Foxx Development Holdings Inc.(FOXX) - 2025 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited financial statements show significant revenue growth alongside wider net losses and negative cash flow, raising substantial doubt about the company's ability to continue as a going concern Condensed Consolidated Balance Sheets Total assets and liabilities increased dramatically following the reverse recapitalization, while the company maintained a shareholders' deficit Condensed Consolidated Balance Sheet Highlights (in USD) | Metric | March 31, 2025 (Unaudited) | June 30, 2024 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $30,437,895 | $4,333,959 | | Cash | $3,790,055 | $587,448 | | Accounts receivable, net | $7,146,701 | $251,894 | | Inventories | $16,661,931 | $1,768,072 | | Total Assets | $32,852,344 | $5,374,422 | | Total Current Liabilities | $33,384,340 | $8,948,981 | | Accounts payable | $29,354,980 | $1,396,860 | | Total Liabilities | $34,407,591 | $9,376,858 | | Total Shareholders' Deficit | ($1,555,247) | ($4,002,436) | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues surged year-over-year, but the net loss widened due to substantially higher cost of goods sold and operating expenses Statement of Operations Highlights (Nine Months Ended March 31) | Metric | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | Revenues, Net | $51,984,361 | $1,346,663 | | Gross Profit | $3,252,155 | $59,901 | | Loss from Operations | ($7,609,700) | ($1,887,400) | | Net Loss | ($4,927,154) | ($2,074,011) | | Basic and Diluted Loss Per Share | ($0.83) | ($0.63) | Statement of Operations Highlights (Three Months Ended March 31) | Metric | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | Revenues, Net | $11,392,078 | $513,836 | | Gross Profit (Loss) | $663,313 | ($39,682) | | Loss from Operations | ($3,560,667) | ($792,609) | | Net Loss | ($4,084,511) | ($886,570) | | Basic and Diluted Loss Per Share | ($0.58) | ($0.27) | Condensed Consolidated Statements of Cash Flows Net cash used in operations continued while financing activities provided a net inflow, resulting in an overall increase in the company's cash balance Cash Flow Summary (Nine Months Ended March 31, in USD) | Metric | 2025 (Unaudited) | 2024 (Unaudited) | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,653,662) | ($4,250,712) | | Net cash used in investing activities | ($40,236) | ($7,064) | | Net cash provided by financing activities | $7,894,208 | $2,687,679 | | Net change in cash | $3,202,607 | ($1,570,097) | | Cash, end of the period | $3,790,055 | $254,752 | - Financing activities were driven by $19.7 million in proceeds from the reverse recapitalization and $9.0 million from a convertible promissory note, which were significantly offset by $20.5 million in redemption payments[16] Notes to Condensed Consolidated Financial Statements The notes disclose a 'going concern' warning, significant customer and supplier concentration risks, and details of the reverse recapitalization - The company became a publicly traded entity on September 26, 2024, through a reverse recapitalization with Acri Capital Acquisition Corporation (ACAC)[19][20] - Management has determined there is substantial doubt about the Company's ability to continue as a going concern due to net losses of approximately $4.9 million, net cash used in operating activities of $4.7 million for the nine months ended March 31, 2025, and an accumulated deficit of $16.0 million[24][26] Revenue Disaggregation (Nine Months Ended March 31) | Product/Service | 2025 Revenue | 2024 Revenue | | :--- | :--- | :--- | | Mobile phone products | $46,571,691 | $688,863 | | Wearable products and others | $3,358,138 | $0 | | Tablet products | $392,660 | $657,800 | | App service commission revenue, net, and others | $1,661,872 | $0 | | Total revenues, net | $51,984,361 | $1,346,663 | - The company faces significant concentration risk, with three customers accounting for 79% of total revenues and one supplier accounting for 93% of total purchases for the nine months ended March 31, 2025[134][136] - A subsequent event on April 2, 2025, involving an Executive Order on reciprocal tariffs, could potentially impact the company's operating results and liquidity[163] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant revenue growth driven by new customers, alongside rising operating expenses and strained liquidity leading to a 'going concern' warning Results of Operations Revenue and gross profit surged due to new wholesale customers, but a sharp increase in operating expenses led to a wider operating and net loss Comparison for the Nine Months Ended March 31, 2025 and 2024 | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $51,984,361 | $1,346,663 | $50,637,698 | 3,760.2% | | Gross profit | $3,252,155 | $59,901 | $3,192,254 | 5,329.2% | | Loss from operations | ($7,609,700) | ($1,887,400) | ($5,722,300) | 303.2% | | Net loss | ($4,927,154) | ($2,074,011) | ($2,853,143) | 137.6% | - The increase in revenue for the nine-month period was mainly attributable to sales from three new major wholesale customers, who collectively accounted for 78% of total sales[220] - Selling expenses for the nine-month period increased by 779.0% to $4.4 million, driven by higher commissions, consulting fees, warranty expenses, and marketing efforts[232] - General and administrative expenses for the nine-month period increased by 244.3% to $4.4 million, primarily due to higher professional fees, increased salaries, and a $0.5 million provision for credit losses[233] Liquidity and Capital Resources The company's liquidity is constrained by recurring losses and negative operating cash flow, raising substantial doubt about its ability to continue as a going concern - The company had cash of approximately $3.8 million and an accumulated deficit of $16.0 million as of March 31, 2025[241] - Management has determined that there is substantial doubt about the company's ability to continue as a going concern and is exploring financing options[242][246] Cash Flow Summary (Nine Months Ended March 31) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,653,662) | ($4,250,712) | | Net cash provided by financing activities | $7,894,208 | $2,687,679 | | Net change in cash | $3,202,607 | ($1,570,097) | Quantitative and Qualitative Disclosures about Market Risk This section is not applicable as the company qualifies as a smaller reporting company - The company has not provided quantitative and qualitative disclosures about market risk, stating it is not applicable[259] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to identified material weaknesses in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of the end of the period[260] - Material weaknesses identified include a lack of sufficient segregation of duties, inadequate control design, inability to prepare timely GAAP financial statements, and inefficient oversight[263] PART II – OTHER INFORMATION Legal Proceedings A class action lawsuit was voluntarily dismissed, with the company agreeing to pay the plaintiff's legal fees to resolve the matter - A class action complaint, Semensato v. Foxx Development Holdings Inc., et al., was filed on November 22, 2024, and voluntarily dismissed as moot on March 3, 2025[266][267] - To resolve the matter and avoid litigation costs, the company agreed to pay an $85,000 "Mootness Fee" to the plaintiff's counsel[267] Risk Factors A new risk factor has been added concerning potential adverse effects from changes in United States tariff and import/export regulations - A new risk factor has been introduced regarding the potential adverse effects of changes to U.S. tariff and import/export regulations on the company's business[269] - The company is assessing the potential impact of the April 2, 2025 Executive Order on reciprocal tariffs, which could reduce projected operating results and liquidity[269]