Foxx Development Holdings Inc.: Form 10-K for the period ended Jun 30, 2024

Overview

Foxx Development Holdings Inc. was incorporated under the name “Acri Capital Merger Sub I Inc.” as a Delaware corporation on November 13, 2023.

On September 26, 2024 (the “Closing”), Acri Capital Acquisition Corporation, a Delaware corporation (“ACAC”) consummated a previously announced business combination pursuant to the terms of the business combination agreement (as amended from time to time, the “Business Combination Agreement”), by and among ACAC, Acri Capital Merger Sub I Inc., a Delaware corporation and wholly-owned subsidiary of ACAC (the “Purchaser”), Acri Capital Merger Sub II Inc., a Delaware corporation and wholly-owned subsidiary of Purchaser (“Merger Sub”), and Foxx Development Inc., a Texas corporation (“Foxx”), pursuant to which (i) ACAC merged with and into Purchaser (the “Reincorporation Merger”), and (ii) Foxx merged with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of Purchaser (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, the Purchaser was renamed as “Foxx Development Holdings Inc.” (the “Registrant”), and the Merger Sub was renamed as “Foxx Development Inc.” (the “Operating Subsidiary”).

The Business Combination

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 common stock of the Registrant, par value $0.0001 per share (the “Common Stock”), and (ii) each issued and outstanding ACAC warrant was converted automatically into one (1) redeemable warrant of the Registrant, exercisable for one (1) share of the Registrant’s 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 Foxx (“Foxx Common Stock”) held by exiting holders of Foxx common stock (the “Foxx Stockholders”) immediately prior to the Closing (including shares of Foxx Common Stock issuable upon conversion of the principal and accrued interest of promissory notes of 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 the Registrant’s 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.

Pursuant to the Business Combination Agreement, 500,000 shares of the Closing Payment Stock in aggregate will be deposited (the “Escrow Arrangement”) to a segregated escrow account and released to the 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.

Additionally, the Foxx Stockholders may be entitled to receive “Earnout Shares”, which refer to 4,200,000 shares of the Registrant’s Common Stock, subject to 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 will be issued to Foxx Stockholders on a pro rata basis if and only if the Registrant’s audited consolidated financial statements for the fiscal year ending June 30, 2024 (“2024 Registrant 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 the Registrant after Closing, reflect revenue of the Registrant for the fiscal year ending June 30, 2024 (the “Registrant 2024 Revenue”) 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 will be issued to Foxx Stockholders on a pro rata basis if and only if the Registrant 2024 Revenue reflected in the 2024 Registrant Audited Financial Statements is 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 will be issued to Foxx Stockholders on a pro rata basis if and only if the Registrant 2024 Revenue reflected in the 2024 Registrant Audited Financial Statements is no less than $100,000,000 (including $100,000,000);

provided, however, that the Earnout Shares will 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 will be issued to Foxx Shareholders on a pro rata basis if and only if the Registrant’s audited consolidated financial statements for the fiscal year ending June 30, 2025 (“2025 Registrant Audited Financial Statements”), prepared in accordance with U.S. GAAP and filed with the SEC on Form 10-K by the Registrant after Closing, reflect revenue of the Registrant for the fiscal year ending June 30, 2025 (the “Registrant 2025 Revenue”) 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 will be issued to Foxx Stockholders on a pro rata basis if and only if the Registrant 2025 Revenue reflected in the 2025 Registrant Audited Financial Statements is 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 Foxx Stockholders on a pro rata basis if and only if the Registrant 2025 Revenue reflected in the 2025 Registrant Audited Financial Statements is no less than $115,000,000 (including $115,000,000);

provided, however, that the Earnout Shares will be issued and delivered pursuant to one paragraph from (ii)(A) to (ii)(C) above only once.

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, the Registrant’s Common Stock and Warrant became listed on the Nasdaq Capital Market (“Nasdaq”) under trading symbols “FOXX” and “FOXXW,” respectively.

In addition, 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 the Registrant’s Common Stock were issued to EF Hutton LLC at the Closing.

Unless the context otherwise requires, all references in this Annual Report to “we,” “us,”, “our” or the “Company” refer to the business and operations of Foxx and its subsidiaries prior to consummation of the Business Combination and to the Registrant and its subsidiary (the Operating Subsidiary) following the consummation of the Business Combination.

The 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 New 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, Foxx Development Inc., a Texas corporation (“Foxx”), issued a promissory note (“Note 1”) to New Bay Capital Limited (“New Bay”), in the principal amount of $2 million with an interest rate of 7% per annum, convertible into shares of Foxx common stock at $30.00 per share upon the listing of Foxx common stock through an initial public offering. On December 21, 2023, Foxx issued another promissory note (“Note 2”) to New Bay in the principal amount of $2 million with the same terms and conditions as Note 1.

In connection with the Business Combination Agreement and all the transaction contemplated therein (the “Business Combination”), in the spring of 2024, 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, Foxx and New Bay agreed to an amendment to Convertible Note Agreement, to amend Note 1 and Note 2 to remove the lock-up provisions as provided therein and allow the unpaid principal and accrued interest on Note 1 and Note 2 to convert to 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, 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 Foxx to BR Technologies PTE, Ltd. (“BR Technologies”), a Singapore-based company. On May 30, 2024, Foxx, BR Technologies and Grazyna Plawinski Limited (“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 Foxx to BR (the “Note 4”) in the principal amount of $6 million and promissory notes issued by 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 Foxx common stock for the New Bay Notes, (y) 200,882 shares of Foxx common stock for Note 4, and (z) 100,690 share of Foxx common stock for Note 5, at a price of $30.00 per share. At the Closing, all of the converted shares of Foxx common stock were cancelled in exchange for the holders’ pro rata share of the Closing Payment Shares, resulting in (x) 700,473 shares of the Registrant’s Common Stock issued to New Bay, (y) 663,581 shares of the Registrant’s Common Stock issued to BR Technologies, and (z) 332,614 shares of the Registrant’s Common Stock issued to Grazyna.

Our Business

Founded in Texas in 2017, we are a technology innovation company in the communications sector. Since then, we have expanded our footprint to various locations in the United States, such as San Francisco, CA, Dallas, TX, Atlanta, GA, Los Angeles, CA, Miami, FL, and New York, NY, where we provide sales, retail, distribution, and after-sales support services, and engage in research and development of new customization standards and services.

We provide a range of Foxx-branded products, including tablets, smartphones, wearables, and other high-quality communication terminals. Our products are 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 third-party distributors and sales agents who sell our products in the U.S. public channels and to major carriers in the United States such as T-Mobile, AT&T, and Verizon.

We source our products from various original design manufacturer suppliers, providing them with detailed hardware and software specifications to handle the custom development of our products. Once our products are manufactured, we collaborate with third-party agencies to obtain the required testing and certification, such as Equipment Authorizations from the Federal Communication Commission (the “FCC”) and certifications from the Global Mobile Suppliers Association. This enables our products to be compliant and ready for the market, allowing us to maintain our reputation for quality and reliability.

While we have generated most of our revenue from the sales of tablets and smartphones, we have been preparing to enter the U.S. Internet-of-Things (“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 expect to enter these markets by adding additional features and providing related services that enable Foxx-branded devices to have IoT and MVNO capabilities. We believe this strategy will allow us to stand out among our competitors who also sell to major carriers.

Current Products

Our current revenue stream is primarily derived from the sales of tablets and smartphones. For the fiscal year ended June 30, 2024, we achieved sales of approximately 12,000 tablets and 80,000 smartphones sold, generating approximately $3.2 million in revenue. For the fiscal year ended June 30, 2023, our sales reached approximately 491,000 tablets and approximately 76,000 smartphones sold, generating a revenue of approximately $21.62 million.

Tablet Products

We produce affordable tablets to meet the diverse needs of consumers across various demographics, aligning with our goal of democratizing technology and enhancing digital inclusion for all. These tablets facilitate broader access to technology, enabling individuals from diverse economic backgrounds to enjoy the benefits of digital devices while also serving as invaluable educational aids.

We have recently launched C10 LTE tablet, which is equipped with the following key features:

• 10.1-Inch HD Display: Offers vibrant visuals and ample screen real estate for immersive viewing of movies, and videos.
• MT8766 2.0GHz Processor: Delivers smooth performance, allowing users to seamlessly navigate through apps, games, and multitasking activities.
• 4GB of RAM and 64GB of storage and 8MP + 8MP Camera Setup: Allows users to capture and store multimedia content without worrying about running out of space.
• Supporting 802.11 b/g/n/ac Wi-Fi: Provides fast and reliable wireless internet access at home, work, or on the go.

Thus far, we have successfully introduced several generations of products to the market, each tailored to meet specific consumer needs and preferences. This strategic approach not only allows us to diversify our product range but also enables us to remain agile and responsive to the evolving trends and demands of the marketplace. By continually innovating and expanding our offerings, we aim to ensure that we remain at the forefront of meeting the diverse needs of our consumers.

Mobile Phone Products

We are committed to developing high performance smartphones at competitive prices to provide accessibility for all. Our focus on innovation, efficient manufacturing, and strategic partnerships allows us to deliver premium technology without compromising affordability.

In 2019, we launched our MIRO product line to cater to users seeking an affordable smartphone with quality performance, which became available at Metro® by T-Mobile stores beginning May 20, 2019. The MIRO phone is equipped with the following key features:

• Immersive 5.45” HD Display: Enjoy a vivid viewing experience with our immersive 5.45” HD (1280 X 640) display, great for multimedia consumption and browsing.
• Large Lasting Battery: Stay connected longer with up to 10 hours of talking time and up to 300 hours of standby time, supported by a large 2450mAh battery.
• High-Quality Cameras: Capture life’s moments in stunning detail with the 8MP auto-focus rear camera and take brilliant selfies with the 5MP front camera.
• Google Voice Assistant: Simplify daily tasks with Google Voice Assistant, enabling users to check the weather, search for restaurants, manage tasks, control smart home devices, and more with just your voice.
• Quality Performance: Experience seamless app performance and multitasking capabilities with 2GB of RAM. Store photos and music effortlessly with 16GB of built-in memory, expandable up to 32GB via a microSD card.

Since our launch of the MIRO phones, we have introduced multiple product generations to the market to offer a range of options that can meet evolving consumer needs. For our current products This added product diversity caters to end-users in different demographics with varying requirements, ensuring that everyone can find the ideal smartphone solution. With each new generation, we aim to raise the bar in delivering quality performance at an accessible price point, empowering users to stay connected, productive, and engaged.

Target End-Users

Our current product lines are tailored to cater to the following types of end-users:

Budget Conscious/Practical Shopper: These individuals are meticulous researchers who make informed decisions. They seek practical tablets and smartphones to seamlessly navigate their daily digital activities, including browsing, attending online lectures, messaging, social media interactions, calls, web browsing, GPS navigation, and photography.

First-Time Tablets or Smartphone Users: Embodying the essence of social connectivity, these users are driven by a fear of missing out among peers. They are highly active online, engaging primarily in messaging, photo-sharing, gaming, and staying updated within their social circles. Despite limited purchasing power, they aspire for visually appealing tablets phones with unique features, typically acquired through initial jobs or parental support.

Parents of First-Time Tablets or Smartphone Users: These individuals seek capable yet budget-friendly tablets and smartphones for their children, understanding the importance of providing essential educational or daily functionalities without straining their finances. With considerable purchasing power in some instances, they often begin their search online, prioritizing terms such as “best value” or “affordable”. Influenced significantly by pricing and reviews, they prioritize obtaining the best value proposition for their children’s needs.

Strategic Approach to Sales and Distribution

Third Party Customer-Driven Sales Model

Since inception, we have been employing the strategy of engaging with distributors who purchase products from us and then market our products to consumers through the networks of prominent telecommunications carriers across the United States. We have been able to achieve substantial sales by working with customers who have existing relationships with prominent telecommunications carriers and can efficiently sell our products, allowing us to build presence in the market. In June 2018, we entered into a Master Agreement with T-Mobile USA, Inc., marking a pivotal expansion of our strategic alliances and direct market engagement with prominent telecommunications carriers. This collaboration exemplifies our dedication to broadening our reach and delivering sophisticated telecommunications solutions to an extensive consumer base.

Participation in Affordability and Accessibility Support Programs

In addition to our customer-driven sales model, we actively qualify for and participate in national initiatives aimed at enhancing the affordability and accessibility of communication services for individuals with limited income. As a certified supplier for the FCC’s Lifeline and Affordable Connectivity Program (ACP), we play a vital role in efforts to ensure essential communication services are economically accessible. ACP programs provide subsidies or discounts on communication services for qualifying individuals. By offering devices that are compatible with these programs, we were able to attract more customers who are eligible for subsidies, thereby increasing sales. We were able to expand our business and gain a competitive advantage in markets where affordability and accessibility are key considerations for consumers.

These initiatives underscore our commitment to societal welfare, demonstrating our endeavor to not only achieve commercial success but also positively influence community connectivity and support the needs of households for work, education, healthcare, and beyond.

Internal Support

In order to maximize product accessibility across the United States, we have a team of dedicated internal sales staff and key sales agents who manage a network of hundreds of customers spread across seven major regions. In addition to managing direct partnerships with these customers, our internal sales team also collaborates with prominent telecommunications carriers, enabling our products to be available for sale online and in the physical retail stores of these carriers.

Digital Presence and E-Commerce

We actively expand our presence in the digital marketplace by making our products available on leading e-commerce platforms, such as Amazon, Walmart, and eBay. We believe this approach not only broadens our reach but also caters to the preferences of digital consumers, offering them convenient access to our telecommunications solutions. By integrating into various sales channels, both indirect and digital, we are committed to providing high-quality products to a wide audience, driving our growth, and enhancing our position in the competitive electronics market.

Competitive Advantages

We stand out in the competitive communications market by leveraging its foundational advantages and core operational strategies, which encompass a range of competitive strengths crucial for maintaining and enhancing Foxx’s market position:

Geographical Location and Market Presence

We have established a comprehensive network anchored by our key operational facilities across various strategic locations. We are headquartered in Irvine, CA, where we have established a center that integrates sales, retail and distribution, and after-sale support services, and research and development of customization capabilities. The Irvine office serves as the epicenter for our research and development and sales and marketing activities, highlighting our commitment to innovation and market expansion. Additionally, the Dallas, TX, and Atlanta, GA, offices play instrumental roles in executing our sales and marketing initiatives and providing essential operational support. This strategic distribution of roles and responsibilities across our office locations allows operational efficiency and market responsiveness.

