Foxx Development Holdings Inc.(FOXX) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (unaudited) Unaudited Q3 2024 financial statements reflect significant asset and liability growth, substantial revenue, and increased net loss post-Business Combination Condensed Consolidated Balance Sheets The balance sheet reflects significant increases in assets and liabilities, primarily due to the September 2024 Business Combination Condensed Consolidated Balance Sheet Highlights (in USD) | Metric | Sep 30, 2024 (Unaudited) | June 30, 2024 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $47,554,303 | $4,333,959 | | Total Assets | $49,547,691 | $5,374,422 | | Total Current Liabilities | $47,949,557 | $8,948,981 | | Total Liabilities | $49,090,453 | $9,376,858 | | Total Shareholders' Equity (Deficit) | $457,238 | $(4,002,436) | - The significant increase in assets and liabilities is primarily due to the reverse recapitalization transaction that closed on September 26, 2024[12][89] - New liabilities recognized include $20.5 million in Payables on shares redemption and $5.7 million in Earnout liabilities, both resulting from the Business Combination[11][45][47] Condensed Consolidated Statements of Operations (unaudited) Q3 2024 operations show $23.1 million revenue from new customers, but increased operating expenses led to a $2.3 million net loss Statement of Operations Summary (in USD) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Revenues, Net | $23,112,052 | $0 | | Gross Profit | $398,176 | $0 | | Loss from Operations | $(1,807,933) | $(511,610) | | Net Loss | $(2,266,789) | $(546,831) | | Loss Per Share (Basic & Diluted) | $(0.65) | $(0.17) | - The significant increase in revenue is attributed to sales from two new wholesale customers acquired during the period[205] - Operating expenses increased significantly, driven by higher selling expenses ($1.2M vs $0.2M YoY) and general & administrative expenses ($1.0M vs $0.3M YoY) due to business expansion and costs associated with being a public company[15][215][216] Condensed Consolidated Statements of Cash Flows (unaudited) Q3 2024 cash flows show $0.24 million used in operations, with significant financing inflow from reverse recapitalization Cash Flow Summary (in USD) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(243,459) | $(1,387,649) | | Net cash used in investing activities | $(35,000) | $(4,144) | | Net cash provided by (used in) financing activities | $28,283,012 | $(205,824) | | Net change in cash | $28,004,553 | $(1,597,617) | | Cash and restricted cash, end of period | $28,592,001 | $227,232 | - The large cash inflow from financing activities was driven by proceeds from the reverse recapitalization ($19.7M) and the issuance of convertible promissory notes ($9.0M)[22][90][234] Notes to Condensed Consolidated Financial Statements (unaudited) Notes detail the reverse recapitalization, going concern doubt, convertible note conversion, and customer/supplier concentration - The Business Combination on September 26, 2024, was treated as a reverse recapitalization, with Old Foxx as the accounting acquirer. The transaction raised approximately $19.7 million in net proceeds[26][89][90] - Management has determined there is substantial doubt about the Company's ability to continue as a going concern due to a net loss of $2.3 million for the quarter, an accumulated deficit of $13.3 million, and a working capital deficit of $0.4 million[30][34] - Immediately prior to the Business Combination, $15 million in principal from convertible promissory notes plus accrued interest was converted into common stock[115] - The company has significant customer and supplier concentration. For the three months ended September 30, 2024, two customers accounted for 49% and 39% of total revenues, and one supplier accounted for 98% of total purchases[137][139] Disaggregated Revenue (Q3 2024) | By Product | Revenue (USD) | | :--- | :--- | | Mobile phone products | $23,107,297 | | Tablet products | $4,755 | | Total | $23,112,052 | | By Business Line | Revenue (USD) | | :--- | :--- | | Wholesale revenues | $23,089,651 | | E-Commerce revenues | $22,401 | | Total | $23,112,052 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business, significant financial changes post-Business Combination, and ongoing liquidity challenges, including substantial doubt about going concern Overview The company, a communications technology firm, diversified its strategy and recovered sales in Q3 2024 after an ACP-related demand impact - The company specializes in the communications sector, offering Foxx-branded tablets, smartphones, and wearables to distributors who sell to major US carriers like T-Mobile, AT&T, and Verizon[169][170] - In 2023, the company shifted its strategy to diversify suppliers and customers to mitigate concentration risk. It also began E-Commerce operations on TikTok Shop in March 2024[170][174] - The end of the U.S. Federal Communication Commission's Affordable Connectivity Program (ACP) in early 2024 temporarily impacted demand for the company's products[175] - For the three months ended September 30, 2024, sales returned to historical levels due to the addition of two new customers[176] Results of Operations Q3 2024 revenues surged to $23.1 million from new wholesale customers, but operating expenses increased over 300%, leading to a $2.3 million net loss Results of Operations Comparison (in USD) | Metric | Q3 2024 | Q3 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $23,112,052 | $0 | $23,112,052 | 100.0% | | Gross profit | $398,176 | $0 | $398,176 | 100.0% | | Operating expenses | $2,206,109 | $511,610 | $1,694,499 | 331.2% | | Net loss | $(2,266,789) | $(546,831) | $(1,719,958) | 314.5% | - The revenue increase was mainly attributable to sales from two new wholesale customers, which aggregately accounted for 88% of sales[205] - Selling expenses increased by 483.4% to $1.2 million due to higher commissions, payroll, consulting fees, and warranty expenses related to the sales growth[214][215] - General and administrative expenses rose 216.9% to $1.0 million, driven by non-capitalized IPO-related expenses, increased salaries from new hires, and other miscellaneous expenses[214][216] Liquidity and Capital Resources Despite a $28.3 million financing inflow, the company faces a $0.4 million working capital deficit and substantial doubt about its ability to continue as a going concern - As of September 30, 2024, the company had cash of approximately $9.2 million, a working capital deficit of $0.4 million, and an accumulated deficit of $13.3 million[224] - Management has determined that there is substantial doubt about the company's ability to continue as a going concern[227] Cash Flow Summary (Q3 2024 vs Q3 2023) | Metric | Q3 2024 (USD) | Q3 2023 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(243,459) | $(1,387,649) | | Net cash used in investing activities | $(35,000) | $(4,144) | | Net cash provided by (used in) financing activities | $28,283,012 | $(205,824) | Quantitative and Qualitative Disclosures about Market Risk This section is not applicable to the company for this reporting period - The company states that this item is not applicable[245] Controls and Procedures Management concluded that disclosure controls and procedures were not effective due to former management abandoning operations, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of September 30, 2024[246] - The ineffectiveness was due to a period where former management abandoned operations, with new management only recently appointed to resume SEC filings[246] - There were no changes during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[247] PART II – OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings or subject to any material claims - As of the filing date, the company is not involved in any material legal proceedings[250] Risk Factors No material changes to the company's risk factors have occurred since the June 30, 2024, 10-K filing - The company refers to the risk factors disclosed in its 2024 Form 10-K and states there have been no material changes[251] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported for the period[252] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[253] Mine Safety Disclosures This item is not applicable to the company - Not applicable[254] Other Information The company reported no other information - None reported[255] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL documents - The report includes certifications from the principal executive officer and principal financial officer, as well as XBRL data files[256]