SCHEDULE: Newegg Major Shareholder Updates Holdings Amid Lawsuits

Sentiment:

Beneficial Ownership Update 11 August 2025 3:32 PM

An amendment to Schedule 13D reveals updated beneficial ownership percentages for Newegg Commerce, Inc. by Zhitao He and affiliated entities, alongside disclosures of ongoing legal proceedings and pledged shares.

Delay expectedA Supplemental Agreement dated April 22, 2022, which allowed Digital Grid to sell pledged shares prior to June 30, 2022, expired without any sales being made.A pending registration statement that would have allowed certain pledged shares to be sold was withdrawn on June 30, 2022.The Amended and Restated Supplemental Agreement provided a mechanism to remove the Pledge if shares were sold prior to November 30, 2023, but the filing does not indicate that these sales occurred.

Worse than expectedOngoing lawsuits from Bank of China and Industrial and Commercial Bank of China against key reporting persons and affiliates for substantial loan defaults, with adverse court judgments.A significant portion of the Issuer's common shares (57.20%) are pledged as collateral, creating a risk of forced sale that could negatively impact the stock price.The sale of 23,699 shares by Hangzhou Lianluo, while small, indicates a reduction in holdings by a major shareholder amidst financial pressures.

Summary

Zhitao He beneficially owns 11,851,279 Common Shares of Newegg Commerce, Inc., representing 60.84% of the Issuer's Common Stock.
Hangzhou Lianluo Interactive Information Technology Co., Ltd. beneficially owns 11,147,329 Common Shares, representing 57.23%.
Digital Grid (Hong Kong) Technology Co., Limited beneficially owns 11,141,079 Common Shares, representing 57.20%.
Hyperfinite Galaxy Holding Limited beneficially owns 2,946 Common Shares, representing 0.02%.
The beneficial ownership includes 11,141,079 Common Shares held by Digital Grid (100% owned by Hangzhou Lianluo), warrants for 6,250 Common Shares at $352.00/share owned by Hangzhou Lianluo, 2,946 Common Shares held by Hyperfinite (100% owned by Mr. Zhitao He), and vested stock options for 701,004 Common Shares at $10.95/share held by Mr. Zhitao He.
On August 7, 2025, Hangzhou Lianluo sold 23,699 Common Shares at approximately $58.99 per share.
11,141,079 Common Shares held by Digital Grid are pledged to Bank of China (BOC) as collateral for working capital loans and letters of credit.
As of March 31, 2025, the total amount owed under the BOC loans is RMB147 million plus $66.5 million.
BOC filed lawsuits against Hangzhou Lianluo, Digital Grid, Beijing Digital Grid Technology Co., Ltd., and Mr. Zhitao He for loan defaults, with judgments entered in favor of BOC on December 31, 2021, and subsequently upheld.
Industrial and Commercial Bank of China (ICBC) filed a lawsuit against Hangzhou Lianluo for unpaid loans, with an estimated total owed of RMB448 million as of March 31, 2025. A court ruled on February 26, 2024, that Hangzhou Lianluo owed ICBC RMB332 million under one loan.

Sentiment

Score: 3

Explanation: The filing highlights substantial financial liabilities and ongoing legal challenges faced by the controlling shareholders, including court judgments for loan defaults and a large portion of Newegg shares being pledged as collateral. While the majority ownership remains stable, the underlying financial distress of the controlling entities presents a significant risk to Newegg's share price stability and future.

Positives

Zhitao He and affiliated entities maintain a significant majority stake (over 60%) in Newegg Commerce, Inc., indicating continued control.
Mechanisms (Form F-3 Registration Statement, Rule 144, Rule 10b5-1) are in place to allow for the sale of pledged shares to repay loans, providing a potential path to resolve debt.

Negatives

A significant portion of Newegg's shares (11,141,079 Common Shares, or 57.20%) held by Digital Grid are pledged as collateral, creating a risk of forced sale if loan obligations are not met.
Ongoing lawsuits from Bank of China and Industrial and Commercial Bank of China against Hangzhou Lianluo and its affiliates for substantial loan defaults (RMB147 million + $66.5 million to BOC, and an estimated RMB448 million to ICBC).
Court judgments have been entered against the defendants in favor of BOC, and a ruling against Hangzhou Lianluo for ICBC loans, indicating adverse legal outcomes.
Hangzhou Lianluo sold 23,699 Common Shares, which, while small, represents a reduction in holdings by a major shareholder.
Warrants to purchase 6,250 Common Shares at an exercise price of $352.00/share are significantly out-of-the-money compared to the recent sale price of approximately $58.99/share.