We also maintain a strong sales presence in major metropolitan areas such as Los Angeles, CA, Miami, FL, and New York, NY. These strategic locations are carefully selected to maximize our market penetration and facilitate direct engagement with our diverse customer base. Through this geographically diverse presence, we offer comprehensive after-sales services and tailored solutions, thereby reinforcing our commitment to customer satisfaction and technological leadership in the electronics industry.

Experienced Management Team

Our leadership team has decades of combined experience across various aspects of the communications sector, with more than 20 years of experience in major domestic and overseas electronics companies, having held leadership and management roles. Mr. Greg Foley, our Chief Executive Officer, has more than 25 years of experience in leading the sales and marketing of electronic products. Mr. James Liao, our Chief Technology Officer, has a background in electrical engineering and has been leading product innovation and development projects for more than 26 years. Mr. Haitao Cui, our Director and Executive Vice President, also has a background in electrical and engineering automation and over 24 years of experience in sales and marketing of electronics. Our experienced team comprehensively understands market dynamics, consumer demands, and technological trends. We rely on their insights and strategic decision-making to effectively navigate the complex market and to adapt and grow amidst constantly changing industry conditions.

Build-to-Order Business Model

We manage our inventory and meet market demand through our build-to-order business model. Our sales begin with receiving bulk purchase orders with general product designs, specifications, and budgets from our customers, who are third-party distributors specializing in selling mobile phones and tablets to end-users through sales channels. We then provide our customers advice on adjustments and customize the products to secure the desired performance within their budget. Once the product specification is determined, we work with suppliers to build customized products that meet such our customers’ expectations. Over time, by listening to the demands and specifications of our customers, we have been able to deliver high-quality, high-performance products that our customer trust and value. Our business model allows us to effectively manage inventory costs and mitigate risks associated with changes in customer demand. We secure steady revenue from bulk purchase orders placed by the customers.

The orders we receive from customers provide us with a great opportunity to understand market trends and customer demand. Direct relationships with our customers give us an advantage in observing the changes in market demands. As a result, we can develop new models based on our understanding of the market. After establishing a market presence through our customers, we can further diversify our revenue and profit streams. We take our own Foxx-branded products as an initiative to innovate. Our growth strategy involves reaching more end-users through maintaining the relationship with current customers and cultivating relationship with new customers. We aim to optimize the balance of liquidity, profitability, and growth with a focus on increasing the mix of our product portfolio to higher-margin products and recurring revenue streams.

Research and Development/Innovation Capability

We have strong competitive advantages in our product design and innovation capabilities. Moreover, we have resources that allow us to outsource customized research and development capabilities as needed, thereby gaining additional insights into the market and developing more robust product design and customization standards. Our innovative product planning keeps us at the forefront of technological trends, ensuring that the company remains as the forerunner in introducing novel and high-performance products to the market.

Supply Chain Management

We have efficiently managed our supply chain through diversification of sources, strategic partnerships, optimized logistics, and efficient inventory management, all of which have contributed to our current success. We have cultivated strong relationships with multiple suppliers in Indonesia and Southeast Asian countries. This capability enables the company to maintain a balance between supply and demand, reduce operational costs, and promptly respond to market changes, thereby enhancing competitiveness and customer satisfaction.

Quality Control

Quality is the cornerstone of our value proposition. We implement strict quality control measures at every stage of the manufacturing process in our original equipment manufacturer factories, from material procurement to manufacturing processes and final product testing. Our commitment to quality ensures that all our products meet the highest reliability and performance standards, fostering trust and loyalty among customers and setting us apart from our competitors.

These competitive advantages collectively contribute to our success and resilience in the market. The combination of experienced leadership, innovation, efficient supply chain management, and stringent quality control positions us as a leader in the communication section. This enables us to deliver exceptional value to customers and stakeholders alike.

Growth Strategies with IoT Cloud Platform

Our IoT Cloud Platform

We are developing a cloud platform that aims to connect all our devices to a secure central server, creating a unified ecosystem. The platform will bring significant benefits, particularly in systematized upgrades, more efficient IoT operations, improved human-machine interactions, enhanced data analytics, and smarter decision-making.

The cloud platform will be able to streamline the upgrade process for our devices. Centralized cloud server management allows for efficient updates, patches, and new features across our product line, ensuring devices remain up to date with the latest advancements and security measures, significantly enhancing performance and customer satisfaction.

We will prioritize data security and reliability in designing and developing the platform because we understand that the reliability of our cloud infrastructure is the foundation for continuous service, trust, and confidence among customers. To achieve this, we plan to establish our centralized server in Irvine, CA for secured data storage and management.

The platform will facilitate comprehensive data analytics and insights, allowing users to gain valuable insights into their personal information and habits from connected device data. These insights will enable informed decisions, efficient operations, personalized experiences, and customized solutions based on individual behavior and preferences.

Our planned cloud platform is designed to offer the following functionalities:

• Firmware-over-the-air (FOTA) software upgrade.
• Launch new software releases.
• Device and sensors management.
• SIM cards activation, provisioning and management.
• Data usage monitoring, reporting and billing management.
• Using Application Programming Interfaces (API) & Software Development Kit (SDK) to integrate many device types and IoT protocols.
• Enable both “upward” integration with existing cloud service providers (e.g. Amazon Web Services (AWS)) and “downward” integration with 3rd party application for various IoT verticals (e.g., smart home, healthcare, smart building, etc.).
• IoT data management & analytics using artificial intelligence (AI) or machine learning (ML) algorithms.
• Storing data from production processes locally to prevent security breaches.
• Data security, firewall, cyberattack alert and prevention, data backup.
• Provide IoT standard — MATTER certification (in plan).
• 24x7 technical support.

We are designing an open platform that allows compatibility and interoperability with a wide range of device types, IoT protocols, and ecosystems. We aim to provide a device management platform for Foxx’s communication terminals (such as smartphones, tablets, and IoT sensors) and also to offer software development kits and application programming interfaces to other device manufacturers and third-party application developers. We believe this design will allow third-party devices and apps to also integrate with our cloud platform seamlessly. Additionally, our infrastructure will be designed to interact with multiple cloud providers, including Amazon Web Services, Google Cloud Platform, and Microsoft Azure. We believe that our unique model, which combines IoT modules, devices, data, the cloud platform, and services, positions us to deliver comprehensive end-to-end IoT solutions to our customers.

We have been developing the first generation of our IoT cloud platform since February 2024 and expect to launch to the market in the third calendar quarter of 2024. We have been allocating time and resources since the first calendar quarter of 2024 to finalize the design and setup of the cloud platform that integrates with the AWS system. As of the date of this prospectus, we are working on final integration and testing. The first generation of our IoT cloud platform is expected to leverage AWS cloud services and AWS IoT Core services in addition to the customized development by us to provide device management, user management, data management and security management functions.

In the meantime, we plan to develop a second generation of our IoT cloud platform, driven by the vision of a much more inclusive and smarter IoT platform that is compatible with all our devices and potentially products from other brands. This platform will integrate more advanced technologies researched and developed by Foxx, with the potential scalability to connect tens of millions of devices. This platform is currently under construction and targeted to be launched to the market in the fourth calendar quarter of 2024. Our second-generation IoT cloud platform will involve a full IoT PaaS with the fundamental capabilities of device management, control and status management, user management, access and permission, and physical model management. It will support comprehensive and modern IoT communication protocols. In addition, the second-generation IoT platform will have a full IoT SaaS capabilities with openness and flexibilities of integrating with different IoT verticals, which enables developing customized and compatible services on multiple protocols module, vertical module, Edge module, mobile devices module, and online customized module. It will also provide front-end apps (Android/iOS mobile apps) to the end-users to manage and monitor their IoT devices, and offer multi-tenants services including data, notification, alert, subscription, visualization, and devices interoperable services.

Wearables

To complement our smartphones, tablets, and the IoT cloud platform that we are developing to offer the end-users a fully integrated system, we are developing customization standards for a diverse range of wearable devices, including Bluetooth watches, Bluetooth bracelets, GPS watches, 4G watches, and etc. We are also researching for connecting wearable products with sports equipment and will work with chip manufacturers, solution providers, and device manufacturers to develop high-quality components and equipment, enabling us to offer reliable and innovative solutions to the end-users.

In February 2024, we partnered with a branded device Original Equipment Manufacturer (“OEM”) and started developing a 4G LTE kids smartwatch for major US Mobile Network Operator (“MNO”) and MVNO carriers. Our wearable devices are currently undergoing development, testing, and integration. Following this phase, we will commence regulatory and operator lab testing. The debut of our wearable devices is expected in the fourth calendar quarter of 2024.

Concurrently, we are developing smartwatches for both adults and kids that incorporate LTE and Bluetooth technologies. We have entered into master service agreements with MNO and MVNO carrier channels, finalized customization and specifications for both the adults smartwatches and the kids smartwatches. We are currently on track for development, inspection, and testing according to the project milestones as set forth in the master service agreement and exhibits. Once we complete the development and certification of the products, we expect to sell such products to third-party distributors, as well as through open market retail and e-commerce channels. The launch date for the smartwatches for both adults and kids is in the fourth calendar quarter of 2024.

(The design of the kids watch to be launched to the market during the fourth calendar quarter of 2024)

Health and Wellness Products

We are planning to expand our product offering to include personal health and wellness devices. Our expansive product solution matrix in the health and wellness sector will encompasses a diverse range of wearables, personal care products, and sports equipment. From cutting-edge health monitoring devices like temperature, blood oxygen, and blood pressure monitors to innovative in vitro diagnostics (IVD) products, we will be at the forefront of developing prototypes that cater to various health needs.

Our offerings will include a variety of health-focused products such as thermometer, blood glucose meters, and pulse oximeters, among others. We have developed and customized the Foxx Care App, and we are currently setting up the integration between the app and the AWS cloud platform. Some of the products will enable Bluetooth connectivity, allowing users to connect the device to the Foxx Care App and control it remotely. Currently, we have five products that are undergoing FCC and FDA certification: Thermometer, Sphygmomanometer, Blood Oximeter, Glucose Meter, and Cervical Vertebra Treatment Instrument. The manufacturing of these products is expected to commence in the fourth calendar quarter of 2024.

Additionally, we are developing customization standards for personal care devices like 8-electrode body fat scales, nutrition scales, sleep monitors, toothbrushes, neck massagers, smart jump ropes, designed to promote individual wellness and self-care.

Through our commitment to innovation and product excellence, we strive to empower individuals to take charge of their health and well-being by offering them reliable solutions for a healthier lifestyle. We expect to develop customization standards that allow for IoT capabilities across our range of devices. This strategic initiative aims to equip our products with advanced connectivity features, enabling seamless integration into the IoT ecosystem. By integrating IoT features into these products and connecting them to our developing IoT platform, our devices will offer users enhanced functionality, enabling remote monitoring, data analytics, and personalized insights into their health and wellness metrics. Through the development of robust customization standards, we are dedicated to delivering cutting-edge solutions that not only meet but exceed the evolving expectations of our customers in the digital age.

Environmental Management Solutions

We are planning to expand our business into smart home and smart facility management market segments (combined, to be referred to “environmental management solutions”). We are in the process of sourcing a diversified portfolio of devices and developing various modules that enable smart features on these devices. As demonstrated below, we currently focus on products that target lighting, control, sensing, and shading. We expect to dedicate additional resources to develop other products for heating, security, entertainment, kitchen, and other hardware and equipment that are commonly used in commercial and residential buildings.

To achieve our goal of becoming a “one-stop shop” for environmental management solutions, we plan to source products that are essential ancillary devices and components of a full environmental management solution from various suppliers that manufacture high-quality products. We will integrate the appropriate modules that we will develop, as described below, using various open-source AI algorithms and technologies into the final products we offer for environmental management solutions. These products will be designed to allow compatibility with other environmental management solutions we offer and connectivity with the rest of Foxx-branded products.

We are currently researching and developing modules, which are hardware or software components that can be integrated into products sourced from commonly available market components. By integrating these modules into the products, we will enable them to connect to the Internet and share data with other connected devices and systems. Leveraging our expertise in the IoT and Artificial-Intelligence-of-Things (“AIoT”) market, our initial focus is on developing modules that enable seamless integration with other device components, performing essential functions within IoT and AIoT systems to create fully functional IoT devices. Our approach provides flexibility to apply these modules across different components of IoT products, allowing them to contribute to an integrated smart environment system that enhances the lifestyle of end users. The projects we are focusing on at the moment are:

Enhancing Device Management Products with IoT Capabilities: We are developing modules that can be integrated into various building management devices, such as HVACs, cleaning devices, robotics, and IoT sensors, into one centralized system for easier management and monitoring. We will use open-sourced AI algorithms such as Linear Regression and Neural Networks to develop the modules. We expect to complete a minimum viable product by the fourth calendar quarter of 2024. We launched cleaning device related pilot projects in September 2024 and scheduled additional pilot projects in the fourth calendar quarter of 2024 to conduct market testing and gather initial feedback for future adjustments.

Developing Digital Building Information Technologies: We are developing modules that will enable detailed digital building information in both 2D and 3D formats, which can aid both human users and AI-driven systems to understand the indoor environment and manage facilities more conveniently. We expect to achieve such technological capability by using SLAM technology for semantic mapping and creating dynamic digital representations of physical spaces. We have commenced the pilot testing in the fourth calendar quarter of 2024.

Modules Facilitating Task Management: We are developing modules that can connect building management devices and digital building information systems into a unified operational framework to allow real time task execution and planning supported by IoT connectivity. The modules designed to connect devices and systems will be tested in pilot programs to evaluate their application in building management devices and digital building information systems, assessing their operational efficiencies.

Once we complete the development of each of the above modules, we will conduct pilot programs and testing of such modules. These tests are expected to take place in the fourth quarters of 2024. Based on feedback from the testing, we will make product adjustments as needed. The purpose of the pilot programs and testing is to determine if all modules are fully operational and optimized based on real-world usage data. After that, we will prepare for a full commercial launch of the integrated platform in the first calendar quarter of 2025.

