||||||||
| Right of use operating lease assets, net | ||||||||
| Deposit | ||||||||
| Non-current assets from discontinued operation | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payables | $ | $ | ||||||
| Accrued liabilities and other payables | ||||||||
| Current portion of obligations under operating leases | ||||||||
| Loans payable, current | ||||||||
| Contract liabilities | ||||||||
| Tax payable | ||||||||
| Convertible debts - current | ||||||||
| Refund liabilities | ||||||||
| Current liabilities from discontinued operation | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Loans payable, non-current | ||||||||
| Deferred tax liabilities | ||||||||
| Obligations under operating leases, non-current | ||||||||
| Non-current liabilities from discontinued operation | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingencies | ||||||||
| EQUITY | ||||||||
| Common stocks, $ | ||||||||
| Subscription receivable | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total equity | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
F-2
LAKESIDE HOLDING LIMITED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2026 AND 2025(UNAUDITED)
| Nine Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Provision of allowance for expected credit loss on accounts receivable | ||||||||||||||||
| Provision of allowance for expected credit loss on loan receivable | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) from discontinued operation, net of tax provision: | ||||||||||||||||
| Loss from discontinued operation before the sale of ABL Chicago | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale of ABL Chicago | ||||||||||||||||
| Net income (loss) from discontinued operation | ( | ) | ( | ) | ||||||||||||
| NET (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation income (loss) | ( | ) | ||||||||||||||
| Comprehensive income (loss) attributable to the Company | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Basic and Diluted Net Income (Loss) per Common Share | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations, net of tax | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted Average Shares Outstanding – basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
F-3
LAKESIDE HOLDING LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
| For The Three Months Ended March 31, 2025 | ||||||||||||||||||||||||||||
| Common Shares | Amount | Additional Paid in Capital | Statutory Reserves | Deficits | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||
| Balance at December 31, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Statutory reserve | — | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||||||
| Issuance of convertible note | — | |||||||||||||||||||||||||||
| Balance at March 31, 2025 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| For The Nine Months Ended March 31, 2025 | ||||||||||||||||||||||||||||||||
| Common Shares | Amount | Subscription Receivable | Additional Paid in Capital | Statutory Reserves | Deficits | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Paid in capital | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Statutory reserve | — | ( | ) | |||||||||||||||||||||||||||||
| Initial public offering, net of share issuance costs | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Issuance of convertible note | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2025 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| For The Three Months Ended March 31, 2026 | ||||||||||||||||||||||||||||||||
| Common Shares | Amount | Subscription Receivable | Additional Paid in Capital | Statutory Reserves | Deficits | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||
| Balance at December 31, 2025 (unaudited) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Statutory reserve | — | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation gain | — | |||||||||||||||||||||||||||||||
| Issuance of common shares - Private placement | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2026 (unaudited) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| For The Nine Months Ended March 31, 2026 | ||||||||||||||||||||||||||||||||
| Common Shares | Amount | Subscription Receivable | Additional Paid in Capital | Statutory Reserves | Deficits | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Statutory reserve | — | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation gain | — | |||||||||||||||||||||||||||||||
| Common stock issued for consulting services | ||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of Convertible note | ||||||||||||||||||||||||||||||||
| Issuance of common shares - Private placement | ( | ) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2026 (unaudited) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
F-4
LAKESIDE HOLDING LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
| For the Nine Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| (Income) loss from discontinued operation, net of tax provision | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible asset | ||||||||
| Lease expense of operating lease assets | ||||||||
| Provision of allowance for expected credit loss on accounts receivable | ||||||||
| Provision of allowance for expected credit loss on loan receivable | ||||||||
| Amortization of discount and bond issuance cost | ||||||||
| Accrued interest expense of convertible debt | ||||||||
| Deferred tax expense | ( | ) | ( | ) | ||||
| Interest income | ( | ) | ( | ) | ||||
| Stock-based compensation expense for consulting services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Note receivables | ||||||||
| Inventories | ( | ) | ||||||
| Right of return asset | ||||||||
| Prepayment, deposit and other receivable | ( | ) | ( | ) | ||||
| Accounts payables | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Accrued expense and other payables | ||||||||
| Refund liabilities | ||||||||
| Tax payable | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of furniture and equipment | ( | ) | ||||||
| Payment for leasehold improvement | ( | ) | ||||||
| Net cash payment for asset acquisition | ( | ) | ||||||
| Loan to a third party | ( | ) | ( | ) | ||||
| Net cash used in investing activities from continuing operations | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of loans | ( | ) | ||||||
| Net proceeds from issuance of convertible notes | ||||||||
| Repayment of principal of convertible debt | ( | ) | ||||||
| Repayment of equipment and vehicle loans | ( | ) | ||||||
| Advances from Hupan Pharmaceutical prior to acquisition | ||||||||
| Proceeds from initial public offering, net of share issuance costs | ||||||||
| Proceeds from a private placement | ||||||||
| Repayment to shareholders | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| CASH FLOWS FROM DISCONTINUED OPERATION | ||||||||
| Operating activities | ( | ) | ( | ) | ||||
| Investing activities | ( | ) | ||||||
| Financing activities | ( | ) | ||||||
| Cash sold in connection with sales of ABL Chicago | ( | ) | ||||||
| Net cash used in discontinued operation | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | ||||||||
| Less: cash and cash equivalents of discontinued operations | ||||||||
| Cash, end of the period for continuing operations | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH ACTIVITIES | ||||||||
| Right of use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Right of use assets obtained in exchange for finance lease obligation | $ | $ | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH IN INVESTING AND FINANCING ACTIVITIES | ||||||||
| Property additions included in loan payable | $ | $ | ||||||
| Additions to leasehold improvement through accounts payable and other payable | $ | $ | ||||||
| Due to shareholder offset against due from related parties | $ | $ | ||||||
| Convertible notes converted to common shares | $ | |||||||
| Issuance of common shares in exchange for consulting service | $ | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
F-5
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Lakeside Holding Limited (the
“Company”), is a holding company established on August 28, 2023 under the laws of the State of Nevada. The Company, acting
through its subsidiary, is primarily engaged in distribution of pharmaceutical and medical products. On July 1, 2024, the Company closed
its initial public offering (“IPO”) of
As of March 31, 2026, the Company’s subsidiaries are as follows:
| Name | Date of Incorporation/ Acquisition | Jurisdiction of Formation | Percentage of direct/indirect Economic Ownership | Principal Activities | ||||
| Parent Company | ||||||||
| Lakeside Holding Limited | Parent | |||||||
| Subsidiaries/companies with ownership | ||||||||
| American Bear Logistics Corp. (“ABL Chicago”)* | - | |||||||
| Sichuan Hupan Jincheng Enterprise Management Co., Ltd (“Sichuan Hupan”) | ||||||||
| Hupan Pharmaceutical (Hubei) Co., Ltd (“Hupan Pharmaceutical”) | ||||||||
| Smart Reserve Holding LTD | | |||||||
| Smart Reserve Inc | |
| * |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended June 30, 2025.
In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements include all adjustments, which are only of a normal and recurring nature, necessary for a fair statement of the financial position of the Company as of March 31, 2026, and its results of operations and cash flows for the nine-month period then ended. Operating results for the three and nine months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2026.
F-6
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Going concern
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of March 31, 2026, the Company had an accumulated deficit of approximately
$
These factors, among others, raise the substantial doubt regarding the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provide the opportunity for the Company to continue as a going concern.
Discontinued Operations
On May 15, 2026, the Company entered into a Share Purchase Agreement with an unrelated third party for the disposition of ABL Chicago (the “Transaction”) and the transaction was legally finalized on May 16, 2026.
Effective February 12, 2026, the buyer assumed substantive decision-making authority and operational control over the transferred business and obtained the rights to substantially all economic benefits and obligations associated with the ownership of the business. In addition, the Company no longer retained substantive continuing involvement in the operations of ABL Chicago.
Accordingly, the Company accounted for the Transaction as a disposal/deconsolidation effective February 12, 2026 in accordance with ASC 810-10-40-4.
The Company recognized a
gain (loss) on disposal of $
The assets and liabilities related to ABL Chicago were classified as discontinued operations and presented as “Assets of discontinued operations” and “Liabilities of discontinued operations,” respectively, in the accompanying condensed consolidated balance sheets prior to disposal. The results of operations of ABL Chicago are included in “Loss from discontinued operations, net of tax provision” in the accompanying condensed consolidated statements of operations and comprehensive income (loss). For comparative purposes, all prior periods presented have been reclassified to reflect the classifications on a consistent basis (see Note 15).
Reclassifications
Certain prior year balances have been reclassified in order to conform to current year presentation. These reclassifications have no effect on previously reported results of operations or loss per share.
F-7
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Use of estimates and assumptions
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant accounting estimates required to be made by management include allowance for credit losses on account receivable and loan receivable from a third party, return liabilities, percentage of performance obligation completed at the reporting period, the measurements of convertible debts with accompanying warrants. 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 unrestricted
balances held with banks and deposits at banks or other financial institutions, which are available for withdrawal or use and have original
maturities of three months or less. The Company maintains its bank accounts in the United States, which are insured by Federal Deposit
Insurance Corporation (“FDIC”) at a limit of $
As of March 31, 2026 and June
30, 2025, the Company had approximately $
Accounts receivable, net
Accounts receivables are carried
at the original invoiced amount less an estimated allowance for expected credit losses based on the probability of future collection.
The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the
collectability of individual balances. The Company grant credit to customers, without collateral, under normal payment terms. The Company
uses a loss rate method to estimate allowance for credit losses for accounts receivable from cross-border freights solutions and aging
schedule to estimate the allowance for credit losses for accounts receivable from distribution of pharmaceutical products respectively.
Loss-rate approach is based on the historical loss rates. 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. For those past due balances over
F-8
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Notes receivable, net
Notes receivable represents bank acceptance notes issued by financial institutions in the People’s Republic of China (“PRC”), typically received from customers as settlement for trade receivables. These notes are payable at a specified future date and are guaranteed by the issuing bank.
As of March 31, 2026 and June
30, 2025, the Company held notes receivable totaling $ and $
Loan receivable from a third party and allowance for credit losses
Loans receivable from a third
party are recorded at amortized cost, representing the principal amount and interest receivable outstanding net of any allowance for credit
losses (see Note 5). The Company accounts for credit losses under ASC Topic 326, Financial Instruments—Credit Losses, which requires
the immediate recognition of estimated credit losses expected to occur over the remaining life of the financial asset. The Company determines
the allowance for credit losses by utilizing a Probability of Default (“PD”) and Loss Given Default (“LGD”) methodology.
As of March 31, 2026 and June 30, 2025, the Company recorded an allowance for expected credit losses of $
Inventories, net
Inventories are stated at the lower of cost or net realizable value, using the first-in, first out (FIFO) method. Costs include the cost of pharmaceutical products. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is estimated using selling price in the normal course of business less any costs to complete and sell products. As of March 31, 2026 and June 30, 2025, the Company did not record any inventory provision.
Property and equipment
Property and equipment are
stated at cost less accumulated depreciation.
| Useful life | ||
| Furniture and fixtures | ||
| Machinery equipment | ||
| Vehicles | ||
| Software | ||
| Leasehold improvement |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in other income or expenses in the unaudited condensed consolidated statements of income (loss) and other comprehensive income (loss).
F-9
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Intangible Assets, net
Intangible assets consist primarily of business license acquired from asset acquisition. It grants the Company the right of selling and distributing pharmaceutical products and solutions in mainland China.
Intangible assets are stated
at cost less accumulated amortization. The license is amortized using the straight-line method over the estimated useful economic life
of
Accounts payable
The account payables are derived
from logistics and forwarding service providers and from the pharmaceutical products supplier. Balances due to logistics service providers
are typically settled within
Impairment of long-lived asset
Long-lived assets, including plant, property and equipment and intangible asset, are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. The Company reviews the impairment of its right-of-use assets and intangible asset consistent with the approach applied for its other long-lived assets. impairment charge was recognized for the three months and nine months ended March 31, 2026 and 2025, respectively.