Risks

Pledge of Shares: 11,141,079 Common Shares are pledged to Bank of China, risking forced liquidation if loan obligations are not met, which could exert downward pressure on the stock price.
Loan Defaults and Litigation: Ongoing lawsuits from Bank of China and Industrial and Commercial Bank of China due to substantial loan defaults, with adverse court judgments, could lead to further financial penalties or asset seizures impacting the controlling shareholder group.
Share Price Volatility: The potential for large blocks of pledged shares to be sold in the market to repay loans could lead to increased share price volatility.
Shareholder Agreement Restrictions: Transfer restrictions, preemptive rights, and rights of first refusal under the Amended and Restated Shareholders Agreement could limit liquidity for certain shareholders, although 20% of principal shareholder shares are exempt.
Warrant Exercise Price: Warrants with an exercise price of $352.00/share are highly out-of-the-money, indicating a significant disconnect from the current market valuation and potential lack of future value for these specific instruments.

Future Outlook

The Reporting Persons have no current plans or proposals for the disposition or acquisition of additional Common Shares, except that Mr. Zhitao He may acquire shares through equity awards granted by the Issuer, or the Reporting Persons may dispose of shares through open market transactions (pursuant to Rule 144 or Rule 10b5-1) or gifts, subject to the existing Pledge.

Industry Context

This filing primarily concerns the beneficial ownership and financial arrangements of a major shareholder group, rather than broader industry trends or competitive dynamics of Newegg Commerce, Inc.'s business operations.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Shareholder Agreement Amendment	First Amendment to the Amended and Restated Shareholders Agreement, exempting the first 20% of Common Shares held by a Principal Shareholder from Right of First Refusal restrictions.	March 22, 2022	Increases liquidity for principal shareholders for a portion of their holdings, potentially facilitating sales for debt repayment or other purposes.
Shareholder Agreement Amendment	Second Amendment to the Amended and Restated Shareholder Agreement, further clarifying the exemption of the first 20% of Common Shares held by a Principal Shareholder from Right of First Refusal restrictions.	August 1, 2022	Reinforces increased liquidity for principal shareholders for a portion of their holdings.

Legal Proceedings

Bank of China (BOC) lawsuits against Hangzhou Lianluo, Digital Grid, Beijing Digital Grid Technology Co., Ltd., and Mr. Zhitao He in the Hangzhou Intermediate People's Court in China, alleging failure to repay working capital loans and letters of credit. Judgments were entered in favor of BOC on December 31, 2021, and subsequently upheld by the Zhejiang Provincial People's Court.
Industrial and Commercial Bank of China (ICBC) lawsuit against Hangzhou Lianluo in the Hangzhou Court, filed on April 11, 2023, alleging failure to repay three separate loans. On February 26, 2024, the Hangzhou Court ruled that Hangzhou Lianluo owed ICBC RMB332 million (including interest) under one of these loans.

Related Party Transactions

Hangzhou Lianluo's 100% ownership of Digital Grid, and Mr. Zhitao He's 100% ownership of Hyperfinite, establishing the control structure of the reporting persons.
Loans provided by Bank of China to Digital Grid, Hangzhou Lianluo, and certain affiliates (exclusive of the Issuer), which are guaranteed jointly and severally by Beijing Digital Grid Technology Co., Ltd. (a subsidiary of Hangzhou Lianluo) and Mr. Zhitao He.
The pledge of 11,141,079 Common Shares held by Digital Grid to Bank of China as collateral for these loans.

Stakeholder Impact

Shareholders: Potential for increased share price volatility due to the significant portion of shares pledged as collateral and the ongoing financial distress and legal issues of the controlling shareholder group. Risk of potential dilution if equity awards are exercised.
Creditors (Bank of China, Industrial and Commercial Bank of China): Actively pursuing repayment through litigation, with favorable court judgments obtained, and holding pledged shares as collateral for certain loans.
Company (Newegg Commerce, Inc.): While the lawsuits are primarily against the controlling shareholders and their affiliates, the financial instability of the majority owner and the pledge of a significant portion of the company's shares could indirectly impact Newegg's reputation, investor confidence, and strategic flexibility.