IoT Modules

We are building a portfolio of IoT modules, which are hardware or software components that enable devices to connect to the Internet and share data with other connected devices and systems. Our portfolio includes a wide range of IoT modules, including 4G LTE Cat 1 bis, Cat 4, Cat M, NB-IoT, 5G, 5G Redcap, 5G AI, Bluetooth, and Wi-Fi modules. These modules enable the connectivity and intelligence of IoT devices, allowing them to collect, transmit and process data, and communicate with other devices and systems. Currently, we have completed the development and pre-production work for the LTE Cat 1 bis, Cat 4, Cat M/NB-IoT, and Bluetooth modules and will undergo lab testing. We aim to launch these modules in the first calendar quarter of 2025. We have started to develop 5G modules, 5G Redcap modules, and 5G AI modules, which may potentially launch in the second calendar quarter of 2025.

Warranties and Customer Services

We provide a one-year warranty on its products, offering after-sales service support to dealers in two ways. Dealers can opt for direct product replacement by us, or they can choose to receive 2% after-sales service spares from Foxx. In the latter case, our customers handle after-sales service to end-users independently after exhausting the supplied spares, without further support from us.

Competition

We believe the principal competitive factors impacting the market for our products are features and functionality, performance, quality and brand. To maintain and improve our competitive position, we must continue to expand our user base, invest in research and development, grow our distribution network, and leverage our strategic relationships.

Our products compete with a variety of solutions providers in different market segments. Our current competitors include:

• Smartphones and Tablets — Motorola, Inseego, HMD, TCL, Vortex, Tinno, BLU, Sky, Maxwest, and Hot Pepper.
• IoT Products — Netgear, Franklin Wireless, TCL and ZTE.

As the market for our solutions and services expands, other entrants may seek to compete with us either directly or indirectly.

Intellectual Property

Trademarks

15

Domain Names

Patents

We do not currently have any registered patents. However, our research and development team is actively assessing our customizations, specifications, and other technical expertise and know-how currently protected as trade secrets. We plan to file patents to safeguard our technical expertise and innovations.

Research and Development

For the year ended June 30, 2024, our research and development expenses amounted to $91,168, a significant portion directed towards the development of 5G development product.

Our strategic allocation of spending in product research and development reflects our commitment to innovation and technological advancement in emerging sectors. To achieve our goals in IoT product development, we have engaged, and may continue to engage, in outsourcing collaborations with industry-leading partners, leveraging their expertise and resources to accelerate our progress and ensure the delivery of cutting-edge solutions.

Facilities

Our facilities are leased from independent third parties. The lease terms range from 1 to 3 years, with the option to renew upon expiration. We believe our current facilities are generally sufficient for our present needs. However, we anticipate seeking additional space to accommodate future growth.

Employees

As of the date of this report, we had 25 full-time employees. We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes.

Certifications

For open market products including U.S. e-commerce sites, retail stores and distributor channels, etc., we will conduct FCC and Google Mobile Services test and obtained corresponding certifications.

FCC certification is to ensure that an eligible electronics device only produces safe levels of radio frequency (RF). For more information, see “Government Regulation — FCC Equipment Authorization” below.

GMS refers to a selected array of Google proprietary applications and services that embody the company’s core values (such as Chrome, Gmail, YouTube, Maps, PlayStore, etc.). Android devices need the GMS certification to run all the Google proprietary applications, without which, the device will not be able to operate any of these applications.

Government Regulation

FCC Equipment Authorization

In the United States, the FCC regulates RF devices. RF devices, including components used in cell phones, routers, and other devices we sell, are devices capable of emitting radio frequencies by radiation, conduction, or other means. An RF device being imported, marketed, or used in the United States is subject to the equipment authorization requirements established by the FCC and cannot be imported, marketed, or used without complying with such requirements. Equipment authorization requirements are intended to ensure that RF devices comply with the FCC’s emissions, power level, and other technical rules.

FCC Covered List

Pursuant to the Secure and Trusted Communications Networks Act of 2019, the FCC created and maintains a list (Covered List) of telecommunications services and equipment that pose an unacceptable risk to the national security of the United States. The FCC periodically updates the Covered List, and companies that appear on the Covered List are subject to change based on the security determinations of the FCC and other U.S. Federal agencies with which the FCC works. Categories of equipment made by companies, including equipment manufactured by their subsidiaries or affiliates, on the Covered List cannot be authorized in the United States.

Environmental Matters

Our facilities and operations, in common with those of our industry in general, are not subject to domestic or international laws and regulations designed to environmental protections. we have always been dedicated to environmental protection. With a steadfast commitment to sustainable development, the brand prioritizes environmentally friendly materials in the composition, manufacturing processes, and design of its products. It adopts eco-friendly manufacturing processes, showcasing innovative designs that emphasize a low carbon footprint, green practices, and energy efficiency principles. Each product embodies our comprehensive approach, seamlessly integrating environmental values into material selection, production techniques, and overall design philosophy.

Legal Proceedings; Product Liability

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.

*In evaluating our business, careful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual Report and in other documents that we file with the SEC. An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. Certain statements in this “*Risk Factors” *section are forward-looking statements. See “*Forward Looking Statements.”

Risks Related to Our Business and Operations

We participate in a competitive industry. Competitors with greater resources and significant experience in high-volume product manufacturing may be able to respond more quickly and cost-effectively than we can to new or emerging technologies and changes in customer requirements.

We face significant competition in developing and selling consumer electronics and IoT solutions in the communication sector. Our primary competitors for smartphones and tablets products include Motorola, Inseego, HMD, TCL, Vortex, Tinno, BLU, Sky, Maxwest, and Hot Pepper. Our expected competitors for IoT products are Netgear, Franklin Wireless, TCL and ZTE. We cannot assure you that we will be able to compete successfully against current or future competitors. Increased competition in mobile computing platforms, data capture products, or related accessories and software developments may result in price reductions, lower gross profit margins, and loss of market share, and could require increased spending on research and development, sales and marketing, and customer support. Some competitors may make strategic acquisitions or establish cooperative relationships with suppliers or companies that produce complementary products, which may create additional pressures on our competitive position in the marketplace.

Most of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources and experience than we do. In addition, because of the higher volume of components that many of our competitors purchase from their suppliers, they are able to keep their supply costs relatively low and, as a result, may be able to recognize higher margins on their product sales than we do. Many of our competitors may also have existing relationships with the channel partners who we use to sell our products, or with our potential customers. This competition may result in reduced prices, reduced margins and longer sales cycles for our products. Our competitors may also be able to more quickly and cost-effectively respond to new or emerging technologies and changes in customer requirements. The combination of brand strength, extensive distribution channels and financial resources of the larger vendors could cause us to lose market share and could reduce our margins on our products. If any of our larger competitors were to commit greater technical, sales, marketing and other resources to our markets, our ability to compete would be adversely impacted. If we are unable to successfully compete with our competitors, our sales will suffer and as a result our financial condition will be adversely impacted.

We have a relatively short operating history which may not be indicative of our future performance or financial results and if our revenue and earnings growth are not sustainable, we may not be able to generate the earnings necessary to fund our operations, continue to grow our business or repay our debt obligations.

Our relatively short operating history may not be indicative of our future performance or financial results. There is no assurance that we will be able to grow our revenues and earnings in future periods. Our growth rates may decline for any number of possible reasons, and some of them are beyond our operating entity’s control, including decreasing customer demand, increasing competition, emergence of alternative business models, or changes in government policies or general economic conditions. We expect to continue to expand our sales network and product offerings to bring greater convenience to our customers and to increase our customer base and number of transactions. However, the execution of our expansion plan is subject to uncertainty and the total number of items sold and number of transacting customers may not grow at the rate we expect for the reasons stated above. If our growth rates decline, investors’ perceptions of our business and prospects may be adversely affected and the market price of our Common Stock could decline accordingly.

We currently rely and may continue to rely on a limited number of third-party suppliers to produce our products. If these parties do not produce our products at a satisfactory quality, in a timely manner, in sufficient quantities or at an acceptable cost, our sales and development efforts could be delayed or otherwise negatively affected.

During the COVID-19 pandemic, we selectively concentrated our resources on our tablet and mobile phone products, as they held the strongest market potential and revenue generation capability due to the increased demand for these products when remote work and online classes became more prevalent. Additionally, our customers, who are the distributors of our products, were willing to pay in full before manufacturing and delivery. Under our build-to-order business model, once we determine the product specifications of our customers, we work with suppliers, who are original equipment manufacturers, for the production of our products. To fulfill customer orders, we place purchase orders with suppliers, specifying the item description, quantity, and price of the products. We pay approximately 20% of the total purchase price upfront and the remaining balance upon shipment. We do not have short-term or long-term agreements with our suppliers and just rely on purchase orders. Because we had limited product lines, consisting mainly of our tablet and mobile phone products during the year ended December 31, 2023, we relied on a limited number of suppliers to fulfill our manufacturing needs. For the year ended June 30, 2024, three suppliers accounted for 49%, 31% and 18% of the Company’s total purchases. For the year ended June 30, 2023, one supplier accounted for 100% of the Company’s total purchases.

Now that the COVID-19 pandemic has ended, if we continue to have limited product lines, we may continue to rely on a limited number of suppliers for the products we plan to launch. As of the date of this prospectus, we have begun changing our business strategy from relying on a limited number of suppliers to expanding the number of suppliers and lowering supplier concentration by actively increasing our business scale and expanding our product lines. We have added seven new suppliers to manufacture additional product lines to meet evolving customer demand.

We carefully select suppliers capable of meeting our customization requirements while maintaining the quality standards we demand and adhering to the desired timeframe for product launches. Although there are numerous suppliers of comparable quality worldwide, any disruptions to our current supply chain could lead to production delays and necessitate the allocation of time and resources for engaging with new suppliers. Additionally, transitioning to new suppliers may require extra time to communicate our customization needs effectively or to make adjustments to meet our specifications. Our reliance on a limited number of suppliers to manufacture our future products may present significant risks to us, including the following:

• reduced control over delivery schedules, yields and product reliability;
• price increases;
• manufacturing deviations from internal and regulatory specifications;
• the failure of a key manufacturer to perform as we require for technical, market or other reasons;
• difficulties in establishing additional manufacturer relationships if we are presented with the need to transfer our manufacturing process technologies to them;
• misappropriation of our intellectual property; and
• other risks in potentially meeting our product development schedule or satisfying the requirements of our market partners, distributors, direct customers and end users.

If we need to enter into agreements for the manufacturing of our future products, there can be no assurance we will be able to do so on favorable terms, if at all.

There could be a significant disruption in the supply of components from current sources or, in the event of a disruption, our contract manufacturers might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price or at all. Further, our unaffiliated contract manufacturers have experienced and may continue to experience in the future, unexpected increases in work wages, whether government mandated or otherwise and increases in compliance costs due to governmental regulation concerning certain metals used in the manufacturing of our products. In addition, we cannot be certain that our unaffiliated manufacturers will be able to meet our product customizations or fill our orders in a timely manner. If we experience significant increases in demand, or reductions in the availability of materials, or need to replace an existing manufacturer, there can be no assurance additional supplies of components or additional manufacturing capacity will be available when required on terms acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our product customizations. In addition, even if we are able to expand existing or find new manufacturing or sources of components, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards and labor, health and safety standards. Any delays, interruption or increased costs in labor or wages, or the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short- and long-term.

Because independent manufacturers make all of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion or other factors, and costs and delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which could adversely affect our profit margins. The cost of oil is a significant component in manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. Changes in U.S. trade policies, including new and potential changes to import tariffs and existing trade policies and agreements, could also have a significant impact on our activities in foreign jurisdictions, and could adversely affect our results of operations. The Ukraine war, Israel-Hamas war, inflationary trends, shifts in consumer purchasing patterns, availability of transport, labor shortages in the shipping, trucking, and warehousing industries, port strikes, infrastructure congestion, equipment shortages and other factors have all contributed to delivery delays, greater costs and uncertainty in arranging and scheduling transport of our products. If we are unable to reliably and consistently arrange shipment and storage of our products, we may be unable to ship, deliver and store our products in which case, we will have to reverse sales and issue refunds to purchasers of our products. Supply chain disruptions, both domestic and international, have adversely impacted our operations. Continued disruptions in our supply chain and adverse consequences from aggressive trade policies could have a material adverse impact on our profitability and financial performance.

We currently rely on a limited number of third-party distributors and sales agents for the distribution of our current products and may continue to depend on them for future products. If we are unable to establish successful relations with third-party distributors or sales agents, or such third-party distributors or sales agents do not focus adequate resources on selling our products or are otherwise unsuccessful in selling them, sales of our products may not develop.

Currently, our customers are third-party distributors and sales agents who purchase products from us and then market our products to end-users across the United States. Under our build-to-order business model, our sales and distribution process begins with our customers placing purchase orders with us and specifying item description, quantity, and price of the products purchased. Subsequent to our customers paying a deposit of 15% to 20% of the total purchase price under the purchase order, we place purchase orders with suppliers to produce products that meet the specifications of our customers. We hold title to the manufactured products until the customer pays the full purchase price. We have the right to retake possession and resell the products if the customer default on the purchase order. Upon delivering the products to the customers, we receive the remaining 80% to 85% of the total purchase price. We do not have short-term or long-term agreements with our customers and just rely on purchase orders.

These distributors have established relationships with leading telecommunications carriers, and we have been relying on their connections, relationships, and market knowledge to effectively promote our products, enabling us to establish a strong presence in the market. Due to the reduced manufacturing capacity during the COVID-19 pandemic and the concentrated market demand for mobile phones and tablet products, we had been offering such products to a limited number of third-party distributors who demonstrated a strong intent to buy and were willing to offer more appealing payment terms. For the year ended June 30, 2024, three customers accounted for 41%, 29% and 16% of the Company’s total revenues. For the year ended June 30, 2023, one customer accounted for 100% of our total revenues. We relied on these customers to buy our mobile phones and tablet products and sell such products to end-users. We have begun changing our business strategy from relying on a limited number of customers to increasing the number of customers and lowering customer concentration by developing relationships with multiple more customers to diversify and avoid reliance on a few or a fixed set of distributors and we are also exploring other channels for selling our products, however, we may continue to rely on our customers to sell tablets and smartphones. We may also rely on these third-party distributors or sales agents to distribute and assist us with the marketing and sale of other products we expect to launch. Our future revenue generation and growth, particularly for phones and tablets, may continue to depend in large part on our success in establishing and maintaining this sales and distribution channel. Our customers purchase products from us and reselling them at a higher price to generate profit. However, if our customers encounter challenges such as difficulty in selling our products, negative feedback from end users, or insufficient profit margins to sustain their operations, they may choose not to continue purchasing or marketing our products. In addition, there can be no assurance that our customers will focus adequate resources on selling our products to end-users or will be successful in selling them. Many of our customers are in the business of distributing and sometimes manufacturing other, possibly competing, products. As a result, our customers may perceive our products as a threat to various product lines currently being distributed or manufactured by them. In addition, our customers may earn higher margins by selling competing products or combinations of competing products. If we are unable to establish successful relationships with our customers, we will need to further develop our own sales and distribution capabilities, which would be expensive and time-consuming and might not be successful. Additionally, if we need to enter into agreements for the distribution of our future products with other third parties, there can be no assurance we will be able to do so on favorable terms, if at all.