Asset acquisition
When an acquisition is related to a single asset or a group of similar assets, or does not meet the definition of a business combination, as the acquired entity does not have an input and a substantive process that together significantly contribute to the ability to create outputs, we account for the acquisition as an asset acquisition. In an asset acquisition, any direct acquisition-related transaction costs are capitalized as part of the purchase consideration. Deferred taxes are recorded on temporary book/tax differences in an asset acquisition using the simultaneous equations method and adjusted the assigned value of the non-monetary assets acquired to include the deferred tax liability (see Note 20).
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.
F-10
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Leases (cont.)
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 unaudited condensed 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 unaudited condensed 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 unaudited condensed 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.
Related parties
The Company adopted ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
F-11
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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, other receivables, loan receivable balance from a third party, accounts payable, convertible debts - current, other payables 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 March 31, 2026 and June 30, 2025.
Convertible debts
In accordance with ASC 470,
Debt (“ASC 470”) the Company records its
F-12
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Convertible debts (cont.)
Debt issuance costs
Direct and incremental costs
and original issue discounts and premiums incurred in connection with the issuance of long-term debt are deferred and amortized to interest
expense using the effective interest method or, if the amounts approximate the effective interest method, on a straight-line basis. All
debt issuance costs are presented as a direct reduction of debt on the unaudited condensed consolidated balance sheets. Approximately
$
Common stock warrants
The Company evaluates common stock warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity. The Company assesses whether common stock warrants are freestanding financial instruments and whether they meet the criteria to be classified in stockholders’ equity, or classified as a liability. Where common stock warrants do not meet the conditions to be classified in equity, the Company assesses whether they meet the definition of a liability under ASC 815.
Revenue recognition
The Company adopted ASC Topic 606 “Revenue from Contracts with Customers” and all subsequent ASUs that modified ASC 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies the following steps:
Step 1: Identify the contract (s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
F-13
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue recognition (cont.)
The Company generates revenue from providing cross-border ocean and airfreight solutions and distribution of pharmaceutical products. No practical expedients were used when adoption ASC606. Revenue recognition policies are as follows:
Revenue recognized from continuing operations during the three and nine months ended March 31, 2026 and 2025 was from the following sources:
Revenue from distribution of pharmaceutical products
The Company generates revenue from the distribution of pharmaceutical and medical products. The Company orders products from the manufacturer, receives and carries the product at a designated warehouse, and delivers the product directly to its customers’ warehouses or designated locations. Revenue is recognized at a point in time when control of goods is transferred to the customers upon goods delivered to the customers and accepted by the customers.
Principal and agent considerations
In the Company’s distribution of pharmaceutical products business, the Company determined that in all of its major business activities, it serves as a principal rather than an agent within their revenue arrangements under the fact that the Company controls the goods before they are transferred to customers, bears inventory risk, and has discretion in establishing pricing. As a principal, the Company recognizes revenue on a gross basis within the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
Contract liabilities
Contract liabilities represent estimated advances received from customers.
The contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting period. Contract
liabilities are recognized when the Company receives prepayment from customers resulting from purchase order. Contract liabilities will
be recognized as revenue when the products are delivered. As of March 31, 2026 and June 30, 2025, the Company recorded contract liabilities
of $
F-14
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Refund liabilities and right of returned assets
Refund liabilities represent the estimated amount of consideration
expected to be refunded to customers and are recorded at the time revenue is recognized. Refund allowances are recorded as a reduction
in sales with corresponding refund liabilities, and the estimated cost of refunded inventory is recorded as a reduction to cost of sales
and an increase of right of return assets. The estimate is based on historical refund patterns, current trends, and contractual terms.
If actual results differ from the estimates, the Company revises its estimated refund liabilities accordingly. Each period end, the Company
reviews and reassesses the adequacy of its recorded refund liabilities and adjusts the amount as necessary. As of March 31, 2026 and June
30, 2025, the Company recorded refund liabilities of $
Cost of revenues
In the Company’s transportation business, cost of revenue primarily consists of the transportation and delivery costs, warehouse service charges, custom declaration and terminal charges, freight arrangement charges and other overhead cost allocation, which includes operating and financing lease-related costs, the depreciation expenses of property and equipment, and others miscellaneous items.
In the Company’s distribution of pharmaceutical products business, cost of revenues primarily consists of cost of products, less discount and rebate.
Selling expenses
Selling expenses primarily include salaries expense, advertising expense, marketing expense of a system, entertainment expense and traveling expense of sales team engaged in developing potential customers and maintaining customer relationships and transportation cost for selling pharmaceutical products.
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 of warehouses used for administrative purpose and office premises, 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
F-15
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Employee defined contribution plan
Full-time employees of the
Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits,
medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to them. Chinese labor regulations
require that the Company make contributions to the government for these benefits based on government prescribed percentage of the employee’s
salaries. The Company has no legal obligation for the benefits beyond the contributions. The total amount was expensed as incurred. For
the three months ended March 31, 2026 and 2025, employee welfare contribution expenses amounted to approximately $
Value added tax (“VAT”)
Revenue represents the invoiced
value of goods and service, net of VAT. The VAT is based on gross sales price and VAT rates range up to
Rental income
The Company subleased portion of its offices area, warehouse and parking lots to third parties and related parties. The Company recognizes rental income over the sublease period.
Income taxes
The Company’s U.S. subsidiaries
are subjected to U.S. federal income tax at
The Company’s PRC subsidiaries
are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable
tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under
the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises and Foreign Investment Enterprises (the “FIE”)
are usually subject to
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 March 31, 2026 and June 30, 2025, the Company did not have a liability for unrecognized tax benefits. It is the Company’s policy to include 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-16
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Statutory reserves
The Company’s PRC subsidiaries are required to allocate at least
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of equity but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar as its functional currencies.
Basic and diluted earnings (loss) per share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the three months and nine months ended March 31, 2026 and 2025, the Company reported a net loss. As a result, all potentially dilutive securities, including the convertible debenture, were excluded from the calculation of diluted loss per share because their inclusion would have been antidilutive.
Foreign currency transactions
Our reporting currency is the U.S. dollar. The functional currency of our operations, except for Sichuan Hupan and Hupan Pharmaceutical, is the U.S. dollar. The functional currency of Sichuan Hupan and Hupan Pharmaceutical is the RMB. The assets, liabilities, revenues, and expenses of Sichuan Hupan and Hupan Pharmaceutical are remeasured in accordance with ASC 830. For the three and nine months ended March 31, 2026, assets and liabilities of Sichuan Hupan and Hupan Pharmaceutical are translated into U.S. dollars based upon exchange rates prevailing at the end of the year. Revenues and expenses of Sichuan Hupan and Hupan Pharmaceutical are translated at average exchange rates during the reporting period. The resulting translation adjustment is included in accumulated other comprehensive loss.
The following table outlines the currency exchange rates that were used in creating the unaudited condensed consolidated financial statements in this report:
| March 31, 2026 | March 31, 2025 | |||
| Balance sheet items, except for equity accounts | US$ | US$ | ||
| Items in the statements of income and cash flows | US$ | US$ |
F-17
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
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, accounts receivable, note receivable, other receivable and loan receivable balance from a third party. The Company has designed their credit policies with an objective to minimize their exposure to credit risk.
The maximum exposure of such
assets to credit risk is their carrying amounts at the balance sheet dates. The Company maintains majority of bank accounts in mainland
China, where there is a RMB
The Company also has the bank
accounts at financial institutions in the United States, where there is $
The Company has adopted a credit policy of dealing with creditworthy
counterparties to mitigate the credit risk from defaults. The management team conducts credit evaluations of its customers, and generally
does not require collateral or other security from them. The Company establishes an accounting policy to provide for allowance for credit
loss based on the individual customer’s financial condition, credit history, and the future economic conditions. Except loan receivable
from a third party and other receivable are monitored on an ongoing basis with the result that the Company’s exposure to impairment
is not significant. As of March 31, 2026 and June 30, 2025, the Company recognized an allowance for credit loss of $
F-18
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Concentrations and risks (cont.)
b. Foreign exchange risk
Our subsidiaries in PRC have functional currency in RMB. PRC subsidiaries’ expense transactions are denominated in RMB and their assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the Chinese Yuan against the U.S. dollar is affected by the changes in China and United States economic conditions. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Also, considering the volume of its business, the impact of foreign exchange risk is limited.
c. Interest rate risk
The 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, convertible debenture 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 rate and the 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 analyzes its cash flow position, its ability to generate sufficient revenue sources in the future and its operating and capital expenditure commitments. The Company typically funds the working capital needed primarily from operations, loans, shareholder advances to the Company, as well as the external financing activities.
e. Significant customers and suppliers
For the nine months ended March 31, 2026, four third-party customers
individually accounted for
As of March 31, 2026, three third-party customers individually accounted
for
For the nine months ended
March 31, 2026, two third-party vendors accounted for
As of March 31, 2026, three third-party vendors individually accounted
for
F-19
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Derivatives and Hedging (Topic 815), or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The guidance also requires the if-converted method to be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a retrospective or a retrospective approach. The Company has adopted ASU 2020-06 using the retrospective approach in fiscal 2025.
In April 2024, the Company adopted ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which improves reportable segment disclosure requirements. The amendments require the disclosure of (1) significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss; (2) an amount for other segment items by reportable segment and a description of its composition; and (3) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s). The amendments also provide disclosure requirements for interim periods and entities that have a single reportable segment. Details of segment reporting are set out in Note 18.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which improves income tax disclosures. The amendments require the disclosure of specific categories in rate reconciliation and additional information for reconciling items that meet a quantitative threshold. The amendments also require disaggregated information about the amount of income taxes paid (net of refunds received), Income (or loss) from continuing operations before income tax expense (or benefit) and Income tax expense (or benefit) from continuing operations. The new guidance is required to be applied either prospectively or retrospectively. This guidance is effective for the Company for the year ending June 30, 2026. Early adoption is permitted. The Company is evaluating the impact of the adoption of this guidance.
In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” and issued subsequent amendment within ASU 2025-01. The amendments require disaggregation disclosure for certain expense captions presented on the face of income statement, as well as additional disclosure about selling expenses. This guidance is effective for the Company for the year ending June 30, 2028 and interim reporting periods during the year ending December 31, 2029. Early adoption is permitted. The Company is evaluating the impact of the adoption of this guidance on its disclosures.
F-20
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Recent accounting pronouncements (cont.)
In November 2024, the FASB issued ASU 2024-04, “Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments,” which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. The amendments also clarify some specific applications of induced conversion guidance and that the guidance applies to a convertible debt instrument that is not currently convertible as long as it had a substantive conversion feature as of both its issuance date and the date the inducement offer is accepted. The new guidance is required to be applied either prospectively or retrospectively. This guidance is effective for the Company for the year ending June 30, 2027. Early adoption is permitted. The Company is evaluating the impact of the adoption of this guidance.
In May 2025, the FASB issued ASU 2025-03, “Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity,” which requires an entity involved in an acquisition transaction effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider specific factors to determine the accounting acquirer and removes the requirement that the primary beneficiary always is the acquirer for certain transactions. Under the amendments, acquisition transactions in which the legal acquiree is a VIE will, in more instances, result in the same accounting outcomes as economically similar transactions in which the legal acquiree is a voting interest entity. The amendments do not change the accounting for a transaction determined to be a reverse acquisition or a transaction in which the legal acquirer is not a business and is determined to be the accounting acquiree. The new guidance is required to be applied prospectively to any acquisition transaction that occurs after the initial application date. This guidance is effective for the Company for the year ending June 30, 2028. Early adoption is permitted. The Company is evaluating the impact of the adoption of this guidance.
In September 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Scope Refinements. This update clarifies the application of derivative accounting to certain contracts and refines the guidance for share-based noncash consideration received from customers. Specifically, ASU 2025-07 introduces a scope exception for contracts that are not exchange-traded and whose underlying is tied to operations or activities specific to one party. It also clarifies that share-based noncash consideration from a customer should initially be accounted for under Topic 606 until the right to receive or retain such consideration becomes unconditional, at which point financial instruments guidance may apply. The amendments are effective for the Company for the year ending June 30, 2028, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2025-07 on its unaudited condensed consolidated financial statements and related disclosures.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows.
