Foxx Development Holdings Inc.(FOXX) - 2025 Q4 - Annual Report

PART I This section details Foxx Development Holdings Inc.'s business, corporate structure, and initial financial and governance disclosures Item 1. Business Foxx Development Holdings Inc. is a 2017 Texas-based communications technology firm, designing and selling Foxx-branded devices through ODMs and diverse channels - Foxx Development Holdings Inc. was founded in Texas in 2017, specializing in the communications sector, with operations across various U.S. locations for sales, retail, distribution, after-sales support, and R&D[21] - The company's business model involves providing hardware/software specifications to original design manufacturers (ODMs), securing necessary certifications (FCC, GMSA), and offering Foxx-branded products like tablets, smartphones, and wearables[22] - On September 26, 2024, Acri Capital Acquisition Corporation (ACAC) completed a business combination with Foxx Development Inc. (Old Foxx), resulting in the formation of Foxx Development Holdings Inc., which subsequently listed its Common Stock and Warrants on Nasdaq under 'FOXX' and 'FOXXW' on September 27, 2024[17][23][24] Overview This section provides a general introduction to Foxx Development Holdings Inc.'s establishment, operational scope, and business model - Foxx Development Holdings Inc. is a technology innovation firm in the communications sector, established in Texas in 2017, with expanded presence across the U.S. for sales, distribution, support, and R&D[21] - The company provides hardware and software specifications to original design manufacturers, obtains certifications, and sells Foxx-branded tablets, smartphones, and wearables through distributors, major U.S. carriers (T-Mobile, AT&T, Verizon), and e-commerce channels like TikTok Shop[22] The Business Combination This section details the merger between ACAC and Old Foxx, forming Foxx Development Holdings Inc. and its Nasdaq listing - On September 26, 2024, Acri Capital Acquisition Corporation (ACAC) completed a business combination with Foxx Development Inc. (Old Foxx), leading to the formation of Foxx Development Holdings Inc. and its listing on Nasdaq[17][23][24] - The merger involved ACAC merging into Acri Capital Merger Sub I Inc. (renamed Foxx Development Holdings Inc.) and Old Foxx merging into Acri Capital Merger Sub II Inc. (renamed Foxx Development Inc., the Operating Subsidiary)[23] - Original Foxx Shareholders received 5,000,000 shares of Registrant's Common Stock (Closing Payment Stock), with 500,000 shares subject to an escrow arrangement contingent on the reauthorization of the Affordable Connectivity Program (ACP) with at least $4 billion funding[27][28] - An additional 4,200,000 Earnout Shares were contingent on achieving specific revenue targets for fiscal years ended June 30, 2024, and June 30, 2025. However, all Earnout Shares were forfeited as the company did not meet the vesting conditions for both fiscal years[29][30] Transaction Financing This section outlines the convertible promissory notes used to finance the business combination and their subsequent conversion into common stock - Old Foxx secured Transaction Financing through convertible promissory notes totaling $6 million from New Bay Capital Limited (Notes 1, 2, 3) and $9 million from BR Technologies PTE, Ltd. and Grazyna Plawinski Limited (Notes 4, 5)[33][35][36] - Immediately prior to the Business Combination's closing, all principal and accrued interest on these notes were converted into Original Foxx Common Stock at $30.00 per share, which were then exchanged for shares of Foxx Development Holdings Inc. Common Stock at a 3.3033 ratio[37] Shares Issued to Convertible Note Holders at Closing | Investor | Shares of Original Foxx Common Stock Converted | Shares of Foxx Development Holdings Inc. Common Stock Issued | | :----------------------- | :--------------------------------------------- | :----------------------------------------------------------- | | New Bay Capital Limited | 212,050 | 700,473 | | BR Technologies PTE, Ltd. | 200,882 | 663,581 | | Grazyna Plawinski Limited | 100,690 | 332,614 | Products and Services This section describes the company's current product portfolio, including tablets, smartphones, and new IoT offerings, along with its growth strategies Current Products This section details the company's primary revenue-generating products, including tablets, smartphones, and newly launched wearables and smart home solutions - The company's primary revenue streams are from sales of tablets and smartphones, with significant growth in smartphone sales in FY2025[38] Product Sales and Revenue (FY2024 vs. FY2025) | Product | FY2025 Sales Volume | FY2025 Revenue | FY2024 Sales Volume | FY2024 Revenue | | :---------------- | :-------------------- | :--------------- | :-------------------- | :--------------- | | Tablets | ~8,000 | ~$60.4 million | ~12,000 | ~$3.2 million | | Smartphones | ~328,000 | ~$60.4 million | ~80,000 | ~$3.2 million | - New product lines include wearables (4G LTE kids smartwatches launched Q1 2025, second generation planned Q4 2025) and smart home solutions (Leak Shield launched July 2025, solar-powered 4G LTE outdoor security camera planned Q4 2025)[51][52][54][84] Growth Strategies with IoT Cloud Platform This section outlines the company's IoT Cloud Platform development and expansion into automotive IoT and various IoT modules for future growth - The company has developed an IoT Cloud Platform to connect its devices, offering systematized upgrades, efficient IoT operations, improved human-machine interactions, and enhanced data analytics[74][75][78] - The first generation of the IoT cloud platform, launched in Q3 2024, leverages AWS cloud services for device, user, data, and security management. The second generation, launched in Q4 2024, offers full IoT PaaS and SaaS capabilities, supporting advanced communication protocols and scalability for millions of devices[81][83] - Expansion into IoT in Automotive includes a 4G LTE dashcam, 4G LTE jump starter, and 4G LTE tracker, all expected to launch in Q4 2025[86][87] - The company is building a portfolio of IoT modules (4G LTE Cat 1 bis, Cat 4, Cat M, NB-IoT, Bluetooth, Wi-Fi modules launched Q1 2025; 5G, 5G Redcap, 5G AI modules planned H1 2026)[89] Target End-Users This section identifies the key demographic segments for the company's products, focusing on budget-conscious and socially connected consumers - Target end-users include