If we are unable to effectively execute our e-commerce business, our reputation and operating results may be harmed.

Our customers currently include individual e-commerce customers from TikTok Shop. We began our e-commerce operations in March 2024. The success of our e-commerce business depends on our investment in e-commerce platforms, consumer preferences, buying trends relating to e-commerce, and our ability to both maintain the continuous operation of our online store and provide a shopping experience that will generate orders and return visits to our online store.

We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce business, including: changes in required technology interfaces; website downtime and other technical failures; costs and technical issues associated with website software, systems and technology investments and upgrades; data and system security; system failures, disruptions and breaches and the costs to address and remedy such failures, disruptions or breaches; computer viruses; and changes in and compliance with applicable federal and state regulations. In addition, our efforts to remain competitive with technology trends, including the use of new or improved technology, creative user interfaces and other e-commerce marketing tools such as paid search and mobile applications, among others, may increase our costs and may not increase sales or attract consumers. Our failure to successfully respond to these risks and uncertainties might adversely affect the sales of our e-commerce business, as well as damage our reputation and brands.

In addition, the success of our e-commerce business and the satisfaction of our customers depends on their timely receipt of our products and their ability to pick up their desired products. The efficient delivery and/or pick up of our products requires that we have adequate capacity to support the current level of e-commerce operations and any anticipated increased levels that may occur as a result of the growth of our e-commerce business. If we encounter difficulties with our e-commerce support team, we could face shortages of inventory, which would result in our inability to properly support our online store. Such a situation could cause us to incur significantly higher costs and lead to longer lead times associated with distributing products to our customers, which could cause us to lose customers. Experiencing any of these issues could have a material adverse effect on our business and harm our reputation.

As we expand our operations into international markets, we encounter risks linked to sourcing components globally from suppliers and engaging with third-party consultants. Additionally, as we continue to grow, we may further extend our reach by selling our products internationally.

We currently collaborate with partners across the globe, and we will continue to expand our operations in the global marketplace. International sales growth stands as a key element of our growth strategy. However, we acknowledge the risks inherent in our international operations, including, but not limited to:

• Foreign currency exchange rates;
• Economic or governmental instability in foreign markets in which we operate or in those countries from which we source our merchandise;
• Unexpected changes in laws, regulatory requirements, taxes or trade laws;
• Increases in the cost of transporting goods globally;
• Acts of war, terrorist attacks, outbreaks of contagious disease and other events over which we have no control; and
• Changes in foreign or domestic legal and regulatory requirements resulting in the imposition of new or more onerous trade restrictions, tariffs, duties, taxes, embargoes, exchange or other government controls.

Any of these risks could have an adverse impact on our results of operations, financial position or growth strategy. Furthermore, some of our international operations are conducted in parts of the world that experience corruption to some degree. Our employees and wholesalers could take actions that violate applicable anti-corruption laws or regulations. Violations of these laws, or allegations of such violations, could have an adverse impact on our reputation, our results of operations or our financial position.

Foreign exchange movements may also negatively affect the relative purchasing power of consumers and their willingness to purchase discretionary premium goods, such as our products, which would adversely affect our net sales. We do not currently use the derivative markets to hedge foreign currency fluctuations.

Our business is sensitive to consumer spending and general economic conditions.

Our business may be adversely affected by the Ukraine war, and the Israel-Hamas war, as well as macro-economic conditions such as inflation, employment levels, wage and salary levels, trends in consumer confidence and spending, reductions in consumer net worth, interest rates, inflation, the availability of consumer credit and taxation policies influence on public spending confidence. There continues to be a significant and growing volatility and uncertainty in the global economy due to the Coronavirus pandemic affecting all business sectors and industries. Recent dramatic downturns in the strength of global stock markets, currencies and key economies have highlighted many if not all, of these risks.

Consumer purchases in general may decline during recessions, periods of prolonged declines in the equity markets or housing markets and periods when disposable income and perceptions of consumer wealth are lower, and these risks may be exacerbated for us due to our focus on discretionary premium sporting good items. A downturn in the global economy, or in a regional economy in which we have significant sales, could have a material, adverse effect on consumer purchases of our products, our results of operations and our financial position, and a downturn adversely affecting our consumer base or travelers could have a disproportionate impact on our business.

We may be unable to appeal to new consumers while maintaining the loyalty of our core consumers.

Part of our growth strategy is to introduce new consumers to our brands by our new product offerings. If we are unable to attract new consumers, including customers for our tablets and mobile phones, our business and results of operations may be adversely affected if purchasing frequency decrease. Initiatives and strategies, such as smart home devices, wearables, and IoT platform, are intended to position our brand to appeal to new consumers may not appeal to our core consumers and may diminish the appeal of our brand to our core consumers, resulting in reduced core consumer loyalty. If we are unable to successfully appeal to new consumers while maintaining our brand’s image with our core consumers, then our net sales and our brand image may be adversely affected.

Our revenue heavily relied on revenue from Affordable Connectivity Program (ACP).

On November 15, 2021, U.S. Congress passed and the President signed into law the Infrastructure Investment and Jobs Act (“Infrastructure Act”). The Infrastructure Act provided $14.2 billion to modify and extend the existing Emergency Broadband Benefit Program (EBB Program) managed by the FCC to a longer-term broadband affordability program called the Affordable Connectivity Program (ACP). The ACP replaced the EBB Program, which was established during the COVID-19 pandemic, to provide eligible low-income households with discounts for broadband services such households need for work, school and healthcare. The ACP began to accept enrollments on December 31, 2021 and the FCC adopted final rules to implement the ACP on January 14, 2022. Due to a lapse in additional appropriation for the ACP, on January 11, 2024, the FCC released an order announcing steps to wind down the ACP. The program stopped accepting new enrollment on February 8, 2024, and announced that the program will not provide funding for currently enrolled individuals beyond the end of April 2024.

Although we cannot ascertain whether or how many of the end users purchased our products with the assistance of the ACP program, as we have been employing the strategy of engaging with customers who purchase products from us and then market our products to end-users through the networks of prominent telecommunications carriers across the United States, we believe some of the end-users may have been incentivized to purchase our products because of the discounts and benefits they received from the ACP. As the requirements for program and service standards may change over the years, there are uncertainties as to the population in our targeted demographics and demand for our products. The lapse in federal funding for the ACP may significantly lead to a loss of broadband services or coverage for existing individuals currently qualify for the program, or dissuade customers from acquiring or maintaining broadband services or tablets and laptops, which may in turn lead to a temporary decline in sales for us from the end-users who relied on the program to purchase mobile devices, tablets, or other IoT products.

Our revenue may rely on revenue from end-users who qualify for the Lifeline Program.

The Lifeline Program has provided discounts on phone service for qualifying low-income consumers since 1985. The Lifeline Program is administered by the Universal Service Administrative Company (USAC), and receives funding from the Universal Service Fund, a government program that receives annual contribution from telecommunication companies or their customers. Over the years, the FCC has adopted several reforms and changes to the Lifeline Program, including regarding its scope, eligibility and compliance requirements.

End-users qualifying for the Lifeline Program may continue to rely on such a program to receive discounts on phone service. It would be difficult to assess the exact number of individuals relying on this program. If the qualifications for receiving discounts and benefits change, there may be a smaller number of end-users who qualify for discounts on mobile and tablet products. Additionally, if there are changes to the device specifications under the program or if more comparable products become qualify for the program’s device requirements, we may experience less revenue generated from products designed to be sold to end-users under the Lifeline Program.

The decision by the U.S. Court of Appeals for the Fifth Circuit in Consumers’ Research v. FCC, as it stands, may jeopardize the funding for the Lifeline Program.

Under 47 U.S.C. Section 254 (the “Section 254”), FCC is authorized to levy contributions from telecommunication carriers to a Universal Service Fund to expand and advance telecommunication services. By regulations, the FCC further delegates to the Universal Service Administrative Company (the “USAC”) to administer four programs that the Universal Service Funds subsidizes, including the Lifeline Program, the High-Cost Program, the E-rate Program, and the Rural Health Care Program, under 47 C.F.R. subparts 300, 500 and 600. Under the delegated authorities, USAC will determine the quarterly contribution amount to be collected, bill and collect the contributions from the telecommunication providers, and administer and distribute the fundings to the qualified participants to the four funding programs.

On July 24, 2024, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc, issued a decision in Consumers’ Research v. FCC, finding that Congress’ delegation of authority to the FCC in Section 254 and FCC’s subdelegation of regulatory authorities to the USAC to administer the Universal Service Fund, in combination, to be in violation of the Legislative Vesting Clause in Article 1, Section 1 of the U.S. Constitution. The Court held the contribution amount for the first calendar quarter of 2022 set by the USAC to be unconstitutional and remand to the FCC for further regulatory actions consistent with the decision.

The decision deviates from prior decisions issued by the U.S. Courts of Appeals for the Sixth, Eleventh and D.C. Circuit that reached the opposite conclusions. The defendants in the case, the FCC and the United States, have the discretion to appeal the decision to the U.S. Supreme Court by filing a petition for certiorari, although the defendants have yet to choose to do so as of the date of this Annual Report. It is unclear if the Supreme Court will grant the petition for certiorari to review the Fifth Circuit decision, and if so, whether it will affirm or reverse the Fifth Circuit decision, and when such decision will be issued. It is also unclear, as the decision stands, how the Fifth Circuit decision would impact the funding mechanism for the Universal Service Fund, the administration of the programs by the USAC, an/or the availabilities of funding to the programs funded by the Universal Service Fund, including the Lifeline Program that some of our current end-users rely on.

If the Fifth Circuit decision stands after a petition for certiorari is denied by the Supreme Court or the Supreme Court affirmed the Fifth Circuit decision on appeal, among other impacts, it is possible that the funding mechanism for the Lifeline Program will be invalidated and that no further funding will be distributed. As a result, we may experience less revenue generated from products designed to be sold to end-users under the Lifeline Program.

Defects or performance problems in our products could result in a loss of customers, reputational damage and decreased revenue. Additionally, the Company may face warranty, indemnity, and product liability claims that may arise from malfunctions.

Our current and future products such as tablets, smartphones, and IoT devices may contain undetected errors or defects, especially when first introduced or when new generations of products are released. Errors, defects, or poor performance can arise due to design flaws, defects in raw materials or components, which can affect the quality of such devices. Defects may also occur in components and products we purchase from third parties or assembled by our manufacturers. There can be no assurance that we will be able to detect and fix all defects in the hardware, software, and services we offer. Any actual or perceived errors, defects, or poor performance in such devices could result in the replacement or recall of the products, rejection of the products, damage to our reputation, lost revenue, and increases in customer service and support costs, all of which could have a material adverse effect on our business, financial condition, and results of operations.

Furthermore, defective components may give rise to warranty, indemnity, or product liability claims against us that exceed any revenue or profit we receive from the affected products. If one of such devices were to cause injury to someone or cause property damage, including because of product malfunctions, defects, or improper installation, we could be exposed to product liability claims. We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention. The successful assertion of a product liability claim against us could result in potentially significant monetary damages, penalties or fines, subject us to adverse publicity, damage our reputation and competitive position, and adversely affect sales of our products. In addition, product liability claims, injuries, defects, or other problems experienced by other companies in the community building access control industry could lead to unfavorable market conditions for the industry as a whole and may have an adverse effect on our ability to attract new customers, thus harming our growth and financial performance.

Breaches of and other types of security incidents involving our systems, or those of our third-party service providers, could negatively impact our business, our brand and reputation, our ability to retain existing customers and attract new customers, may cause us to incur significant liabilities and adversely affect our business, results of operations, financial condition, and future prospects.

If we enter the IoT market, activities such as developing an IoT platform may necessitate periodic collection, usage, storage, transmission, or processing of data or information. While we will taken steps to mitigate our cyberattack risks and protect the confidential information that we may have access to, including but not limited to installation and periodical updates of antivirus software and backup of information on our computer systems, our security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any cybersecurity incident, accidental or willful security breaches or other unauthorized access to our systems could cause confidential information to be stolen and used for criminal purposes. Cybersecurity incidents, security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with our business partners could be severely damaged, we could incur significant liability, and our business and operations could be adversely affected. Additionally, if we fail to protect confidential information, we may be susceptible to potential claims such as breach of contract, negligence or other claims. Such claims will require significant time and resources to defend and there can be no assurances that favorable final outcomes will be obtained. In addition, the costs to respond to a cybersecurity event or to mitigate any identified security vulnerabilities could be significant, including costs for remediating the effects of such an event, paying a ransom, restoring data from backups, and conducting data analysis to determine what data may have been affected by the breach. In addition, our efforts to contain or remediate a security breach or any system vulnerability may be unsuccessful, and our efforts and any related failures to contain or remediate any breach or vulnerabilities could result in interruptions, delays, loss in customer trust, harm to our reputation, and increases in our insurance premiums that we may acquire.

Failure to accurately forecast consumer demand could lead to excess inventory or inventory shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.

There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results, financial condition and cash flows. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer, affect consumer relationships and diminish brand loyalty. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.

If we are not able to enhance or introduce new products that achieve market acceptance and keep pace with technological developments, our business, results of operations and financial condition could be harmed.

