FOXX 10-Q
Foxx Development Holdings Inc. (FOXX)
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended:
OR
For the transition period from _______to _______
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(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive offices)
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(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| The | ||||
| The |
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant
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of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
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of the issuer’s classes of common equity as of the latest practicable date. As of February 13, 2025, there were
FOXX DEVELOPMENT HOLDINGS INC.
CONTENTS
i
PART I: FINANCIAL INFORMATION
Item 1. - Financial Statements
FOXX DEVELOPMENT HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30, | |||||||
| 2024 | 2024 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for credit loss of $ | ||||||||
| Inventories | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Amount due from related party | ||||||||
| Total Current Assets | ||||||||
| PROPERTY AND EQUIPMENT, NET | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Operating right-of-use assets | ||||||||
| Deferred transaction costs | ||||||||
| Security deposits | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Other payables and accrued liabilities | ||||||||
| Other payable - related party | ||||||||
| Contract liabilities | ||||||||
| Short-term loans | ||||||||
| Current maturity of long-term loan | ||||||||
| Operating lease liabilities - current | ||||||||
| Convertible promissory notes | ||||||||
| Earnout liabilities | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Long-term loan - non-current | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 20) | ||||||||
| SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Common stock, $ | * | |||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Shareholders’ Equity (Deficit) | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
FOXX DEVELOPMENT HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| REVENUES, NET | $ | $ | $ | $ | ||||||||||||
| COST OF GOODS SOLD | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development - related party | ||||||||||||||||
| Research and development | ||||||||||||||||
| Stock-based compensation expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Change in fair value of earnout liabilities | ||||||||||||||||
| Total Other Income (Expense), net | ( | ) | ( | ) | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES* | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| INCOME (LOSS) PER SHARE | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
FOXX DEVELOPMENT HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS’ EQUITY (DEFICIT)
| For the Six Months Ended December 31, 2024 | ||||||||||||||||||||
| Additional | ||||||||||||||||||||
| Common stock | paid-in | Accumulated | ||||||||||||||||||
| Shares* | Amount | capital | deficit | Total | ||||||||||||||||
| BALANCE, June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Conversion of convertible promissory notes into common stock upon completion of reverse recapitalization | ||||||||||||||||||||
| Issuance of common stock upon completion of reverse recapitalization | ( | ) | ( | ) | ||||||||||||||||
| Earnout liabilities | - | ( | ) | ( | ) | |||||||||||||||
| Transaction costs | - | - | ( | ) | ( | ) | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| BALANCE, September 30, 2024 (Unaudited) | ( | ) | ||||||||||||||||||
| Issuance of common stock through exercise of warrants | ||||||||||||||||||||
| Stock-based compensation expenses | - | |||||||||||||||||||
| Net income | - | |||||||||||||||||||
| BALANCE, December 31, 2024 (Unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| For the Six Months Ended December 31, 2023 | ||||||||||||||||||||
| Additional | ||||||||||||||||||||
| Common stock | paid-in | Accumulated | ||||||||||||||||||
| Shares* | Amount | capital | deficit | Total | ||||||||||||||||
| BALANCE, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| BALANCE, September 30, 2023 (Unaudited) | ( | ) | ( | ) | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| BALANCE, December 31, 2023 (Unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
FOXX DEVELOPMENT HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended | ||||||||
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Interest expense from convertible promissory notes | ||||||||
| Amortization of operating right of use assets | ||||||||
| Provision for credit losses | ||||||||
| Stock-based compensation expenses | ||||||||
| Change in fair value of earnout liabilities | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Contract assets | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Amount due from a related party | ||||||||
| Security deposits | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Contract liabilities | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Other payables and accrued liabilities | ||||||||
| Other payable - related party | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repayments to short-term loans - related party | ( | ) | ||||||
| Repayments to short-term loans | ( | ) | ||||||
| Principal payments of long-term loan | ( | ) | ( | ) | ||||
| Proceeds from convertible promissory note | ||||||||
| Proceeds from reverse recapitalization, net of payments of transaction costs | ||||||||
| Proceeds from issuance of common stock through exercise of warrants | ||||||||
| Payment of redemption payable | ( | ) | ||||||
| Payments of deferred transaction costs | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH | ( | ) | ||||||
| CASH AND RESTRICTED CASH, beginning of the period | ||||||||
| CASH AND RESTRICTED CASH, end of the period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Initial recognition of operating right-of-use assets and lease liabilities | $ | $ | ||||||
| Modification of operating right-of-use assets and lease liabilities | $ | $ | ||||||
| Conversion of convertible promissory notes into common stock | $ | $ | ||||||
| Reverse recapitalization transaction costs net against additional-paid in capital | $ | $ | ||||||
| Deferred transaction costs included in other payables and accrued liabilities | $ | $ | ||||||
| Initial recognition of earnout liabilities | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
FOXX DEVELOPMENT HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Nature of business and organization
Foxx Development Holdings Inc. (“Foxx” or the “Company”) was incorporated on November 13, 2023 under the name “Acri Capital Merger Sub I Inc.” On February 18, 2024, the Company entered into a business combination agreement (as amended on May 31, 2024, the “Business Combination Agreement”), by and among the Company, Acri Capital Acquisition Corporation, a Delaware corporation and our parent company at the time (“ACAC”), Acri Capital Merger Sub II Inc., a Delaware corporation and our wholly-owned subsidiary at the time (“Merger Sub”), and Foxx Development Inc. (“Old Foxx”), a Texas corporation incorporated on March 17, 2017 primarily engaged in the sales of electronic products, pursuant to which (i) ACAC merged with and into the Company, with the Company as the surviving Delaware corporation (the “Reincorporation Merger”), and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as a wholly-owned Delaware subsidiary of the Company (the “Acquisition Merger”). The Reincorporation Merger, the Acquisition Merger, and other transactions contemplated under the Business Combination Agreement, are collectively referred to as the “Business Combination” (See Note 4).
Following the consummation of the Business Combination (the “Closing”) on September 26, 2024, the Company was renamed as “Foxx Development Holdings Inc.” and became a publicly traded company. The Merger Sub was renamed as “Foxx Development Inc.” and became the Delaware subsidiary of Purchaser.
On August 29, 2023,
Foxx Technology Pte Ltd, a Singapore private company (“Foxx Technology”), was incorporated in Singapore, with Old Foxx holding
Note 2 — Going Concern
In assessing the Company’s ability to continue as a going concern, the Company monitors and analyses its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses, and capital expenditure obligations.
The Company is primarily
engaged in the sales of electronic products and debt financing in the form of convertible notes, loans from bank, third parties, related
parties, and cash generated from operations have been utilized to finance the working capital. The Company’s management has considered
whether there is substantial doubt about its ability to continue as a going concern due to (1) net cash used in operating activities
of approximately $
5
If the Company is unable to generate sufficient funds to finance the working capital requirements of the Company within the normal operating cycle of a twelve-month period from the date of the unaudited condensed consolidated financial statements are issued, the Company may have to consider supplementing its available sources of funds through the following sources:
| ● | Other available sources of financing from banks in the United States of America and other financial institutions or private lenders; |
| ● | Financial support and credit guarantee commitments from the Company’s related parties; and |
| ● | Equity financing. |
The Company can make no assurances that required financings will be available for the amounts needed, or on terms commercially acceptable to the Company, if at all. If one or all of these events does not occur or subsequent capital raises are insufficient to bridge financial and liquidity shortfall, there would likely be a material adverse effect on the Company and would materially adversely affect its ability to continue as a going concern.
As such, the Company’s management has determined that the factors discussed above have raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. The unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.
Note 3 — Basis of presentation and significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of its financial position and operation results. Interim results are not necessary indicative of results of a full year. The information in this Quarterly Report on Form 10-Q (the “10-Q”) should be read in conjunction with information in the Annual Report for the fiscal year ended June 30, 2024 on Form 10-K filed by the Company with the SEC on October 24, 2024.
Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
Use of estimates and assumptions
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates.
6
Accounts receivable
Accounts receivables are
recognized and carried at the original invoiced amount less an allowance for any uncollectible accounts on credit losses. Allowance for
credit losses for accounts receivables is established based on various factors including historical payments and current economic trends. The
Company reviews its allowance for credit loss by assessing individual accounts receivable over a specific aging and amount. All other
balances are pooled based on historical collection experience. The estimate of expected credit losses is based on information about past
events, current economic conditions, and forecasts of future economic conditions that affect collectability. Accounts receivable are written-off
on a case by case basis after exhaustive efforts at collection are made, net of any amounts that may be collected. As of December 31,
2024 and June 30, 2024, $
Inventories
Inventories are stated at
the lower of cost or net realizable value, the estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation. Cost is determined using the “First in, First out” method. Inventories mainly
include electronic products and accessories which are purchased from the Company’s suppliers as merchandized goods and freight-in.
On an annual basis, inventories are reviewed for potential write-downs for estimated obsolescence or unmarketable inventories which equals
the difference between the costs of inventories and the estimated net realizable value, the estimated selling prices in the ordinary course
of business, less reasonably predictable costs of completion, disposal and transportation, based upon forecasts for future demand and
market conditions. When inventories are written down to net realizable value, it is not marked up subsequently based on changes in underlying
facts and circumstances. As of December 31, 2024 and June 30, 2024, the Company had inventories of $
Contract assets
Contract assets consisted of cash deposited or advanced to suppliers for future inventory purchases. This amount is refundable and bears no interest. For any advances to suppliers determined by management that such advances will not be in receipts of inventories or refundable, the Company will recognize an allowance account to reserve such balances. Management reviews its advances to suppliers on a regular basis to determine if the allowance is adequate and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for credit losses after management has determined that the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary. As of December 31, 2024 and June 30, 2024, no allowance for credit losses on contract assets was recorded.
Deferred transaction costs
The Company complies with
the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 340-10-S99-1,
“Other Assets and Deferred Costs — SEC Materials” (“ASC 340-10-S99”) and SEC Staff
Accounting Bulletin Topic 5A, “Expenses of Offering”. Deferred transaction costs consist of underwriting, legal,
accounting, and other professional expenses incurred through the balance sheet date that are directly related to the Business Combination
and that will be charged to shareholders’ equity (deficit) upon the completion of the Business Combination. The Company completed
the Business Combination on September 26, 2024. As of September 26, 2024, and the Company had deferred transaction costs of $
Payables on shares redemption
Payables on shares redemption consisted of payables to the ACAC shareholders who exercised their redemption rights in connection with the Business Combination (See Note 4).
Contract liabilities
Contract liabilities mainly consisted of deposits received from customers before all the relevant criteria for revenue recognition are met and are recorded as customer deposits.
Earnout liabilities
At the Closing of the Business
Combination, pursuant to the Business Combination Agreement, the stockholders of Old Foxx were entitled to receive up to a total of
7
Convertible instrument
The Company accounts for its convertible instrument in accordance with ASC 470-20 Debt with Conversion and Other Options, whereby the convertible instrument is initially accounted for as a single unit of account, unless it contains a derivative that must be bifurcated from the host contract in accordance with ASC 815-15 Derivatives and Hedging — Embedded Derivatives or the substantial premium model in ASC 470-20 Debt — Debt with Conversion and Other Options applies. If the equity securities underlying the embedded conversion option are readily convertible to cash, such as publicly traded common shares, the embedded conversion option is likely to meet the net settlement criterion to be considered a derivative. If the equity securities underlying the conversion option are not readily convertible to cash, the embedded conversion option may not meet the net settlement criterion, and therefore would not meet the definition of a derivative. Because the convertible instrument has a fixed conversion price and therefore, it lacks an underlying and does not meet the requirement of a derivative. As a result, the Company determined its embedded conversion option does not meet the definition of a derivative for bifurcation.
Revenue recognition
The Company recognizes revenue to depict the transfer of promised goods or services (that is, an asset) to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services. An asset is transferred when the customer obtains control of that asset. It also requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.
To achieve that core principle, the Company applies the five steps defined under Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company’s main business is selling electronic products to 1) wholesale customers and 2) individual E-commerce customers, and the Company’s revenue also came from 3) the App service commission by providing installation of App services to the Company’s mobile devices.