budget-conscious/practical shoppers seeking functional devices, first-time tablet/smartphone users driven by social connectivity, and parents looking for affordable yet capable devices for their children[56][57][58] Strategic Approach to Sales and Distribution This section describes the company's sales model, leveraging distributors, major carriers, national programs, and diverse e-commerce platforms - The company employs a third-party customer-driven sales model, engaging distributors who market products to consumers through prominent telecommunications carriers and Mobile Virtual Network Operators (MVNOs)[59] - Sales channels have diversified to include participation in national initiatives like the Lifeline Program, and launching products through various online E-Commerce platforms such as TikTok Shop (March 2024), BestBuy.com, Walmart.com, Amazon, Shein, Newegg, and Mercado Libre (2025)[61] - An internal sales team manages a network of hundreds of customers across seven major regions and collaborates with telecommunications carriers to ensure product availability online and in retail stores[62] Competitive Advantages This section highlights the company's strengths, including strategic operational facilities, experienced management, a build-to-order model, and strong R&D capabilities - Key competitive advantages include a comprehensive network of operational facilities in strategic locations (Irvine, CA; Dallas, TX; Atlanta, GA; Singapore) for R&D, sales, distribution, and supply chain management[63][64] - An experienced management team with over 20 years in electronics and communications, including CEO Greg Foley and CTO James Liao, provides deep market understanding and strategic decision-making[67] - A build-to-order business model allows for effective inventory management, risk mitigation, and customization based on customer demand, securing steady revenue from bulk purchase orders[68][69] - Strong R&D and innovation capabilities, efficient supply chain management with diversified suppliers in Southeast Asia, and stringent quality control measures further enhance market position[70][71][72] Intellectual Property This section details the company's trademarks and future plans for patent filings to protect its technical innovations and expertise - The company holds U.S. trademarks for its brand and maintains the domain name www.foxxusa.com[93](index=93&type=chunk)[95] - Currently, the company does not have any registered patents but plans to file patents to safeguard its technical expertise and innovations, which are presently protected as trade secrets[95] Research and Development This section outlines the company's R&D expenditures and its strategy of leveraging outsourcing collaborations for cutting-edge IoT product development - Research and development expenses for the year ended June 30, 2025, amounted to approximately $2.2 million, primarily directed towards new product development[96] - The company leverages outsourcing collaborations with industry-leading partners to accelerate progress and deliver cutting-edge solutions in IoT product development[97] Employees This section provides an overview of the company's workforce, including total employee count and departmental distribution - As of the report date, the company had 25 full-time employees, maintaining good working relationships and no material labor disputes[98] Employee Count by Department | Department | Number of Employees | | :-------------------------- | :------------------ | | Customer Service | 1 | | Sales and Marketing | 5 | | Product Research and Testing | 6 | | Information Technology | 1 | | Human Resources and Administration | 3 | | Finance | 3 | | Operations | 6 | | Total | 25 | Certifications and Regulations This section details the company's compliance with FCC and Google Mobile Services certifications for its products and relevant regulatory frameworks - The company has obtained FCC and Google Mobile Services (GMS) certifications for its open market products, ensuring compliance with radio frequency safety levels and the ability to run Google proprietary applications[100][101][102][103] - The FCC regulates RF devices, and equipment from companies on the FCC's 'Covered List' (posing national security risks) cannot be authorized in the U.S.[103][104] Environmental Matters This section highlights the company's commitment to environmental protection through eco-friendly materials, manufacturing, and energy-efficient designs - The company is dedicated to environmental protection, prioritizing eco-friendly materials, manufacturing processes, and designs that emphasize a low carbon footprint, green practices, and energy efficiency[105] Warranties and Customer Services This section describes the company's one-year product warranty and its after-sales service support provided to dealers - The company offers a one-year warranty on its products, providing after-sales service support to dealers through direct product replacement or by supplying 2% after-sales service spares[90] Competition This section identifies key competitive factors and lists major competitors across the company's smartphone, tablet, and IoT product segments - Key competitive factors include features, functionality, performance, quality, and brand. The company competes with various solution providers in different market segments[91] - Competitors in smartphones and tablets include Motorola, Inseego, HMD, TCL, Vortex, Tinno, BLU, Sky, Maxwest, and Hot Pepper. For IoT products, competitors include Netgear, Franklin Wireless, TCL, and ZTE[94] Item 1A. Risk Factors As a smaller reporting company, Foxx Development Holdings Inc. is not required to provide specific disclosures under Item 1A, Risk Factors - The company is a smaller reporting company and is not required to provide disclosures under Item 1A, Risk Factors[106] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments to report - There are no unresolved staff comments to report[107] Item 1C. Cybersecurity The company's Board approved a Cybersecurity Incident Response Policy on September 24, 2024, integrating routine risk assessments and safeguards, with the CTO leading management and the Audit Committee providing oversight - The company's Board of Directors approved a Cybersecurity Incident Response Policy on September 24, 2024, integrating it into overall risk management systems[108] - The policy mandates routine and event-driven risk assessments to identify threats, evaluate potential damage, and assess the