Our ability to attract new customers and increase revenue from existing customers depends in part on our ability to introduce new products, develop the IoT platforms, increase adoption and usage of our products and introduce new products and features. The success of any enhancements or new products depends on several factors, including timely completion, adequate quality testing, actual performance quality, market-accepted pricing levels and overall market acceptance and demand. Consumer preferences differ across and within different parts of the world, and shift over time in response to changing aesthetics and economic circumstances. We cannot determine in advance the ultimate effect of new product introductions and transitions. In addition, rapid technological development and advancements may render smartphones in the common forms and with the common functionalities that are generally available to consumers today outdated or obsolete, and emerging products and services may substitute smartphones as consumers generally know them today. We believe that our success in developing products that are innovative and that meet our consumers’ functional needs is an important factor in our image as a premium brand, and in our ability to charge premium prices. We rely upon our research and development team and third party consultants that we may engage from time to time from the fields of electrical and mechanical engineering, industrial design, sustainability, and related fields, as well as other experts to design, develop customization standards, and test cutting-edge performance products. Enhancements and new products that we develop may not be introduced in a timely or cost-effective manner, may contain defects, may have interoperability difficulties with our platform, or may not achieve the market acceptance necessary to generate significant revenue. Even if we are able to introduce innovative products to the market, we may still experience problems with the quality or performance of our products, we may incur substantial expense to remedy the problems. Our ability to manage the risks associated with new product production ramp-up issues, the availability of products in appropriate quantities and at expected costs to meet anticipated demand and the risk that new products may have quality or other defects or deficiencies in the early stages of introduction. If we are unable to anticipate or respond to changes in consumer preferences or fail to successfully enhance our existing platform and capabilities to meet evolving customer requirements, increase adoption and usage of our platform, develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, then our business, results of operations and financial condition could be harmed.

We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past transactions, which could harm our business.

We do not collect sales and use, value added and similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable in certain jurisdictions. State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes on subscriptions to our platform in various jurisdictions is unclear. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly. As a result, we could face the possibility of audits that could result in tax assessments, including associated interest and penalties. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so could result in substantial tax liabilities and related penalties for past transactions, discourage customers from purchasing our application or otherwise harm our business and operating results. In addition, we are required to withhold and timely remit payroll-related taxes for which we are also subject to the possibility of audits that could result in tax assessments, including associated interest and penalties.

Changes in tax laws or regulations that are applied adversely to us or our customers could increase the costs of our platform and adversely impact our business.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of our (and our subsidiaries’) domestic and foreign financial results. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. Specifically, taxation of cloud-based software is constantly evolving as many state and local jurisdictions consider the taxability of software services provided remotely. These events could require us or our customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our customers to pay fines or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to continue to use or purchase subscriptions to our platform in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers’ and our compliance, operating and other costs, as well as the costs of our platform. Any or all of these events could harm our business and operating results.

Our success depends on the continuing efforts of our senior management and key employees and our ability to retain key executives and to attract, retain, and motivate qualified personnel.

Our future success is significantly dependent upon the continued service of our senior management and other key employees. If we lose their service, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new staff, which could severely disrupt our business and growth. Our management members are critical to our vision, strategic direction, culture and overall business success. If there is any internal organizational structure change or change in responsibilities for our management or key personnel, or if one or more of our senior management members were unable or unwilling to continue in their present positions, the operation of our business and our business prospects may be adversely affected.

We currently have limited personnel. As of June 30, 2024, we had in total of 25 employees. We will need to attract, hire and retain additional qualified employees to achieve the Company’s objectives. Recruiting and retaining qualified technical personnel and sales and marketing personnel will be critical to our success. Our employees may choose to pursue other opportunities. If we are unable to motivate or retain key employees, our business may be severely disrupted, and our prospects could suffer. There is no assurance that our management members would not join our competitors or form a competing business. Our limited personnel and resources may result in greater workloads for our employees compared to those at companies with which we compete for personnel, which may lead to higher levels of employee dissatisfaction and turnover. Recruiting and retaining qualified research, development, marketing and sales personnel will be critical to our success.

We believe our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for personnel with expertise in our industry is intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and resources in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training new employees, and our ability to serve customers and business partners could diminish, resulting in a material adverse effect to our business.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies in the United States. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the U.S. federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, results of operations and prospects.

Risks Related to the Regulation of Our Business and Operations

Changes in laws or regulations relating to data protection, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could materially and adversely affect our business or could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.

We currently do not collect any sensitive data or confidential information. There are numerous federal, state and international laws and regulations regarding privacy, data protection, information security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other data, and the scope of such laws and regulations may change, be subject to differing interpretations, or conflict with other laws and regulations. Further, any significant change to applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of data, or their interpretation, or any changes regarding the manner in which the consent of relevant users for the collection, use, retention, or disclosure of such data must be obtained, could increase our costs and require us to modify our services and candidate products, possibly in a material manner, which we may be unable to complete, and may limit our ability to store and process patients’ data or develop new services and features.

The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. Numerous federal and state laws, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, and disclosure of health-related and other personal information. Failure to comply with such laws and regulations could result in government enforcement actions and create liability for us (including the imposition of significant civil or criminal penalties), private litigation and/or adverse publicity that could negatively affect our business.

We conduct business in the United States in a heavily regulated environment, and if we fail to obtain all necessary equipment authorizations required to import, market, or sell our equipment, we could be subject to enforcement proceedings that may harm our business, financial condition, and results of operations.

Our business relies on our ability to import and market our devices in the United States. We endeavor to ensure that our operations comply with applicable laws. However, failure to comply with applicable FCC equipment authorization rules could lead to enforcement action, including monetary forfeitures or loss of equipment authorizations. FCC investigations or enforcement proceedings also require financial and other resources to defend. Any future FCC investigations or enforcement could harm our business or our financial condition.

In addition, new devices or modifications to our approved devices could require that we obtain additional equipment authorizations. Failure to obtain the requisite authorizations could likewise subject our past or present operations to FCC enforcement action, including monetary forfeitures or loss of equipment authorization. Failure to obtain necessary equipment authorizations as required for new or modified devices could preclude such devices from being imported, sold, or marketed in the United States. Further, we rely on third-parties authorized by the FCC to test our equipment to ensure compliance with applicable FCC regulations, and to submit all necessary reports and data to obtain any required FCC equipment authorizations. There is no guarantee these third-party testing laboratories have conducted equipment evaluations in accordance with recognized and generally accepted good engineering practice, or that any measurements performed or data collected conform with recognized and generally accepted good engineering practices.

The FCC’s equipment authorization rules and/or the FCC’s interpretation of those rules may change in the future. As noted above, we endeavor to comply with applicable laws and regulations, and we will rely on U.S. telecommunications counsel to evaluate the impact of any applicable changes to the FCC’s rules or rule interpretations in the future.

Changes to the Covered List may impact business, financial condition, and results of operations.

The FCC maintains and periodically updates a Covered List of communications equipment and services that have been determined by the U.S. government to pose an unacceptable risk to the national security of the United States or the security and safety of United States persons to national security pursuant to the Secure and Trusted Communications Networks Act of 2019. Equipment produced by a company on the Covered List cannot receive an equipment authorization. And, therefore, cannot be imported, marketed, or sold in the United States. The FCC has previously concluded that placement on the Covered List applies to equipment authorizations both prospectively and retrospectively. In other words, the FCC has determined that it has the authority to revoke previously issued equipment authorization as well as deny future authorizations for equipment produced by a company added to the Covered List. In addition, while the FCC has previously declined to prohibit equipment authorization for devices that incorporate equipment produced by a company on the Covered List as a component, the FCC is currently considering whether to expand its prohibition to such component parts.

While we do not anticipate our or any of our suppliers’ addition to the Covered List, the addition of our or any of our suppliers to the Covered List could negatively impact our business operations in the United States and our financial condition. Inclusion on the Covered List could result in the loss of required equipment authorizations for some or all of our equipment identified by the FCC as critical to national security. A loss of required equipment authorizations would preclude our ongoing sale of affected devices in the United States and could require us to replace affected component parts for devices imported, marketed, or sold in the United States. This could impose financial burdens and operational challenges that adversely affect our business.

We may collaborate with additional business partners outside of the United States and potentially expand into markets beyond the United States, which may incur significant cost and expose us to significant risks.

To date, we have not operated or generated any revenue outside of the United States. However, we anticipate diversifying our current supply chain by sourcing components from additional suppliers in Asia. Additionally, we may expand our market presence beyond the United States, aiming to sell our products in other regions such as Latin America. Due to our limited experience with international operations and developing and managing sales and distribution channels in international markets, our international expansion efforts may not be successful.

Operating or selling in international markets requires significant resources and management attention and subjects us to intellectual property, regulatory, economic and political risks that are different from those in the United States. As we increase our international sales efforts and explore international operations, we will face increased risks in doing business internationally that could harm our business, including:

• the need to establish and protect our brand in international markets;
• the need to localize and adapt our solution for specific countries, including translation into foreign languages and associated costs and expenses;
• difficulties in staffing and managing foreign operations, particularly hiring and training qualified sales and service personnel;
• the need to implement and offer customer care, in various languages;
• different pricing environments, longer sales and accounts receivable payment cycles and collections issues;
• weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States;
• privacy and data protection laws and regulations that are complex, expensive to comply with and may require that client data be stored and processed in a designated territory;
• increased risk of piracy, counterfeiting and other misappropriation of our intellectual property in our locations outside the United States;
• new and different sources of competition;
• general economic conditions in international markets;
• fluctuations in the value of the U.S. dollar and foreign currencies, which may make our solution more expensive in other countries or may increase our costs, impacting our operating results when translated into U.S. dollars;
• compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, telecommunications and telemarketing laws and regulations;
• increased risk of international telecom fraud;
• laws and business practices favoring local competitors;
• compliance with laws and regulations applicable to foreign operations and cross border transactions, including anti-corruption laws, supply chain restrictions, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our solution in certain foreign markets, and the risks and costs of non-compliance;
• increased financial accounting and reporting burdens and complexities;
• restrictions or taxes on the transfer of funds;
• adverse tax consequences; and
• unstable economic and political conditions and potential accompanying shifts in laws and regulations.

These risks could harm our international operations, increase our operating costs and hinder our ability to grow our international business and, consequently, our overall business and results of operations.

We may expand into new product or service categories, which may subject us to new regulatory clearances, approvals and compliance requirements.

We currently only engage in the sales of smartphones and tablets in the United States, but may expand into other product or service categories, including IoT products, wearables, health and wellness products, environmental management solutions, and IoT cloud platform. We may need to undergo additional testing and certifications, such as those required for FCC Equipment Authorization, Google Mobile Services (GMS), PTCRB (PCS Type Certification Review Board), Conformité Européenne (CE), Underwriters Laboratories (UL), or RoHS certification.

Some of the new product or service categories may subject us to new regulatory clearance, approval and compliance requirements, including but not limited to federal laws and regulations concerning telecommunication service providers, public utilities or public services laws and regulations, federal and state data protection, privacy and cybersecurity laws and regulations, federal and state consumer protection laws and regulations, among other laws and regulations affecting interconnection, roaming, internet openness, net neutrality, robocalling/robotexting, disabilities access, digital discrimination and other areas of potential regulations.

The changing regulatory environment may have a material impact on our ability to begin to market existing and new devices or services. If we become subject to those regulations, our failure to obtain or, once obtained, maintain, any regulatory clearances and approvals and to ensure compliance with regulatory requirements could negatively affect our business. Regulatory authorities may change their clearance or approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay clearance or approval of our products or services under development. Such policy or regulatory changes could impose additional requirements on us that could delay our ability to obtain new clearances or approvals or increase the costs of compliance.

There can be no assurance that government regulations that may become applicable to our products or the interpretation of those regulations will not change or that our will be able to obtain any required regulatory clearances and approvals for its products. The extent of potentially adverse government regulation that might arise from future legislation or administrative action and the impact on our business and results of operations cannot be predicted.

Recent and future federal legislative, regulatory and executive actions on information and communications technology and services involving national security and foreign ownership restrictions or requirements may substantially limit the scope of our operations, impact our abilities to expand into new products or services, or substantially or severely impact our operations or financial results.

In recent years, the U.S. Government has expressed concerns with the security of information and communications technology and services (“ICTS”) sourced from providers in China, Russia, and other jurisdictions. The U.S. Congress and various executive agencies, including the FCC, the Department of Commerce, and the Department of Justice, have enacted, imposed or proposed a series of measures aimed at increasing oversight of certain commercial transactions involving Chinese companies or investments by such companies in the United States.

For example, under the authority conferred by Executive Order 13873, issued in May 2019, the Department of Commerce promulgated final rules (the “ICTS Rules”) in January 2021 under 15 C.F.R. Part 7 that broadly empowers that agency (in consultation with other executive agencies) to block, condition, or regulate any “transaction” involving the “acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service” designed, developed, manufactured, or supplied by a Chinese company (i.e., given China’s designation as a “foreign adversary” under Executive Order 13873) that poses “undue risks or unacceptable risks” to U.S. national security. An additional Executive Order, issued January 19, 2021, directs the Commerce Department to adopt rules requiring Infrastructure-as-a-Service providers to collect additional information about their customers and new record-keeping requirements, and would allow the Department of Commerce to take actions to address “malicious cyber-enabled activities.” In June 2023, the Department published an amended rules to the ICTS Rules to clarify its ability to regulate transactions involving software, including so-called “connected software applications,” and to further enumerate the criteria that the Department will consider when reviewing such transactions.

Similarly, in April 2020, the President published Executive Order 13913 to formalize an ad-hoc inter-agency group as the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (the “Team Telecom”). The Executive Order empowers Team Telecom to review FCC license and transfer applications involving foreign participation to determine whether grant of the requested license or transfer approval may pose a risk to the national security or law enforcement interests of the United States, and to review existing licenses to identify any additional or new risks to national security or law enforcement interests that did not exist when a license was first granted. Following an investigation, Team Telecom may recommend that the FCC revoke or modify existing licenses or deny or condition approval of new licenses and license transfers. The FCC refers three types of licenses or authorizations to the Telecom Committee: (1) international Section 214 authorizations allowing telecommunications carriers to provide telephone service between the United States and foreign points; (2) submarine cable licenses allowing persons to operate submarine cables that connect the United States with a foreign country or with another portion of the United States; and (3) common carrier, broadcast, or aeronautical radio station licenses when the applicant is a corporation with foreign ownership over certain thresholds.

In addition, in April 2023, the FCC proposed new rules to overhaul its licensing requirements and review process for providers that hold “international Section 214 authorization,” as provided under Section 214 of the Communications Act of 1934, by requiring enhanced disclosures about licensees’ foreign ownership, use of “untrusted” equipment and “foreign-owned managed network service providers,” as well as making those licenses subject to periodic national security reviews.

In November 2023, the FCC also adopted new rules to expand its equipment authorization rules to apply to equipment “components,” and potentially enable revocation of current authorizations for national security reasons. Under the new rules, the FCC will not issue new authorizations for telecommunications equipment produced by certain Chinese entities identified in a cover list, until the FCC approves these entities’ plans to ensure that their equipment is not marketed or sold for public safety purposes, government facilities, critical infrastructure, or other national security purposes. The FCC did not, however, revoke any of its prior authorizations for these companies’ equipment, although it sought comments on whether it should do so in the future.