Wholesale Customers
The Company recognizes a contract with a customer when the contract is committed in writing, the rights of parties, including payment terms, are identified, the contract has commercial substance, and collectability is probable.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting in FASB Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). A contract’s transaction price is allocated to each performance obligation identified in the arrangement based on the relative standalone selling price of each distinct good or service in the contract and recognized as revenue when, or as, the performance obligation is satisfied. For all the Company’s contracts, the Company has identified one performance obligation, which is primarily satisfied at a point in time upon delivery of products based on terms stated in the contracts, either on Free on Board (“FOB”) shipping point or destination, depending on the specified contract. The Company’s customers generally either pay the order in full balance prior to shipment or in partial payments with credit terms of 30 to 90 days after shipment depends on the specified contract. No sales returns are being given to its wholesale customers as they were being given additional 2-3% of products on top of each customer’s order (see Note 3 - “Warranty” below). There are no transaction prices allocated to future periods or future obligations and no revenue was recognized for performance obligations satisfied in previous periods.
8
Gross versus Net Revenue Reporting
The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction in accordance with ASC 606-10-55 and depends on whether the promise to the customer is to provide the products or to facilitate a sale by a third party. The nature of the promise depends on whether the Company controls the products prior to transferring them. When the Company controls the products, the promise is to provide and deliver the products and revenue is presented gross. When the Company does not control the products, the promise is to facilitate the sale and revenue is presented net.
To distinguish a promise to provide products from a promise to facilitate the sale from a third party, the Company considers the guidance of control in ASC 606-10-55-37A and the indicators in ASC 606-10-55-39. The Company considers this guidance in conjunction with the terms in its arrangements with both suppliers and customers.
The Company orders the products and pays in advance from its supplier. When the supplier has completed production, the Company inspects and accepts the products in its suppliers’ warehouse or at the designated logistic warehouse of the supplier. This enables the Company to direct the use of these products but to also bear inventory risk as legal owners. The Company has the responsibility of fulfilling the promise to provide the products to its customers, and also includes an additional 2-3% of products on top of each customer’s order , which covers any damage incurred in shipping and no refund and no return will be granted to customers; or provided a one-year warranty period with no additional 2-3% of products on top of each customer’s order, depending on the specified contract. In addition, when establishing the selling prices for delivery of the products, the Company has control to set its selling price. All these factors indicate that the Company is acting as the principal in this transaction. As a result, revenue from the wholesale customer is presented on a gross basis.
Warranty
The Company generally provides
E-Commerce Customers
The Company recognizes a contract with a customer when the contract is committed in writing and signed electronically on an E-Commerce platform, the rights of parties, including payment terms, are identified, the contract has commercial substance, and collectability is probable.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting in Topic 606. A contract’s transaction price is allocated to each performance obligation identified in the arrangement based on the relative standalone selling price of each distinct good or service in the contract and recognized as revenue when, or as, the performance obligation is satisfied. For all the Company’s contracts, the Company has identified one performance obligation, which is primarily satisfied at a point in time upon delivery of products based on terms stated in the contracts on shipping destination at its individual customer shipping address, which is the Company’s obligation to deliver the product to the end user/individual customer, depends on the specified contract. The Company’s E-Commerce customers pay the order in full balance prior to shipment to the E-Commerce Platform and the E-Commerce Platform withheld the payment for 30 days before remitting payments to the Company. The Company offered one month of free exchange or return. As a result, the Company recognized its revenues from the E-Commerce customers, in the third-party E-commerce platform, net of estimated sales returns, discount, and rebate, as a consideration reducing the transaction price. Historically, sales returns were insignificant to the Company’s operations. For the three and six months ended December 31, 2024 and 2023, the Company did not recognize any estimated sales returns. There are no transaction prices allocated to future periods or future obligations and no revenue was recognized for performance obligations satisfied in previous periods.
9
Gross versus Net Revenue Reporting
The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction in accordance with ASC 606-10-55 and depends on whether the promise to the customer is to provide the products or to facilitate a sale by a third party. The nature of the promise depends on whether the Company controls the products prior to transferring them. When the Company controls the products, the promise is to provide and deliver the products and revenue is presented gross. When the Company does not control the products, the promise is to facilitate the sale and revenue is presented net.
To distinguish a promise to provide products from a promise to facilitate the sale from a third party, the Company considers the guidance of control in ASC 606-10-55-37A and the indicators in ASC 606-10-55-39. The Company considers this guidance in conjunction with the terms in its arrangements with both suppliers and customers.
The Company orders the products, and the suppliers ship the products to the Company’s warehouse where the Company inspects and accepts the products. This enables the Company to direct the use of these products but to also bear inventory risk as legal owners. The Company has the responsibility of fulfilling the promise to provide the products to its customers, and to provide a one-year warranty period for each customer’s order. In addition, when establishing the selling prices for delivery of the products, the Company has control to set its selling price at the E-commerce platform. All these factors indicate that the Company is acting as the principal in this transaction. As a result, revenue from the E-Commerce customer is presented on a gross basis.
App Service Commission Revenue
The Company provides installation of app service to its App developers (the “Partners”) on the Company’s mobile devices and procure the distribution of these devices to end users (the “App Service”). The Company recognizes the App Service commission revenue on a net basis at a point in time when the revenue is generated from the App that is developed by the Partners and installed on the Company’s mobile devices (the “App”), that is when clicks and/or impressions occur at a point in time when the end users of the mobile devices use the App and its Partners are obligated to pay the Company of the App revenue share (service commission) as revenue. The Company’s Partners are primarily responsible to develop and maintain the App, is the primary obligor to users of the of the App and determines and controls the revenue shares (service commission) to pay the Company. No refund or return policy is provided to the Partners.
Practical expedient
The Company applies the practical expedient in ASC 606 to expense costs as incurred for costs to obtain a contract with a customer when the amortization period is one year or less. The Company has no material incremental costs of obtaining contracts with customers that the Company expects the benefit of those costs to be longer than one year which need to be recognized as assets for the three and six months ended December 31, 2024 and 2023.
Lease
The Company accounts for leases in accordance with ASC 842. The Company categorizes leases with contractual terms longer than 12 months as either operating or finance. Finance leases are generally those leases that substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease. As of December 31, 2024 and June 30, 2024, the Company does not have finance leases.
The Company determines if an arrangement is, or contains, a lease at inception. Operating lease assets represent the Company’s right to control the use of an identified asset for a period of time, or term, in exchange for consideration, and operating lease liabilities represent its obligation to make lease payments arising from the aforementioned right.
10
Operating lease right-of-use (“ROU”) assets and liabilities are initially recorded based on the present value of lease payments over the lease term, which includes the minimum unconditional term of the lease, and may include options to extend or terminate the lease when it is reasonably certain at the commencement date that such options will be exercised. As the rate implicit for each of the Company’s leases is not readily determinable, the Company uses incremental borrowing rate as effective interest rate, based on the information available at the lease commencement date in determining the present value of its expected lease payments. Operating lease assets also include any initial direct costs and any lease payments made prior to the lease commencement date and are reduced by any lease incentives received. According to ASC 842-10-15-37, a lessee may, as an accounting policy election by class of underlying asset, choose not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. The Company has identified the common area maintenance (CAM) fee as a non-lease component and elected to not separate it from the lease component.
Operating lease assets are amortized on a straight-line basis in operating lease expense over the lease term on the consolidated statements of operations. The related amortization of ROU assets along with the change in the operating lease liabilities are separately presented within the cash flows from operating activities on the consolidated statements of cash flows. The Company records lease expenses for operating leases on a straight-line basis over the lease term.
The Company reviews the impairment of its right-of-use assets consistent with the approach applied for its other long-lived assets on an annual basis. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of operating lease right-of-use assets in any tested asset group and include the associated lease payments in the undiscounted future pre-tax cash flows. For the three and six months ended December 31, 2024 and 2023, the Company did not recognize impairment loss against its right-of-use assets.
For a lease with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liability. For the lease that with lease term of one year or shorter, the Company has elected to not recognize right-of-use asset and lease liability.
Stock-based compensation
The measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors, including employee stock options and restricted stock, is based on estimated fair value of the awards on the date of grant, of which stock options uses the Black-Scholes option pricing model, inclusive of assumptions for risk-free interest rates, expected dividends, expected terms, expected volatility, and the fair value of the underlying stock, and restricted stock is based on the market value of the Company’s common stock. The value of awards that are ultimately expected to vest is recognized as expense on a straight-line basis over the vesting service periods in the consolidated statements of operations. Forfeitures are accounted for as they occur.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. The Company determined that upon further review of the warrant agreements, the Company concluded that its warrants qualify for equity accounting treatment.
Upon completion of the Business Combination, all of ACAC’s outstanding public and private warrants (See Note 16) were replaced by the Company’s public and private warrants. The Company treated such warrants replacement as a warrant modification and no incremental fair value was recognized for the three and six months ended December 31, 2024.
Basic and diluted earnings (loss) per share
Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding for the period.
Diluted net income (loss) per share attributable to common stockholders adjusts basic earnings (loss) per share for the potentially dilutive impact of non-participating shares of common stock. Dilutive equivalent shares are excluded from the computation of diluted income (loss) per share if their effects would be anti-dilutive. Common stock issuable upon the conversion of the stock options, the RSUs (defined in Note 16) and warrants are using the treasury stock method. Common stock issuable in connection with the Company’s convertible promissory notes are using the if-converted method.
11
Recently adopted accounting standards
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326), which eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310 and amends the guidance on vintage disclosures to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to the accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. The Company adopted this guidance on July 1, 2023, which did not have an impact on the Company’s unaudited condensed consolidated financial statements.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s balance sheets, statements of operations and statements of cash flows.
Recently issued accounting pronouncements not yet adopted
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280)” (“ASU 2023-07” or “Topic 280). The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision useful financial analyses. Topic 280 requires a public entity to report a measure of segment profit or loss that the chief operating decision maker (CODM) uses to assess segment performance and make decisions about allocating resources. Topic 280 also requires other specified segment items and amounts, such as depreciation, amortization, and depletion expense, to be disclosed under certain circumstances. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, adopted retrospectively. Management considers that the guidance will not have a significant impact on the disclosures set out in these unaudited condensed consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual consolidated financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company continuously evaluates the potential impact of adopting this new guidance on the unaudited condensed consolidated financial statements and related disclosures and does not believe it will have a material impact on the presentation of the unaudited condensed consolidated financial statements.
12
Note 4 — Reverse recapitalization
Upon the consummation of the Business Combination, the following transactions were completed, based on the Company’s capitalization as of September 26, 2024:
| (i) | All |
| (ii) |
| (iii) | All issued and outstanding shares of Old Foxx common stock were cancelled in exchange for the rights for Old Foxx stockholders, including the holders of Old Foxx’s convertible promissory notes upon the conversion of the convertible promissory notes and their interests into Old Foxx common stock immediately prior to Closing (see Note 14), to receive such stockholder’s pro rata share of |
| (iv) |
in connection with the financial performance for the fiscal year ending June 30, 2024:
| ● |
| ● |
| ● |
in connection with the financial performance for the fiscal year ending June 30, 2025:
| ● |
| ● | 1,400,000 Earnout Shares would be issued to Old Foxx stockholders on a pro rata basis if and only if the 2025 Foxx Revenue reflected in the 2025 Foxx Audited Financial Statements would be no less than $96,600,000 (including $96,600,000) and less than $115,000,000 (excluding $115,000,000); |
| ● |
| (v) | All issued and outstanding |
13
The following table presents the number of the Company’s common stock issued and outstanding immediately following the Reverse Recapitalization (as defined below):
| Common | ||||
| Stock | ||||
| ACAC’s common stock outstanding prior to Reverse Recapitalization | ||||
| Less: redemption of ACAC’s common stock | ( | ) | ||
| Common stock issued to underwriter | ||||
| Conversion of Old Foxx’s common stock into Foxx’s common stock | ||||
| Conversion of Old Foxx’s convertible promissory notes into Foxx’s common stock | ||||
| Total common stock outstanding | ||||
Old Foxx was determined to be the accounting acquirer given Old Foxx effectively controlled the combined entity after the Business Combination. The transaction is accounted for as a reverse recapitalization (“Reverse Recapitalization”), which is equivalent to the issuance of common stock by Old Foxx for the net monetary assets of ACAC, accompanied by a recapitalization. Old Foxx is determined as the accounting acquirer and the historical financial statements of Old Foxx became the Company’s historical financial statements, with retrospective adjustments to give effect of the Reverse Recapitalization. The net assets of ACAC were recognized as of the closing date at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Old Foxx and Old Foxx’s operations are the only ongoing operations of the Company.