sufficiency of existing safeguards, with the CTO, James Liao, leading the management of this process[109][110][114] - The Board of Directors, through the Audit Committee, provides oversight of cybersecurity risk management, receiving periodic briefings from the CTO on risks, incidents, and policies[113][115] Item 2. Properties The company leases its corporate headquarters in Irvine, CA, and other facilities in San Diego, CA, and Alpharetta, GA, deeming them sufficient for current operations - The company's corporate headquarters are in Irvine, CA, and it leases facilities in San Diego, CA, and Alpharetta, GA, for flex space and offices[116][117] Leased Facilities Overview | Location | Square Footage | Purpose | Lease Expiration Date | Monthly Payments | | :--------------- | :------------- | :-------- | :-------------------- | :--------------- | | Irvine, CA | 1,548 | Flex Space | 09/30/2026 | $3,653.28 | | San Diego, CA | 2,800 | Office | 05/31/2031 | $3,605.00 | | Alpharetta, GA | 300 | Office | 02/14/2026 | $591.25 | Item 3. Legal Proceedings The company settled a class action complaint regarding a corporate opportunity doctrine waiver by amending its charter and paying $85,000 to avoid litigation costs - On November 22, 2024, a class action complaint was filed against the company and certain individual defendants concerning a waiver of the corporate opportunity doctrine[119] - To resolve the litigation, the Board approved an amendment to the company's charter, and the plaintiff voluntarily dismissed the action as moot on March 3, 2025[119][120] - The company agreed to pay $85,000 to the plaintiff's counsel to cover attorneys' fees and expenses, without admitting wrongdoing, to avoid further litigation costs and distractions[120] Item 4. Mine Safety Disclosures The company is not subject to the requirements of Item 4, Mine Safety Disclosures - The company is not subject to the requirements of Item 4, Mine Safety Disclosures[122] PART II This section covers the market for the company's equity, financial condition, results of operations, and internal controls Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Common Stock and Warrants trade on Nasdaq, with no cash dividends anticipated as earnings are retained for business development, and a 2024 Equity Incentive Plan was adopted - The company's Common Stock and Public Warrants are traded on Nasdaq under the symbols 'FOXX' and 'FOXXW'[124] - As of October 13, 2025, there were 4 record holders of Common Stock and 2 for Public Warrants[125] - The company has never declared or paid cash dividends and does not anticipate doing so, intending to retain all available funds and future earnings for business development and expansion[126] - A 2024 Equity Incentive Plan was adopted, making 1,454,019 shares of Common Stock available for grant, representing 20% of outstanding shares at closing[128][130] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and results for FY2025 and FY2204, highlighting significant revenue growth, substantial net loss, and going concern doubts, influenced by the Business Combination and strategic factors Overview This section provides a general introduction to the company's formation, business focus, strategic shifts, and key factors influencing its financial performance - Foxx Development Holdings Inc. was formed on September 26, 2024, through a business combination between Acri Capital Acquisition Corporation (ACAC) and Foxx Development Inc. (Old Foxx), and subsequently listed on Nasdaq[135][136] - The company specializes in communications technology, offering Foxx-branded tablets, smartphones, and expanding into IoT markets and MVNO services, with revenue primarily from product sales[137][138][139] - A strategic shift began in 2023 to diversify suppliers and customers, expand product offerings, and launch an IoT platform, moving away from reliance on limited partners[141] - The discontinuation of the Affordable Connectivity Program (ACP) in February 2024 negatively impacted product demand in FY2024, but the company is targeting Lifeline Program eligible users and growing e-commerce sales through platforms like TikTok Shop[142] - For FY2025, the company experienced significant sales increases in mobile phones due to new major customers and launched new wearable products and App service commission revenue[143] The Business Combination and Accounting Treatment This section details the business combination's structure, share issuances, earnout conditions, and its accounting treatment as a reverse recapitalization - The Business Combination, completed on September 26, 2024, involved ACAC merging into Foxx Development Holdings Inc. and Old Foxx merging into a subsidiary, with the combined entity retaining the name Foxx Development Holdings Inc.[144][145][148] - Original Foxx Shareholders received 5,000,000 shares of Common Stock, with 500,000 shares subject to an escrow arrangement contingent on ACP reauthorization, which were subsequently cancelled and forfeited[146][149][369] - An additional 4,200,000 Earnout Shares were contingent on revenue targets for FY2024 and FY2025, but all were forfeited as the company did not meet the vesting conditions[150][151][360] - For accounting purposes, Old Foxx was deemed the accounting acquirer in a reverse recapitalization, meaning Old Foxx's historical financial statements became the combined company's, with ACAC's net assets recognized at historical cost[154][320] Transaction Financing This section outlines the convertible promissory notes used to finance the business combination and their subsequent conversion into common stock - Old Foxx secured $6 million in convertible promissory notes from New Bay Capital Limited (Notes 1, 2, 3) and $9 million from BR Technologies PTE, Ltd. and Grazyna Plawinski Limited (Notes 4, 5) to finance transaction expenses and working capital[156][158][160] - Prior to the Business Combination, all principal and accrued interest on these notes were converted into Original Foxx Common Stock at $30.00 per share, which were then exchanged for shares of Foxx Development Holdings Inc. Common Stock[161] Shares Issued to Convertible Note Holders at Closing | Investor | Shares of Foxx Development Holdings Inc. Common Stock Issued | | :----------------------- | :----------------------------------------------------------- | | New Bay Capital Limited | 700,473 | | BR Technologies PTE, Ltd. | 663,581 | | Grazyna Plawinski Limited | 332,614 | Key Factors Affecting Operating Results