F-21
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
| March 31, 2026 | June 30, 2025 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for credit loss | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Approximately $
The movement of allowance for credit loss for the nine months ended March 31, 2026 and the year ended June 30, 2025 is as follows:
| March 31, 2026 | June 30, 2025 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision of expected credit loss allowance | ||||||||
| Effect of foreign exchange translation | ||||||||
| Ending balance | $ | $ | ||||||
The Company recorded addition
of allowance for credit loss of $
NOTE 4 — INVENTORIES, NET
Inventories, net consists of the following:
| March 31, 2026 | June 30, 2025 | |||||||
| Finished goods | $ | $ | ||||||
| Less: inventory allowance | ||||||||
| Inventories, net | $ | $ | ||||||
NOTE 5 — LOAN RECEIVABLE FROM A THIRD PARTY, NET
On October 8, 2024, the Company
entered into a loan agreement with a third party providing for a principal amount of up to $
F-22
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 — LOAN RECEIVABLE FROM A THIRD PARTY, NET (cont.)
For the nine months ended
March 31, 2026, the Company recognized an expected credit loss allowance of $
| March 31, 2026 | June 30, 2025 | |||||||
| Loan balance | $ | $ | ||||||
| Less: expected credit loss allowance | ( | ) | ||||||
| Loan balance, net | $ | $ | ||||||
The Company recognized interest
income of $
NOTE 6 — PREPAYMENT, DEPOSIT AND OTHER RECEIVABLE
| March 31, 2026 | June 30, 2025 | |||||||
| Prepayment and other deposits (a) | $ | $ | ||||||
| Rent deposits | ||||||||
| Advance to suppliers (b) | ||||||||
| Ending balance | ||||||||
| Less: non-current portion | ( | ) | ( | ) | ||||
| Current portion | $ | $ | ||||||
| (a) |
| (b) |
NOTE 7 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
| March 31, 2026 | June 30, 2025 | |||||||
| Furniture and Fixtures | $ | $ | ||||||
| Machinery equipment | ||||||||
| Vehicles | ||||||||
| Software | ||||||||
| Leasehold improvement | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
F-23
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 — PROPERTY AND EQUIPMENT, NET (cont.)
Depreciation expense recorded
in general and administrative expense was $
Depreciation expense recorded
in general and administrative expense was $
NOTE 8 — INTANGIBLE ASSETS, NET
Net intangible assets consist of the following:
| March 31, 2026 | June 30, 2025 | |||||||
| License | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | $ | $ | ||||||
On November 5, 2024, the Company
purchased a license of pharmaceutical distribution in Mainland China through its acquisition of
Amortization expense of $
NOTE 9 — LEASES
The Company has two lease agreements for offices. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Total operating lease expenses
on offices for the three months ended March 31, 2026 and 2025 were $
Total operating lease expenses
on offices for the nine months ended March 31, 2026 and 2025 were $
F-24
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 — LEASES (cont.)
The following table includes supplemental cash flow and non-cash information related to leases:
| For the Nine Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash paid of amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease terms and discount rates for all of operating lease is as follows:
| March 31, 2026 | June 30, 2025 | |||||||
| Weighted-average remaining lease term (years): | ||||||||
| Operating lease | ||||||||
| Weighted average discount rate: | ||||||||
| Operating lease | % | % | ||||||
The following is a schedule of maturities of operating lease liabilities as of March 31, 2026:
Operating leases
| Twelve months ending March 31, | Repayment | |||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total future minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
NOTE 10 — ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables comprise the following amounts relating to the operation of the Company
| March 31, 2026 | June 30, 2025 | |||||||
| Credit card payables | $ | $ | ||||||
| Payroll liabilities | ||||||||
| Accrued expense | ||||||||
| Other payables | ||||||||
| Total | $ | $ | ||||||
F-25
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 — LOANS PAYABLE
The loan balance consists of the following:
| March 31, 2026 | June 30, 2025 | |||||||
| Loan A | $ | $ | ||||||
| Loan B | ||||||||
| Loan C | ||||||||
| Loan D | ||||||||
| Total | ||||||||
| Less: loan payable, current | ( | ) | ( | ) | ||||
| Loan payable, non-current | $ | $ | ||||||
| (A) | |
| (B) | |
| (C) | The Company entered a loan of $
During the nine months ended March 31, 2026, the Company cancelled an insurance policy associated with a loan arrangement and, as a result, was legally released from its obligation to repay the related loan. The Company determined that the liability had been extinguished as it was no longer the primary obligor. Accordingly, the Company derecognized the outstanding loan balance and recognized a gain on extinguishment of debt of $ |
| (D) |
F-26
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 — CONVERTIBLE DEBTS
On March 5, 2025, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an institutional investor (the “Investor”).
Under the Securities Purchase
Agreement, the Company agreed to issue
Pursuant to the Securities
Purchase Agreement, the Company agreed to issue, upon the consummation of the closing of each tranche, common stock purchase warrants
(“Warrants”) to the Investor, in each case to purchase a number of shares of common stock determined by dividing
The Note does not bear any
interest absent an Event of Default (as defined in the Note) and matures on June 5, 2026. Commencing on the earlier of (i) the 60-day
anniversary after the date hereof and (ii) the date on which the first Resale Registration Statement shall have been declared effective
by the Commission, the Company is required to pay to the Investor the outstanding principal balance under the Note in monthly installments,
on such date and each one (1) month anniversary thereof, in an amount equal to
On April 22, 2025, the Second
Closing of the First Tranche was consummated. The Company issued Investor Warrants to purchase
F-27
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 — CONVERTIBLE DEBTS (cont.)
The Company evaluated the Note with conversion features and the detachable warrant under the guidance of ASC 470-20, “Debt with Conversion and Other Options, as amended by ASU 2020-06” and ASC 815, “Derivatives and Hedging.” The Company determined that the warrant met the criteria for equity classification under ASC 815-40. Accordingly, the relative fair value of the warrant was recorded as a component of additional paid-in capital on the issuance date.
The Company determined that embedded derivative meets the definition of derivative instruments under ASC 815, Derivatives and Hedging. Following the adoption of ASU 2020-06, the Notes are recorded as a single unit within liabilities in the unaudited condensed consolidated balance sheets as the conversion features within the Notes are not derivatives that require bifurcation and the Notes do not involve a substantial premium.
The Company accounted for the host debt as a liability recorded at amortized cost under ASC 470-10, net of issuance costs and any discount that allocated to debt component.
The debt discount and issuance cost will be amortized to interest expense over the term of the Note using the effective interest method.
The Company recorded $
The Company recorded $
The relative fair value of
warrants of first closing of the first tranche was estimated using the Black-Scholes pricing model with the following weighted-average
assumptions: market value of underlying share of $
The relative fair value of
warrants of second closing of the first tranche was estimated using the Black-Scholes pricing model with the following weighted-average
assumptions: market value of underlying share of $
The Company applied the relative fair value method to allocate the proceeds from the issuance of convertible debt. The Note’s original issue discount and incurred total issuance costs were allocated to the note payable and warrants on the relative fair value basis in accordance with ASC 835-30 and ASC 470-20. The debt discount and issuance cost allocated to the loan component will be amortized to interest expense over the term of the Convertible Debts using the effective interest method.
F-28
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 — CONVERTIBLE DEBTS (cont.)
The initial purchaser’s
discount and debt issuance costs primarily consisted of underwriting fees, lawyers fee, investor legal fee, auditor fee and SEC registration
fee.
| Amount | Equity Component | Debt Component | ||||||||||
| Initial purchaser’s debt discount | $ | $ | $ | |||||||||
| Debt issuance cost | ||||||||||||
| Total | $ | $ | $ | |||||||||
The portion allocated to debt
component is amortized to interest expense using the effective interest method over the effected life of the Notes, or approximately
During the nine months ended March 31, 2026, the holder of the Company’s convertible notes converted portions of the outstanding principal balance into shares of the Company’s common stock pursuant to the original terms of the respective note agreements.
The conversions occurred on
multiple dates throughout the period and resulted in the issuance of an aggregate of
The conversions were accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options, as conversions under the original terms of the agreements. Accordingly, the carrying amount of the debt, including any unamortized discount, was reclassified to equity upon conversion, and no gain or loss was recognized.
As of March 31, 2026, the
Company had $
| March 31, 2026 | June 30, 2025 | |||||||
| Long term debt | ||||||||
| Outstanding principal | $ | $ | ||||||
| Unamortized Initial Purchaser’s debt discount and debt issuance cost | ( | ) | ||||||
| Accrued interest | ||||||||
| Net carrying amount | $ | $ | ||||||
| Convertible debts, current | $ | $ | ||||||
The Company recognized interest
expense of $
F-29
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 13 — GENERAL AND ADMINISTRATIVE EXPENSES
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Payroll and staff benefit expense | $ | $ | ||||||
| Professional expense | ||||||||
| Travelling and entertainment | ||||||||
| Office expense | ||||||||
| Lease expense | ||||||||
| Insurance | ||||||||
| Other expense | ||||||||
| Depreciation on plant property and equipment | ||||||||
| Advertising | ||||||||
| Rent expense of short-term lease | ||||||||
| Amortization on intangible assets | ||||||||
| Bank charge | ||||||||
| Motor expense | ||||||||
| Management fee | ||||||||
| Repair & maintenance | ||||||||
| Total | $ | $ | ||||||
| For the Nine Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Payroll and staff benefit expense | $ | $ | ||||||
| Professional expense | ||||||||
| Travelling and entertainment | ||||||||
| Office expense | ||||||||
| Lease expense | ||||||||
| Insurance | ||||||||
| Other expense | ||||||||
| Depreciation on plant property and equipment | ||||||||
| Advertising | ||||||||
| Rent expense of short-term lease | ||||||||
| Amortization on intangible assets | ||||||||
| Bank charge | ||||||||
| Motor expense | ||||||||
| Management fee | ||||||||
| Repair & maintenance | ||||||||
| Total | $ | $ | ||||||
F-30
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 14 — TAXES
Corporate Income Taxes
Under the PRC Enterprise Income
Tax Law (the “EIT Law”), the standard enterprise income tax rate for domestic enterprises and foreign invested enterprises
is
As of March 31, 2026 and June 30, 2025, the Company did not have an accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. For the period ended March 31, 2026 and 2025, no amounts were incurred for income tax uncertainties or interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company’s tax years since its formation remain subject to possible income tax examination by its major taxing authorities for all periods.
The provision for income tax for the three months ended March 31, 2026 and 2025 consists of the following:
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Current income tax expense | $ | |||||||
| Deferred income tax credit | ( | ) | ( | ) | ||||
| Total income tax expense | $ | |||||||
The following table reconciles the statutory tax rate to the Company’s effective tax the three months ended March 31, 2026 and 2025:
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Loss before tax | $ | ( | ) | $ | ( | ) | ||
| Statutory state tax rate | % | % | ||||||
| Income tax credit at the federal statutory rate | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Tax effect on other tax jurisdiction | ( | ) | ||||||
| Non-deductible expense | ||||||||
| Total income tax expense | $ | $ | ||||||
The provision for income tax for the nine months ended March 31, 2026 and 2025 consists of the following:
| For the Nine Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Current income tax expense | $ | |||||||
| Deferred income tax credit | ( | ) | ( | ) | ||||
| Total income tax expense | $ | |||||||
F-31
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 14 — TAXES (cont.)
Corporate Income Taxes (cont.)
The following table reconciles the statutory tax rate to the Company’s effective tax the nine months ended March 31, 2026 and 2025:
| For the Nine Months Ended March 31 | ||||||||
| 2026 | 2025 | |||||||
| Loss before tax | $ | ( | ) | $ | ( | ) | ||
| Statutory state tax rate | % | % | ||||||
| Income tax credit at the federal statutory rate | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Tax effect on other tax jurisdiction | ( | ) | ||||||
| Non-deductible expense | ||||||||
| Total income tax expense | $ | $ | ||||||
The Company’s deferred tax assets and liabilities consist of the following:
| March 31 2026 | June 30, 2025 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for credit loss | $ | $ | ||||||
| Allowance for credit loss - loan receivable | ||||||||
| Refundable liability net of right of return asset | ||||||||
| Non-capital loss carried forward | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets | $ | $ | ||||||
| Deferred tax liabilities: | ||||||||
| Intangible asset – license | ( | ) | ( | ) | ||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Deferred tax liabilities, net | $ | ( | ) | $ | ( | ) | ||
As of March 31, 2026 and June 30, 2025, the accumulated tax losses
of subsidiaries incorporated in the U.S. of approximately $
F-32
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO
During the third quarter of 2026, the Company entered into the Share Purchase Agreement (“SPA”) to sell the equity interests of its subsidiaries that own and operate its ABL business (the “Sale Transaction”), subject to shareholder and regulatory approvals, for a total base purchase price of $1. The ABL Chicago business has been recast as discontinued operations, and the assets and liabilities of ABL Chicago are classified as assets and liabilities of discontinued operations. See Note 1 – Business Organization and Nature of Operations.