In connection with the Reverse
Recapitalization, the Company raised approximately $
The following table reconcile the elements of the Reverse Recapitalization to the unaudited condensed consolidated statements of cash flows and the changes in shareholders’ deficit:
| September 26, | ||||
| 2024 | ||||
| Funds held in ACAC’s trust account | $ | |||
| Funds held in ACAC’s operating cash account | ||||
| Less: payments of transaction costs incurred by ACAC | ( | ) | ||
| Proceeds from the Reverse Recapitalization | ||||
| Less: non-cash net deficit assumed from ACAC | ( | ) | ||
| Net distributions from issuance of Common Stock upon the Reverse Recapitalization | $ | ( | ) | |
The shares and corresponding
capital amounts and all per share data related to Old Foxx’s outstanding common stock prior to the Reverse Recapitalization have
been retroactively adjusted using the Exchange Ratio of
Note 5 — Accounts receivable, net
As of December 31, 2024 and June 30, 2024, accounts receivable consist of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| (Audited) | ||||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for credit losses | ( | ) | — | |||||
| Accounts receivable, net | $ | $ | ||||||
14
For the three months ended
December 31, 2024 and 2023, the Company recognized $
Movement of allowance for credit losses consisted of the following as of the date indicated:
| December 31, | June 30, | |||||||
| 2024 | 2024 | |||||||
| (Audited) | ||||||||
| Beginning balance | $ | $ | ||||||
| Addition | ||||||||
| Ending balance | $ | $ | ||||||
Note 6 — Inventories
As of December 31, 2024 and June 30, 2024, inventories consist of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| (Audited) | ||||||||
| Finished goods | $ | $ | ||||||
| Total inventories | $ | $ | ||||||
Note 7 — Contract assets
The following table presents the Company’s contract assets balances and changes therein:
Three
Months Ended | Six
Months Ended | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Balance as of the beginning of the period | $ | $ | $ | $ | - | |||||||||||
| Add: net increase in current period contract asset | ||||||||||||||||
| Less: inventory recognized from beginning contract asset | ( | ) | ( | ) | ( | ) | - | |||||||||
| Total contract assets as the end of the period | $ | $ | $ | $ | ||||||||||||
Note 8 — Prepaid expenses and other current assets
As of December 31, 2024 and June 30, 2024, prepaid expenses and other current assets consist of the following:
| December 31, 2024 |
June 30, 2024 |
|||||||
| (Audited) | ||||||||
| Other receivables | $ | $ | ||||||
| Prepaid rent | ||||||||
| Prepaid research and development fees | ||||||||
| Prepaid insurance | ||||||||
| Other prepaid expenses | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
15
Note 9 — Property and equipment, net
As of December 31, 2024 and June 30, 2024, property and equipment, net consist of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| (Audited) | ||||||||
| Computer and office equipment | $ | $ | ||||||
| Equipment | ||||||||
| Furniture and fixtures | ||||||||
| Vehicles | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense for
the three months ended December 31, 2024 and 2023 amounted to $
Note 10 — Other payables and accrued liabilities
As of December 31, 2024 and June 30, 2024, other payables and accrued liabilities consist of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| (Audited) | ||||||||
| Payroll and payable tax payable | $ | $ | ||||||
| Interest payable | ||||||||
| Professional fee payable | ||||||||
| Accrued warranty expenses | ||||||||
| Research and development fee payable | - | |||||||
| Excise tax payable* | ||||||||
| Others | ||||||||
| Total other payables and accrued liabilities | $ | $ | ||||||
| * |
Note 11 — Contract liabilities
Contract liabilities consist of customer deposits, which is recorded on the consolidated balance sheets when the Company has received consideration, or has the right to receive consideration, in advance of transferring the performance obligations under the contract to the customer.
16
The following table presents the Company’s contract liabilities balances and changes therein:
| Three Months Ended December 31 | Six Months Ended December 31 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Balance, beginning of the period | $ | $ | $ | $ | ||||||||||||
| Add: net increase in current period contract liabilities | ||||||||||||||||
| Less: revenue recognized from beginning contract liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total contract liabilities | $ | $ | $ | $ | ||||||||||||
Note 12 — Related party balances and transactions
Related party balances
Amount due from related party
| Name of Related Party | Relationship | Nature | December 31, 2024 | June 30, 2024 | ||||||||
| (Audited) | ||||||||||||
| Company A | $ | $ | ||||||||||
Other payable — related party
Other payable — related party consists of the following:
| Name of Related Party | Relationship | Nature | December 31, 2024 | June 30, 2024 | ||||||||
| (Audited) | ||||||||||||
| Company A(1) | $ | $ | ||||||||||
| Company B | Shareholder of the Company | |||||||||||
| Total | $ | $ | ||||||||||
| (1) |
Related party transactions
Research and development expenses
| Name of Related Party | Relationship | For the Three Months Ended December 31, 2024 | For the Three Months Ended December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||||
| Company A(1) | $ | $ | ||||||||
17
| Name of Related Party | Relationship | For the Six Months Ended December 31, 2024 | For the Six Months Ended December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||||
| Company A(1) | $ | $ | ||||||||
| (1) |
Consulting expenses
| Name of Related Party | Relationship | For the Three Months Ended December 31, 2024 | For the Three Months Ended December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||||
| Company A(1) | $ | $ | ||||||||
| Name of Related Party | Relationship | For the Six Months Ended December 31, 2024 | For the Six Months Ended December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||||
| Company A(1) | $ | $ | ||||||||
| (1) |
18
Note 13 — Short-term loans
As of December 31, 2024 and June 30, 2024, the outstanding short-term loan from third parties consists of the following:
| December 31, 2024 | June 30, 2024 | |||||||
| (Audited) | ||||||||
| Lender A(1) | $ | $ | ||||||
| Lender B(2) | ||||||||
| Total short-term loan | $ | $ | ||||||
| (1) |
| (2) |
Note 14 — Convertible promissory notes
On June 21, 2023, Old
Foxx issued a convertible promissory note (the “Note 1”) to Investor A, a Hong Kong registered entity, in the amount
of $
On November 21, 2023,
Old Foxx issued a second convertible promissory note (“the Note 2”) to Investor A in the amount of $
On March 15, 2024, Old
Foxx and the Investor entered into an Amendment to the Convertible Note Agreement to the Note 1 and Note 2 and agreed that
all accrued interest shall become due and payable in shares of common stock of Old Foxx, at a price of $
On March 15, 2024, Old
Foxx issued a third convertible promissory note (“the Note 3”, together with Note 1 and Note 2, collectively
as “Notes”) to the Investor A for the amount of $
On May 30, 2024, Old
Foxx entered into a securities purchase agreement for issuance of convertible promissory notes to Investor B in the amount of $
Immediately prior to the
Closing on September 26, 2024, the Notes of $
As of December 31, 2024 and
June 30, 2024, the fair and carrying value of the Notes were $
19
Note 15 — Long-term loan
In February 2023, the
Company purchased and financed a vehicle, for which the lender put a lien on the title and will be taken as collateral in the situation
if the Company is unable to make repayment and default on the loan, with a six-year loan for a total of approximately $
The obligation is payable as follows:
| Twelve months ended December 31, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total long-term debt payment | ||||
| Current portion of long-term debt | ( | ) | ||
| Long-term debt – non-current portion | $ | |||
Interest expense for the
three months ended December 31, 2024 and 2023 for the above loan amounted to $
Note 16 — Shareholders’ deficit
Common Stock
As of December 31, 2024 and
June 30, 2024, the Company has
Issuance of common stock upon completion of the Reverse Recapitalization
On September 26, 2024, upon
the consummation of the business combination, the Company issued an aggregated total of
The following table presents the number of the Company’s common stock issued upon completion of the Reverse Recapitalization:
| Shares of Common | ||||
| Stock | ||||
| ACAC’s common stock outstanding prior to Reverse Recapitalization | ||||
| Less: redemption of ACAC’s common stock | ( | ) | ||
| Common stock issued to underwriter | ||||
| Total common stock issued upon completion of the Reverse Recapitalization | ||||
20
Conversion of convertible promissory notes into common stock
On September 26, 2024, upon
the consummation of the business combination, the Company issued an aggregated total of
Equity incentive plan
On September 24, 2024, pursuant
to the Equity Incentive Plan (the “EIP”),
On November 5, 2024, the
Company granted
The following table summarizes the activity for all restricted stock units granted:
| Shares | Weight average grant date fair value | Total fair value | Weighted average remaining contractual term (in years) | |||||||||||||
| Unvested at July 1, 2024 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Vested | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Unvested at September 30, 2024 | ||||||||||||||||
| Granted | ||||||||||||||||
| Vested | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Unvested at December 31, 2024 | $ | $ | ||||||||||||||
As of December 31, 2024, there was $
Earnout Shares
As described in Note 4 -
Reverse recapitalization, the Earnout Shares that are contingently issuable in connection with the Business Combination are subject to
vesting based on the Company’s financial performance during the earnout period. The entitlement of
As of December 31, 2024,
the Company’s
As of December 31, 2024 and
September 26, 2024 (issuance date), the fair value of the earnout liabilities was $
Warrants
In connection with the reverse
recapitalization, each of
Each whole Warrant entitles
the registered holder to purchase one whole share of the Company’s common stock at a price of $
21
The Company has agreed that as soon as practicable, but in no event later than 30 business days, after the closing of the initial business combination, it will use its commercially reasonable efforts to file, and within 60 business days following its initial business combination to have declared effective, a registration statement for the registration, under the Securities Act, of the shares of common stock issuable upon exercise of the Warrants. The Company will use its commercially reasonable efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. No Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the common stock issuable upon exercise of the Warrants and a current prospectus relating to such shares of common stock. Notwithstanding the above, if the Company’s common stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Warrants who exercise their Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event it so elect, it will not be required to file or maintain in effect a registration statement, but it will be required to use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
The Company may call the
Warrants for redemption, in whole and not in part, at a price of $
| ● | in whole and not in part; |
| ● | upon not less than |
| ● | if, and only if, the reported last sale price of the common stock equals or exceeds $ |
On
October 3, 2024, the Company’s shareholders (ACAC’s public shareholders) exercised
The summary of warrants activity is as follows:
| Warrants Outstanding | Common Stock Issuable | Weighted Average Exercise Price | Average Remaining Contractual Life | |||||||||||||
| June 30, 2024 | $ | - | ||||||||||||||
| Granted | $ | |||||||||||||||
| Forfeited | $ | - | ||||||||||||||
| Exercised | ( | ) | ( | ) | $ | - | ||||||||||
| December 31, 2024 | $ | |||||||||||||||
The Company accounted for
the
Note 17 — Fair value measurement
The Company did not have
any assets or liabilities measured at fair value on a recurring basis as of June 30, 2024.
| December 31, 2024 | Carrying Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
| Liabilities: | ||||||||||||||||
| Earnout liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
22
| September 26, 2024 (issuance date) | Carrying Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
| Liabilities: | ||||||||||||||||
| Earnout liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The earnouts based on revenue have been classified within Level 3 of the hierarchy as the fair value is derived using a Monte Carlo simulation analysis in a risk neutral framework, which uses a combination of observable (Level 2) and unobservable (Level 3) inputs. Key estimates and assumptions impacting the fair value measurement include the Company’s revenue forecasts as well as the assumptions listed in tables below. The fair value measurement associated with the earnout liability is highly sensitive to changes in stock price and forecasted amounts for revenue through June 2025. Any changes to stock price and forecasted revenues through June 2025 will result in remeasurement of the earnout liability and could result in material gains or losses being recognized in the statement of operations.
The Company estimated the fair value per share of the underlying common stock based, in part, on the results of third-party valuations and additional factors deemed relevant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the earnouts.
Prior to the Business Combination, the Company was a private company and lacked company-specific historical and implied volatility information of its stock, and as such, the expected revenue volatility was based on historical volatility of industry outlook and the expected revenue volatility and stock volatility was based on the historical volatility of publicly traded peer companies for a term equal to the remaining expected term of the earnout period. The input for the based monthly revenue were based on actual revenue for the six months ended December 31, 2024.