This section identifies critical factors impacting the company's performance, including management retention, technology investment, and customer base diversification - Retention of key management team members, with extensive experience in the electronics and IoT services industries, is crucial for maintaining service quality and product offerings[162] - Continued investment in technology and talent, particularly in R&D for new products, solutions, and 5G technology, is essential for competitiveness and enterprise growth[163][164] - The ability to expand product and service offerings and diversify the customer base beyond current tablet and mobile phone sales is a significant factor influencing future operating results[165] Results of Operations This section analyzes the company's financial performance, including revenues, cost of goods sold, gross profit, operating expenses, and net loss for the fiscal years Revenues This section details the company's revenue streams, highlighting significant growth in FY2025 driven by new customers and product lines - Total revenues increased significantly by 1,941.8% to $65.9 million in FY2025 from $3.2 million in FY2024, primarily due to sales from three new major wholesale customers (accounting for 76% of sales) and the launch of wearable electronic products and new services[167] Revenue Breakdown (FY2025 vs. FY2024) | Revenue Category | FY2025 Revenue | FY2024 Revenue | Change ($) | Change (%) | | :-------------------------- | :--------------- | :--------------- | :----------- | :--------- | | Tablet products | $509,843 | $660,787 | $(150,944) | (22.8)% | | Mobile phone products | $59,696,955 | $2,567,772 | $57,129,183 | 2,224.9% | | Wearable products and others | $3,444,077 | $- | $3,444,077 | 100.0% | | App service commission revenue, net | $2,166,477 | $- | $2,166,477 | 100.0% | | Other services | $101,814 | $- | $101,814 | 100.0% | | Total revenues, net | $65,919,166 | $3,228,559 | $62,690,607 | 1,941.8% | Cost of Goods Sold This section analyzes the cost of goods sold, which increased in direct correlation with the significant rise in revenue from new customers and products - Total cost of goods sold increased by 1,864.4% to $61.1 million in FY2025 from $3.1 million in FY2024, directly correlating with the increase in revenue from new major wholesale customers and new product lines[169] Cost of Goods Sold Breakdown (FY2025 vs. FY2024) | Cost Category | FY2025 Cost | FY2024 Cost | Change ($) | Change (%) | | :---------------- | :------------ | :------------ | :----------- | :--------- | | Tablet products | $437,903 | $505,832 | $(67,929) | (13.4)% | | Mobile phone products | $57,618,133 | $2,606,784 | $55,011,349 | 2,110.3% | | Wearable products | $3,040,588 | $- | $3,040,588 | 100.0% | | Other services cost | $47,937 | $- | $47,937 | 100.0% | | Total cost of goods sold | $61,144,561 | $3,112,616 | $58,031,945 | 1,864.4% | Gross Profit This section examines the company's gross profit and gross profit percentage, noting an increase driven by mobile phone products and new service offerings - Gross profit increased by 4,018.1% to $4.8 million in FY2025 from $0.1 million in FY2024, with the overall gross profit percentage rising from 3.6% to 7.2%[172][173] Gross Profit and Percentage by Category (FY2025 vs. FY2024) | Category | FY2025 Gross Profit | FY2025 Gross Profit % | FY2024 Gross Profit | FY2024 Gross Profit % | Change in Gross Profit % | | :-------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | :----------------------- | | Tablet products | $71,940 | 14.1% | $154,955 | 23.5% | (9.3)% | | Mobile phone products | $2,078,822 | 3.5% | $(39,012) | (1.5)% | 5.0% | | Wearable products and others | $403,489 | 11.7% | $- | - | 11.7% | | App service commission revenue | $2,166,477 | 100.0% | $- | - | 100.0% | | Other services | $53,877 | 52.9% | $- | - | 100.0% | | Total | $4,774,605 | 7.2% | $115,943 | 3.6% | 3.7% | - The increase in gross profit percentage was primarily driven by mobile phone products (from -1.5% to 3.5%), new wearable products (11.7%), and App service commission revenue (100.0% due to commission-based nature with minimal direct costs)[173][174][175][176] Operating Expenses This section details the significant increase in operating expenses, including selling, general and administrative, and R&D costs, for the fiscal year - Total operating expenses increased by 346.1% to $14.5 million in FY2025 from $3.2 million in FY2024[178][179] Operating Expenses (FY2025 vs. FY2024) | Expense Category | FY2025 Amount | FY2024 Amount | Change ($) | Change (%) | | :-------------------------------- | :------------ | :------------ | :----------- | :--------- | | Selling expenses | $5,183,464 | $1,076,761 | $4,106,703 | 381.4% | | General and administrative expense | $7,068,426 | $2,076,484 | $4,991,942 | 240.4% | | Research and development – related party | $136,752 | $91,168 | $45,584 | 50.0% | | Research and development | $2,083,897 | $- | $2,083,897 | 100.0% | | Total operating expense | $14,472,539 | $3,244,413 | $11,228,126 | 346.1% | - Selling expenses rose due to increased commissions, payroll, consulting fees, sampling/testing/certification, stock-based compensation, warranty expenses, and advertising/marketing[180] - General and administrative expenses increased due to higher professional fees (audit, legal, accounting) as a public company, increased salaries/wages from new hires, credit losses, stock-based compensation, and other miscellaneous operational expenses[181] - R&D expenses (including related party) increased due to the completion of a 5G development project, hiring more employees, engaging third parties for new product development, and stock-based compensation[182][183] Other Income (Expense), Net This section analyzes the change in other income and expenses, primarily influenced by a gain from earnout liabilities and increased interest expenses - Total other income (expense), net, increased by $1.0 million to $0.8 million of income in FY2025 from $0.3 million of expense in FY2024[185] Other Income (Expense), Net (FY2025 vs. FY2024) | Category | FY2025 Amount | FY2024 Amount | Change ($) | Change (%) | | :-------------------------------- | :------------ | :------------ | :----------- | :--------- | | Interest expense | $(4,959,055) | $(278,328) | $(4,680,727) | 1,681.7% | | Other income (expense), net | $25,589 | $(4,016) | $29,605 | (737.2)% | | Change in fair value of earnout liabilities | $5,688,007 | $- | $5,688,007 | 100.0% | | Total