On February 12, 2026, the sale of 100% of the issued and outstanding shares of ABL Chicago was duly approved and adopted. Accordingly, the Company consummated the sale of the ABL Chicago business.
As of June 30, 2025, the major of assets and liabilities from discontinued operation included the following:
| As of June 30, 2025 |
||||
| ASSETS: | ||||
| Current Assets: | ||||
| Cash | $ | |||
| Accounts receivable – third parties, net | ||||
| Accounts receivable – related party, net | ||||
| Prepaid expenses and other assets– third parties | ||||
| Other receivable – related parties | ||||
| Contract assets | ||||
| Loan receivable – Related parties | ||||
| Current assets from discontinued operation | $ | |||
| Non-current Assets: | ||||
| Long-term investment | $ | |||
| Property and equipment, net | ||||
| Right of use operating lease assets, net | ||||
| Right of use financing lease assets, net | ||||
| Prepaid expenses and other assets | ||||
| Non-current assets from discontinued operation | $ | |||
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable– third parties | $ | |||
| Accounts payable– related party | ||||
| Accrued expenses and other liabilities | ||||
| Obligations under operating leases | ||||
| Obligations under financing leases | ||||
| Other loan payable | ||||
| Tax payable | ||||
| Current liabilities from discontinued operation | $ | |||
| Non-current liabilities | ||||
| Other loan payable | $ | |||
| Loan payable to related party | ||||
| Obligations under operating leases | ||||
| Obligations under financing leases | ||||
| Non-current liabilities from discontinued operation | $ | |||
F-33
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO (cont.)
Results of Discontinued Operations
Net income (loss) from discontinued operations details is as follows:
| Nine Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Loss from operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale of ABL Chicago | ||||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Net income (loss) from discontinued operations, before tax | ( | ) | ( | ) | ||||||||||||
| Income tax | ||||||||||||||||
| Income (loss) from discontinued operations, net of tax provision | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Revenue from discontinued operation
ABL Chicago generates revenue from providing cross-border ocean and airfreight solutions. No practical expedients were used when adoption ASC606. Revenue recognition policies are as follows:
Revenue from cross-border freights solutions
The Company provides comprehensive services in the United States for customers to transport goods from overseas to the United States and from the United States to overseas. Operating under service contracts, for goods entering the United States, after the goods arrive at a U.S. seaports or airports, the Company offers customs clearance, container unloading, storage, unpacking, packing, and transportation services to the locations specified by the customers. For customers shipping goods overseas, the Company provides cargo space arrangements, storage, packing, export customs clearance, and arranges transportation to seaports or airports for loading.
The transaction price is determined based on the range of services provided and the volume of goods. The Company considers these comprehensive services as one performance obligation since these promises are not distinct within the context of the contract, and the bundle of integrated services represents a combined output. This performance obligation is satisfied over time as customers receive the benefits of these services during the process of transporting goods from one location to another.
For goods entering the United States, the Company determines that the performance period for revenue recognition is between the pickup date and the date of completing delivery. For customers shipping goods overseas with cargo space booking service, the Company determines that the performance period for revenue recognition is between the container or cargo space confirmed date and the date of arrival at destination. For customers shipping goods overseas without cargo space booking service, the Company determines that the performance period for revenue recognition is between pickup date and the date when the goods depart from airport or port. The performance period may be estimated if the date of completing delivery or the departure date or arrival date has not occurred by the reporting date. The Company has determined that revenue recognition over the time in transit provides a reasonable estimate of the transfer of services to its customers as it depicts the pattern of the Company’s performance under the contracts with its customers. 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.
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.
Principal and agent considerations
In the Company’s transportation business, the Company utilizes independent contractors and third-party carriers and related party carriers in the performances of some transportation services as and when needed. U.S. GAAP requires us to evaluate, using a control model, whether the Company itself promises to provide services to the customers (as a principal) or to arrange for services to be provided by another party (as an agent). Based on the Company’s evaluation using a control model, the Company determined that in all of its major business activities, it serves as a principal rather than an agent within their revenue arrangements. Revenue and the associated purchased transportation costs are both reported on a gross basis within the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss).
F-34
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO (cont.)
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 allowance for credit losses for accounts receivable from cross-border freights solutions and aging
schedule to estimate the allowance for credit losses for accounts receivable from distribution of pharmaceutical products respectively.
Loss-rate approach is based on the historical loss rates. 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. For those past due balances over one year and other higher risk receivables identified by
the Company are reviewed individually for collectability. 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, 2025, the Company recorded
the allowance of credit loss of $
Accounts receivable, net consists of the following:
| June 30, 2025 | ||||
| Accounts receivable – third-party customers | $ | |||
| Less: allowance for credit loss – third-party customers | ( | ) | ||
| Accounts receivable from third-party customers, net | $ | |||
| Accounts receivable – related party customers | $ | |||
| Less: allowance for credit loss – related party customers | ||||
| Total accounts receivable– related party customers, net | $ | |||
Prepayment, deposit and other receivable – third party
| June 30, 2025 | ||||
| Prepayment and other deposits | $ | |||
| Rent deposits | ||||
| Total | ||||
| Less: non-current portion | ( | ) | ||
| Current portion | $ | |||
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. 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 we provided. 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. As
of June 30, 2025, the Company recorded contract assets $
F-35
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO (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 used the measurement alternative under ASC 321-10-35-2. Under this approach, the investment is measured at cost, and adjusted for 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 ABL Chicago’s subsidiary and became the ABL Chicago’s long-term investment. As of June 30, 2025,
the Company’s investment in ABL Wuhan amounted to $
Property and equipment, net
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.
Lease
ABL Chicago has multiple lease agreements for warehouses, warehouse machinery and equipment and offices.
The following table includes supplemental cash flow and non-cash information related to leases:
| For the Nine Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash paid of amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from discontinued operation - operating leases | $ | $ | ||||||
| Operating cash flows from discontinued operation - finance leases | $ | $ | ||||||
| Financing cash flows discontinued operation - from finance leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating lease liabilities | $ | $ | ||||||
| Finance lease liabilities | $ | |||||||
F-36
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO (cont.)
Accrued liabilities and other payables
Accrued liabilities and other payables comprise the following amounts relating to the discontinued operation:
| June 30, 2025 | ||||
| Credit card payables | $ | |||
| Payroll liabilities | ||||
| Accrued expense | ||||
| Other payables | ||||
| Total | $ | |||
Loan payable to a related party
On March 1, 2025, the Company
entered into a loan agreement with a related party – ABL Shenzhen for a principal amount up to $
Loan 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, 2025 | ||||
| Equipment loans (a) | $ | |||
| Vehicle loans (b) | ||||
| Other loans (c) | ||||
| Total | ||||
| Less: loan payable, current | ( | ) | ||
| Loan payable, non-current | $ | |||
(a) Equipment loans
The Company made the total
principal repayments of $
(b) Vehicle loans
The Company made the total principal repayments of $
F-37
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO (cont.)
Loan payable (cont.)
(c) Other loans
The Company made the total
principal repayments of $
Related party transactions
a) Other receivable from related parties
Other receivable from related parties consists of balances with the parties listed below, arising from interest receivable, storage income, rental income, contractor salaries charged by related parties, other expenses paid on their behalf:
| June 30, 2025 | ||||
| Other receivable from Weship | $ | |||
| Other receivable from Intermodal | ||||
| Other receivable from ABL LAX | ||||
| Other payable to ABL Shenzhen | ( | ) | ||
| Total | $ | |||
b) Summary of balances payable to related parties
| June 30, 2025 | ||||
| Account payable to Weship | $ | |||
| Account payable to ABL Wuhan | ||||
| Account payable to Intermodal | ||||
| Total | $ | |||
c) Summary of balances receivable from related parties
| June 30, 2025 | ||||
| Accounts receivable from Weship | $ | |||
| Accounts receivable from ABL Shenzhen | ||||
| Accounts receivable from ABL Wuhan | ||||
| Total | $ | |||
F-38
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO (cont.)
Related party transactions (cont.)
d) Loan receivable from related parties
| June 30, 2025 | ||||
| Loan receivable from Weship | $ | |||
| Loan receivable from ABL LAX | ||||
| Total | $ | |||
The Company entered into a
loan agreement with related parties to support working capital needs. The loan bears interest at an annual rate of
e) Summary of related parties’ transactions
| Nine Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue from Weship (a) | $ | $ | $ | $ | ||||||||||||
| Revenue from ABL Wuhan (a) | $ | $ | $ | $ | ||||||||||||
| Revenue from ABL Shenzhen (a) | $ | $ | $ | $ | ||||||||||||
| Revenue from ABL LAX (a) | $ | $ | $ | $ | ||||||||||||
| Rental income from Weship (c) | $ | $ | $ | $ | ||||||||||||
| Rental income from Intermodal (d) | $ | $ | $ | $ | ||||||||||||
| Cost of revenue charged by Weship (b) | $ | $ | $ | $ | ||||||||||||
| Cost of revenue charged by Intermodal (e) | $ | $ | $ | $ | ||||||||||||
| Cost of revenue charged by ABL Wuhan (f) | $ | $ | $ | $ | ||||||||||||
| Cost of revenue charged by ABL LAX (f) | $ | $ | $ | |||||||||||||
| Interest expenses charged by ABL Shenzhen | $ | $ | $ | |||||||||||||
During the nine months ended March 31, 2026 and 2025, the Company had the following transactions with its related parties — Weship, ABL Wuhan, ABL Shenzhen, ABL LAX and Intermodal
| (a) |
| (b) |
| (c) |
| (d) | ||
| (e) |
| (f) |
F-39
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 15 —DISCONTINUED OPERATIONS AND SALES OF ABL CHICAGO (cont.)
Related party transactions (cont.)
f) Salaries and employee benefits paid to major shareholders
| Nine Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Mr. Henry Liu | $ | $ | $ | $ | ||||||||||||
| Mr. Shuai Li | $ | |||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Transaction
On February 12, 2026,
the sale of
| Cash consideration for sale of ABL Chicago | $ | |||
| Less: book value of assets sold: | ||||
| Cash | ||||
| Accounts receivable – third parties, net | ||||
| Accounts receivable – related party, net | ||||
| Prepaid expenses and other as sets | ||||
| Other receivable – related parties | ||||
| Loan receivable – related parties | ||||
| Contract assets | ||||
| Investment in other entity | ||||
| Property and equipment, net | ||||
| Right of use operating lease assets, net | ||||
| Right of use financing lease assets, net | ||||
| Net book value of assets sold | ||||
| Add: Liabilities assumed by buyer | ||||
| Accounts payable– third parties | ||||
| Accounts payable– related party | ||||
| Accrued expenses and other liabilities | ||||
| Obligations under operating leases | ||||
| Obligations under financing leases | ||||
| Tax payable | ||||
| Other loan payable | ||||
| Amounts duo related party | ||||
| Amounts due to shareholder | ||||
| Amounts due to ultimate holding company | ||||
| Loan payable to related party | ||||
| Total liabilities assumed | ||||
| Less: Amounts due from ABL Chicago | ||||
| Gain on Sale of ABL Chicago | $ |
Management has determined that there are no current federal or state income taxes payable in connection with the sale of ABL Chicago, after considering the Company’s tax basis in the stock of ABL Chicago as well as the Company’s projected tax losses. Further, if needed, the Company has net operating loss carryforwards that are available to offset any tax liability.
F-40
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 16 — STOCKHOLDERS’ EQUITY
About ABL Chicago
ABL Chicago is a U.S.-based integrated cross-border supply chain solution provider with a strategic focus on the Asian market including China. 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.
