Foxx Development Holdings Inc.(FOXX) - 2024 Q4 - Annual Report

PART I Business Foxx Development Holdings Inc. is a communications technology company focused on tablets, smartphones, and expanding into the IoT market - The company was formed following a business combination between Acri Capital Acquisition Corporation (ACAC) and Foxx Development Inc., which closed on September 26, 2024 The new public entity is named Foxx Development Holdings Inc. and trades on Nasdaq under the symbol "FOXX"[11][13][14] - The company is strategically expanding beyond its core tablet and smartphone business into the Internet-of-Things (IoT) sector Key growth initiatives include developing a proprietary IoT Cloud Platform, wearables (smartwatches), health and wellness devices, and smart home solutions[35][66][76] - The company operates on a build-to-order business model, receiving bulk purchase orders from third-party distributors which then informs production specifications with original design manufacturer (ODM) suppliers[60] - For the fiscal year ended June 30, 2024, research and development expenses were $91,168, primarily directed towards 5G product development[98] Fiscal Year Performance Comparison | Metric | FY ended June 30, 2024 ($) | FY ended June 30, 2023 ($) | | :--- | :--- | :--- | | Revenue | ~$3.2 million | ~$21.62 million | | Tablets Sold | ~12,000 | ~491,000 | | Smartphones Sold | ~80,000 | ~76,000 | Risk Factors The company faces significant business, regulatory, financial, and operational risks, including going concern uncertainty and internal control weaknesses - The company has a high concentration of suppliers and customers For the year ended June 30, 2024, three suppliers accounted for 98% of total purchases, and three customers accounted for 86% of total revenues[119][128] - The business was significantly impacted by the wind-down of the Federal Communications Commission's (FCC) Affordable Connectivity Program (ACP), which stopped accepting new enrollments on February 8, 2024 The company believes this may lead to a temporary decline in sales[139][140] - The company's operating losses have raised substantial doubt about its ability to continue as a going concern, as noted by its independent registered public accounting firm[221] - Management has identified six material weaknesses in its internal control over financial reporting as of June 30, 2024, including lack of segregation of duties, inadequate control design, and inability to prepare timely and accurate financial statements[228][231] - The company faces risks related to potential changes in U.S. government regulations concerning information and communications technology (ICTS) sourced from foreign adversaries, which could impact its supply chain and operations[187][188][189] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[282] Cybersecurity A formal Cybersecurity Incident Response Policy was established, with Board oversight and CTO-led daily management - A formal Cybersecurity Incident Response Policy was approved by the Board of Directors on September 24, 2024, following the business combination[284] - The Board of Directors administers its cybersecurity risk oversight function through the Audit Committee, which receives periodic briefings from the Chief Information Officer (CIO)[289] - The cybersecurity incident management team consists of the CTO, James Liao, and the senior vice president of the Operating Subsidiary, Ruobing Yu[290] Properties The company leases its corporate headquarters and other facilities, anticipating future expansion needs Leased Facilities | Location | Square Footage | Purpose | Lease Expiration Date | | :--- | :--- | :--- | :--- | | Irvine, CA | 1548 | Flex Space | 09/30/2026 | | Alpharetta, GA | 300 | Office | 08/04/2024 | | Duluth, GA | 500 | Warehouse | 07/31/2024 | Legal Proceedings The company is not currently involved in any material litigation or legal proceedings - As of the report date, the company is not a party to any material legal proceedings[294] Mine Safety Disclosures This section is not applicable to the company's operations - Not Applicable[295] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock and warrants trade on Nasdaq, with no plans for cash dividends and an adopted equity incentive plan - The company's common stock and public warrants are traded on Nasdaq under the symbols "FOXX" and "FOXXW"[297] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, retaining earnings for business development[298] - The 2024 Equity Incentive Plan became effective upon the business combination closing, with 1,454,019 shares of common stock authorized for issuance, representing 20% of the outstanding shares at closing[300][302] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance for Foxx and ACAC, highlighting Foxx's revenue decline, net loss, and going concern issues, alongside ACAC's pre-merger financial status FOXX Management's Discussion and Analysis Foxx's revenue significantly declined in fiscal 2024 due to strategic shifts and the ACP program's termination, leading to a substantial net loss and raising going concern doubts - The significant revenue decrease was attributed to a strategic shift to diversify suppliers and customers, which involved smaller initial orders, and the negative market impact from the termination of the Affordable Connectivity Program (ACP)[309][310][335] - Operating expenses rose 217.3% to $3.2 million, driven by a 309.8% increase in selling expenses and a 325.8% increase in G&A expenses, reflecting investments in sales, marketing, and personnel for business expansion[344][345][346] - As of June 30, 2024, the company had a working capital deficit of approximately $4.6 million and an accumulated deficit of $11.0 million These factors, along with operating losses, have raised substantial doubt about its ability to continue as a going concern[353][442] Results of Operations Comparison (Fiscal Years Ended June 30) | Line Item | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $3,228,559 | $21,622,887 | $(18,394,328) | (85.1)% | | Gross profit | $115,943 | $1,108,780 | $(992,837) | (89.5)% | | (Loss) income from operations | $(3,128,470) | $86,227 | $(3,214,697) | (3,728.2)% | | Net (loss) income | $(3,430,642) | $58,191 | $(3,488,833) | (5,995.5)% | Cash Flow Summary (Fiscal Years Ended June 30) | Cash Flow Activity | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,680,079) | $30,176 | | Net cash used in investing activities | $(8,743) | $(66,899) | | Net cash provided by financing activities | $3,451,421 | $1,839,830 | ACAC Management's Discussion and Analysis ACAC, a blank check company, faced delisting risks and significant shareholder redemptions prior to its business combination, raising going concern doubts - ACAC was a blank check company that consummated its IPO of 8,625,000 units on June 14, 2022, raising gross proceeds of $86.25 million[370][371] - On July 23, 2024, ACAC received a delisting notice from Nasdaq because its Market Value of Listed Securities (MVLS) fell below the $35 million minimum requirement The company has until January 20, 2025, to regain compliance[383][384] - Significant shareholder redemptions occurred in connection with extension meetings As of June 30, 2024, approximately $21.2 million remained in the Trust Account, down from an initial $88.0 million[393] - Management determined that conditions, including the need to complete a business combination by the deadline, raised substantial doubt about ACAC's ability to continue as a going concern prior to the merger[404] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing market risk disclosures - The company is not required to make disclosures under this item as it qualifies as a smaller reporting company[418] Financial Statements and Supplementary Data This section includes audited financial statements for Foxx and ACAC, with Foxx's auditor noting substantial doubt about its going concern ability - The Report of Independent Registered Public Accounting Firm for Foxx Development Inc. includes an explanatory paragraph regarding the company's ability to continue as a going concern, citing a significant working capital deficiency and recurring losses[424] - The financial statements for Acri Capital Acquisition Corporation (ACAC) are also included, covering the period prior to the business combination[420][421] Foxx Development Inc. Consolidated Balance Sheet Highlights (As of June 30) | Account | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Total Assets | $5,374,422 | $2,009,919 | | Total Liabilities | $9,376,858 | $2,581,713 | | Total Shareholders' Deficit | $(4,002,436) | $(571,794) | | Working Capital Deficit | $(4,615,022) | $(630,472) | Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in internal control, with remediation plans underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2024[800] - Several material weaknesses in internal control over financial reporting were identified, including: - Lack of sufficient segregation of duties - Inadequate design and documentation of controls - Inability to prepare complete and accurate financial statements in a timely manner - Inefficient oversight from those charged with governance[804] - Remediation plans include hiring more qualified accounting personnel, implementing regular GAAP training, and establishing an internal audit function with the help of an external consulting firm[805] Other Information No other information is reported in this section - None[807] PART III Directors, Executive Officers and Corporate Governance The report identifies executive officers and directors, detailing board composition and established governance committees - The executive team includes Greg Foley as CEO, "Joy" Yi Hua as Chairwoman and CFO, Haitao Cui as Executive VP, and James Liao as CTO[809] - The Board of Directors has a majority of independent directors (Eva Yiqing Miao, Edmund R. Miller, Jeff Feng Jiang), satisfying Nasdaq listing standards[818] - The company has established Audit, Compensation, and Nominating and Corporate Governance committees, each composed entirely of independent directors[821][825][826] Executive Compensation Post-merger, executive officers have employment agreements with set salaries, and independent directors receive annual cash compensation - Independent directors will receive an annual cash compensation of $100,000[846] Post-Closing Executive Officer Annual Base Salaries | Name | Title | Salary ($) | | :--- | :--- | :--- | | Greg Foley | CEO | $275,000 | | Haitao Cui | Executive VP | $300,000 | | "Joy" Yi Hua | Chairwoman & CFO | $300,000 | | James Liao | CTO | $180,000 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details significant beneficial ownership stakes, including those held by directors and executive officers - All directors and executive officers as a group beneficially own 29.7% of the company's common stock[850] Beneficial Ownership >5% | Beneficial Owner | Percentage of Class | | :--- | :--- | | BRR Investment Holding Corp. | 31.8% | | Acri Capital Sponsor LLC | 29.7% | | New Bay Capital Limited | 9.6% | | BR Technologies PTE. Ltd. | 9.1% | Certain Relationships and Related Transactions, and Director Independence The company discloses related party transactions, including consulting and R&D fees paid to affiliated entities - For the year ended June 30, 2024, the company incurred $324,000 in consulting fees to Azure Horizon LLC, an entity owned by former management[856] - The company incurred $91,168 in research and development fees for the year ended June 30, 2024, paid to Wuhan Haoxun Communication Technology Co. Ltd, an entity controlled by an executive's family member[856] Principal Accountant Fees and Services The company paid its principal accountant $545,320 in audit fees for FY 2024, with all services pre-approved Accountant Fees | Fee Category | FY 2024 ($) | FY 2023 ($) | | :--- | :--- | :--- | | Audit Fees | $545,320 | $ - | | Audit-Related Fees | $ - | $ - | | Tax Fees | $ - | $ - | | All Other Fees | $ - | $ - | PART IV Exhibits, Financial Statement Schedules This section lists financial statements and provides an index of all exhibits filed with the Form 10-K - This section provides an index of all exhibits filed with the annual report, including the Business Combination Agreement, Certificate of Incorporation, Bylaws, Warrant Agreement, and various material contracts[862][864][865] Form 10-K Summary No summary is provided in this section of the report - None[866]