In August 2023, the President issued Executive Order 14105, which addresses national security risks arising from outbound capital investment from the United States to foreign companies involved in certain sensitive technologies. The order asked the Department of Treasury to establish an outbound investment review regime (the “Outbound Investment Review Regime”) to screen outbound capital flows that can be exploited to accelerate development of technologies used to support foreign countries’ military, intelligence, surveillance, and cyber capabilities. The order cited China (including Hong Kong and Macau) as a country of concern. On August 14, 2023, the Treasury Department published an Advanced Notice of Proposed Rulemaking (ANPRM) to solicit public comment to implement the Outbound Investment Review Regime in three categories of covered national security technologies and products: semiconductors and microelectronics, quantum information technologies, and artificial intelligence (AI) systems. On June 21, 2024, after reviewing public comments on the ANPRM, the Treasury Department published a set of proposed rules to formalize the texts for the Outbound Investment Review Regime. The final rules under such regime may have potential impacts on our operations, products and services or business relationships, or any transactions that we enter into, in the future.

Lastly, in February 2024, the National Security Division of the Department of Justice published an Advanced Notice of Proposed Rulemaking (ANPRM) to seek public comments on the establishment of a new licensing and screening regime (“Outbound Data Transfer Review Regime”) to restrict U.S. persons from transferring bulk sensitive personal data and select U.S. government data to covered foreign persons in China (including Hong Kong and Macau), Cuba, Iran, North Korea, Russia, and Venezuela, through the means of data brokerage, vendor agreement, employment agreement and investment agreement.

This patchwork of sector-specific and general regulatory restrictions, limits or review requirements may have varying level of impacts on our operations and financial performance. Some of the regulatory actions have not been finalized, with its final content or requirements subject to change. Many of the regulatory actions, even if finalized or adopted, have not been fully implemented or operationalized, and there are significant discretions or uncertainties with regard to the ways and manners under which such actions may be enforced and interpreted by the relevant regulatory authorities.

We currently do not transact with any entities on the “Covered List” under FCC’s equipment authorization regime, or any entity subject to export control or economic sanctions. In addition, we do not currently operate any telecommunication services and do not intent to operate any telecommunication services in the near future or apply for a Section 214 license, and are therefore not subject to Team Telecom or FCC national security review regimes or requirements. In addition, we have not received any subpoena, notice, or correspondence with any regulatory agencies arising from the ICTS Rules, and have no reason to believe that we have engaged in any transactions subject to the ICTS Rules.

We currently work with suppliers in China for various components, excluding SoCs, in our product assembly, while proposed regulations such as the Outbound Investment Review and Outbound Data Transfer regimes may heighten scrutiny on our transactions, leading to operational adjustments, increased compliance costs, and potential limitations on funding and strategic opportunities.

The Outbound Investment Review Regime and the Outbound Data Transfer Review Regime, if and depending as to how they are implemented, together with enhanced powers assigned to the Committee on Foreign Investment in the United States (CFIUS), export control and trade restrictions managed by the Department of Commerce, and the economic sanctions regime managed by the Office of Foreign Asset Control (OFAC) within the Department of Treasury, could result in increased scrutiny of transactions involving our business and potential interference with business transactions that we deem to be beneficial. If the ICTS Rules are applied against us, or the Outbound Investment Review Regime and the Outbound Data Transfer Review Regime are finalized in a way that affects our operations, products and services or business relationships, we may be forced to limit or change our future product or service offerings, cease business partnerships or collaborations with certain Chinese and foreign companies for R&D or manufacturing, and otherwise significantly change our operations or business models to comply with applicable rules and regulations. Such compliance costs may cause significant financial cost, reputational damages, otherwise reduce our profits. In addition, there is significant uncertainty as to how such rules and regulations will be implemented and enforced, to the extent that any transactions that the company seeks to engage may be subject to review under the ICTS Rules, the Outbound Investment Review Regime and the Outbound Data Transfer Review Regime, we may also be severely limited in our abilities to secure outside funding, or explore strategic acquisition or investment opportunities with covered individuals or entities, or may be forced to abandon covered transactions. In the event of regulatory changes or reviews, we may need to collaborate with other suppliers or manufacturers in Southeast Asia for our product production, potentially causing additional time-to-market delays and impacting profitability.

Risks Related to Our Intellectual Property

Our intellectual property rights are valuable and any inability to protect our intellectual property rights could harm our business and operating results.

Our future success and competitive position depend in part on our ability to protect our intellectual property and proprietary business know-hows. Our practice is to require employees and consultants to execute non-disclosure and proprietary rights agreements upon commencement of employment or consulting arrangements. These agreements acknowledge our exclusive ownership of all intellectual property developed by the individuals during their work for us and require that all proprietary information disclosed will remain confidential. Such agreements may not be enforceable in full or in part in all jurisdictions and any breach could have a negative effect on our business and our remedy for such breach may be limited.

While we take steps to protect our intellectual property, the steps we take may be inadequate to prevent infringement, misappropriation, or other violations of our intellectual property rights. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. We may be required to resources to monitor and protect our intellectual property rights. From time to time, legal action by us may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against claims of infringement or invalidity. Such litigation could result in costs and diversion of resources.

Assertions by third parties of infringement or other violations by us of their intellectual property rights, whether or not correct, could result in significant costs and harm our business and operating results.

Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us. They may also assert such claims against our customers, whom we may indemnify against claims that our products infringe, misappropriate, or otherwise violate the intellectual property rights of third parties. If we do infringe a third party’s rights and are unable to provide a sufficient workaround, we may need to negotiate with holders of those rights to obtain a license to those rights or otherwise settle any infringement claim as a party that makes a claim of infringement against us may obtain an injunction preventing us from shipping products containing the allegedly infringing technology. As the number of products and competitors in our market increase and overlaps occur, claims of infringement, misappropriation and other violations of intellectual property rights may increase. Any claim of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business.

Future assertions of patent rights by third parties, and any resulting litigation, may involve patent holding companies or other adverse patent owners who have no relevant product revenues and against whom our own patents may therefore provide little or no deterrence or protection. There can be no assurance that we will not be found to infringe or otherwise violate any third-party intellectual property rights or to have done so in the past.

An adverse outcome of a dispute may require us to:

• Pay substantial damages, including treble damages, if we are found to have willfully infringed a third party’s patents or copyrights
• Make substantial payments for legal fees, settlement payments or other costs or damages;
• Cease selling, making, licensing or using products that are alleged to infringe or misappropriate the intellectual property of others;
• Expend additional development resources to attempt to redesign our products or otherwise develop non-infringing technology, which may not be successful;
• Enter into potentially unfavorable royalty or license agreements to obtain the right to use necessary technologies or intellectual property rights;
• Take legal action or initiate administrative proceedings to challenge the validity and scope of the third-party rights or to defend against any allegations of infringement; and
• Indemnify our partners and other third parties.

In addition, royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. Some licenses may also be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. Any of the foregoing events could seriously harm our business, financial condition, and results of operations.

Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results. Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares. We expect that the occurrence of infringement claims is likely to grow as the market for our products and solutions grows.

Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.

Some aspects of our technology include open source software, and any failure to comply with the terms of one or more of these open source licenses could harm our business.

Our research and development of products, particularly the development of modules for integration into environmental management solutions, incorporate software covered by open-source licenses. For example, we use open-source algorithms such as Linear Regression, Neural Networks, and SLAM technology in developing these modules. The terms of various open-source licenses have not been interpreted by U.S. courts, creating a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our research and development based on such open-source resources. If the use of open-source algorithms is limited or restricted by the providers of such algorithms or due to regulations, our research and development could be interrupted and delayed, necessitating the search for alternative sources or modifications to our research methods. In addition to risks related to license requirements, use of open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with use of open-source software cannot be eliminated and, if such risks materialize, could harm our business.

Moreover, we cannot assure you that our processes for use of open-source software will be effective. If we are held not to have complied with the terms of an applicable open-source software license, we could be required to seek licenses from third parties to continue offering our services on terms that are not economically feasible, to re-engineer our technology to remove or replace the open source software, to discontinue the use of certain technology if re-engineering could not be accomplished on a timely basis, to pay monetary damages, to make generally available the source code for our proprietary technology, or to waive certain intellectual property rights, any of which could harm our business.

Responding to any infringement or other enforcement claim, regardless of its validity, could harm our business, results of operations, and financial condition, by, among other things:

• resulting in time-consuming and costly litigation;
• diverting management’s time and attention from developing our business;
• requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;
• requiring us to redesign certain components of our research and development objectives using alternative non-infringing source technology or practices, which could require significant effort and expense;
• disrupting our research and development processes if we are forced to cease offering certain services;
• requiring us to waive certain intellectual property rights associated with use of open source software, or contributions to third-party open source projects; and
• requiring us to satisfy indemnification obligations.

We have integrated, and may continue to integrate in the future, open-source AI algorithms in certain tools and features available on our platform. AI technology presents various operational, compliance, and reputational risks and if any such risks were to materialize, our business and results of operations may be adversely affected.

We have integrated open-source AI algorithms in many aspects of research and development of new modules. We may continue to integrate open-source AI algorithms in the research and development of new product or service offerings. Given that AI is a rapidly developing technology that is in its early stages of business use, it presents a number of operational, compliance and reputational risks. AI algorithms are currently known to sometimes produce unexpected results and behave in unpredictable ways that can generate irrelevant results, which, if incorporated into our research and development, these open-source components may result in unexpected outcomes that may not support our research and development objectives. Similarly, the data set could contain copyrighted material resulting in infringing output.

We expect that there will continue to be new laws or regulations concerning the use of AI technology, which might be burdensome for us to comply with and may limit our ability to offer or enhance our existing tools and features or new offerings based on AI technology. Further, the use of AI technology involves complexities and requires specialized expertise. We may not be able to attract and retain top talent to support our AI technology initiatives. If any of the operational, compliance or reputational risks were to materialize, our business and results of operations may be adversely affected.

We may be subject to risks associated with AI and open-source AI algorithms.

Recent technological advances in AI and open-source AI algorithms may pose risks to us. Our use of open-source AI algorithms could give rise to legal or regulatory action, create liabilities, or materially harm our business. While we aim to use open-source AI algorithms responsibly and attempt to mitigate ethical and legal issues presented by its use, we may ultimately be unsuccessful in identifying or resolving issues before they arise. Further, as the technology is rapidly evolving, costs and obligations could be imposed on us to comply with new regulations.

We also could be exposed to the risks of open-source AI algorithms if third-party service providers or any counterparties, whether or not known to us, also use the same open-source AI algorithms in their business activities. We will not be in a position to control the use of such technology in third-party products or services. Use by third-party service providers could give rise to issues pertaining to competition, data privacy, data protection, and intellectual property considerations.

Risks Related to Our Financial Performance

We may not be able to raise or it may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.

We have and expect to continue to have substantial working capital needs. Our cash on hand, together with cash generated from product sales, services, cash equivalents and short-term investments will not meet our working capital and capital expenditure requirements for the next twelve months. In fact, we will be required to raise additional funds throughout 2023 or we will need to limit operations until such time as we can raise substantial funds to meet our working capital needs. In addition, we will need to raise additional funds to fund our operations and implement our growth strategy, or to respond to competitive pressures and/or perceived opportunities, such as investment, acquisition, marketing and development activities. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

If we experience operating difficulties or other factors, many of which may be beyond our control, cause our revenues or cash flows from operations, if any, to decrease, we may be limited in our ability to spend the capital necessary to complete our development, marketing and growth programs. We require additional financing, in addition to the anticipated cash generated from our operations, to fund our working capital requirements. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our marketing, development, and operational activities or be forced to sell some of our assets on an untimely or unfavorable basis.

Our operating losses have raised substantial doubt regarding our ability to continue as a going concern.

Our operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the years ended June 30, 2024 and 2023 with respect to this uncertainty. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees.

If we fail to properly manage our anticipated growth, our business could suffer.

We intend to grow and may experience periods of rapid growth and expansion, which could place a significant additional strain on our limited personnel, information technology systems and other resources. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our commercialization and development goals.

To achieve our goals, we must successfully increase manufacturing output to meet potential expected customer demand. In the future, we may experience difficulties with manufacturing, quality control, component supply, inventory, distribution and shortages of qualified personnel, among other problems. These problems could result in delays in availability of our scanner systems and increases in expenses. Any such delay or increased expense could adversely affect our ability to generate revenue.

Future growth will also impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. In addition, rapid and significant growth will place a strain on our administrative and operational infrastructure.

In order to manage our operations and growth we will need to continue to improve our operational and management controls, reporting and information technology systems and financial internal control procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our operating results and business could suffer.

We have identified material weaknesses in our internal control over financial reporting. Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Specifically, we concluded that as of June 30, 2024, our disclosure controls and procedures were not effective due to material weaknesses in our internal controls over financial reporting related to the design or operation of internal controls which could adversely affect our ability to record, process, summarize, and report financial data including: a) lack of sufficient segregation of duties due to limited resources; b) 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; c) inability to prepare complete and accurate financial statements in accordance with generally accepted accounting principle (“GAAP) in a timely manner; d) inefficient oversight of those charged with governance with respect to complete and accurate finance reporting; e) lack of appropriate controls surrounding authorized signor access for bank accounts; and f) inappropriate implementation of controls over the identification of related party transactions.

While we have designed and implemented, or expect to implement, measures that we believe address or will address these control weaknesses, we continue to develop our internal controls, processes and reporting systems by, among other things, hiring qualified personnel with expertise to perform specific functions, and designing and implementing improved processes and internal controls, including ongoing senior management review and audit committee oversight. We plan to remediate the identified material weaknesses by hiring financial consultants and expect to hire additional accounting staff to complete the remediation. We expect to incur additional costs to remediate this weakness, primarily personnel costs and external consulting fees. We may not be successful in implementing these systems or in developing other internal controls, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operating results. Further, we will not be able to fully assess whether the steps we are taking will remediate the material weakness in our internal control over financial reporting until we have completed our implementation efforts and sufficient time passes in order to evaluate their effectiveness. In addition, if we identify additional material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

Our independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. However, in the course of auditing our consolidated financial statements for the financial statements included elsewhere in this prospectus, we identified six material weaknesses in our internal control over financial reporting. As defined in standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to: (i) lack of sufficient segregation of duties due to limited resources, (ii) 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, (iii) inability to prepare complete and accurate financial statements in accordance with GAAP in a timely manner, (iv) inefficient oversight of those charged with governance with respect to complete and accurate financial reporting, (v) lack of appropriate controls surrounding authorized signor access for bank accounts, and (vi) inappropriate implementation of controls over the identification of related party transactions. Additionally, each of the aforementioned material weaknesses could result in a misstatement of the consolidated financial statements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

We continue to focus on internal control over financial reporting and have taken certain measures to remediate the material weaknesses described above, including hiring more qualified accounting personnel with relevant GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework, implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; and establishing internal audit function by engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley Act compliance requirements and improvement of overall internal control.