Common Stocks
The Company was incorporated
under the laws of the State of Nevada on August 28, 2023. In accordance with the Company’s Articles of Incorporation, the Company
is authorized to issue
On October 25, 2023,
the Company amended its Articles of Incorporation to increase its number of authorized common stocks from
On March 29, 2024, a
On July 1, 2024, the Company
closed its IPO of
Private offering
On June 24, 2025, the Company
entered into a Securities Purchase Agreement with certain investors for the issuance and sale of an aggregate of
On July 16, 2025, the Company
entered into Securities Purchase Agreements with certain investors for the issuance and sale of an aggregate of
On August 4, 2025, the Company
entered into Securities Purchase Agreements with certain investors for the issuance and sale of an aggregate of
On December 15, 2025, the
Company entered into Securities Purchase Agreements with certain investors for the issuance and sale of an aggregate of
F-41
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 16 — STOCKHOLDERS’ EQUITY (cont.)
Common Stocks (cont.)
Private offering (cont.)
On December 29, 2025, the
Company entered into Securities Purchase Agreements with certain investors for the issuance and sale of an aggregate of
Convertible debts conversion
During the nine months ended
March 31, 2026, holders of the Company’s convertible notes elected to convert an aggregate principal amount of $
Common Shares Issued for Service
On July 4, 2025, the Company
signed a consulting agreement (the “Consulting Agreement”) with FirsTrust China Ltd. (“FirsTrust”) to provide
professional consulting and advisory services to the Company for twelve months from July 7, 2025 in exchange for
On July 4, 2025, the Company
entered into a consulting agreement (the “Consulting Agreement”) with SNC Investment Group Limited (“SNC”), under
which SNC will provide strategic planning and corporate communication services to the Company for a twelve-month period beginning August
7, 2025. As compensation for these services, the Company agreed to issue
On July 21, 2025, the Company
entered into a consulting agreement (the “Consulting Agreement”) with China PINX International Investment Group Limited (“China
PINX”) to provide merger and acquisition consulting and other related service to the Company for a twelve-month period beginning
July 21, 2025. Upon signing the agreement, the Company issued
On August 1, 2025, the Company
entered into a consulting agreement (the “Consulting Agreement”) with Jolly Good River Group Limited (“Jolly”)
to provide strategic consulting services to the Company for a twelve-month period beginning August 1, 2025. As compensation for these
services, the Company agreed to issue
On December 13, 2025, the
Company entered into a consulting agreement (the “Consulting Agreement”) with Nan Zhang to provide management consulting and
advisory services to the Company for a twelve-month period beginning December 13, 2025. As compensation for these services, the Company
agreed to issue
On December 15, 2025, the
Company entered into a consulting agreement (the “Consulting Agreement”) with Zhixin Li to provide business expansion, merger
and acquisition consulting services to the Company for a twelve-month period beginning December 15, 2025. As compensation for these services,
the Company agreed to issue
F-42
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 16 — STOCKHOLDERS’ EQUITY (cont.)
Common Stocks (cont.)
Common Shares Issued for Service (cont.)
On December 23, 2025, the
Company entered into a consulting agreement (the “Consulting Agreement”) with Shengrong Venture Limited (“Shengrong”)
to provide general operating advisory services to the Company for a twelve-month period beginning December 23, 2025. As compensation for
these services, the Company agreed to issue
On December 23, 2025, the
Company entered into a consulting agreement (the “Consulting Agreement”) with SNC Investment Group Limited (“SNC”)
to provide capital markets advisory services and guidance to the Company for a twelve-month period beginning December 23, 2025. As compensation
for these services, the Company agreed to issue
For the nine months ended
March 31, 2026, the Company issued
As of March 31, 2026 and June
30, 2025,
Representative’s Warrants
Pursuant to the Underwriting
Agreement, the Company issued to the Representative and its designee warrants (the “Representative’s Warrants”) to purchase
Management determined that
these warrants meet the requirements for equity classification under ASC 815-40 because they are indexed to their own shares and meet
the requirements for equity classification. The warrants were recorded at their fair value on the date of grant as a component of shareholders’
equity. The fair value of these warrants was $
As of March 31, 2026,
F-43
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 16 — STOCKHOLDERS’ EQUITY (cont.)
Common stock purchase warrants
Pursuant to the Securities Purchase Agreement, the Company agreed to issue, upon the consummation of the closing of each tranche, common stock purchase warrants (“Warrants”) to the Investor (see Note 12).
As of March 31, 2026,
As of March 31, 2026,
Subscription receivable
During the nine months ended
March 31, 2026, the Company entered into a private placement agreement. As of March 31, 2026, a total of $
This amount is recorded as Subscription Receivable and is presented as a deduction from Shareholders’ Equity in the accompanying Consolidated Balance Sheets. The Company expects to collect the full outstanding balance during the next quarter.
Statutory reserves
The Company is required to make appropriations to certain reserve funds,
comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance
with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are
required to be at least
NOTE 17 — LOSS PER SHARE
For the three and nine months ended March 31, 2026 and 2025, all potentially dilutive securities, including the convertible debenture and warrants, were excluded from the calculation of diluted loss per share because the Company was in a loss position. Their inclusion would have been antidilutive.
| Nine Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operation | ( | ) | ( | ) | ||||||||||||
| Net (loss) income attributable to the Company | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted average number of common shares outstanding – Basic and Diluted | ||||||||||||||||
| Basic and Diluted Net Income (Loss) per Common Share | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations, net of tax | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Total Basis and diluted earnings (loss) per share attributable to the Company | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
F-44
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 18 — SEGMENT REPORTING
The Company follows Financial Accounting Standards Board (FASB”) Accounting Standards codification “ASC”) Topic 280, Segment Reporting, as amended by Accounting Standards Update (“ASU”) No.2023-07. Segment Reporting Topic 280: Improvements to Reportable Segment Disclosures, the Company continually monitors the reportable segments for changes in fact and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.
Based on internal management
reporting and assessment, the Company concludes that it has
During the nine months ended March 31, 2026, the Company completed disposal of its customized cross-border freight solutions in the U.S segment (the “Disposed Segment”). The results of operations of the Disposed Segment have been classified as discontinued operations in the condensed consolidated financial statements for all periods presented, in accordance with ASC 205-20. See Note 15. “Discontinued Operations” for additional information regarding the ABL Chicago disposal.
Following the disposal, the Company operates as a single reporting segment consisting of distribution of pharmaceutical products in China. Prior period segment information has been recast to conform to the current period presentation.
Segment net income (loss) excludes general corporate administrative expenses and selling expenses including corporate functional costs relating to professional expenses, payroll expense of management, and interest expenses in connection with convertible debt that are managed centrally at the corporate level and are excluded from the measure of segment performance reviewed by the CODM.
The summary of key information by segments for the nine months ended March 31, 2026 was as follows:
| Pharmaceutical distribution (China) | Holding | Total for the 2026 | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Cost of revenue | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Selling expense | $ | $ | $ | |||||||||
| General and administrative expense | $ | $ | $ | |||||||||
| Depreciation & amortization | $ | $ | $ | |||||||||
| Income tax expense | $ | $ | ( | ) | $ | |||||||
| Long-lived assets | $ | $ | $ | |||||||||
| Segment assets | $ | $ | $ | |||||||||
| Segment profit (loss) | $ | $ | ( | ) | $ | ( | ) | |||||
The summary of key information by segments for the nine months ended March 31, 2025 was as follows:
| Pharmaceutical distribution (China) | Holdings | Total for the 2025 | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Cost of revenue | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Depreciation & amortization | $ | $ | $ | |||||||||
| General and administrative expense | $ | $ | $ | |||||||||
| Income tax provision | $ | $ | ( | ) | $ | |||||||
| Capital expenditure | $ | $ | $ | |||||||||
| Long-lived assets | $ | $ | $ | |||||||||
| Segment assets | $ | $ | $ | |||||||||
| Segment profit (loss) | $ | $ | ( | ) | $ | ( | ) | |||||
F-45
LAKESIDE HOLDING LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 19 — COMMITMENTS AND CONTINGENCIES
Contractual Commitments
As of March 31, 2026, 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 | $ | $ | ||||||||||||||||||
| Vehicle loans | ||||||||||||||||||||
| Other loans | ||||||||||||||||||||
| Convertible debts | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
Contingencies
The Company may be involved in certain legal proceedings, claims and disputes arising from the commercial operations, which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the Company can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on the Company’s unaudited consolidated financial position or results of operations or liquidity as of March 31, 2026.
NOTE 20 — ASSETS ACQUISITION
Hupan Pharmaceutical (Hubei) Co., Ltd acquisition
On November 5, 2024, the Company
entered into an equity transfer agreement (the “Equity Transfer Agreement”) with Hubei Haoyaoshi Zhenghe Pharmacy Chain Co.,
Ltd and Hubei Huayao Pharmaceutical Co., Ltd to acquire
Pursuant to the Equity Transfer
Agreement, Sichuan Hupan will acquire the entirety of the equity interests that Hubei Haoyaoshi Zhenghe Pharmacy Chain Co., Ltd and Hubei
Huayao Pharmaceutical Co., Ltd. hold in Hupan Pharmaceutical, for a total consideration of RMB
The acquisition was accounted
for as an asset acquisition because the acquisition was related to the pharmaceutical distribution license, a single asset. The acquisition
was closed on November 21, 2024.
| Amount | ||||
| Total consideration in cash | $ | |||
| Assets acquired and liabilities assumed: | ||||
| Cash acquired | ||||
| Original paid in capital paid to Hupan Pharmaceutical | ||||
| Intangible assets – license of pharmaceutical distribution | ||||
| Other payables | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Total assets acquired | $ | |||
The Company recorded impairment of intangible assets of for the three and nine months ended March 31, 2026 and 2025.
NOTE 21 — SUBSEQUENT EVENTS
The Company evaluated all events and transactions that occurred after March 31, 2026 up through the date the unaudited condensed consolidated financial statements were issued, and unless disclosed below, there are not any material subsequent events that require disclosure in these unaudited condensed consolidated financial statements.
F-46
Item 2. 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 unaudited condensed 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 three and nine months ended March 31, 2026 and 2025 are derived from our unaudited condensed consolidated financial statements included elsewhere in this Report. Our financial statements have been prepared in accordance with the U.S. GAAP.
Overview
Prior to February 12, 2026, we operated as a U.S.-based integrated cross-border supply chain solutions provider with a strategic focus on the Asian market, including China, through ABL Chicago, and were also engaged in the distribution of pharmaceutical products in China through Hupan Pharmaceutical. On February 12, 2026, we transferred the operations of ABL Chicago to an unrelated third party, which obtained operational control and substantially all economic interests associated with the business. Following the transfer, we ceased substantive involvement in ABL Chicago’s operations. Accordingly, the operations of ABL Chicago were classified as discontinued operations in our condensed consolidated financial statements. The disposal represents a strategic shift in our business operations and allows management to further streamline resources and focus on the development and expansion of our pharmaceutical distribution business.
Our continuing operations are focused on the distribution of pharmaceutical products in China through Hupan Pharmaceutical. Revenue from continuing pharmaceutical operations was primarily derived from infusion products, specialty prescription drugs, and medical nutrition products. We procure products from manufacturers, store the products at designated warehouses, and distribute them to hospitals, distributors and other healthcare providers, primarily through agents. The Company operates within a highly regulated healthcare environment and generates revenue through sales to distributors, hospitals, and clinics.
The Company continually evaluates potential opportunities to expand and diversify its business operations. Smart Reserve Holding LTD and Smart Reserve Inc were formed in connection with the Company’s preliminary evaluation of potential opportunities relating to digital asset business activities. As of the date of this report, the Company has not commenced any such business and has not adopted any concrete operational plan relating thereto. Any future expansion initiatives may be affected by factors including market conditions, capital availability, regulatory developments, operational execution, technological requirements, and management resources.
The Company’s results of operations for the period reflect the performance of its continuing pharmaceutical distribution business, and accordingly, prior period results have been recast to present the disposed business as discontinued operations where applicable. Management evaluates the performance of the continuing operations based on revenue growth, gross margin, operating efficiency, and working capital.