other income (expense), net | $754,541 | $(282,344) | $1,036,885 | (367.2)% | - The increase was primarily due to a $5.7 million gain from the change in fair value of earnout liabilities, partially offset by a $4.7 million increase in interest expenses related to vendor financing[185] Provision for Income Taxes This section details the company's income tax provision, which increased due to non-deductible items and capitalized R&D expenses - Provision for income taxes increased by $57,000 (287.0%) to $77,000 in FY2025 from $20,000 in FY2024, mainly due to non-deductible changes in fair value of earnout liabilities and capitalized R&D expenses[186] Net Loss and Comprehensive Loss This section reports the company's net loss and comprehensive loss, both of which significantly increased during the fiscal year - Net loss increased by $5.6 million (162.9%) to $9.0 million in FY2025 from $3.4 million in FY2024[187] - Comprehensive loss increased by $5.6 million (163.1%) to $9.0 million in FY2025 from $3.4 million in FY2024, including a foreign currency translation adjustment of $5,002[166][188] Liquidity and Capital Resources This section assesses the company's cash position, accumulated deficit, and operating cash outflow, highlighting going concern doubts and potential financing needs - As of June 30, 2025, the company had $1.9 million in cash and cash equivalents, an accumulated deficit of $20.0 million, a net loss of $9.0 million, and a net operating cash outflow of $6.6 million[190] - These conditions raise substantial doubt about the company's ability to continue as a going concern, necessitating potential additional financing from banks, related parties, or equity financing[191][192] Summary of Cash Flows (FY2025 vs. FY2024) | Cash Flow Activity | FY2025 Amount | FY2024 Amount | | :-------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(6,560,121) | $(4,680,079) | | Net cash used in investing activities | $(40,236) | $(8,743) | | Net cash provided by financing activities | $7,890,820 | $3,451,421 | | Effect of exchange rate changes | $(2,458) | $- | | Net change in cash and cash equivalents | $1,288,005 | $(1,237,401) | - Operating cash outflow in FY2025 was driven by net loss, increased inventories, accounts receivable, prepaid expenses, and security deposits, partially offset by increases in accounts payable and other payables[195] - Financing activities provided $7.9 million in FY2025, mainly from reverse recapitalization proceeds and convertible promissory notes, offset by redemption payments and deferred transaction costs[199] Off-Balance Sheet Arrangements This section confirms the absence of significant off-balance sheet arrangements that materially affect the company's financial condition - As of June 30, 2025, the company had no significant off-balance sheet arrangements that materially affect its financial condition, revenues, expenses, results of operations, liquidity, or capital resources[201] Critical Accounting Estimates This section discusses key accounting estimates, including income taxes and earnout liabilities, and their impact on financial reporting - Critical accounting estimates include Income Taxes, where deferred tax assets are reviewed for recoverability, and a full valuation allowance is currently recorded due to historical operating losses[203] - Earnout Liabilities, related to contingent shares from the Business Combination, are classified as a liability and measured at fair value using a Monte Carlo Model, with changes in fair value impacting the consolidated statements of operations[204][205][206][207] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Foxx Development Holdings Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Foxx Development Holdings Inc. is not required to make disclosures under this Item[210] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2025 and FY2024, including balance sheets, income statements, cash flows, and detailed notes, with auditor reports highlighting going concern uncertainty Independent Registered Public Accounting Firm Reports This section presents the audit opinions from CBIZ CPAs P.C. and Marcum LLP, both noting substantial doubt about the company's going concern ability - CBIZ CPAs P.C. issued an unqualified opinion on the consolidated financial statements for the year ended June 30, 2025, and on the retrospective application of ASU 2023-07 to the 2024 financial statements[216][217] - Both CBIZ CPAs P.C. and Marcum LLP (for 2024 statements before retrospective adjustments) included an explanatory paragraph highlighting substantial doubt about the company's ability to continue as a going concern due to significant working capital deficiency, losses, and need for additional funds[218][225][227] Consolidated Financial Statements This section provides key financial statement highlights, including balance sheet, income statement, and cash flow data for the fiscal years 2025 and 2024 Consolidated Balance Sheet Highlights (June 30, 2025 vs. 2024) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Total Current Assets | $23,649,638 | $4,333,959 | | Total Assets | $25,999,814 | $5,374,422 | | Total Current Liabilities | $30,401,252 | $8,948,981 | | Total Liabilities | $31,364,497 | $9,376,858 | | Total Shareholders' Deficit | $(5,364,683) | $(4,002,436) | Consolidated Statements of Operations Highlights (FY2025 vs. FY2024) | Metric | FY2025 | FY2024 | | :-------------------------------- | :------------- | :------------- | | Revenues, net | $65,919,166 | $3,228,559 | | Gross profit | $4,774,605 | $115,943 | | Loss from operations | $(9,697,934) | $(3,128,470) | | Net loss | $(9,020,136) | $(3,430,642) | | Comprehensive loss | $(9,025,138) | $(3,430,642) | | Basic Loss Per Share | $(1.47) | $(1.04) | Consolidated Statements of Cash Flows Highlights (FY2025 vs. FY2024) | Cash Flow Activity | FY2025 | FY2024 | | :-------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(6,560,121) | $(4,680,079) | | Net cash used in investing activities | $(40,236) | $(8,743) | | Net cash provided by financing activities | $7,890,820 | $3,451,421 | | Net change in cash | $1,288,005 | $(1,237,401) | | Cash, end of the year | $1,875,453 | $587,448 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering business nature, accounting policies, and specific financial accounts Note 1 — Nature of business and organization This note describes the company's incorporation, public listing, and the establishment of its various subsidiaries - Foxx Development