The following table presents the observable and unobservable inputs of the earnout liability for earnout shares based on revenue targets as of December 31, 2024:
| December 31, 2024 | September 26, 2024 | |||||||||
| Inputs | Input Method | Input Value | Input Value | |||||||
| Simulated forecast of base monthly revenue | Unobservable | $ | $ | |||||||
| Industry revenue growth | Unobservable | % | % | |||||||
| Revenue volatility | Unobservable | % | % | |||||||
| Stock volatility | Unobservable | % | % | |||||||
| Stock price | Observable | $ | $ | |||||||
| Risk-free rate | Observable | % | % | |||||||
| Term | Observable | |||||||||
23
The following table summarizes the activity for the Company’s Level 3 instruments measured at fair value on a recurring basis:
| Earnout Liabilities | ||||
| Balance as of June 30, 2024 | $ | |||
| Issuances – September 26, 2024 | ||||
| Change in fair value | ( | ) | ||
| Balance as of December 31, 2024 (Unaudited) | $ | |||
Note 18 — Concentrations of risks
(a) Major customers
For the three months ended
December 31, 2024, three customers, customer C, customer A and customer D, which are the third parties of the Company, accounted for
For the three months
ended December 31, 2023, two customers, customer A and customer B, which are the third parties of the Company, accounted for
For the six months ended
December 31, 2024, three customers, customer A, customer B and customer C, which are the third parties of the Company, accounted for
For the six months ended
December 31, 2023, two customers, customer A and customer B, which are the third parties of the Company, accounted for
(b) Major suppliers
For the three months ended
December 31, 2024, one supplier, supplier A, which is a third party of the Company, accounted for
For the three months
ended December 31, 2023, one supplier, supplier A, which is a third party of the Company, accounted for
For the six months ended
December 31, 2024, one supplier, supplier A, which is a third party of the Company, accounted for
For the six months ended
December 31, 2023, one supplier, supplier A, which is a third party of the Company, accounted for
(c) Geographic areas
For the three and six months ended December 31, 2024 and 2023, all of the Company’s long-lived assets are located in the United States and all of the Company’s revenues are derived solely from the United States, accordingly, no geographical information is presented.
24
Note 19 — Leases
Short-term leases
The Company rented a mailbox
for $
On August 1, 2023, the
Company entered a twelve-month lease agreement to rent a general office and storage space for its purchased inventory for a monthly rental
fee of $
On August 14, 2023,
the Company entered a six-month lease agreement to rent an office for operating purposes with a monthly rental fee of $
On September 18, 2023, the Company entered a month-to-month rental
agreement to rent a dorm for the employee with a monthly rent of $
Long-term leases
In September 2023, the
Company signed a three-year lease agreement to rent a general office and storage space for business operation with a monthly rent of $
In June 2024, the Company
signed a six years and
On July 17, 2024, the Company
signed a five-year and one-half month lease agreement to rent a general office and storage space for business operation with a monthly
rent of $
On July 12, 2024, the Company
signed and further amended a ten-year lease agreement to rent a
The ROU assets and lease
liabilities are determined based on the present value of the future minimum rental payments of the lease as of the adoption date, using
incremental borrowing rate as the effective interest rate, with a weighted average rate of
As of December 31, 2024 and
June 30, 2024, the weighted-average remaining operating lease term of its existing leases is approximately
25
The following table sets forth the Company’s minimum long-term lease payments in future periods as of December 31, 2024, which represents the operating lease liabilities on the accompanying balance sheet:
| Operating lease payments | ||||
| For the six months ending June 30, 2025 | $ | |||
| For the twelve months ending June 30, 2026 | ||||
| For the twelve months ending June 30, 2027 | ||||
| For the twelve months ending June 30, 2028 | ||||
| For the twelve months ending June 30, 2029 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: discount | ( | ) | ||
| Present value of operating lease liabilities | ||||
| Operating lease liabilities, current portion | ( | ) | ||
| Operating lease liabilities, non-current portion | $ | |||
Operating lease expenses consist of the following:
| Operating lease cost | Classification | For the Three Months Ended December 31, 2024 | For the Three Months Ended December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||||
| Lease expenses | General, and administrative | $ | $ | |||||||
| Lease expenses – short term | General, and administrative | |||||||||
| Total operating lease cost | $ | $ | ||||||||
| Operating lease cost | Classification | For the Six Months Ended December 31, 2024 | For the Six Months Ended December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||||
| Lease expenses | General, and administrative | $ | $ | |||||||
| Lease expenses – short term | General, and administrative | |||||||||
| Total operating lease cost | $ | $ | ||||||||
For
the six months ended December 31, 2024 and 2023, $
Note 20 — Commitments and contingencies
Contingencies
From time to time, the Company is a party to certain legal proceedings, as well as certain asserted and un-asserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements.
On November 22, 2024, a plaintiff filed Semensato v. Foxx Development Holdings Inc., et al., No. 2024-1200 (Del. Ch. Ct.), a class action lawsuit in Delaware Chancery Court against the Company and certain “Individual Defendants” (“Joy” Yi Hua, Haitao Cui, “Jeff” Feng Jiang, “Eva” Yiqing Miao and Edmund R. Miller). The lawsuit seeks declaratory relief under provisions of the Delaware General Corporation Law relating to a waiver of the corporate opportunity doctrine that is contained in the Company’s Amended and Restated Certificate of Incorporation. The plaintiff seeks a declaration that the waiver provision is invalid, an injunction against the Company and the Individual Defendants to prevent them from attempting to enforce the waiver, attorneys’ fees, and the costs and disbursements of this action. The Company denies the claims and intends to vigorously defend the action but cannot estimate the outcome of this lawsuit.
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Lease Commitment
On
July 12, 2024, the Company signed a seven-year lease agreement to rent a warehouse for business operation with a monthly rent of $
Reference to Note 19 for detailed disclosure of other entered lease agreements.
Note 21 — Income taxes
As of December 31, 2024 and
June 30, 2024, the Company’s deferred tax asset had a full valuation allowance recorded against it. The effective tax rate for each
of the three months ended December 31, 2024 and 2023 was
Note 22 — Disaggregated information of revenues
Disaggregated information of revenues by product type is as follows:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Tablet products | $ | $ | $ | $ | ||||||||||||
| Mobile phone products | ||||||||||||||||
| Wearable products | ||||||||||||||||
| Subtotal product revenues | ||||||||||||||||
| App service commission revenue, net | ||||||||||||||||
| Total revenues, net | $ | $ | $ | $ | ||||||||||||
Disaggregated information of revenues by business line is as follows:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Wholesale revenues | $ | $ | $ | $ | ||||||||||||
| E-Commerce revenues | ||||||||||||||||
| Subtotal product revenues | ||||||||||||||||
| App service commission revenue, net | ||||||||||||||||
| Total revenues, net | $ | $ | $ | $ | ||||||||||||
Note 23 — Basic and diluted earnings (loss) per share
Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding for the period. Diluted net income (loss) per share attributable to common stockholders adjusts basic earnings (loss) per share for the potentially dilutive impact of non-participating shares of common stock that are subject to the convertible note, and other securities outstanding. Certain securities may be anti-dilutive and would be excluded from the calculation of diluted earnings per share and disclosed separately. Because of the nature of the calculation, particular securities may be dilutive in some periods and anti-dilutive in other periods.
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The following table presents the computation of basic and diluted earnings (loss) per share attributable to common stockholders, for the periods presented:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) – basic and diluted EPS | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic and diluted weighted average shares outstanding* | ||||||||||||||||
| Basic and diluted income (loss) per share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| * |
The following table outlines dilutive common share equivalents outstanding, which are excluded in the above diluted net income (loss) per share calculation, as the effect of their inclusion would be anti-dilutive or the share equivalents were contingently issuable as of each period presented:
| For the Three Months Ended December 31, | For the Six Months Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Earnout Shares* | ||||||||||||||||
| Warrants ** | ||||||||||||||||
| RSUs** | ||||||||||||||||
| Common stock underlying from the convertible notes ** | ||||||||||||||||
| Total | ||||||||||||||||
| * |
| ** |
Note 24 — Subsequent events
The Company evaluated all events and transactions that occurred after December 31, 2024 up through the date the Company issued these unaudited condensed consolidated financial statements.
On January 22, 2025, the
Company granted
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information set forth in the Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the Securities and Exchange Commission (the “SEC”) on October 24, 2024. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC.
Overview
Foxx Development Holdings Inc. (“we,” “our”, “us”, or the “Company”) was incorporated on November 13, 2023 under the name “Acri Capital Merger Sub I Inc.” On September 26, 2024 (the “Closing”), Acri Capital Acquisition Corporation, a Delaware corporation and our parent company at the time, (“ACAC”) consummated a previously announced business combination pursuant to the terms of the business combination agreement, dated February 18, 2024 (as amended on May 31, 2024, collectively, the “Business Combination Agreement”), by and among us, ACAC, Acri Capital Merger Sub II Inc., a Delaware corporation and our wholly-owned subsidiary at the time (“Merger Sub”), and Foxx Development Inc., a Texas corporation incorporated on May 17, 2017 (“Old Foxx”), pursuant to which (i) ACAC merged with and into us (the “Reincorporation Merger”), with us surviving the Reincorporation Merger, and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as our wholly-owned Delaware subsidiary (the “Acquisition Merger”). The Reincorporation Merger, the Acquisition Merger, and the transactions contemplated under the Business Combination Agreement, are collectively referred to as the “Business Combination”.
Upon Closing, we were renamed as “Foxx Development Holdings Inc.”, and the Merger Sub was renamed as “Foxx Development Inc.” (the “Subsidiary”).
The ACAC securities previously traded on the Nasdaq Capital Market (“Nasdaq”) were delisted and ceased trading following the Closing. On September 27, 2024, one business day after the Closing, our Common Stock and Warrant became listed on the Nasdaq under trading symbols “FOXX” and “FOXXW,” respectively.
Together with our Subsidiary, we are a technology innovation firm specializing in the communications sector. Since our establishment in 2017, we have expanded our presence to include various locations throughout the United States, such as San Francisco, CA, Dallas, TX, Atlanta, GA, Los Angeles, CA, Miami, FL, and New York, NY. This expansion enables us to provide sales, retail, distribution, and after-sales support services while simultaneously driving innovation through active research and development efforts aimed at pioneering new customization standards and services.
Our business model involves providing comprehensive hardware and software specifications to original design manufacturers. Once the products are developed, we engage with third-party agencies to secure necessary testing and certifications, including Equipment Authorizations from the FCC and certifications from the Global Mobile Suppliers Association. We currently offer a range of Foxx-branded products, including tablets, smartphones, wearables, and expects to launch other high-quality communication terminals. Our products are generally priced competitively after considering various factors such as product costs, research and development investments, regulatory compliance, testing expenses, and shipping costs. Our customers are primarily distributors who sell Foxx-branded products in the U.S. public channels and to major carriers in the United States such as T-Mobile, AT&T, and Verizon. Our customers also included individual E-Commerce customers from TikTok Shop, which we began our E-Commerce operations in March 2024.
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We have generated most of our revenue from the sales of tablets and smartphones. We expect to enter the U.S. IoT markets and potentially the private label Mobile Virtual Network Operator (“MVNO”) market, with the aim of growing into a key player both domestically and globally. We have been preparing to enter these markets by adding additional features and providing related services that enable Foxx-branded devices to have IoT and MVNO capabilities.
We manage inventory and meet market demand through our build-to-order business model. After customers place purchase orders in bulks with us, we place purchase orders with suppliers to manufacture the products that meet customers’ products specifications and budget requirements. Prior to 2023, we have relied on limited suppliers for the manufacturing of mobile phone and tablet products and on limited customers for the distribution of these products. We selectively concentrated our resources on our tablet and mobile phone products because such products held the strongest market potential and revenue generation capability at the time when remote work and online classes became more prevalent.
Beginning in 2023, we adjusted our business strategy to avoid reliance on limited suppliers and customers and to diversify suppliers and customers to mitigate the concentration and reliance risk. We have added new product models across each product line to target a broader range of customers. As of the date hereof, we have reached out to a total of eight wholesale customers to expand our operations in the market and expects to secure purchase orders from these new customers. At the same time, to meet the various product demands of current and prospective customers, we have connected with suppliers who can provide manufacturing support when we secure purchase orders from our customers. In addition, we plan to further expand our product offerings and to launch an IoT platform to manage all end-products sold, and began setting up a service team for our business to business (B2B) model in the artificial IoT department. Through the efforts of expanding product offerings and reaching to broader customer base, we will be able to move away from relying on limited customers and suppliers. As we dedicated our resources to expansion, we experienced a significant decrease in the sales of tablet and mobile phone products during the year ended June 30, 2024 as compared to the same period in 2023: (i) new customers began orders in much smaller quantities as compared to our previous customer in order to build up a trustworthy relationship; (ii) similarly and relevantly, we placed order with new suppliers in much smaller quantities to build up relationship and ensure the quality of the products; and (iii) new product models on both tablet and mobile phones order by new customers required approximately 6-9 months from development to mass production.