Key Factors Affecting Our Results of Operations
We believe the most significant factors that affect our business and results of operations include the following:
Regulatory Environment in China
The pharmaceutical industry in China is subject to extensive government regulation, including pricing controls, tendering processes, and reimbursement policies. Government initiatives, such as centralized procurement programs and healthcare reforms, may affect product pricing, sales volumes, and margin levels.
Supplier and Manufacturer Relationships
The Company relies on relationships with pharmaceutical manufacturers and suppliers for product sourcing. Changes in supply terms, pricing arrangements, or product availability may impact revenue and gross margins.
Customer Concentration and Hospital Demand
A significant portion of the Company’s sales is generated from hospitals and large distributors. Purchasing patterns, tender cycles, and changes in hospital demand or procurement policies can lead to fluctuations in revenue. During the nine months ended March 31, 2026, we have generated revenue from the distribution of pharmaceutical products from 59 customers, of which, four customers took over 10% of the revenue.
Pricing Pressure and Competition
The Company operates in a competitive market with pressure from both domestic and international pharmaceutical distributors. Competitive pricing dynamics and participation in government bidding processes may compress margins.
1
Product types and composition
During the nine months ended March 31, 2026, the pharmaceutical products we distribute mainly consist of infusion drugs, specialty foods, and therapeutic drugs. The profitability level of different products varies, and the proportion of various products affects our gross profit level.
Accounts receivable collection
The current payment term provided by us to our main customers is between 60-90 days; while the payment term from the supplier is 60 days. There is also a situation of prepaying payment to the supplier. If the accounts receivable cannot be collected in a timely manner or there are identifiable uncollectible balances, our cash flow in operating activities may be negatively affected.
Foreign Currency Fluctuations
As the Company operates primarily in China while reporting in United States Dollar (“USD”), fluctuations in foreign exchange rates, particularly between the Renminbi and the reporting currency, may impact reported revenue and profitability.
Key Components of Results of Operations
Revenues. We generate revenues primarily from the distribution of pharmaceutical and medical products since December 2024. We order from the manufacturer, receive and carry the products at a designated warehouse, and deliver the products to the customers’ warehouses or designated locations.
Cost of Revenues. Our cost of revenues from the distribution of pharmaceutical and medical products comprises cost of pharmaceutical products from manufacturers, less discount and rebate.
Selling Expenses. Our selling expenses primarily include salaries expense, advertising expenses, marketing expense of a system, entertainment expenses and traveling expense of sales team engaged in developing potential customers and maintaining customer relationships and transportation cost for selling pharmaceutical products.
General and Administrative Expenses. Our general and administrative expenses primarily include salaries and staff benefits, repair and maintenance expenses, depreciation on property and equipment, amortization on intangible assets, lease expenses warehouses used for administrative purpose and office premises, travelling and entertainment expenses, bank charges, legal and professional fees, insurance expenses and other office expenses.
Other Income. Our other income primarily consists of interest income in connection with a third-party loan.
Interest Expenses. Our interest expenses primarily consist of the interest expenses incurred for convertible debts and other loans.
Income Tax Expenses. Our income tax expenses consist primarily of PRC enterprise income tax.
Results of Operations
Continuing Operation
Our continuing operations are focused on the distribution of pharmaceutical products in China. Revenue from continuing pharmaceutical operations was primarily derived from infusion products, specialty prescription drugs, and medical nutrition products. The Company operates within a highly regulated healthcare environment and generates revenue through sales to hospitals through agent, and other healthcare providers.
Discontinued Operation
ABL Chicago is a U.S.-based integrated cross-border supply chain solution provider with a strategic focus on the Asian market including China. 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.
2
On February 12, 2026, the sale of 100% of the issued and outstanding shares of ABL Chicago was duly approved and adopted by the Company’s shareholders. Accordingly, the Company consummated the transfer of the ABL Chicago business. Immediately prior to the Transaction, the Company forgave $3,402,808 of amounts due from The Company recorded a gain on the sale of the ABL Chicago business in the amount of $2,556,315 as follows:
| Cash consideration for sale of ABL Chicago | $ | 1 | ||
| Less: book value of assets sold: | ||||
| Cash | 167,536 | |||
| Accounts receivable – third parties, net | 1,078,847 | |||
| Accounts receivable – related party, net | 358,246 | |||
| Prepaid expenses and other as sets | 337,616 | |||
| Other receivable – related parties | 1,141,959 | |||
| Loan receivable – related parties | 386,541 | |||
| Contract assets | 43,365 | |||
| Investment in other entity | 15,741 | |||
| Property and equipment, net | 132,366 | |||
| Right of use operating lease assets, net | 1,697,873 | |||
| Right of use financing lease assets, net | 71,692 | |||
| Net book value of assets sold | 5,431,782 | |||
| Add: Liabilities assumed by buyer | ||||
| Accounts payable– third parties | 1,907,730 | |||
| Accounts payable– related party | 153,353 | |||
| Accrued expenses and other liabilities | 794,091 | |||
| Obligations under operating leases | 2,150,449 | |||
| Obligations under financing leases | 92,323 | |||
| Tax payable | 79,825 | |||
| Other loan payable | 2,243,159 | |||
| Due to a related party | 260,144 | |||
| Due to shareholder | 182,846 | |||
| Amounts due to ultimate holding company | 3,402,808 | |||
| Loan payable to related party | 124,176 | |||
| Total liabilities assumed | 11,390,904 | |||
| Less: Amounts due from ABL Chicago | 3,402,808 | |||
| Gain on Sale of ABL Chicago | $ | 2,556,315 |
3
The following table summarizes the results of condensed consolidated statements of operations and comprehensive income (loss) for the three months and nine months ended March 31, 2026 and 2025 in U.S. dollars.
| Nine Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue | $ | 5,108,387 | $ | 715,362 | $ | 1,327,733 | $ | 497,276 | ||||||||
| Cost of revenue | 2,333,460 | 240,966 | 348,194 | 119,175 | ||||||||||||
| Gross profit | 2,774,927 | 474,396 | 979,539 | 378,101 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | 1,804,797 | 158,117 | 711,553 | 103,629 | ||||||||||||
| General and administrative expenses | 3,883,166 | 1,803,479 | 1,697,915 | 603,979 | ||||||||||||
| Provision of allowance for expected credit loss on accounts receivable | 133,772 | - | 84,261 | - | ||||||||||||
| Provision of allowance for expected credit loss on loan receivable | 350,000 | - | 62,000 | - | ||||||||||||
| Total operating expenses | 6,171,735 | 1,961,596 | 2,555,729 | 707,608 | ||||||||||||
| Loss from operations | (3,396,808 | ) | (1,487,200 | ) | (1,576,190 | ) | (329,507 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income, net | 203,918 | 16,733 | 103,705 | 11,682 | ||||||||||||
| Interest expense | (149,355 | ) | (40,541 | ) | (26,733 | ) | (40,541 | ) | ||||||||
| Total other income (expense) | 54,563 | (23,808 | ) | 76,972 | (28,859 | ) | ||||||||||
| Loss before income taxes | (3,342,245 | ) | (1,511,008 | ) | (1,499,218 | ) | (358,366 | ) | ||||||||
| Income tax expense | 110,632 | 18,594 | 29,593 | 18,594 | ||||||||||||
| Net loss from continuing operations | (3,452,877 | ) | (1,529,602 | ) | (1,528,811 | ) | (376,960 | ) | ||||||||
| Income (loss) from discontinued operation, net of tax provision: | ||||||||||||||||
| Loss from discontinued operation before the sale of ABL Chicago | (1,901,927 | ) | (2,823,421 | ) | (885,096 | ) | (693,836 | ) | ||||||||
| Gain on sale of ABL Chicago | 2,556,315 | - | 2,556,315 | - | ||||||||||||
| Net income (loss) from discontinued operation | 654,388 | (2,823,421 | ) | 1,671,219 | (693,836 | ) | ||||||||||
| NET (LOSS) INCOME | (2,798,489 | ) | (4,353,023 | ) | 142,408 | (1,070,796 | ) | |||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation income (loss) | 393,103 | (8,603 | ) | 188,125 | 3,583 | |||||||||||
| Comprehensive income (loss) attributable to the Company | $ | (2,405,386 | ) | $ | (4,361,626 | ) | $ | 330,533 | $ | (1,067,213 | ) | |||||
For the Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025
The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the three months ended March 31, 2026 and 2025, and provides information regarding the dollar and percentage increase or (decrease) during such periods. The operating results in any historical period are not necessarily indicative of the results that may be expected for any future period.
| For the three months ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||
| Amount | % of total Revenues | Amount | % of total Revenues | Amount Increase (Decrease) | Percentage Increase (Decrease) | |||||||||||||||||||
| Revenue | $ | 1,327,733 | 100.0 | % | $ | 497,276 | 100.0 | % | $ | 830,457 | 167.0 | % | ||||||||||||
| Cost of revenue | 348,194 | 26.2 | % | 119,175 | 24.0 | % | 229,019 | 192.2 | % | |||||||||||||||
| Gross profit | $ | 979,539 | 73.8 | % | $ | 378,101 | 76.0 | % | $ | 601,438 | 159.1 | % | ||||||||||||
4
Revenues
Revenue from the distribution of pharmaceutical products increased by approximately $0.8 million, or 167.0%, from approximately $0.5 million for the three months ended March 31, 2025 to approximately $1.3 million for the three months ended March 31, 2026. This increase was primarily attributable to the continued expansion of our pharmaceutical distribution business, which commenced operations in December 2024, and reflects the early-stage growth trajectory of this segment.
The growth in revenue was mainly driven by increased sales of infusion products, which accounted for approximately 99% and 93% of total pharmaceutical distribution revenue for the three months ended March 31, 2026 and 2025, respectively. Revenue from infusion products increased by approximately $0.9 million period over period, reflecting both higher sales volume and broader market penetration.
A key contributor to this increase was the expansion of the Company’s customer base, with the number of active customers increasing from 4 to 12 during the period. This growth was supported by the Company’s dedicated sales team, which has focused on developing new customer relationships, enhancing engagement with existing customers, and participating in hospital and distributor procurement processes. As a result, the Company experienced increased order volumes and improved sales coverage across its target market.
Cost of Revenues and Gross Profit
Cost of revenue from the distribution of pharmaceutical products increased by approximately $0.2 million, or 192.2%, from approximately $0.1 million for the three months ended March 31, 2025 to approximately $0.3 million for the three months ended March 31, 2026. The increase was primarily driven by higher sales volume, consistent with the significant growth in revenue during the period as the Company continued to expand its pharmaceutical distribution operations.
Despite the increase in revenue, gross profit margin decreased from approximately 76.0% for the three months ended March 31, 2025 to approximately 73.8% for the three months ended March 31, 2026. The decline in gross margin was primarily attributable to changes in supplier incentives, specifically a reduction in purchase rebates offered by suppliers in the current period compared to the prior-year period. In the prior-year period, higher proportion of purchase rebates received from suppliers, which contributed to an elevated gross margin during the initial phase of operations. Gross margin without purchase rebate was 43.3% and 41.6% for the three months ended March 31, 2026 and 2025, respectively.
Selling Expenses
Our selling expenses amounted to approximately $0.7 million for the three months ended March 31, 2026, compared to approximately $0.1 million for the same period in 2025. The increase was primarily driven by the salaries for our sales team, marketing expense of a system, entertainment expenses and the advertising expense amounted to approximately $0.6 million, both of which were incurred in connection with the launch of our new pharmaceutical distribution service during the year.
General and Administrative Expenses
Our general and administrative expenses increased by approximately $1.1 million, or 181.1%, from approximately $0.6 million for the three months ended March 31, 2025, to approximately $1.7 million for the three months ended March 31, 2026. The increase was primarily attributable to an approximately $1.2 million increase in professional fees, partially offset by an approximately $0.1 million decrease in salaries and insurance expenses.
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Our professional fees increased by approximately $1.2 million, or 598.5%, from approximately $0.2 million for the three months ended March 31, 2025, to approximately $1.4 million for the three months ended March 31, 2026. Our professional fee represented 84.5% and 34.0% of our total general and administrative expenses for the three months ended March 31, 2026 and 2025, respectively. The increase was primarily due to advisory and consulting expenses strategic planning initiatives. These costs included external support for market assessments, financial and operational due diligence, and the development of long-term strategic plans to guide future growth.