We are working to remediate the material weaknesses. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing a remediation plan; however, these remediation measures will be time consuming and will place significant demands on our financial and operational resources. While we believe that these measures will improve our internal control over financial reporting, the implementation of these measures is ongoing, and we cannot assure you that we will be successful in doing so or that these measures will significantly improve or remediate the material weaknesses described above. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material weaknesses in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. We also cannot assure you that there will not be any additional material weaknesses in our internal control over financial reporting in the future.

We expect that we will need to implement new systems to enhance and streamline the management of our financial, accounting, human resources and other functions. However, such systems will likely require us to complete many processes and procedures for the effective use of the systems, which may result in substantial costs. Any disruptions or difficulties in implementing or using these systems could adversely affect our controls and harm our business. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management attention. In addition, we may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

We may not be able to remediate any material weaknesses prior to the deadline imposed by Section 404(a) of the Sarbanes-Oxley Act for management’s assessment of internal control over financial reporting. The failure to achieve and maintain effective internal control over financial reporting could have a material adverse effect on our business, financial condition and results of operations. In the event that we are not able to successfully remediate the existing material weaknesses in our internal control over financial reporting or identify additional material weaknesses, or if our internal control over financial reporting is perceived as inadequate or it is perceived that we are unable to produce timely or accurate consolidated financial statements, investors may lose confidence in our results of operations, the price of our common stock could decline, we could become subject to investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory agencies, which could require additional financial and management resources, or our common stock may not be able to remain listed on such exchange.

Risks Related to Ownership of our Securities

An active trading market for our Common Stock may not be available on a consistent basis to provide stockholders with adequate liquidity. The price of our Common Stock may be extremely volatile, and stockholders could lose all or part of their investment.

The trading price of our Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include:

• additions or departures of key personnel;
• announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
• any significant change in our management;
• Our ability to effectively manage our growth;
• the size and growth of our initial target markets;
• actual or anticipated variations in quarterly operating results;
• Our cash position;
• Our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
• the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;
• publication of research reports about us or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;
• guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
• changes in the market valuations of similar companies;
• overall performance of the equity markets;
• sales of our Common Stock by us or our stockholders, in the future;
• sales of our Common Stock by certain stockholders pursuant to, and following the termination or expiry of the applicable lock-up period or any similar agreement restricting our securityholders’ ability to sell our Common Stock;
• trading volume of our Common Stock;
• investor perceptions of the investment opportunity associated with our Common Stock relative to other investment alternatives;
• actions by institutional or activist stockholders;
• change in accounting standards, policies, guidelines, interpretations or principles;
• ineffectiveness of our internal controls;
• disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
• significant lawsuits, including patent or stockholder litigation;
• failure to raise additional funds on acceptable terms, or at all;
• changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
• general political, economic, industry and market conditions, including rising interest rates and inflation; and
• other events or factors, many of which are beyond our control.

In addition, the stock market in general, and the markets for special purpose acquisition company (“SPAC”) post-business combination businesses in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Common Stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our Common Stock is low. If the market price of our Common Stock falls, you may not realize any return on your investment and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business, operating results or financial condition.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates, higher interest rates and uncertainty about economic stability. For example, the Russia-Ukraine war and the Israel-Hamas war created volatility in the global capital markets and may have further global economic consequences, including disruptions of the global supply chain and energy markets. There have also been disruptions to the U.S. banking system due to bank failures in the past several years, including with respect to Silicon Valley Bank, Signature Bank and First Republic Bank. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom it relies. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates can adversely affect us by increasing its costs, including labor and employee benefit costs. In addition, higher inflation could also increase customers’ operating costs, which could result in reduced budgets for customers and potentially less demand for our products, if and when approved. Any significant increases in inflation and related increase in interest rates could have a material adverse effect on our business, results of operations and financial condition.

We do not intend to pay dividends on our Common Stock, so any returns will be limited to the value of its stock.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, future debt or other financing arrangements may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock. Any return to stockholders will therefore be limited in the foreseeable future to the appreciation of the market price (if any) of our stock.

We are an “emerging growth company” and a “smaller reporting company”, and the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies may make our Common Stock less attractive to investors.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various public company reporting requirements that are applicable to other public companies that are not emerging growth companies, including being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, not being required to have its internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act (“Section 404”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until the last day of the fiscal year ending after the fifth anniversary of the consummation of our IPO or until we are no longer an emerging growth company, whichever is earlier. We will cease to be an emerging growth company prior to the end of such five-year period if certain earlier events occur, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, our annual gross revenues equal or exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period prior to such time. In particular, in this Annual Report on, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if it were not an emerging growth company, and it may elect to take advantage of other reduced reporting requirements in future filings. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of its financials to those of other public companies more difficult. As a result of these elections, the information that we provide in this Annual Report may be different than the information you may receive from other public companies in which you hold equity interests. In addition, it is possible that some investors will find our Common Stock less attractive as a result of these elections, which may result in a less active trading market for our Common Stock and higher volatility in its share price.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we is no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our Common Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

If we engage in future acquisitions or strategic partnerships, this may increase capital requirements, dilute stockholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

We intend to evaluate various acquisition opportunities and strategic partnerships, including licensing or acquiring complementary drugs, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

• increased operating expenses and cash requirements;
• the assumption of additional indebtedness or contingent liabilities;
• the issuance of our equity securities;
• assimilation of operations, intellectual property and drugs of an acquired company, including difficulties associated with integrating new personnel;
• the diversion of our management’s attention from our existing drug programs and initiatives in pursuing such a strategic partnership, merger or acquisition;
• retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships;
• risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and marketing approvals; and
• Our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities, and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

Our Bylaws provide that the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

The Charter provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

• any derivative action or proceeding brought on our behalf;
• any action asserting a breach of fiduciary duty;
• any action asserting a claim against us or any of our current or former directors, officers or other employees arising under the DGCL, the Charter, or the Bylaws;
• any action seeking to interpret, apply, enforce or determine the validity of this Charter or our Bylaws;
• any action as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; and
• any action asserting a claim against us that is governed by the internal-affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, the Charter further provides that, unless we consent to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, including all causes of action asserted against any defendant named in such complaint. While the Delaware courts have determined that such choice of forum provisions are facially valid and several state trial courts have enforced such provisions and required that suits asserting Securities Act claims be filed in federal court, there is no guarantee that courts of appeal will affirm the enforceability of such provisions and a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of the Charter. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. If a court were to find either exclusive forum provision in the Charter to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with litigating Securities Act claims in state court, or both state and federal court, which could seriously harm our business, financial condition, results of operations, and prospects. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, or could result in increased costs for a stockholder to bring a claim, particularly if they do not reside in or near Delaware, both of which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive forum provision in the Charter to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our business, results of operations, and financial condition.

As a public company, we are subject to the reporting requirements of the Exchange Act, the listing standards of Nasdaq, and other applicable securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources. For example, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could harm our business, results of operations and financial condition. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our operating expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee (the “Audit Committee”) and compensation committee (the “Compensation Committee”), and qualified executive officers.

As a result of disclosure of information in the filings required of a public company, our business and financial condition will become more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, results of operations, and financial condition.

As a result of becoming a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting. In 2029, five years after our listing, we may be required to comply with auditor attestation requirements, as required by Section 404. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts.

We may identify weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our consolidated financial statements. Our control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If our financial statements are not accurate, investors may not have a complete understanding of our operations. If we do not file financial statements on a timely basis as required by the SEC, we could face severe consequences. If we are unable to conclude that its internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Common Stock could decline, and we could be subject to sanctions or investigations by the Nasdaq, the SEC or other regulatory authorities. Moreover, responding to such investigations, are likely to consume a significant amount of our management resources and cause us to incur significant legal and accounting expenses. Failure to remedy any material weakness in internal control over financial reporting, or to maintain effective control systems, could also restrict our future access to the capital markets. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

As a public reporting company, we are subject to filing deadlines for reports that we file pursuant to the Exchange Act, and our failure to timely file such reports may have material adverse consequences on our business.

Following the consummation of the Business Combination, we failed to timely file our Form 8-K with Form 10 information prior to the “staleness” date (as determined in accordance with the applicable rules and regulations of the SEC) applicable to the financial statements that were required by the applicable accounting requirements and other rules and regulations of the SEC to be included in such filing (including pro forma financial information); thus, we have not remained current in our reporting requirements with the SEC since we became an SEC reporting company on September 26, 2024. We will not be eligible to use a registration statement on Form S-3 that would allow us to continuously incorporate by reference our SEC reports into the registration statement, or to use “shelf” registration statements to conduct offerings, until approximately one year from the date we regained (and maintain) status as a current filer after we have filed current financial information with the SEC. Until such time, if we determine to pursue an offering, we would be required to conduct the offering on an exempt basis, such as in accordance with Rule 144A, or file a registration statement on Form S-1. Using a Form S-1 registration statement for a public offering would likely take significantly longer than using a registration statement on Form S-3 and increase our transaction costs, and could, to the extent we are not able to conduct offerings using alternative methods, adversely impact our liquidity, ability to raise capital or complete acquisitions in a timely manner. The use of Form S-1 would also prevent us from conducting offerings on a “shelf basis,” limiting our flexibility as to the terms, timing or manner of any such offering.

We cannot guarantee that in the future our reporting will always be timely. If we are unable to satisfy SEC filing deadlines or otherwise provide disclosures of material information on a timely basis, stockholders and potential investors in our Common Stock may have incomplete information about our business and results of operations, which may impact their ability to make an informed investment decision, result in a reduction in the trading price, trading volume or analyst coverage of our Common Stock or expose us to potential liability.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our business practices. Defending against litigation is costly and time-consuming, and could divert management’s attention and our resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of the our Common Stock.

Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of its securities.

If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum share price requirement, Nasdaq may take steps to delist our securities. Such a delisting would likely have a negative effect on the price of the securities and would impair your ability to sell or purchase the securities when you wish to do so. In the event of a delisting, any action taken by us to restore compliance with listing requirements may not allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum share price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if our securities are not listed on, or become delisted from Nasdaq for any reason, and are quoted on the over-the-counter bulletin board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our Common Stock share price and trading volume could decline.

The trading market for our Common Stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If few or no securities or industry analysts cover us, the trading price for our Common Stock would likely be negatively impacted. If one or more of the analysts who cover us downgrade our Common Stock or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Common Stock could decrease, which might cause our share price and trading volume to decline.

Future sales of our Common Stock, or the perception that future sales may occur, may cause the market price of our Common Stock to decline, regardless of our operating performance.

Due to the significant number of redemptions of Class A common stock, par value $0.0001 per share (the “Class A common stock”), of ACAC in connection with the Business Combination, there was a significantly lower number of shares of Class A common stock that converted into shares of our Common Stock in connection with the Business Combination. As a result, the shares of our Common Stock being registered for resale (a portion of which may not be resold until the expiration of the applicable lock-up period) are anticipated to constitute a considerable percentage of our public float. The registration of these shares for resale creates the possibility of a significant increase in the supply of our Common Stock in the market. The increased supply, coupled with the potential disparity in purchase prices, may lead to heightened selling pressure, which could negatively affect the public trading price of our Common Stock. We will not receive the proceeds from the resale of the shares of Common Stock by the selling securityholders.

In connection with the Business Combination, 5,000,000 shares of Common Stock were issued to the stockholders of Foxx and, of such shares, only 2,312,333 are subject to contractual lock-up restrictions and/or held by affiliates whose ability to sell is dependent upon the effectiveness of a resale registration statement. All shares of Common Stock that are not subject to such restrictions may be sold at any time. Sales of a substantial number of our shares of Common Stock and/or Warrants in the public market by our existing securityholders, or the perception that those sales might occur, could depress the market price of our shares of Common Stock and Warrants and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our shares of Common Stock and Warrants.

Our Warrants are exercisable for Common Stock, the exercise of which would increase the number of shares eligible for future resale in the public market and result in dilution to our shareholders.

As of the date of this Annual Report, there were (i) 4,312,494 Warrants (the “Public Warrants”) with an exercise price of $11.50 per warrant held by public security holders; and (ii) 7,843,923 warrants (the “Restricted Warrants”) with an exercise price of $11.50 per warrant held by Acri Capital Sponsor LLC, a Delaware limited liability company controlled by our Chairwoman, CFO and director, Joy Yi Hua. To the extent such warrants are exercised, additional shares of our Common Stock will be issued, which will result in dilution to the holders of our Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock, the impact of which increases as the value of our stock price increases.

Our Warrants may not be exercised at all and we may not receive any cash proceeds from the exercise of the Warrants.

Holders of our Warrants will be less likely to exercise their Warrants if the exercise prices of their Warrants exceed the market price of our Common Stock. There is no guarantee that our Warrants will continue to be in the money prior to their expiration, and as such, the Warrants may expire worthless. As such, any cash proceeds that we may receive in relation to the exercise of the Warrants overlying shares of Common Stock will be dependent on the trading price of our Common Stock. There is no assurance that the holders of the Warrants will elect to exercise any or all of such Warrants. As of the date of this Annual Report, all of the Restricted Warrants and Public Warrants, which have an exercise price of $11.50 per warrant, are “out of the money,” meaning the exercise price is higher than the market price of our Common Stock. Holders of such “out of the money” Warrants are not likely to exercise such Warrants. There can be no assurance that such Warrants will be in the money prior to their respective expiration dates, and therefore, we may not receive any cash proceeds from the exercise of such Warrants.

Risk Management

As of June 30, 2024, we did not establish policies and processes for assessing, identifying, and managing material risk from cybersecurity threats.