Holdings Inc. was incorporated on November 13, 2023, and became a publicly traded company on September 26, 2024, following a business combination with Acri Capital Acquisition Corporation (ACAC) and Foxx Development Inc. (Old Foxx)[244][245] - The company has established subsidiaries including Foxx Technology Pte Ltd (dissolved November 2024), Foxx Development (Singapore) Pte. Ltd (incorporated March 2025), Foxx Technologies Inc (incorporated April 2025), and Nexus IQ Technology Inc (incorporated May 2025, focused on AIOT)[246][247][248] Note 2 — Going Concern This note addresses the substantial doubt about the company's ability to continue as a going concern due to significant losses and cash outflows - The company's management has identified substantial doubt about its ability to continue as a going concern within one year due to a net cash outflow from operating activities of $6.6 million, a net loss of $9.0 million, and an accumulated deficit of $20.0 million as of June 30, 2025[250][252] - To address liquidity needs, the company may seek financing from banks, other financial institutions, private lenders, financial support/credit guarantees from related parties, or equity financing[251][258] Note 3 — Basis of presentation and significant accounting policies This note outlines the basis of financial statement preparation, key accounting policies, and recent accounting standard adoptions - The consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, consolidating the company and its subsidiaries with intercompany transactions eliminated[253][254] - Key accounting policies include fair value measurement (three-level hierarchy), foreign currency translation (USD reporting, SGD functional for Singapore subsidiary), and segment reporting (one operating segment based on CODM review)[257][259][260][262] - Revenue recognition follows ASC 606, identifying performance obligations and recognizing revenue when control of goods/services transfers to customers, including wholesale, e-commerce, and App service commission revenue[275][276][277] - The company adopted ASU 2023-07, 'Segment Reporting,' retrospectively for the year ended June 30, 2025, to improve reportable segment disclosures[311] Note 4 — Reverse recapitalization This note explains the accounting treatment of the business combination as a reverse recapitalization and the resulting common stock issuance - Upon the Business Combination on September 26, 2024, ACAC's common stock and warrants were converted into the Company's Common Stock and Warrants, and Old Foxx's common stock was exchanged for 5,000,000 Closing Payment Shares[318][320][323] - Old Foxx was identified as the accounting acquirer, and the transaction was accounted for as a reverse recapitalization, with Old Foxx's historical financial statements becoming the Company's[320] Common Stock Issued Immediately Following Reverse Recapitalization | Item | Common Stock Shares | | :------------------------------------------------ | :-------------------- | | ACAC's common stock outstanding prior to Reverse Recapitalization | 3,971,634 | | Less: redemption of ACAC's common stock | (1,744,663) | | Common stock issued to underwriter | 43,125 | | Conversion of Old Foxx's common stock into Foxx's common stock | 3,303,333 | | Conversion of Old Foxx's convertible promissory notes into Foxx's common stock | 1,696,668 | | Total common stock | 7,270,097 | - The Company raised approximately $19.7 million in proceeds from the reverse recapitalization, including funds from ACAC's trust account and operating cash, net of transaction costs[321][322] Note 5 — Accounts receivable, net This note details the significant increase in accounts receivable and the provision for credit losses recognized in the current fiscal year - Accounts receivable, net, increased significantly to $6,786,792 as of June 30, 2025, from $251,894 as of June 30, 2024[325] - The company recognized a provision for allowance on credit losses of $595,907 for the year ended June 30, 2025, compared to $0 in the prior year[325][326] Note 6 — Inventories This note describes the substantial increase in inventories, primarily finished goods, and the company's inventory valuation method - Inventories, consisting primarily of finished goods, increased substantially to $12,686,739 as of June 30, 2025, from $1,768,072 as of June 30, 2024[327] - Inventories are stated at the lower of cost or net realizable value, using the 'First in, First out' method, and no inventory write-downs were recorded for the years ended June 30, 2025, and 2024[267] Note 7 — Contract assets This note explains the decrease in contract assets, representing cash deposited with suppliers for future inventory purchases - Contract assets decreased to $454,842 as of June 30, 2025, from $1,682,289 as of June 30, 2024, representing cash deposited or advanced to suppliers for future inventory purchases[328] - No allowance for credit losses on contract assets was recorded as of June 30, 2025, or 2024[268] Note 8 — Prepaid expenses and other current assets This note details the significant increase in prepaid expenses and other current assets, including various receivables and prepayments - Prepaid expenses and other current assets increased significantly to $1,837,812 as of June 30, 2025, from $44,116 as of June 30, 2024[329] - This increase includes other receivables, prepaid rent, R&D fees, insurance, professional fees, and prepayments to be refunded, with an allowance for credit losses of $317,282 recorded in FY2025[329][330][331] Note 9 — Property and equipment, net This note provides a breakdown of property and equipment, net, and the associated depreciation expense for the fiscal years - Property and equipment, net, decreased to $131,722 as of June 30, 2025, from $142,619 as of June 30, 2024[332] - Depreciation expense for FY2025 was $47,732, up from $39,783 in FY2024[332] Property and Equipment, Net (June 30, 2025 vs. 2024) | Category | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Computer and office equipment | $12,580 | $9,942 | | Equipment | $30,697 | $- | | Furniture and fixtures | $3,432 | $3,432 | | Vehicles | $191,091 | $191,091 | | Less: accumulated depreciation | $(106,078) | $(61,846) | | Total property and equipment, net | $131,722 | $142,619 | Note 10 — Other payables and accrued liabilities This note details the substantial increase in other payables and accrued liabilities, driven by higher interest payable and excise tax - Other payables and accrued liabilities