Other Income, net
Our other income, net increased by $92,023, or 787.7%, from $11,682 for the three months ended March 31, 2025, to $103,705 for the three months ended March 31, 2026. The increase was primarily due to increase in interest income of $77,713 in connection with a third-party loan.
Interest Expenses
Our interest expenses decreased by $13,808, or 34.1%, from $40,541 for the three months ended March 31, 2025, to $26,733 for the three months ended March 31, 2026.
Loss Before Income Taxes
We had a net loss before income taxes of approximately $1.5 million and approximately $0.4 million for the three months ended March 31, 2026 and 2025, respectively. We were in a loss position before income taxes for the three months ended March 31, 2026, primarily attributable to the net effects of: (i) the rise in operating expenses, which was partly offset by an increase in gross profit due to the new business segment for the three months ended March 31, 2026 as mentioned above.
Income Tax Expense
We had income tax expense of $29,593 and $18,594 for the three months ended March 31, 2026 and 2025. A current income tax provision of $84,954 was recognized for a subsidiary with net assessable income while no current income tax provision was recognized for subsidiaries in net operating loss for the three months ended March 31, 2026.
Based on management’s assessment of future taxable income, the Company determined that it was no longer more likely than not that sufficient future taxable income would be available to utilize the deferred tax benefits. As a result, the Company recorded a full valuation allowance against its DTAs and did not recognize any deferred tax assets. We recognized a deferred income tax credit of $27,069 due to credit loss allowance and amortization of intangible assets, and a deferred income tax credit of $28,292 due to expected sales return, resulting in a net income tax credit of $55,361 for the three months ended March 31, 2026.
A current income tax provision of $26,608 was recognized for a subsidiary with net assessable income while no current income tax provision was recognized for subsidiaries in net operating loss for the three months ended March 31, 2025. We recognized a recovery of deferred income tax of $8,014 due to amortization of intangible assets, resulting in a net income tax expense of $18,594 for the three months ended March 31, 2025.
Net loss from continuing operation
As a result of the foregoing, we had a net loss of approximately $1.5 million and approximately $0.4 million for the three months ended March 31, 2026 and 2025, respectively.
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Result of Discontinued Operation
Net income (loss) from discontinued operations for the three months ended March 31, 2026 and 2025 is as follows:
| Three Months Ended March 31, | ||||||||||||||||
| 2026 | 2025 | Amount Increase (Decrease) | Percentage Increase (Decrease) | |||||||||||||
| Revenue | $ | 1,346,238 | $ | 3,305,864 | $ | (1,959,626 | ) | (59.3 | )% | |||||||
| Cost of revenue | 1,660,135 | 2,968,114 | (1,307,979 | ) | (44.1 | )% | ||||||||||
| Operating expenses | 496,212 | 1,082,426 | (586,214 | ) | (54.2 | )% | ||||||||||
| Loss from operation | (810,109 | ) | (744,676 | ) | (65,433 | ) | 8.8 | % | ||||||||
| Gain on sale of ABL Chicago | 2,556,315 | - | 2,556,315 | 100.0 | % | |||||||||||
| Other (expense) income, net | (74,987 | ) | 50,840 | (125,827 | ) | (247.5 | )% | |||||||||
| Income (loss) from discontinued operations, net of tax provision | $ | 1,671,219 | $ | (693,836 | ) | $ | 2,365,055 | (340.9 | )% | |||||||
We recognized income from discontinued operations, net of tax, of approximately $1.7 million during the three months ended March 31, 2026, compared to loss from discontinued operations, net of tax, of approximately $0.7 million during the three months ended March 31, 2025, representing an increase of approximately $2.4 million. The income from discontinued operations of approximately $1.7 million for the three months ended March 31, 2026 is comprised of a gain on the sale of the ABL Chicago business of approximately $2.6 million, offset by an operational loss of approximately $0.8 million. The operational loss includes an approximately $0.8 million loss from business activities for the 43-day period ended February 12, 2026.
For the Nine Months Ended March 31, 2026 Compared to the Nine Months Ended March 31, 2025
The following table summarizes our consolidated results of operations and percentages of certain items in relation to total revenues for the nine months ended March 31, 2026 and 2025, and provides information regarding the dollar and percentage increase or (decrease) during such periods. The operating results in any historical period are not necessarily indicative of the results that may be expected for any future period.
| For the nine months ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||
| Amount | % of total Revenues | Amount | % of total Revenues | Amount Increase (Decrease) | Percentage Increase (Decrease) | |||||||||||||||||||
| Revenue | $ | 5,108,387 | 100.0 | % | $ | 715,362 | 100.0 | % | $ | 4,393,025 | 614.1 | % | ||||||||||||
| Cost of revenue | 2,333,460 | 45.7 | % | 240,966 | 33.7 | % | 2,092,494 | 868.4 | % | |||||||||||||||
| Gross profit | $ | 2,774,927 | 54.3 | % | $ | 474,396 | 66.3 | % | $ | 2,300,531 | 484.9 | % | ||||||||||||
Revenues
Revenue from the distribution of pharmaceutical products increased by approximately $4.4 million, or 614.1%, from approximately $0.7 million for the nine months ended March 31, 2025 to approximately $5.1 million for the nine months ended March 31, 2026. This increase was primarily attributable to the continued expansion of our pharmaceutical distribution business, which commenced operations in December 2024, and reflects the early-stage growth trajectory of this segment.
The growth in revenue was mainly driven by increased sales of infusion products, which accounted for approximately 93% and 95% of total pharmaceutical distribution revenue for the nine months ended March 31, 2026 and 2025, respectively. Revenue from infusion products increased by approximately $4.1 million period over period, reflecting both higher sales volume and broader market penetration.
A key contributor to this increase was the expansion of the Company’s customer base, with the number of active customers increasing from 8 to 14 during the period. This growth was supported by the Company’s dedicated sales team, which has focused on developing new customer relationships, enhancing engagement with existing customers, and participating in hospital and distributor procurement processes. As a result, the Company experienced increased order volumes and improved sales coverage across its target market.
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Cost of Revenues and Gross Profit
Cost of revenue from the distribution of pharmaceutical products increased by approximately $2.1 million, or 868.4%, from approximately $0.2 million for the nine months ended March 31, 2025 to approximately $2.3 million for the nine months ended March 31, 2026. The increase was primarily driven by higher sales volume, consistent with the significant growth in revenue during the period as the Company continued to expand its pharmaceutical distribution operations.
Despite the increase in revenue, gross profit margin decreased from approximately 66.3% for the nine months ended March 31, 2025 to approximately 54.3% for the nine months ended March 31, 2026. The decline in gross margin was primarily attributable to changes in supplier incentives, specifically a reduction in purchase rebates offered by suppliers in the current period compared to the prior-year period. In the prior-year period, higher proportion of purchase rebates received from suppliers, which contributed to an elevated gross margin during the initial phase of operations.
Selling Expenses
Our selling expenses amounted to approximately $1.8 million for the nine months ended March 31, 2026, compared to approximately $0.2 million for the same period in 2025. The increase was primarily attributable to the additional salaries for our sales team of approximately $0.4 million, system-related marketing expenses of approximately $0.3 million, and increased entertainment expense of approximately $0.1 million and advertising expense of approximately $0.7 million incurred in connection with the launch of our pharmaceutical distribution service.
General and Administrative Expenses
Our general and administrative expenses increased by approximately $2.1 million, or 115.3%, from approximately $1.8 million for the nine months ended March 31, 2025, to approximately $3.9 million for the nine months ended March 31, 2026. The increase was mainly due to an increase in our professional expense.
Our professional fees increased by approximately $2.0 million, or 261.6%, from approximately $0.8 million for the nine months ended March 31, 2025, to approximately $2.7 million for the nine months ended March 31, 2026. Our professional fee represented 70.0% and 41.7% of our total general and administrative expenses for the nine months ended March 31, 2026 and 2025, respectively. The increase was primarily due to advisory and consulting expenses for strategic planning initiatives. These costs included external support for market assessments, financial and operational due diligence, and the development of long-term strategic plans to guide future growth.
Other Income, net
Our other income, net, increased by $187,185, or 1,118.7%, from $16,733 for the nine months ended March 31, 2025, to $203,918 for the nine months ended March 31, 2026. The increase was primarily due to an increase in interest income in connection with a third-party loan.
Interest Expenses
Our interest expenses increased by $108,814, or 268.4%, from $40,541 for the nine months ended March 31, 2025, to $149,355 for the nine months ended March 31, 2026. The increase in interest expense was mainly due to interest expense in connection with the convertible note.
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Loss Before Income Taxes
We had a net loss before income taxes of approximately $3.3 million and approximately $1.5 million for the nine months ended March 31, 2026 and 2025, respectively. We were in a loss position before income taxes for the nine months ended March 31, 2026, primarily attributable to the net effects of: (i) the rise in operating expenses, which was partly offset by an increase in gross profit due to the new business segment for the nine months ended March 31, 2026 as mentioned above.
Income Tax Expense
We had income tax expenses of $110,632 and $18,594 for the nine months ended March 31, 2026 and 2025, respectively. A current income tax provision of $189,487 was recognized for a subsidiary with net assessable income while no current income tax provision was recognized for subsidiaries in net operating loss for the nine months ended March 31, 2026.
Based on management’s assessment of future taxable income, the Company determined that it was no longer more likely than not that sufficient future taxable income would be available to utilize the deferred tax benefits. As a result, the Company recorded a full valuation allowance against its DTAs and did not recognize any deferred tax assets. We recognized a deferred income tax credit of $50,563 due to credit loss allowance and amortization of intangible assets, and a deferred income tax credit of $28,292 due to expected sales return, resulting in a net income tax credit of $78,855 for the nine months ended March 31, 2026.
A current income tax provision of $26,608 was recognized for a subsidiary with net assessable income while no current income tax provision was recognized for subsidiaries in net operating loss for the nine months ended March 31, 2025. We recognized a deferred income tax credit of $8,014 due to amortization of intangible assets, resulting in a net income tax expense of $18,594 for the nine months ended March 31, 2025.
Net loss from continuing operation
As a result of the foregoing, we had a net loss of approximately $3.5 million and approximately $1.5 million for the nine months ended March 31, 2026 and 2025, respectively.
Result of Discontinued Operation
Net income (loss) from discontinued operations for the nine months ended March 31, 2026 and 2025 is as follows:
| Nine Months Ended March 31, | ||||||||||||||||
| 2026 | 2025 | Amount Increase (Decrease) | Percentage Increase (Decrease) | |||||||||||||
| Revenue | $ | 10,678,106 | $ | 10,764,921 | $ | (86,815 | ) | (0.8 | )% | |||||||
| Cost of revenue | 9,768,331 | 10,043,158 | (274,827 | ) | (2.7 | )% | ||||||||||
| Operating expenses | 2,661,614 | 3,633,941 | (972,327 | ) | (26.8 | )% | ||||||||||
| Loss from operation | (1,751,839 | ) | (2,912,178 | ) | 1,160,339 | (39.8 | )% | |||||||||
| Gain on sale of ABL Chicago | 2,556,315 | - | 2,556,315 | 100.0 | % | |||||||||||
| Other (expense) income, net | (150,088 | ) | 178,338 | (328,426 | ) | (184.2 | )% | |||||||||
| Net income (loss) from discontinued operations, before tax | 654,388 | (2,733,840 | ) | 3,388,228 | (123.9 | )% | ||||||||||
| Income tax | - | 89,581 | (89,581 | ) | (100.0 | )% | ||||||||||
| Income (loss) from discontinued operations, net of tax provision | $ | 654,388 | $ | (2,823,421 | ) | $ | 3,477,809 | $ | (123.2 | )% | ||||||
We recognized income from discontinued operations, net of tax, of approximately $0.7 million during the nine months ended March 31, 2026, compared to loss from discontinued operations, net of tax, of approximately $2.8 million during the nine months ended March 31, 2025, representing an increase of approximately $3.5 million. The income from discontinued operations, net of tax, for the nine months ended March 31, 2026 is comprised of a gain on the sale of the ABL Chicago business of approximately $2.6 million, offset by an operational loss of approximately $1.9 million. The operational loss includes an approximately $1.8 million loss from business activities for the 226-day period ended February 12, 2026.