In addition, on February 8, 2024, the U.S. Federal Communication Commission stopped accepting new enrollment in the Affordable Connectivity Program (ACP) and announced that the ACP will stop accepting new applications and enrollments on February 7, 2024, and will stop funding for enrolled customers starting on April 30, 2024. Temporarily impacted by such a change in ACP, most of our new customers are cutting down their sales teams in anticipation of the reduced customer base, which affects the demand for our products across all channels during the year ended June 30, 2024; and on the other hand, our competitors have stockpiled their products during the year ended June 30, 2024, due to severely declining sales and they have started lower their sale price on their products which affected the demand of our products. However, we may continue to target end-users who are eligible for the Lifeline Program, which is administered by the Universal Service Administrative Company (USAC) and receives funding from the Universal Service Fund, a government program that receives annual contributions from telecommunications companies or their customers. At the same time, because we have initiated our strategic shifts to diversify our product offerings, we expect to target customers who are interested in other mobile devices, tablets, and IoT products. In addition, we began launching our products through TikTok Shop in March 2024 and we expect to grow our sales through this E-Commerce channel.
For the three months ended December 31, 2024, our sales went back to our historical level, as we have added three new customers during the period.
For the six months ended December 31, 2024, our sales went back to our historical level, as we have added three new customers during the period.
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The Business Combination
Incorporated as a Delaware corporation under the name “Acri Capital Merger Sub I Inc.” on November 13, 2023, we entered into the Business Combination Agreement on February 18, 2024, as amended on May 31, 2024, by and among us, ACAC, Merger Sub, and Old Foxx.
Upon the Closing of the Business Combination on September 26, 2024, ACAC merged with and into us, with us surviving the Reincorporation Merger, and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as our wholly-owned Delaware subsidiary after the Acquisition Merger.
Merger Consideration
Immediately prior to the effective time of the Reincorporation Merger (the “Reincorporation Merger Effective Time”), which was on September 25, 2024, one business day prior to the Closing, (i) each issued and outstanding ACAC unit was automatically separated into one (1) share of ACAC Class A common stock and one-half (1/2) of one ACAC warrant, and (ii) each share of ACAC Class A common stock held by ACAC stockholders who validly redeemed their shares of ACAC Class A common stock (each “ACAC Redeeming Share”) was automatically cancelled and ceased to exist and thereafter represented only the right to be paid a pro-rata redemption price.
| ● | At the Reincorporation Merger Effective Time on September 25, 2024, (i) each share of ACAC Class A or Class B common stock issued and outstanding (other than ACAC Redeeming Shares) was converted automatically into one (1) share of our common stock, par value $0.0001 per share (the “Common Stock”), and (ii) each issued and outstanding ACAC warrant was converted automatically into one (1) redeemable our warrant, exercisable for one (1) share of our Common Stock at an exercise price of $11.50 per share (the “Warrant”). |
| ● | At the Closing on September 26, 2024, by virtue of the Acquisition Merger and the Business Combination Agreement, and without any action on the part of any party to the Business Combination Agreement or affiliate or security thereof, the issued and outstanding shares of common stock of Old Foxx (“Old Foxx Common Stock”) held by exiting holders of Old Foxx common stock (the “Old Foxx Stockholders”) immediately prior to the Closing (including shares of Old Foxx Common Stock issuable upon conversion of the principal and accrued interest of promissory notes of Old Foxx issued in the Transaction Financing, as defined below) were cancelled and automatically converted into (i) the right to receive, without interest, the applicable portion of 5,000,000 shares of our Common Stock (the “Closing Payment Stock”, 500,000 of which are subject to the Escrow Arrangement noted below), and (ii) the contingent right to receive the applicable portion of the Earnout Shares (as defined below), if, as and when payable in accordance with the earnout provisions of the Business Combination Agreement. |
Upon Closing, we were renamed as “Foxx Development Holdings Inc.”, and the Merger Sub was renamed as “Foxx Development Inc.” (i.e. the Subsidiary).
Pursuant to the Business Combination Agreement, 500,000 shares of the Closing Payment Stock in aggregate were deposited (the “Escrow Arrangement”) to a segregated escrow account and would be released to the Old Foxx Stockholders if and only if, prior to or upon the one-year anniversary of the Business Combination Agreement, the Affordable Connectivity Program (ACP) managed by the U.S. Federal Communication Commission is reauthorized by the U.S. Congress with funding of no less than $4 billion in total for such reauthorized period; or otherwise be cancelled and forfeited by the Registrant without consideration.
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Additionally, the Old Foxx Stockholders would be entitled to receive “Earnout Shares”, which refer to 4,200,000 shares of our Common Stock, subject to the vesting schedule (the “Vesting Schedule”) as follows:
| ● | (i) | in connection with the financial performance for the fiscal year ending June 30, 2024: |
| (A) 700,000 Earnout Shares would be issued to Foxx Stockholders on a pro rata basis if and only if our audited consolidated financial statements for the fiscal year ending June 30, 2024 (“2024 Audited Financial Statements”), prepared in accordance with the Generally Accepted Accounting Principles of the United States (“U.S. GAAP”) and filed with the SEC on Form 10-K by us after Closing, would reflect our revenue for the fiscal year ending June 30, 2024 (the “2024 Revenue”) to be no less than $67,000,000 (including $67,000,000) and less than $84,000,000 (excluding $84,000,000); |
| (B) 1,400,000 Earnout Shares would be issued to Foxx Stockholders on a pro rata basis if and only if the Registrant 2024 Revenue reflected in the 2024 Audited Financial Statements would be no less than $84,000,000 (including $84,000,000) and less than $100,000,000 (excluding $100,000,000); |
| (C) 2,100,000 Earnout Shares would be issued to Foxx Stockholders on a pro rata basis if and only if the 2024 Revenue reflected in the 2024 Audited Financial Statements would be no less than $100,000,000 (including $100,000,000); |
provided, however, that the Earnout Shares would be issued and delivered pursuant to one paragraph from (i)(A)-(i)(C) above only once; and
| ● | (ii) | In connection with the financial performance for the fiscal year ending June 30, 2025: |
| (A) 700,000 Earnout Shares would be issued to Old Foxx Shareholders on a pro rata basis if and only if our audited consolidated financial statements for the fiscal year ending June 30, 2025 (“2025 Audited Financial Statements”), prepared in accordance with U.S. GAAP and filed with the SEC on Form 10-K by us after Closing, would reflect revenue of the Registrant for the fiscal year ending June 30, 2025 (the “2025 Revenue”) to be no less than $77,050,000 (including $77,050,000) and less than $96,600,000 (excluding $96,600,000); |
| (B) 1,400,000 Earnout Shares would be issued to Old Foxx Stockholders on a pro rata basis if and only if the 2025 Revenue reflected in the 2025 Audited Financial Statements would be no less than $96,600,000 (including $96,600,000) and less than $115,000,000 (excluding $115,000,000); |
| (C) 2,100,000 Earnout Shares will be issued to Old Foxx Stockholders on a pro rata basis if and only if the 2025 Revenue reflected in the 2025 Audited Financial Statements would be no less than $115,000,000 (including $115,000,000); |
provided, however, that the Earnout Shares would be issued and delivered pursuant to one paragraph from (ii)(A) to (ii)(C) above only once.
On October 24, 2024, upon the filing of the 2024 Audited Financial Statements as part of the Annual Report of the Company on Form 10-K filed with the SEC (the “2024 10-K”), any Earnout Shares that the Old Foxx shareholders would be entitled to receive under the Vesting Schedule were automatically forfeited, as the Company did not meet any of the vesting conditions for the fiscal year ended June 30, 2024 within the Vesting Schedule.
In addition to the foregoing, pursuant to that certain amendment to the Underwriting Agreement, by and between EF Hutton LLC and ACAC, dated February 20, 2024, 43,125 shares of our Common Stock were issued to EF Hutton LLC at the Closing.
Public Listing
The ACAC securities previously traded on Nasdaq were delisted without any action needed to be taken on the part of the holders of such securities and are no longer traded on Nasdaq following the Closing. On September 27, 2024, one business day after the Closing, our Common Stock and Warrant became listed on the Nasdaq Capital Market (“Nasdaq”) under trading symbols “FOXX” and “FOXXW,” respectively.
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Accounting Treatment
While the legal acquirer in the Business Combination was ACAC, for financial accounting and reporting purposes under U.S. GAAP, Old Foxx was the accounting acquirer, and the Business Combination was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by ACAC for the stock of Old Foxx) does not result in a new basis of accounting, and the unaudited condensed consolidated financial statements of the combined company represent the continuation of the unaudited condensed consolidated financial statements of Old Foxx in many respects. Accordingly, the assets, liabilities and results of operations of Old Foxx became the historical financial statements of the combined company, and ACAC’s assets, liabilities, and results of operations were consolidated with Old Foxx beginning from the Closing on September 26, 2024. Operations prior to the Business Combination are presented as those of Old Foxx. The net assets of ACAC are recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded upon execution of the Business Combination.
Transaction Financing
In consideration of market conditions, pursuant to the Business Combination Agreement, the parties agreed to use commercially best efforts to secure financing to pay transaction expense and working capital of Foxx, including without limitation, a PIPE financing, private financing, redemption waiver, convertible debt, forward purchase agreement, backstop, or equity line of credit (collectively, the “Transaction Financing”).
On June 21, 2023, Old Foxx entered into a securities purchase agreement (the “Convertible Note Agreement 1”) with New Bay Capital Limited, a Hong Kong registered company (“New Bay”), and issued a promissory note (“Note 1”) to New Bay in the principal amount of $2 million with an interest rate of 7% per annum, convertible into shares of Old Foxx common stock at $30.00 per share upon the listing of Old Foxx common stock through an initial public offering. On December 21, 2023, Old Foxx issued into another securities purchase agreement (the “Convertible Note Agreement 2”) with New Bay with the same terms and conditions as the Convertible Note Agreement, and issued another promissory note (“Note 2”) to New Bay in the principal amount of $2 million.
In connection with the Business Combination Agreement and all the transaction contemplated therein (the “Business Combination”), in the spring of 2024, Old Foxx and ACAC reached out to New Bay to seek its interest in participating in further financing in connection with the Business Combination.
After negotiations with New Bay, On March 15, 2024, Old Foxx and New Bay agreed to an amendment to amend both Convertible Note Agreement 1 and Convertible Note Agreement 2, and to amend Note 1 and Note 2, by removing the lock-up provisions as provided therein and allowing the unpaid principal and accrued interest on Note 1 and Note 2 to convert to Old Foxx common stock immediately prior to the closing of the Business Combination. New Bay also subscribed for a new promissory note (“Note 3”) in the principal amount of $2 million under the same terms and conditions as amended Note 1 and Note 2 (collectively, the “New Bay Notes”).
On March 15, 2024, Old Foxx and New Bay amended the terms of the Note 1 and Note 2 accordingly and New Bay subscribed for a new promissory note (“Note 3”) in the principal amount of $2 million under the same terms and conditions as amended Note 1 and Note 2 (collectively “New Bay Notes”).
On February 20, 2024, New Bay introduced Old Foxx to BR Technologies PTE, Ltd. (“BR Technologies”), a Singapore-based company. On May 30, 2024, Old Foxx, BR Technologies and Grazyna Plawinski Limited, a Singapore-based company (“Grazyna”), entered into a securities purchase agreement for issuance of promissory notes in the amount of up to $9.0 million with an interest rate of 7% per annum under the same terms and conditions as provided in the New Bay Notes. A promissory note was issued by Old Foxx to BR (the “Note 4”) in the principal amount of $6 million and promissory notes issued by Old Foxx to Grazyna (the “Note 5”) in the total principal amount of $3 million on September 12, 2024.
Immediately prior to the Closing, all the accrued and unpaid principal and interests on the New Bay Notes, Note 4, and Note 5 were converted into: (x) 212,050 shares of Old Foxx common stock for the New Bay Notes, (y) 200,882 shares of Old Foxx common stock for Note 4, and (z) 100,690 share of Old Foxx common stock for Note 5, at a price of $30.00 per share. At the Closing, all of the converted shares of Old Foxx common stock were cancelled in exchange for the holders’ pro rata share of the Closing Payment Shares using the exchange ratio of 3.3033, resulting in (x) 700,473 shares of our Common Stock issued to New Bay, (y) 663,581 shares of our Common Stock issued to BR Technologies, and (z) 332,614 shares of our Common Stock issued to Grazyna.