Next Steps

Mr. Zhitao He may acquire additional shares of Common Stock pursuant to equity awards granted to him by the Issuer.
Reporting Persons may dispose of shares of Common Stock through open market transactions pursuant to Rule 144 or Rule 10b5-1, or may gift shares of Common Stock, subject to the existing Pledge.
Continued efforts by the controlling shareholder group to repay outstanding loans to Bank of China and Industrial and Commercial Bank of China.

Key Dates

Date	Description
October 16, 2020	Date used for calculating LLIT's volume-weighted average trading price for merger consideration.
October 23, 2020	Date of the Agreement and Plan of Merger and Reorganization.
February 10, 2021	Supplemental and Novation Agreement to the Pledge Agreement entered into by Digital Grid, Hangzhou Lianluo, and Bank of China.
May 12, 2021	Lianluo Smart Ltd (LLIT) held a special shareholder meeting to approve the Merger and amendment of its memorandum and articles of association.
May 14, 2021	Amended and Restated Memorandum and Articles of Association filed and became effective.
May 19, 2021	Merger became effective; Amended and Restated Shareholders Agreement became effective.
June 1, 2021	Initial Schedule 13D filed by the Reporting Persons.
December 31, 2021	Hangzhou Intermediate People's Court entered a judgment in favor of Bank of China against the defendants for loan defaults.
January 26, 2022	Share Exchange Agreement entered into, reaffirming the continuation of the Pledge.
March 22, 2022	First Amendment to the Amended and Restated Shareholders Agreement entered into.
April 22, 2022	Supplemental Agreement entered into, providing a mechanism for Digital Grid to sell pledged shares prior to June 30, 2022.
June 30, 2022	Pending registration statement for pledged shares was withdrawn; Supplemental Agreement (April 22, 2022) became inoperative by its terms.
July 1, 2022	Form F-3 Registration Statement (File No. 333-265985) filed by the Issuer.
August 1, 2022	Second Amendment to the Amended and Restated Shareholder Agreement entered into.
October 5, 2022	Form F-3 Registration Statement declared effective.
December 19, 2022	Amended and Restated Supplemental Agreement entered into, providing a mechanism to remove the Pledge if shares are sold prior to November 30, 2023.
December 21, 2022	First Amended Statement filed.
April 11, 2023	Industrial and Commercial Bank of China (ICBC) filed a lawsuit against Hangzhou Lianluo.
November 30, 2023	Deadline for Digital Grid to sell shares under the Amended and Restated Supplemental Agreement to remove the Pledge.
February 26, 2024	Hangzhou Court ruled that Hangzhou Lianluo owed ICBC RMB332 million under one loan.
December 31, 2024	Date as of which 19,478,394 Common Shares were outstanding, as reported in the Annual Report on Form 20-F.
March 31, 2025	Date as of which total amounts owed under BOC loans (RMB147 million + $66.5 million) and ICBC loans (estimated RMB448 million) were reported.
April 28, 2025	Annual Report on Form 20-F filed.
August 7, 2025	Date of event which requires filing of this statement (Hangzhou Lianluo sold 23,699 Common Shares).
August 8, 2025	Date of this Amendment No. 2 to Schedule 13D.
August 11, 2025	Signature date of the filing.

Recommendation

sell

The filing reveals significant financial distress and ongoing legal battles for the controlling shareholder group, including substantial loan defaults and adverse court judgments. A large portion of Newegg's shares are pledged as collateral, creating a material risk of forced sales that could depress the stock price. While the company itself is not directly implicated in the lawsuits, the financial instability of its majority owner presents a significant indirect risk to the company's stability and investor confidence. The highly out-of-the-money warrants further highlight a disconnect from current valuation, suggesting a negative outlook.

Keywords

Newegg Commerce, NEGG, Schedule 13D, Beneficial Ownership, Zhitao He, Hangzhou Lianluo, Digital Grid, Share Pledge, Loan Default, Litigation, NASDAQ, Common Stock

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