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Liquidity and Capital Resources
The following table summarizes our total current assets, current liabilities and working capital from continuing operations as of March 31, 2026 and June 30, 2025, respectively:
| As of March 31, 2026 | As of June 30, 2025 | |||||||
| Current assets | $ | 17,045,662 | $ | 10,278,926 | ||||
| Current liabilities | $ | 3,990,869 | $ | 9,666,053 | ||||
| Working capital Surplus | $ | 13,054,793 | $ | 612,873 | ||||
As of March 31, 2026, we had a cash balance of approximately $1.3 million. Our current assets were approximately $17.0 million, and our current liabilities were approximately $4.0 million, resulting in a current ratio of 4.3 and working capital surplus of approximately $13.1 million. Total stockholders’ equity as of March 31, 2026 was approximately $13.6 million.
As of March 31, 2026 and June 30, 2025, we had accounts receivable net of allowance of approximately $1.9 million and approximately $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 accounts receivable as of March 31, 2026 and June 30, 2025, we provided a credit loss allowance of $171,180 and $33,039, respectively.
As of March 31, 2026, our liquidity position is significantly influenced by a material loan receivable from an unaffiliated third party. The gross principal balance is governed by a loan agreement dated July 3, 2025, bearing interest at 4.35% per annum with a maturity date of July 3, 2026.
As of March 31, 2026, the carrying value of this receivable was approximately $8.7 million, net of an allowance for credit losses of approximately $0.35 million. This net balance represents 49.0% of our total current assets, constituting a significant concentration of credit risk.
Our ability to fund future operating activities and working capital requirements is partially dependent on the timely collection of this principal and interest. While we continue to monitor the counterparty’s creditworthiness and currently believe they maintain the financial capacity to meet their obligations, the recorded allowance reflects our estimate of expected credit losses under the CECL (Current Expected Credit Loss) model. Any material default or significant delay in payment by this third party could adversely impact our short-term liquidity and necessitate alternative financing. There can be no assurance that the balance will be collected in full in accordance with its contractual terms.
In assessing our liquidity, we monitor and analyze our cash on hand, our ability to generate sufficient revenues sources in the future, and our operating and capital expenditure commitments. Historically, we have funded our working capital needs primarily through operations, issuances of convertible debts, private placements, loans, initial public offerings 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 in the execution of customer contracts, and the timing of accounts receivable collections.
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Cash Flows
The following table sets forth a summary of our cash flows from continuing operations for the periods indicated:
| For the Nine Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Net cash used in operating activities - continuing operations | $ | (3,041,062 | ) | $ | (979,735 | ) | ||
| Net cash used in investing activities - continuing operations | (8,497,511 | ) | (1,147,422 | ) | ||||
| Net cash provided by financing activities - continuing operations | 7,770,045 | 5,790,999 | ||||||
| Net cash used in discontinued operation | (213,857 | ) | (2,279,749 | ) | ||||
| Effect of exchange rate changes on cash | 326,631 | (8,386 | ) | |||||
| Net (decrease) increase in cash | (3,655,754 | ) | 1,375,707 | |||||
| Cash, beginning of the period | 4,956,060 | 123,550 | ||||||
| Cash, end of the period | 1,300,306 | 1,499,257 | ||||||
| Less: cash and cash equivalents of discontinued operations | - | 241,867 | ||||||
| Cash, end of the period for continuing operations | $ | 1,300,306 | $ | 1,257,390 | ||||
Operating Activities - continuing operations
Net cash used in operating activities was $3,041,062 in the nine months ended March 31, 2026, primarily reflecting a net loss from continuing operations of $3,452,877, adjusted for non-cash items of $2,626,615 and changes in working capital deficits of $2,214,800. The non-cash items primarily included $87,881 straight-line lease expense related to operating leases, $2,089,460 stock-based compensation for consulting expenses, $37,919 depreciation, $109,753 amortization of discount and bond issuance cost, $64,112 amortization of intangible assets, $177,765 interest income from a third party loan, $350,000 from provision of allowance for expected credit loss on loan receivable, $133,772 from provision of allowance for expected credit loss on accounts receivable and a decrease of $78,855 from deferred tax liabilities. The adjustments for changes in working capital mainly included an increase of $517,421 in accounts receivable due to an increase of revenues near period end, an increase of $2,926,217 in prepayment, deposit and other receivable and a payment of $70,171 for operating lease liabilities, partially offset by an increase of $38,079 in accounts payable, a decrease of $65,152 in note receivable, an increase of $162,204 in refund liabilities, an increase of $185,250 in tax payable, and an increase of $846,065 in accrued liabilities and other payables and a decrease in inventory of $74,510.
Net cash used in operating activities was $979,735 for the nine months ended March 31, 2025, including net loss from continuing operations of $1,529,602, adjusted for non-cash items for $109,895 and changes in working capital surplus of $439,972. The non-cash items primarily included $51,805 straight-line lease expense of operating leases, $5,152 depreciation expense, $32,056 amortization of intangible asset, $40,541 interest expense of convertible notes, $11,645 uncollected interest income from a third-party loan and a decrease of $8,014 from deferred tax asset. The adjustments for changes in working capital mainly included an increase of $807,540 in accrued expense and other payable, an increase of $299,114 in accounts payable and an increase of $42,168 in contract liabilities, partially offset by an increase of $337,288 in accounts receivable, an increase of $216,538 in inventories, an increase of $100,923 in prepayment, deposit and other receivable and a decrease of $80,709 in operating lease liabilities.
The $2,061,327 increase in cash used in operating activities for the nine months ended March 31, 2026, compared to the prior year, was primarily due to an increase in advance deposits of $2,825,294 to suppliers.
Investing Activities - continuing operations
Net cash used in investing activities was $8,497,511 and $1,147,422 for the nine months ended March 31, 2026 and 2025, respectively. Net cash used in investing activities for the nine months ended March 31, 2026, was primarily attributable to loans of $8,497,511 to a third party. The cash used in the same period of last year was primarily attributable to net cash payments of $552,721 for intangible assets through the acquisition of 100% equity interest in Hupan Pharmaceutical and a loan of $561,901 to a third party.
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Financing Activities - continuing operations
Net cash provided by financing activities was $7,770,045 and $5,790,999 for the nine months ended March 31, 2026 and 2025. The increase was primarily due to proceeds from private placement of financing activities compared with the prior period. During the nine months ended March 31, 2026, we generated cash inflows from private placements of $8,236,231, which were partially offset by $432,948 in principal repayments of convertible debt. During the nine months ended March 31, 2025, we had due to the net proceeds of $5,351,281 from the offering and net proceeds of $755,512 from issuance of convertible note and advances of $276,365 from Hupan Pharmaceutical prior to acquisition, partly offset by repayment of $592,159 to shareholders, during the nine months ended March 31, 2025.
Cash Flows from Discontinued Operations
Cash flows from discontinued operations are associated with the disposal of ABL Chicago. Cash used in operations of approximately $1.4 million and approximately $1.2 million for nine months ended March 31, 2026 and 2025. Net loss of ABL Chicago were the primary components of operating cash flows for nine months ended March 31, 2026 and 2025. Cash used in investing activities of approximately $0.1 million for nine months ended March 31, 2025, which is related to capital expenditures. Cash provided by financing activities of approximately $1.3 million for nine months ended March 31, 2026 due to loan borrowing. Cash used in financing activities of approximately $1.0 million for nine months ended March 31, 2025 due to advances to related parties. See Note 15. “Discontinued Operations” to our condensed consolidated financial statements for additional information.
Capital Expenditure
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 $32,800 for the nine months ended March 31, 2026 and 2025, 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 and issuance of convertible debts and private placement offering.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amounts of assets, liabilities, revenue, costs and expenses, and any related disclosures. Actual results could materially differ from those estimates. Critical accounting policy is both material to the presentation of financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on financial condition or results of operations. Accounting estimates and assumptions may become critical when they are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance.
Critical accounting estimates are estimates that require us to make assumptions about matters that were highly uncertain at the time the accounting estimate were made and if different estimates that we reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely occur from period to period, have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. The management of the Company believes the following critical accounting estimate is the most significantly affected by judgments and assumptions used in the preparation of our consolidated financial statements.
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Common Stock Warrants Instruments
The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own ordinary shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments are outstanding. The Company determined, upon further review of the warrant agreement and the convertible debt agreement, that the common stock warrants are qualified for equity accounting treatment. The fair value of equity-classified warrants is estimated as of the date of issuance using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model includes various assumptions, including the fair market value of our common stock, expected life of stock options, the expected volatility and the expected risk-free interest rate, among others. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside our control.
Allowance of expected credit losses on loan receivable from a third party
The Company accounts for its allowance for credit losses on loan receivables in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326, Financial Instruments—Credit Losses (“ASC 326”). The Company assesses the credit risk of its third-party loan receivables at each reporting date to ensure that the allowance reflects management’s current estimate of expected credit losses over the contractual life of the instrument.
The measurement of the allowance for expected credit losses is primarily determined using a Probability of Default (“PD”) and Loss Given Default (“LGD”) methodology. This assessment considers whether the borrower meets its contractual obligations and involves an evaluation of the borrower’s historical performance, current financial condition, and the value of any underlying collateral.
The PD × LGD model includes various assumptions, including the selection of forward-looking macroeconomic forecasts (such as interest rate environments), the borrower’s credit rating, and estimated recovery rates. This assessment, which requires the use of significant professional judgment, is conducted at the time of loan inception and as of each subsequent quarterly period end date while the loan is outstanding. These assumptions reflect management’s best estimates based on current and supportable information, but they involve inherent uncertainties based on economic and market conditions generally outside of the Company’s control. Changes in these estimates are recognized in the Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) in the period in which they occur.
Refer to Notes 2 to the condensed consolidated financial statements included in this report for further discussion of our significant accounting policies and the effect on our condensed consolidated financial statements.
Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued, see Note 2 - Summary Of Significant Accounting Policies in the note of financial statement.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.
Based upon this evaluation, our management concluded that as of March 31, 2026, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
| ● | We are lacking adequate segregation of duties and effective risk assessment; and |
| ● | We are lacking sufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both the U.S. GAAP, and SEC guidelines. |
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of PCAOB Auditing Standard AS2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We plan to address the weaknesses identified above by implementing the following measures:
| (i) | Continuously hiring additional accounting staffs with comprehensive knowledge of U.S. GAAP and SEC reporting requirements; |
| (ii) | Designing and implementing formal procedures and controls supporting the Company’s period-end financial reporting process, such as controls over the preparation and review of account reconciliations and disclosures in the consolidated financial statements; and |
| (iii) | Ameliorating our internal audit to assist with assessment of Sarbanes-Oxley compliance requirements and improvement of internal controls related to financial reporting. |
Changes in Internal Control over Financial Reporting
During the most recent fiscal quarter, there has not been any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are currently not a party to, nor are we aware of, any legal proceedings, investigations or claims which, in the opinion of our management, are likely to have a material adverse effect on our business, financial condition or results of operations.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information otherwise required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5.
On May 15, 2026, the Company and an unaffiliated third-party purchaser (the “Purchaser”) entered into a share purchase agreement (the “Share Purchase Agreement”), pursuant to which the Company agreed to sell, and the Purchaser agreed to purchase, 100% of the issued and outstanding shares of American Bear Logistics Corp. The transaction was previously described in the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on January 30, 2026 (File No. 001-42140) and approved by the Company’s shareholders at the 2026 Annual Meeting of Stockholders held on February 12, 2026, the results of which were reported in the Company’s Current Report on Form 8-K filed on February 18, 2026 (File No. 001-42140). The transactions contemplated by the Share Purchase Agreement were consummated on May 16, 2026. The Share Purchase Agreement is filed as Exhibit 10.19 to this Quarterly Report on Form 10-Q.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026.
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| + | Certain portions of this exhibit have been redacted in accordance with Item 601(a)(6) of Regulation S-K. |
| # | This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Lakeside Holding Limited | ||
| Dated: May 19, 2026 | By: | /s/ Yang Li |
| Yang Li | ||
| Joint Chief Executive Officer (Principal Executive Officer) | ||
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