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Key Factors that Affect Operating Results
We believe the key factors affecting our financial condition and results of operations include the following:
Retention of Key Management Team Members
One of the key differentiating factors of us is the rich blended nature of our management team. Our management team comprises executives with extensive experience in electronics industry with IoT services related experiences. The wide array of industry experience captured by our management team allows us to deliver advanced technology and superior products to our customers. Losing any member of our key executive team could significantly impact the quality of services and products that we currently offer. Such departures may prompt customers to explore alternative products or IoT cloud platforms offered by different vendors or service providers.
Investment in technology and talent
We invest significant resources in outsourcing partnerships and dedicates efforts to research and develop new products, solutions, agent platforms, and related services. This commitment is essential to uphold our competitiveness in the industry, especially in the realm of IoT services. Advancing technology and enhancing capabilities are pivotal for enterprise growth, necessitating continual progress in electronic product technologies, novel services, and expanded capabilities.
To maintain and expand our customer base, we must sustain a culture of innovation that aligns with the industry’s evolution. This entails continuously introducing cutting-edge technologies to the market. Our current focus in research and development revolves around bolstering comprehensive communication, storage, and energy solutions, as well as advancing 5G technology. This includes areas such as baseband development, Radio Frequency (RF) layout optimization, Session Initiation Protocol (SIP) integration, and rigorous system testing.
Our ability to expand our products and services and diversifying customer base
Currently, our main revenue stream originates from the sale of tablets and mobile phones. As brand recognition and acceptance grow, we anticipate a surge in user adoption of our wireless services and intelligence products. Our capacity to broaden our products portfolio, offer new services and attract a more diversified customer base could significantly influence our future operating results.
Results of Operations
Comparison for the three months ended December 31, 2024 and 2023
| For the Three Months Ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues, net | $ | 17,480,231 | $ | 832,827 | $ | 16,647,404 | 1,998.9 | % | ||||||||
| Cost of goods sold | 15,289,565 | 733,244 | 14,556,321 | 1,985.2 | % | |||||||||||
| Gross profit | 2,190,666 | 99,583 | 2,091,083 | 2,099.8 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling expense | 1,575,744 | 136,307 | 1,439,437 | 1,056.0 | % | |||||||||||
| General, and administrative expense | 1,937,731 | 546,457 | 1,391,274 | 254.6 | % | |||||||||||
| Research and development – related party | 45,584 | - | 45,584 | 100.0 | % | |||||||||||
| Research and development | 671,753 | - | 671,753 | 100.0 | % | |||||||||||
| Stock-based compensation expenses | 200,954 | - | 200,954 | 100 | % | |||||||||||
| Loss from operations | (2,241,100 | ) | (583,181 | ) | (1,657,919 | ) | 284.3 | % | ||||||||
| Other income (expense), net | 3,665,246 | (57,429 | ) | 3,722,675 | (6,482.2 | )% | ||||||||||
| Provision for income tax | - | - | - | 0.0 | % | |||||||||||
| Net income (loss) | $ | 1,424,146 | $ | (640,610 | ) | $ | 2,064,756 | (322.3 | )% | |||||||
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Revenues
Our revenue primarily derived from sales of electronic products. The total revenues increased by approximately $16.6 million, or 1,998.9%, to approximately $17.5 million for the three months ended December 31, 2024 as compared to $0.8 million for the three months ended December 31, 2023. The increase of the total revenue was mainly attributable to the sales from three new wholesale customers who aggregately accounted for 94% of our sales and to launching a new line of products, which is the wearable electronic products.
Our revenues from our revenue categories are summarized as follows:
| For the Three Months Ended | ||||||||
| December 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Tablet products | $ | 168,360 | $ | 551,267 | ||||
| Mobile phone products | 14,845,446 | 281,560 | ||||||
| Wearable products | 1,780,637 | - | ||||||
| Subtotal product revenues | 16,794,443 | 832,827 | ||||||
| App service commission revenue, net | 685,788 | - | ||||||
| Total revenues, net | $ | 17,480,231 | $ | 832,827 | ||||
Tablet product sales were insignificant in our operations for the three months ended December 31, 2024. Revenue from the sales of tablets decreased by approximately $0.4 million, or 69.5%, to approximately $0.2 million for the three months ended December 31, 2024 from $0.6 million for the same period in 2023. Revenue from sales of phones, which accounts for 85% of total revenue, increased by approximately $14.5 million, or 5,172.6%, to approximately $14.8 million for the three months ended December 31, 2024 from $0.3 million for the same period in 2023 as we rolled out some new phone products beginning in January 2024 and the sales from two new wholesale customers who aggregately accounted for 84% of our sales. Revenue from sales of wearable products, which was new for the three months ended December 31, 2024, increased by approximately $1.8 million, or 100.0%, to approximately $1.8 million for the three months ended December 31, 2024 from $0 for the same period in 2023 as we rolled out some new wearable products beginning in October 2024 and the sales from one new wholesale customers who aggregately accounted for 10% of our sales. Revenue from App service commission increased by approximately $0.7 million, or 100.0%, to approximately $0.7 million for the three months ended December 31, 2024 from $0 for the same period in 2023 as we started to generate income by providing installation of App service to our partners on our mobile devices and procure the distribution of these devices to the end users beginning in July 2024.
Cost of Goods Sold
Our cost of goods sold mainly consists of cost of merchandise and freight. Total cost of goods sold increased by approximately $14.6 million, or 1,985.2%, to approximately $15.3 million for the three months ended December 31, 2024 as compared to $0.7 million for the three months ended December 31, 2023. The increase in cost of goods sold is a direct result of an increase in our revenue, consistent with the acquisition of our two new wholesale customers and new product line as discussed above for the three months ended December 31, 2024 as compared to the same period in 2023.
Our cost of goods sold from their revenue categories are summarized as follows:
| For the Three Months Ended | ||||||||
| December 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Tablet products | $ | 132,899 | $ | 482,608 | ||||
| Mobile phone products | 13,623,422 | 250,636 | ||||||
| Wearable products | 1,533,244 | - | ||||||
| Total cost of goods sold | $ | 15,289,565 | $ | 733,244 | ||||
35
Our cost of goods sold for tables decreased by approximately $0.4 million, or 72.5%, to approximately $0.1 million for the three months ended December 31, 2024 from $0.5 million for the same period in 2023. Cost of goods sold for mobile phone products increased by approximately $13.4 million, or 5,335.5%, to approximately $13.6 million for the three months ended December 31, 2024 from $0.3 million for the same period in 2023, which is consistent with the direct result of an increase in our revenue. Cost of goods sold for wearable products increased by approximately $1.5 million, or 100.0%, to approximately $1.5 million for the three months ended December 31, 2024 from $0 for the same period in 2023.
Gross Profit
Our gross profit increased by approximately $2.1 million, or 2,099.8%, to approximately $2.2 million for the three months ended December 31, 2024, from $0.1 million for the three months ended December 31, 2023.
Our gross profit from their major revenue categories is summarized as follows:
| For the Three Months Ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Tablet products | ||||||||||||||||
| Gross profit | $ | 35,461 | $ | 68,659 | $ | (33,198 | ) | (48.4 | )% | |||||||
| Gross profit percentage | 21.1 | % | 12.5 | % | 8.6 | % | ||||||||||
| Mobile phone products | ||||||||||||||||
| Gross profit | $ | 1,222,024 | $ | 30,924 | $ | 1,191,100 | 3,851.7 | % | ||||||||
| Gross profit percentage | 8.2 | % | 11.0 | % | (2.8 | )% | ||||||||||
| Wearable products | ||||||||||||||||
| Gross profit | $ | 247,393 | $ | - | $ | 247,393 | 100.0 | % | ||||||||
| Gross profit percentage | 13.9 | % | 0.0 | % | 12.9 | % | ||||||||||
| App service commission revenue | ||||||||||||||||
| Gross profit | $ | 685,788 | $ | - | $ | 685,788 | 100.0 | % | ||||||||
| Gross profit percentage | 100.0 | % | 0.0 | % | 100.0 | % | ||||||||||
| Total | ||||||||||||||||
| Gross profit | $ | 2,190,666 | $ | 99,583 | $ | 2,091,083 | 2,099.8 | % | ||||||||
| Gross profit percentage | 12.5 | % | 12.0 | % | 0.6 | % | ||||||||||
For the three months ended December 31, 2024 and 2023, our overall gross profit percentage was 12.5% and 12.0%, respectively. The increase in gross profit percentage of 0.6% was primarily due to the all the increases in gross profit percentage for tablet, wearable products and App service commission revenue.
Gross profit percentage of tablets improved from 12.5% to 21.1% from the three months ended December 31, 2023 to the same period in 2024. This was primarily due to our change of business strategy as discussed above, which lead to the increase in the unit selling price of electronic products, and the decrease in the unit purchase price of the purchasing goods.
Gross profit percentage for mobile phones decreased from 11.0% to 8.2% for the three months ended December 31, 2023, to the same period in 2024. This decline was primarily due to the increasing sales of new model of mobile phones with lower gross profit percentage during the three months ended December 31, 2024.
36
For the three months ended December 31, 2024, our gross profit percentage of wearable products was 13.9%. We did not have this kind of products for the three months ended December 31, 2023.
For the three months ended December 31, 2024, our gross profit percentage of App service commission was 100.0% because this revenue was commission based revenue that was earned at a point in time when the revenue is generated from the App, that is when clicks and/or impressions occur at a point in time when the end users of the mobile devices use the App and we received the App revenue share (service commission) from our partners without cost of goods. We did not have this kind of service for the three months ended December 31, 2023.
Operating Expenses
Total operating expenses increased by approximately $3.7 million, or 549.1%, to approximately $4.4 million for the three months ended December 31, 2024 from approximately $0.7 million for the three months ended December 31, 2023.
Our operating expenses are summarized as follows:
| For the Three Months ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | $ | 1,575,744 | $ | 136,307 | $ | 1,439,437 | 1,056.0 | % | ||||||||
| General and administrative expense | 1,937,731 | 546,457 | 1,391,274 | 254.6 | % | |||||||||||
| Research and development – related party | 45,584 | - | 45,584 | 100.0 | % | |||||||||||
| Research and development | 671,753 | - | 671,753 | 100.0 | % | |||||||||||
| Stock-based compensation expenses | 200,954 | - | 200,954 | 100.0 | % | |||||||||||
| Total operating expense | $ | 4,431,766 | $ | 682,764 | $ | 3,749,002 | 549.1 | % | ||||||||
The increase in operating expense was mainly attributed to the following:
Selling Expenses
Selling expenses increased, approximately $1.4 million, or 1,056.0%, to approximately $1.6 million for the three months ended December 31, 2024, from approximately $0.2 million for the three months ended December 31, 2023. The increased selling expenses was mainly attributable to approximately $0.6 million increase in commission, payroll and payroll related expense as we recruited and hired more salespersons to our team during the three months ended December 31, 2024, approximately $0.3 million increase in consulting fees, as the Company engaged additional sales consultant to enhance our sales efforts, approximately $0.2 million increase in warranty expenses due to the increase in sales, and approximately $0.2 million increase in sampling, testing and certification expenses, and advertising and marketing, which all directly related with boosting the brand awareness, adding new product models, and to attract more business opportunities in the electronic devices market during the three months ended December 31, 2024.
General and Administrative Expenses
General and administrative expenses increased approximately $1.4 million, or 254.6%, to approximately $1.9 million for the three months ended December 31, 2024 from approximately $0.5 million for the three months ended December 31, 2023. The increased general and administrative expense were mainly attributable to the approximately $0.7 million increase in professional expense on audit, legal and accounting fees as we became a public company, approximately $0.3 million increase in salary and wages as we made more new hires during the three months ended December 31, 2024, and approximately $0.4 million increase in other general and administrative miscellaneous expenses, such as insurance, rent expense, travel expense, and office expense due to increased expenses in the increased of our operations. We anticipate a continued rise in our G&A as we persist in executing our business expansion plan and integrating IoT-enabled devices alongside our cloud platform to streamline operations in 2025.
37
Research and Development — related party
Research and development (“R&D”) expenses from a related party increased by approximately $46,000, or 100.0%, where the increase was primarily due to an R&D project began in 2024. During the three months ended December 31, 2024, a related party completed additional 20% of the remaining 5G development project pursuant to a R&D agreement between us and the related party, and we recognized a R&D expense approximately of $46,000 accordingly based on the progression of the R&D project. We expect our R&D expenses will continue to go up as we will need to development our IoT and MVNO capabilities products and to finish our development of the 5G products in 2025.