increased significantly to $3,570,959 as of June 30, 2025, from $468,225 as of June 30, 2024[333] - This increase was primarily driven by a substantial rise in interest payable ($2.3 million in FY2025 vs. $0.3 million in FY2024) due to a purchase and financing agreement with a vendor, and the inclusion of excise tax payable from ACAC[333] Note 11 — Contract liabilities This note explains the decrease in contract liabilities, representing customer deposits, as revenue was recognized from these balances - Contract liabilities, representing customer deposits, decreased significantly to $378 as of June 30, 2025, from $649,450 as of June 30, 2024, as revenue was recognized from beginning contract liabilities[335] Note 12 — Related party balances and transactions This note details the company's balances and transactions with related parties, including prepaid service fees and various payables and expenses - Related party balances include prepaid service fees to Azure Horizon LLC ($8,000 in FY2025) and other payables to Wuhan Haoxun Communication Technology Co. Ltd ($18,792 in FY2025), Acri Capital Sponsor LLC ($245,509 in FY2025), and Swiftfulfill Warehouse LLC ($8,566 in FY2025)[337][338] - Related party transactions for FY2025 include $136,752 in R&D expenses with Wuhan Haoxun and $548,200 in consulting expenses with Azure Horizon LLC and Swiftfulfill Warehouse LLC[339][340] Note 13 — Short-term loans This note confirms the full repayment of all outstanding short-term loans from third parties during the fiscal year ended June 30, 2025 - All outstanding short-term loans from third parties, totaling $291,208 as of June 30, 2024, were fully repaid during the year ended June 30, 2025[341][342] Note 14 — Convertible promissory notes This note details the issuance and subsequent conversion of $15 million in convertible promissory notes into common stock during the business combination - Old Foxx issued convertible promissory notes totaling $6 million to Investor A (New Bay Capital Limited) and $9 million to Investor B (BR Technologies) and Investor C (Grazyna Plawinski Limited) at 7% per annum[343][344][346][347] - Immediately prior to the Business Combination on September 26, 2024, the $15 million principal and $408,685 in accrued interest were converted into Original Foxx Common Stock at $30.00 per share, then exchanged for 1,696,668 shares of the Company's Common Stock[348] - As of June 30, 2025, there were no outstanding convertible promissory notes, as all were converted during the reverse recapitalization[349] Note 15 — Long-term loan This note describes the company's six-year vehicle-secured long-term loan, including its payment schedule and interest expense - The company has a six-year loan of approximately $137,000, secured by a vehicle, with monthly payments of $2,694 and an interest rate of 11.85% per annum[350] Long-term Loan Payment Schedule (as of June 30, 2025) | Twelve months ended June 30, | Amount | | :--------------------------- | :----- | | 2026 | $23,743 | | 2027 | $24,826 | | 2028 | $27,984 | | Thereafter | $20,608 | | Total long-term debt payment | $97,161 | | Current portion of long-term debt | $(23,743) | | Long-term debt – non-current portion | $73,418 | - Interest expense for this loan was $12,784 in FY2025, compared to $14,989 in FY2024[351] Note 16 — Shareholders' deficit This note details changes in shareholders' deficit, including common stock issuances, equity incentive plan grants, warrant conversions, and earnout share forfeitures - As of June 30, 2025, the company had 50,000,000 authorized shares of common stock, with 6,780,597 shares outstanding[352] - Upon the reverse recapitalization, 2,270,096 common shares were issued to ACAC shareholders and its underwriter, and 1,696,668 common shares were issued to Old Foxx convertible note holders[353][354] - A 2024 Equity Incentive Plan (EIP) reserved 1,454,019 shares for awards. In November 2024 and January 2025, 727,009 restricted stock units (RSUs) were granted to employees, consultants, and directors, with a 4-year vesting schedule[355][356][357] - Total stock-based compensation expenses for FY2025 amounted to $815,678, allocated across selling, general and administrative, and R&D expenses[359] - All 4,200,000 Earnout Shares, contingent on financial performance, were forfeited as the company did not meet the vesting requirements for FY2024 and FY2025[360] - 12,156,417 ACAC warrants were converted into the Company's redeemable warrants, exercisable at $11.50 per share, with 10,500 warrants exercised in October 2024[362][365] - 500,000 common shares held in escrow, contingent on ACP reauthorization, were cancelled and forfeited on February 18, 2025[367][369] Note 17 — Fair value measurement This note explains the fair value measurement of earnout liabilities, which were reduced to zero due to the forfeiture of contingent shares - The company's earnout liabilities, initially valued at $5,688,007 on September 26, 2024, were reduced to $0 as of June 30, 2025, due to the forfeiture of earnout shares[370][375] - The fair value of earnout liabilities was determined using a Monte Carlo simulation analysis, incorporating observable (stock price, risk-free rate, term) and unobservable (simulated forecast of base monthly revenue, industry revenue growth, revenue volatility, stock volatility) inputs[206][207][208][209][371][372][373] Note 18 — Concentrations of risks This note identifies significant concentrations of risk related to major customers and suppliers, and the geographical derivation of revenues and assets - For FY2025, three major customers (A, B, C) accounted for 27%, 25%, and 25% of total revenues, respectively. For FY2024, three customers (D, A, E) accounted for 41%, 29%, and 16% of total revenues[376] - For FY2025, one supplier (Supplier A) accounted for 93% of total purchases. For FY2024, three suppliers (A, B, C) accounted for 49%, 31%, and 18% of total purchases[377] - All of the company's long-lived assets and revenues are derived solely from the United States[378] Note 19 — Leases This note details the company's operating lease agreements, including ROU assets, liabilities, and the associated lease costs and payment schedules - The company has various short-term and long-term operating lease agreements for offices, storage, and a factory/warehouse[379][380][381][382][383][384] - Operating lease ROU assets and liabilities are recorded based on the present value of lease payments, using an incremental borrowing rate (weighted average rate of 4.07%)[292][385] - The weighted-average remaining operating lease term is approximately 4.51 years as of June 30, 2025[385] Minimum Long-term Lease Payments (as of June 30, 2025) | For the twelve months ending June 30, | Amount | | :------------------------------------ | :----- | | 2026 | $251,566 | | 2027 | $260,287 | | 2028 | $270,941 | | 2029 | $283,141 | | 2030 | $92,377 | | Thereafter | $50,437 | | Total lease payments | $1,208,749 | | Less: discount | $(107,397) | | Present value of operating lease liabilities | $1,101,352 | | Operating lease liabilities, current portion | $(211,525) | | Operating lease liabilities, non-current portion | $889,827 | - Total operating lease cost for FY2025 was $260,527, up from $63,713 in FY2024[386] Note 20 — Commitments and contingencies This note outlines the settlement of a class action lawsuit, significant lease commitments, and potential risks from changes in U.S. trade policies - The company settled a class action lawsuit regarding a corporate opportunity doctrine waiver by amending its charter and paying $85,000 to the plaintiff's counsel[389][390] - A significant lease commitment was signed on July 12, 2024, for a manufacturing plant (101,145 sq ft) commencing July 1, 2025, and further expanded on December 20, 2024, to include an additional 102,099 sq ft from January 1, 2026, with associated security deposits[391] - The company faces risks and uncertainties from potential changes in U.S. trade policies, including new tariffs, which could impact future costs, revenues, and financial performance[393] Note 21 — Income taxes This note details the company's income tax expense, net operating loss carryforwards, and the valuation allowance on deferred tax assets - Income tax expense for FY2025 was $76,743, compared to $19,828 in FY2024, with an effective tax rate of (0.9)% in FY2025 and (0.6)% in FY2024[394] - The company has cumulative net operating loss (NOL) carryforwards of approximately $7.5 million (federal), $2.7 million (state), and $0.1 million (foreign) as of June 30, 2025[394] - A 100% valuation allowance was elected on deferred tax assets due to historical tax losses, increasing by $0.7 million to $2.7 million in FY2025[394] - The utilization of NOLs may be subject to limitations under Section 382 of the Internal Revenue Code due to changes in ownership[395] Note 22 — Disaggregated information of revenues This note provides a detailed breakdown of the company's revenues by product type and business line for the fiscal years Disaggregated Revenues by Product Type (FY2025 vs. FY2024) | Product Type | FY2025 Revenue | FY2024 Revenue | | :-------------------------- | :------------- | :------------- | | Tablet products | $509,843 | $660,787 | | Mobile phone products | $59,696,955 | $2,567,772 | | Wearable products and others | $3,444,077 | $- | | App service commission revenue, net | $2,166,477 | $- | | Other services | $101,814 | $- | | Total revenues, net | $65,919,166 | $3,228,559 | Disaggregated Revenues by Business Line (FY2025 vs. FY2024) | Business Line | FY2025 Revenue | FY2024 Revenue | | :-------------------------- | :------------- | :------------- | | Wholesale revenues | $62,316,253 | $3,017,769 | | E-Commerce revenues | $1,334,622 | $210,790 | | App service commission revenue, net | $2,166,477 | $- | | Other services | $101,814 | $- | | Total revenues, net | $65,919,166 | $3,228,559 | Note 23 — Basic and diluted loss per share This note presents the basic and diluted loss per share calculations, explaining the exclusion of anti-dilutive common share equivalents Basic and Diluted Loss Per Share (FY2025 vs. FY2024) | Metric | FY2025 | FY2024 | | :------------------------------------------ | :------------- | :------------- | | Net loss – basic EPS | $(9,020,136) | $(3,430,642) | | Interest expenses incurred on the convertible note | $- | $264,445 | | Net loss – basic and diluted EPS | $(9,020,136) | $(3,166,197) | | Basic and diluted weighted average shares outstanding | 6,148,467 | 3,303,333 | | Loss Per Share (Basic and Diluted) | $(1.47) | $(1.04) | - Dilutive common share equivalents, including warrants and RSUs, were excluded from diluted EPS calculation due to their anti-dilutive effect given the net loss[403] Note 24 — Segment information This note clarifies that the company operates as a single operating segment, with financial information reviewed on a consolidated basis - The company operates as a single operating segment, with the Chief Executive Officer and direct reports serving as the chief operating decision maker (CODM)[262][404] - The CODM reviews financial information on a consolidated basis, disaggregated by revenues, cost of revenues, and gross profit by business lines (electronic products and App service commission)[262] - All revenues are derived solely from the U.S., and no geographical information is presented[262][378] Note 25 — Subsequent events This note discloses the enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, and its potential impact on the company's tax position - The company evaluated events up to the financial statement issuance date and identified no subsequent events requiring adjustment or disclosure, except for the enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025[406][407] - OBBBA introduces significant changes to the U.S. tax system, including restoration of 100% accelerated tax depreciation, immediate expensing of domestic R&E, and reinstatement of EBITDA-based interest deductions. The company is assessing its potential impact[407][408] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Marcum LLP resigned as auditor following its acquisition by CBIZ CPAs P.C., which was then appointed by the Audit Committee, with no disagreements reported between the company and either firm - CBIZ CPAs P.C. acquired Marcum LLP on November 1, 2024, leading to Marcum's resignation as the independent registered public accounting firm on May 1, 2025[410] - The Audit Committee appointed CBIZ CPAs P.C. as the new independent registered public accounting firm for the fiscal year ending June 30, 2025, effective May 1, 2025[411] - Neither the company nor anyone on its behalf consulted CBIZ regarding accounting principles or audit opinions, and there were no disagreements or reportable events with either firm[411] Item 9A. Controls and Procedures The company's disclosure controls and procedures were ineffective as of June 30, 2025, due to material weaknesses in internal control over financi