Research and Development
R&D expenses increased by approximately $0.7 million, or 100.0%, from $0 for the three months ended December 31, 2023 to $0.7 million for the same period in 2024. The increase is due to hiring more employees and engaging third parties to provide development services for new products during the three months ended December 31, 2024.
Stock-based compensation expenses
Stock-based compensation expenses increased by approximately $0.2 million, or 100.0%, from $0 for the three months ended December 31, 2023 to $0.2 million for the same period in 2024. The increase is due to restricted stock units granted to our employees, consultants and independent directors under employee incentive plan during the three months ended December 31, 2024.
Other income (expense), net
Our other income (expense), net is summarized as follows:
| For the Three Months ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | $ | (1,042,198 | ) | $ | (52,869 | ) | $ | (989,329 | ) | 1,871.3 | % | |||||
| Other income (expense), net | 1,861 | (4,560 | ) | 6,421 | (140.8 | )% | ||||||||||
| Change in fair value of earnout liabilities | 4,705,583 | - | 4,705,583 | 100.0 | % | |||||||||||
| Total other income (expense), net | $ | 3,665,246 | $ | (57,429 | ) | $ | 3,722,675 | (6,482.2 | )% | |||||||
Total other income (expense), net increased by approximately $3.7 million, or 6,482.2%, to approximately $3.7 million other income for the three months ended December 31, 2024, from approximately $57,000 other expense for the three months ended December 31, 2023. The increase was primarily due to the change in fair value of earnout liabilities in connection with the Business Combination and offset by the interest expenses incurred related to the financing offered by one of our vendors based upon the timing of our payment to their accounts payable.
Provision for income taxes
The provision for income taxes is $0 for each of the three months ended December 31, 2024 and 2023 as we had made full allowance of our deferred tax assets on net operating losses.
Net Income (Loss)
Net income (loss) decreased by approximately $2.0 million, or 322.3%, to approximately $1.4 million of net income for the three months ended December 31, 2024, from approximately $0.6 million of net loss for the three months ended December 31, 2023. Such change was mainly due to the reasons discussed above.
38
Comparison for the six months ended December 31, 2024 and 2023
| For the Six Months Ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues, net | $ | 40,592,283 | $ | 832,827 | $ | 39,759,456 | 4,774.0 | % | ||||||||
| Cost of goods sold | 38,003,441 | 733,244 | 37,270,197 | 5,082.9 | % | |||||||||||
| Gross profit | 2,588,842 | 99,583 | 2,489,259 | 2,499.7 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling expense | 2,790,786 | 344,583 | 2,466,203 | 709.9 | % | |||||||||||
| General, and administrative expense | 2,898,978 | 849,791 | 2,049,187 | 241.1 | % | |||||||||||
| Research and development – related party | 68,376 | - | 68,376 | 100.0 | % | |||||||||||
| Research and development | 678,781 | - | 678,781 | 100.0 | % | |||||||||||
| Stock-based compensation expenses | 200,954 | - | 200,954 | 100.0 | % | |||||||||||
| Loss from operations | (4,049,033 | ) | (1,094,791 | ) | (2,954,242 | ) | 269.8 | % | ||||||||
| Other income (expense), net | 3,206,390 | (92,650 | ) | 3,299,040 | (3,560.8 | )% | ||||||||||
| Provision for income tax | - | - | - | 0.0 | % | |||||||||||
| Net loss | $ | (842,643 | ) | $ | (1,187,441 | ) | $ | 344,798 | (29.0 | )% | ||||||
Revenues
Our revenue primarily derived from sales of electronic products. The total revenues increased by approximately $39.8 million, or 4,774.0%, to approximately $40.6 million for the six months ended December 31, 2024 as compared to $0.8 million for the six months ended December 31, 2023. The increase of the total revenue was mainly attributable to the sales from three new wholesale customers who aggregately accounted for 86% of our sales.
Our revenues from our revenue categories are summarized as follows:
| For the Six Months Ended | ||||||||
| December 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Tablet products | $ | 173,115 | $ | 551,267 | ||||
| Mobile phone products | 37,722,545 | 281,560 | ||||||
| Wearable products | 1,780,637 | - | ||||||
| Subtotal product revenues | 39,676,297 | 832,827 | ||||||
| App service commission revenue, net | 915,986 | - | ||||||
| Total revenues, net | $ | 40,592,283 | $ | 832,827 | ||||
Tablet product sales were insignificant in our operations for the six months ended December 31, 2024. Revenue from the sales of tablets decreased by approximately $0.4 million, or 68.6%, to approximately $0.2 million for the six months ended December 31, 2024 from $0.6 million for the same period in 2023. Revenue from sales of mobile phones increased by approximately $37.4 million, or 13,297.7%, to approximately $37.7 million for the six months ended December 31, 2024 from $0.3 million for the same period in 2023 as we rolled out some new mobile phone products beginning in January 2024 and the sales from three new wholesale customers who aggregately accounted for 93% of our sales. Revenue from sales of wearable products increased by approximately $1.8 million, or 100.0%, to approximately $1.8 million for the six months ended December 31, 2024 from $0 for the same period in 2023 as we rolled out some new wearable products beginning in October 2024. Revenue from App service commission increased by approximately $0.9 million, or 100.0%, to approximately $0.9 million for the six months ended December 31, 2024 from $0 for the same period in 2023 as we started to generate income by providing installation of App service to our partners on our mobile devices and procure the distribution of these devices to the end users beginning in July 2024.
39
Cost of Goods Sold
Our cost of goods sold mainly consists of cost of merchandise and freight. Total cost of goods sold increased by approximately $37.3 million, or 5,082.9%, to approximately $38.0 million for the six months ended December 31, 2024 as compared to $0.8 million for the six months ended December 31, 2023. The increase in cost of goods sold is a direct result of an increase in our revenue, consistent with the acquisition of our three new wholesale customers as discussed above for the six months ended December 31, 2024 as compared to the same period in 2023.
Our cost of goods sold from their revenue categories are summarized as follows:
| For the Six Months Ended | ||||||||
| December 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Tablet products | $ | 137,569 | $ | 482,608 | ||||
| Mobile phone products | 36,332,628 | 250,636 | ||||||
| Wearable products | 1,533,244 | - | ||||||
| Total cost of goods sold | $ | 38,003,441 | $ | 733,244 | ||||
Our cost of goods sold for tables decreased by approximately $0.4 million, or 71.5%, to approximately $0.1 million for the six months ended December 31, 2024 from $0.5 million for the same period in 2023. Cost of goods sold for mobile phone products increased by approximately $36.1 million, or 14,396.2%, to approximately $36.3 million for the six months ended December 31, 2024 from $0.3 million for the same period in 2023, which is consistent with the direct result of an increase in our revenue. Cost of goods sold for wearable products increased by approximately $1.5 million, or 100.0%, to approximately $1.5 million for the six months ended December 31, 2024 from $0 for the same period in 2023.
Gross Profit
Our gross profit increased by approximately $2.5 million, or 2,499.7%, to approximately $2.6 million for the six months ended December 31, 2024, from $0.1 million for the six months ended December 31, 2023.
Our gross profit from their major revenue categories is summarized as follows:
| For the Six Months Ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Tablet products | ||||||||||||||||
| Gross profit | $ | 35,546 | $ | 68,659 | $ | (33,113 | ) | (48.2 | )% | |||||||
| Gross profit percentage | 20.5 | % | 12.5 | % | 8.1 | % | ||||||||||
| Mobile phone products | ||||||||||||||||
| Gross profit | $ | 1,389,917 | $ | 30,924 | $ | 1,358,993 | 4,394.6 | % | ||||||||
| Gross profit percentage | 3.7 | % | 11.0 | % | (7.3 | )% | ||||||||||
| Wearable products | ||||||||||||||||
| Gross profit | $ | 247,393 | $ | - | $ | 247,393 | 100.0 | % | ||||||||
| Gross profit percentage | 13.9 | % | 0.0 | % | 13.9 | % | ||||||||||
| App service commission revenue | ||||||||||||||||
| Gross profit | $ | 915,986 | $ | - | $ | 915,986 | 100.0 | % | ||||||||
| Gross profit percentage | 100.0 | % | 0.0 | % | 100.0 | % | ||||||||||
| Total | ||||||||||||||||
| Gross profit | $ | 2,588,842 | $ | 99,583 | $ | 2,489,259 | 2,499.7 | % | ||||||||
| Gross profit percentage | 6.4 | % | 12.0 | % | (5.6 | )% | ||||||||||
40
For the six months ended December 31, 2024 and 2023, our overall gross profit percentage was 6.4% and 12.0%, respectively. The decrease in gross profit percentage of 5.6% was primarily due to the decrease in gross profit percentage for mobile phones whose gross profit accounted for 54% of total gross profit.
Gross profit percentage of tablets improved from 12.5% to 20.5% from the six months ended December 31, 2023 to the same period in 2024. This was primarily due to our change of business strategy as discussed above, which lead to the increase in the unit selling price of electronic products, and the decrease in the unit purchase price of the purchasing goods.
Gross profit percentage for mobile phones decreased from 11.0% to 3.7% from the six months ended December 31, 2023, to the same period in 2024. This decline was primarily due to the increasing sales of new model of mobile phones with lower gross profit percentage during the six months ended December 30, 2024.
For the six months ended December 31, 2024, our gross profit percentage of wearable products was 13.9%. We did not have this kind of products for the six months ended December 31, 2023.
For the six months ended December 31, 2024, our gross profit percentage of App service commission was 100.0% because this revenue was commission based revenue that was earned at a point in time when the revenue is generated from the App, that is when clicks and/or impressions occur at a point in time when the end users of the mobile devices use the App and we received the App revenue share (service commission) from our partners without cost of goods. We did not have this kind of service for the six months ended December 31, 2023.
Operating Expenses
Total operating expenses increased by approximately $5.4 million, or 455.8%, to approximately $6.6 million for the six months ended December 31, 2024 from approximately $1.2 million for the six months ended December 31, 2023.
Our operating expenses are summarized as follows:
| For the Six Months ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | $ | 2,790,786 | $ | 344,583 | $ | 2,446,203 | 709.9 | % | ||||||||
| General and administrative expense | 2,898,978 | 849,791 | 2,049,187 | 241.1 | % | |||||||||||
| Research and development – related party | 68,376 | - | 68,376 | 100.0 | % | |||||||||||
| Research and development | 678,781 | - | 678,781 | 100.0 | % | |||||||||||
| Stock-based compensation expenses | 200,954 | - | 200,954 | 100.0 | % | |||||||||||
| Total operating expense | $ | 6,637,875 | $ | 1,194,374 | $ | 5,443,501 | 455.8 | % | ||||||||
41
The increase in operating expense was mainly attributed to the following:
Selling Expenses
Selling expenses increased, approximately $2.4 million, or 709.9%, to approximately $2.8 million for the six months ended December 31, 2024, from approximately $0.4 million for the six months ended December 31, 2023. The increased selling expenses was mainly attributable to approximately $1.2 million increase in commission, payroll and payroll related expense as we recruited and hired more salespersons to our team during the six months ended December 31, 2024, approximately $0.6 million increase in consulting fees, as the Company engaged additional sales consultant to enhance our sales efforts, approximately $0.3 million increase in warranty expenses due to the increase in sales, and approximately $0.3 million increase in sampling, testing and certification expenses, which all directly related with boosting the brand awareness, adding new product models, and to attract more business opportunities in the electronic devices market during the six months ended December 31, 2024.
General and Administrative Expenses
General and administrative expenses increased approximately $2.0 million, or 241.1%, to approximately $2.9 million for the six months ended December 31, 2024 from approximately $0.9 million for the six months ended December 31, 2023. The increased general and administrative expense were mainly attributable to the approximately $0.8 million increase in professional expense on audit, legal and accounting fees as we became a public company, approximately $0.6 million increase in salary and wages as we made more new hires during the six months ended December 31, 2024, and approximately $0.6 million increase in other general and administrative miscellaneous expenses, such as insurance, rent expense, travel expense, and office expense due to increased expenses in the increased of our operations. We anticipate a continued rise in our SG&A as we persist in executing our business expansion plan and integrating IoT-enabled devices alongside our cloud platform to streamline operations in 2025.
Research and Development — related party
Research and development (“R&D”) expenses from a related party increased by approximately $68,000, or 100.0%, where the increase was primarily due to an R&D project began in 2024. During the six months ended December 31, 2024, a related party completed additional 30% of the remaining 5G development project pursuant to a R&D agreement between us and the related party, and we recognized a R&D expense approximately of $68,000 accordingly based on the progression of the R&D project. We expect our R&D expenses will continue to go up as we will need to development our IoT and MVNO capabilities products and to finish our development of the 5G products in 2025.
Research and Development
R&D expenses increased by approximately $0.7 million, or 100.0%, from $0 for the six months ended December 31, 2023 to $0.7 million for the same period in 2024. The increase is due to hiring more employees and engaging third parties to provide development services for new products during the six months ended December 31, 2024.
Stock-based compensation expenses
Stock-based compensation expenses increased by approximately $0.2 million, or 100.0%, from $0 for the six months ended December 31, 2023 to $0.2 million for the same period in 2024. The increase is due to restricted stock units granted to our employees, consultants and independent directors under employee incentive plan during the six months ended December 31, 2024.
Other income (expense), net
Our other income (expense), net is summarized as follows:
| For the Six Months ended December 31, | ||||||||||||||||
| 2024 | 2023 | Change | Change (%) | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | $ | (1,451,193 | ) | $ | (92,205 | ) | $ | (1,358,988 | ) | 1,473.9 | % | |||||
| Other income (expense), net | 1,861 | (445 | ) | 2,306 | (518.2 | )% | ||||||||||
| Change in fair value of earnout liabilities | 4,655,722 | - | 4,655,722 | 100.0 | % | |||||||||||
| Total other expense, net | $ | 3,206,390 | $ | (92,650 | ) | $ | 3,299,040 | (3,560.8 | )% | |||||||
42
Total other income (expense), net increased by approximately $3.3 million, or 3,560.8%, to approximately $3.2 million other income for the six months ended December 31, 2024, from approximately $93,000 other expense for the six months ended December 31, 2023. The increase was primarily due to the change in fair value of earnout liabilities in connection with the Business Combination and offset by the interest expenses incurred related to the financing offered by one of our vendors based upon the timing of our payment to their accounts payable.
Provision for income taxes
The provision for income taxes are $0 for each of the six months ended December 31, 2024 and 2023 as we had made full allowance of our deferred tax assets on net operating losses.
Net Loss
Net loss decreased by approximately $0.4 million, or 29.0%, to approximately $0.8 million for the six months ended December 31, 2024, from approximately $1.2 million for the six months ended December 31, 2023. Such change was mainly due to the reasons discussed above.
Liquidity and Capital Resources
In assessing liquidity, we monitor and analyses cash on-hand and operating and capital expenditure commitments. Our liquidity needs are to meet working capital requirements, operating expenses, and capital expenditure obligations. Debt financing in the form of convertible promissory note and cash generated from operations have been utilized to finance working capital requirements.
As of December 31, 2024, we had cash and cash equivalents of approximately $3.9 million, while we had accumulated deficit of approximately $11.9 million. During the six months ended December 31, 2024, we had net loss of approximately $0.8 million and net operating cash outflow of approximately $4.5 million.
If we are unable to generate sufficient funds to finance the working capital requirements within the normal operating cycle of a twelve-month period from the date of the unaudited condensed consolidated financial statements are issued, we may have to consider supplementing our available sources of funds through the following sources:
| ● | Other available sources of financing from banks, other financial institutions or private lenders; |
| ● | Financial support and credit guarantee commitments from our related parties; and |
| ● | Equity financing. |
Our management has determined that the factors discussed above have raised substantial doubt about our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. The unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.
The following summarizes the key components of cash flows for the six months ended December 31, 2024 and 2023.
| For the Six Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net cash used in operating activities | $ | (4,475,232 | ) | $ | (3,110,955 | ) | ||
| Net cash used in investing activities | (68,336 | ) | (6,016 | ) | ||||
| Net cash provided by financing activities | 7,899,163 | 1,748,124 | ||||||
| Net change in cash and cash equivalents | $ | 3,355,595 | $ | (1,368,847 | ) | |||
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Operating activities
Net cash used in operating activities was approximately $4.5 million for the six months ended December 31, 2024 and was primarily attributable to (i) approximately $0.8 million net loss, (ii) approximately $14.0 million increased in inventories because we stored more inventories to meet the demand of our anticipated sales orders, (iii) approximately $7.5 million increased in accounts receivable due to the increase of credit sales during the period, (iv) non-cash expenses of approximately $4.1 million, which primarily attributed to the change in fair value of earnouts, (v) approximately $0.9 million increased in prepaid expenses and other current assets due to our prepaid rent payment in connection with our warehouse lease to be commenced in February 2025, (vi) approximately $0.6 million increased in security deposit because we rented more office space, and (vii) approximately $0.3 million decreased in tax payable of ACAC due to the payment of tax at business combination. The cash outflow was offset by (viii) approximately $22.8 million increased in accounts payable due to purchase of more inventories with vendors to meet customer demand, (ix) approximately $0.9 million increased in other payables and accrued liabilities mainly due to accrued professional fees that associated with business expansion, such as consulting fees, testing fees and legal fees, and (x) approximately $0.1 million increase in contract liabilities due to the increase of sales during the period.
Net cash used in operating activities was approximately $3.1 million for the six months ended December 31, 2023 and was primarily attributable to (i) approximately $1.2 million net loss, (ii) approximately $1.7 million increased in contract assets due to engagement with new vendors which required purchase deposits to secure relevant transactions, (iii) approximately $0.2 million increase in accounts receivable due to the increase of credit sales during the period, and (iv) approximately $0.1 million increased in inventories due to change in our business strategy where we rented warehouse in the U.S. to store our inventories. The cash outflow was offset by (v) approximately $0.2 million increased in other payables and accrued liabilities mainly due to accrued professional fees that associated with business expansion.
Investing activities
Net cash used in investing activities was approximately $68,000 for the six months ended December 31, 2024, attributable to the purchase of some equipment for warehouse and an automobile for our business uses.
Net cash used in investing activities was approximately $6,000 for the six months ended December 31, 2023, attributable to purchase of a computer and furniture.
Financing activities
Net cash provided by financing activities was approximately $7.9 million for the six months ended December 31, 2024, mainly attributable to approximately $19.7 million proceeds from the reverse recapitalization and $9.0 million proceeds from issuance of convertible promissory notes, proceeds of approximately $0.1 million from issuance of common stock through exercise of warrant, offset by the payment of redeeming shareholders in connection with the business combination of approximately $20.5 million, the repayment of short-term loans of approximately $0.3 million and approximately $0.1 million in payments of deferred transaction costs.
Net cash provided by financing activities was approximately $1.7 million for the six months ended December 31, 2023, primarily attributable to $2.0 million proceeds from issuance of convertible promissory notes, offset by approximately $0.2 million in payments of deferred transaction costs and approximately $0.1 million in the repayment of related party loans.
Off-Balance Sheet Arrangements
As of December 31, 2024, we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our members.
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Critical Accounting Estimate
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting estimates that are critical to the preparation of the unaudited condensed consolidated financial statements. Certain accounting estimates are particularly sensitive because of their significance to the unaudited condensed consolidated financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe that the critical accounting estimates, assumptions, and judgments that have the most significant impact on our unaudited condensed consolidated financial statements are described below.
Income Taxes
We record deferred tax assets and liabilities based on the net tax effects of tax credits, operating loss carryforwards, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes compared to the amounts used for income tax purposes. We regularly review our deferred tax assets for recoverability with consideration for such factors as historical losses, projected future taxable income, and the expected timing of the reversals of existing temporary differences. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes the deferred tax assets, based largely on the history of tax losses, warrant a full valuation allowance based on the weight of available negative evidence. Currently, the key factor on our assumption of providing 100% valuation allowance was purely based on our historical operating losses. Once we began generating profit, we will re-evaluate whether providing 100% valuation allowance is appropriate or if we can reassess such number.
Earnout Liabilities
At the closing of the Business Combination, pursuant to the Business Combination Agreement, the shareholders of Old Foxx were entitled to receive up to a total of 4,200,000 contingent earnout shares (“Earnout Shares”) in the form of our common stock. The Earnout Shares will be issued upon certain vesting schedules based on our financial performance for the fiscal year ended June 30, 2024 and 2025. The Earnout Shares are classified as a liability at the closing of the Business Combination on September 26, 2024 and measured at fair value at each reporting period, with changes in fair value included in the consolidated statements of operations.
When determining the fair value measurements for earnout liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the earnout liabilities arising from the Business Combination.
The Company developed a Monte Carlo Model that values the earnout subject revenue milestones. The Monte Carlo Model technique applied generates many possible (but random) price paths for the underlying(s) via simulation, and then calculates the associated payment value of the security features. The price of the underlying common stock is modeled such that it follows a geometric Brownian motion with constant drift, and constant volatility. The stock price is determined by a random sampling from a normal distribution. Since the underlying random process is the same, for enough price paths, the value of security is derived from path dependent scenarios and outcomes.
The model simulates the underlying economic factors, including the projected revenue that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e., stock price, revenue, etc.). Probabilities were assigned to each variable such as the timing and pricing of events over the term of the instruments based on management projections. This led to a cash flow simulation over the life of the instrument. A discounted cash flow was completed to determine the value for the earnout liabilities.
Prior to the Business Combination, we were a private company and lacked company-specific historical and implied volatility information of its stock, and as such, the expected revenue volatility was based on historical volatility of industry outlook and the expected revenue volatility and stock volatility was based on the historical volatility of publicly traded peer companies for a term equal to the remaining expected term of the earnout period.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective due to the identified material weaknesses described below
Based on our assessments and those criteria, management determined that we did not maintain effective internal control over financial reporting as of December 31, 2024 due to the material weaknesses in the design or operation of internal controls which could adversely affect our ability to record, process, summarize, and report financial data, which includes:
| - | lack of sufficient segregation of duties due to limited resources; |
| - | lack of adequate design of controls and proper documentation needed in order to demonstrate that controls in place are operating effectively for significant transaction classes; |
| - | inability to prepare complete and accurate financial statements in accordance with generally accepted accounting principle (“GAAP) in a timely manner; |
| - | inefficient oversight of those charged with governance with respect to complete and accurate finance reporting; |
| - | lack of appropriate controls surrounding authorized signor access for bank accounts; and |
| - | inappropriate implementation of controls over the identification of related party transactions. |
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. Currently, we are not a party to any material legal proceedings or subject to any material claims. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
On November 22, 2024, a plaintiff filed Semensato v. Foxx Development Holdings Inc., et al., No. 2024-1200 (Del. Ch. Ct.), a class action lawsuit in Delaware Chancery Court against the Company and certain “Individual Defendants” (“Joy” Yi Hua, Haitao Cui, “Jeff” Feng Jiang, “Eva” Yiqing Miao and Edmund R. Miller). The lawsuit seeks declaratory relief under provisions of the Delaware General Corporation Law relating to a waiver of the corporate opportunity doctrine that is contained in the Company’s Amended and Restated Certificate of Incorporation. The plaintiff seeks a declaration that the waiver provision is invalid, an injunction against the Company and the Individual Defendants to prevent them from attempting to enforce the waiver, attorneys’ fees, and the costs and disbursements of this action. The Company denies the claims and intends to vigorously defend the action.
Item 1a. Risk Factors
For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of the 2024 10-K, as well as the Company’s final prospectus (File No. 333-284186), dated January 23, 2025 (the “Warrant Share Issuance Prospectus”), filed with the SEC in connection for the issuance of up to 12,145,917 shares of common stock issuable upon exercises of certain warrants of the Company. The risks and uncertainties that we face are not limited to those set forth in the 10-K and the Warrant Share Issuance Prospectus. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities. There have been no material changes to the Company’s risk factors since the filing of the 2024 10-K and the Warrant Share Issuance Prospectus.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Item 6. Exhibits
| 31.1* | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | |
| 31.2* | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer | |
| 32.1* | Section 1350 Certification of principal executive officer | |
| 32.2* | Section 1350 Certification of principal financial and accounting officer | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | filed herewith |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Foxx Development Holdings Inc. | ||
| Date: February 14, 2025 | By: | /s/ Greg Foley |
| Greg Foley | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: February 14, 2025 | By: | /s/ “Joy” Yi Hua |
| “Joy” Yi Hua | ||
| Chairwoman and Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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