In connection with the Closing, on September 24, 2024, our Board of Directors approved our Cybersecurity Incident Response Policy (the “Cybersecurity Policy”), We have integrated the processes as described in the Cybersecurity Policy into our overall risk management systems and processes According to the Cybersecurity Policy, we routinely assess material risks from cybersecurity threats that may result in adverse effects on the confidentiality, integrity, or availability of our information systems or any information residing therein.

Pursuant to the Cybersecurity Policy, we conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of a material change in our business practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include identification of reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks.

Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to minimize identified risks, reasonably address any identified gaps in existing safeguards, and regularly monitor the effectiveness of our safeguards. We devote significant resources and designate high-level personnel, including our Chief Technology Officer (“CTO”), James Liao, to manage the risk assessment and mitigation process.

We may engage consultants and other third parties as needed in connection with our risk assessment policies and processes. These service providers assist us to design and implement our cybersecurity policies and procedures, as well as to monitor and test our safeguards.

We require third-party service providers to certify their ability to implement and maintain appropriate security measures, consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report any suspected breach of their security measures that may affect the Company.

As part of our overall risk management strategies, we also conduct cybersecurity trainings for personnel at all levels and in all departments.

Governance

One of the key functions of our Board of Directors is informed oversight of our risk management process, including risks from cybersecurity threats. Our Board of Directors is responsible for monitoring and assessing strategic risk exposure, and our executive officers are responsible for the day-to-day management of the material risks we face. Our Board of Directors administers its cybersecurity risk oversight function primarily through the Audit Committee. Our CIO provides periodic briefings to the Audit Committee regarding our cybersecurity risks and activities, including any recent cybersecurity incidents and related responses, cybersecurity policies and procedures, activities of third parties, and the like.

Our CTO, James Liao, and senior vice president of the Operating Subsidiary, Ruobing Yu, constitute our cybersecurity incident management team and are primarily responsible to assess and manage our material risks from cybersecurity threats. Our CTO has over 25 years in consumer electronics and telecommunication sectors and has a professional background in computer science and engineering, which enables him to oversee our IT systems efficiently.

As part of the executive team reporting to the Board, our CTO oversees our cybersecurity policies and processes, including those described in “Risk Management” above. The processes by which our CTO is informed of and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents include log review from IT and operations teams or reports received from network systems and applications if any unusual activity occurs, such as email system notification of items opened that could be malicious.

Our corporate headquarters are located in 13575 Barranca Parkway C106, Irvine, CA. Our facilities are leased from independent third parties. The lease terms range from 1 to 3 years, with the option to renew upon expiration. We believe our current facilities are generally sufficient for our present needs. However, we anticipate seeking additional space to accommodate future growth.

We are not currently a party to any material litigation or other legal proceedings brought against us. We are also not aware of any legal proceeding, investigation or claim, or other legal exposure that has a more than remote possibility of having a material adverse effect on our business, financial condition or results of operations.

FOXX MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations and financial condition should be read together with our consolidated financial statements and the notes thereto and other financial information, which are included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in other sections of this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Our financial statements have been prepared in accordance with U.S. GAAP. In addition, our financial statements and the financial information included in this Report reflect our organizational transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods.

Overview

Established in Texas in 2017, Foxx Development Inc. (“Foxx,” “we,” “our”, “us”, or the “Company”) is a technology innovation firm specializing in the communications sector. Since our establishment, 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.

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. For the years ended June 30, 2024 and 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 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 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.

The Business Combination

Incorporated as a Delaware corporation named as “Acri Capital Merger Sub I Inc.” on November 13, 2023, we entered into a business combination agreement (as amended from time to time, the “Business Combination Agreement”) on February 18, 2024, by and among us, Acri Capital Acquisition Corporation, a Delaware corporation and our then sole stockholder (“ACAC”), Acri Capital Merger Sub II Inc., a Delaware corporation and our then wholly-owned subsidiary (“Merger Sub”), and Foxx Development Inc., a Texas corporation (“Foxx”).

On September 26, 2024 (the “Closing”), ACAC consummated the transactions provided in the Business Combination Agreement, pursuant to which (i) ACAC merged with and into us (the “Reincorporation Merger”), and (ii) Foxx merged with and into Merger Sub, with Merger Sub surviving as our wholly-owned 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”.

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 Foxx (“Foxx Common Stock”) held by exiting holders of Foxx common stock (the “Foxx Stockholders”) immediately prior to the Closing (including shares of Foxx Common Stock issuable upon conversion of the principal and accrued interest of promissory notes of 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.” (the “Operating Subsidiary”).

Pursuant to the Business Combination Agreement, 500,000 shares of the Closing Payment Stock in aggregate will be deposited (the “Escrow Arrangement”) to a segregated escrow account and released to the 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.

Additionally, the Foxx Stockholders may be entitled to receive “Earnout Shares”, which refer to 4,200,000 shares of the Our Common Stock, subject to 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 will 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, reflect our revenue for the fiscal year ending June 30, 2024 (the “2024 Revenue”) 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 will 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 is 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 will be issued to Foxx Stockholders on a pro rata basis if and only if the 2024 Revenue reflected in the 2024 Audited Financial Statements is no less than $100,000,000 (including $100,000,000);

provided, however, that the Earnout Shares will 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 will be issued to 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, reflect revenue of the Registrant for the fiscal year ending June 30, 2025 (the “2025 Revenue”) 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 will be issued to Foxx Stockholders on a pro rata basis if and only if the 2025 Revenue reflected in the 2025 Audited Financial Statements is 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 Foxx Stockholders on a pro rata basis if and only if the 2025 Revenue reflected in the 2025 Audited Financial Statements is no less than $115,000,000 (including $115,000,000);

provided, however, that the Earnout Shares will be issued and delivered pursuant to one paragraph from (ii)(A) to (ii)(C) above only once.

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.

In addition, 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.

The 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 New 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, Foxx Development Inc., a Texas corporation (“Foxx”), issued a promissory note (“Note 1”) to New Bay Capital Limited (“New Bay”), in the principal amount of $2 million with an interest rate of 7% per annum, convertible into shares of Foxx common stock at $30.00 per share upon the listing of Foxx common stock through an initial public offering. On December 21, 2023, Foxx issued another promissory note (“Note 2”) to New Bay in the principal amount of $2 million with the same terms and conditions as Note 1.

In connection with the Business Combination Agreement and all the transaction contemplated therein (the “Business Combination”), in the spring of 2024, 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, Foxx and New Bay agreed to an amendment to Convertible Note Agreement, to amend Note 1 and Note 2 to remove the lock-up provisions as provided therein and allow the unpaid principal and accrued interest on Note 1 and Note 2 to convert to 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, 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 Foxx to BR Technologies PTE, Ltd. (“BR Technologies”), a Singapore-based company. On May 30, 2024, Foxx, BR Technologies and Grazyna Plawinski Limited (“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 Foxx to BR (the “Note 4”) in the principal amount of $6 million and promissory notes issued by 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 Foxx common stock for the New Bay Notes, (y) 200,882 shares of Foxx common stock for Note 4, and (z) 100,690 share of Foxx common stock for Note 5, at a price of $30.00 per share. At the Closing, all of the converted shares of Foxx common stock were cancelled in exchange for the holders’ pro rata share of the Closing Payment Shares, resulting in (x) 700,473 shares of the Registrant’s Common Stock issued to New Bay, (y) 663,581 shares of the Registrant’s Common Stock issued to BR Technologies, and (z) 332,614 shares of the Registrant’s Common Stock issued to Grazyna.

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 years ended June 30, 2024 and 2023

Revenues

Our revenue primarily derived from sales of electronic products. The total revenues decreased by approximately $18.4 million, or 85.1%, to approximately $3.2 million for the year ended June 30, 2024 as compared to approximately $21.6 million for the year ended June 30, 2023. The decrease of the total revenue was mainly attributable to our change of business strategy as discussed in the aforementioned overview section. As we are steadily cultivating new business relationships with our customer base, we anticipate a gradual increase in sales to align with our previous volume levels.

Our revenues from our revenue categories are summarized as follows:

Tablets products experienced a decrease primarily attributed to our shift in business strategy as discussed in the aforementioned overview section. Revenue from the sales of tablets decreased by approximately $19.0 million, or 96.6%, to approximately $0.7 million for the year ended June 30, 2024 from approximately $19.6 million for the same period in 2023. Revenue from sales of phones increased by approximately $0.6 million, or 32.0%, to approximately $2.6 million for the year ended June 30, 2024 from approximately $2.0 million for the same period in 2023 as we rolled out some new phone products beginning in January 2024. Revenue from others consisted with sales of rugged cases and freight and shipping insurance income. The sales of others decreased by approximately $29,000, or 100.0%, to $0 for the year ended June 30, 2024 from approximately $29,000 for the year ended June 30, 2023. The decrease in sales of other products was not significant to our operations.

Cost of Goods Sold

Our cost of goods sold mainly consists of cost of merchandise and freight. Total cost of goods sold decreased by approximately $17.4 million, or 84.8%, to approximately $3.1 million for the year ended June 30, 2024 as compared to approximately $20.5 million for the year ended June 30, 2023. The decrease in cost of goods sold is a direct result of a decrease in revenue, consistent with our change of business strategy as discussed above year ended June 30, 2024 as compared to the same period in 2023. Furthermore, we successfully identified three new vendors offering lower unit prices for manufacturing our products, contributing to the decrease in the cost of goods sold.

Our cost of goods sold from their revenue categories are summarized as follows:

Our cost of goods sold for tables decreased by approximately $18.2 million, or 97.3%, to approximately $0.5 million for the year ended June 30, 2024 from approximately $18.7 million for the same period in 2023. Cost of goods sold for mobile phone products increased by approximately $0.8 million, or 42.0%, to approximately $2.6 million for the year ended June 30, 2024 from approximately $1.8 million for the same period in 2023. Other costs, including cost of rugged cases and freight in and shipping insurance costs, decreased by approximately $11,000, or 100.0%, to $0 for the year ended June 30, 2024 from approximately $11,000 for the year ended June 30, 2023.

Gross Profit

Our gross profit decreased by approximately $1.0 million, or 89.5%, to approximately $0.1 million for the year ended June 30, 2024, from approximately $1.1 million for the year ended June 30, 2023.

Our gross profit from their major revenue categories is summarized as follows:

53

For the years ended June 30, 2024 and 2023, overall gross profit percentage was 3.6% and 5.1%, respectively. The decrease in gross profit percentage of 1.5% was primarily due to the decrease in sales volume of all product lines. In the meantime, we generated a negative profit from the sale of mobile phone products, which happened during the period from January 1 to June 30, 2024 when our vendor had a delay in delivery the mobile phone products. We were willing to sell the goods to customer at a discounted price to minimize the risk of our customer cancelling existing orders, and to retain the customer relationship since we just started to make sales to our new customers.

Gross profit percentage of tablets improved from 5.0% to 23.5% from the year ended June 30, 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.

The gross profit percentage for mobile phones decreased from 5.6% to (1.5) % from the year ended June 30, 2023, to the same period in 2024. This decline was primarily due our decision to sell products to a new customer at discounted prices during the period from January 1 to June 30, 2024. During this time, we experienced a delay in delivery from our vendor and aimed to minimize the risk of the customer cancelling existing orders.

Operating Expenses

Total operating expenses increased by approximately $2.2 million, or 217.3%, to approximately $3.2 million for the year ended June 30, 2024 from approximately $1.0 million for the year ended June 30, 2023.

Our operating expenses are summarized as follows:

The increase in operating expense was mainly attributed to the following:

Selling Expenses

Selling expenses increased, approximately $0.8 million, or 309.8%, to approximately $1.1 million for the year ended June 30, 2024, from approximately $0.3 million for the year ended June 30, 2023. The increased selling expenses was mainly attributable to 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 payroll and payroll related expense as we recruited and hired a vice president of sales to our team during the year ended June 30, 2024, approximately $0.1 million increase in advertising and marketing expense, and approximately $0.2 million increase in sampling, testing and certification expenses, which all directly related with change in business strategy where we began to boost the brand awareness, adding new product models, and to attract more business opportunities in the electronic devices market during the year ended June 30, 2024.

General and Administrative Expenses

General and administrative expenses increased, approximately $1.6 million, or 325.8%, to approximately $2.1 million for the year ended June 30, 2024 from approximately $0.5 million for the year ended June 30, 2023. The increased general and administrative expense were mainly attributable to the approximately $0.6 million increase in non-capitalized initial public offering related expense on audit and accounting fees, approximately $0.7 million increase in salary and wages due to eight new hires during the year ended June 30, 2024, approximately $0.3 million increase in other general and administrative miscellaneous expenses, such as rent expense, travel expense, and office expense due to increased expenses in operation of business. 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 2024 and 2025.

Research and Development — related party

Research and development (“R&D”) expenses decreased by approximately $0.2 million, or 66.5%, where the decrease was primarily due to an R&D project slowed down in the year ended June 30, 2024 as compared to the year ended June 30, 2023. During the year ended June 30, 2023, a related party had completed the development of 4G project for us and we incurred a R&D expense of approximately $0.3 million. During the year ended June 30, 2024, a related party completed 40% of the remaining 5G development project from a R&D agreement for us and we recognized a R&D expense approximately of $0.1 million accordingly based 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 2024 and 2025.

Other expense, net

Our other expense, net is summarized as follows:

Total other expense, net increased by approximately $0.3 million, or 1,946.1%, to approximately $0.3 million for the year ended June 30, 2024, from approximately $14,000 for the year ended June 30, 2023. The increase was primarily due to interest expenses incurred related to three convertible promissory notes issued in June 2023, November 2023, and March 2024.

Provision for income taxes

The provision for income taxes increased by approximately $6,000 from approximately $14,000 for the year ended June 30, 2023 to approximately $20,000 for the year ended June 30, 2024. During the year ended June 30, 2024, we had provision for income taxes of approximately $20,000 resulted from timing difference between calendar year on income tax return in 2022 and fiscal year of operation of June 30, for which those operating losses incurred from January 2023 to June 2023 cannot be carried back. At the same time, we had provided 100% allowance on our deferred tax assets on net operating losses for the year ended June 30, 2024. During the year ended June 30, 2023, we had operating income and resulted in provision for income taxes of approximately $14,000.

Net (Loss) Income

Net income decreased by approximately $3.5 million, or 5,995.5%, to approximately $3.4 million of net loss for the year ended June 30, 2024, from approximately $0.1 million net income for the year ended June 30, 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 June 30, 2024, we had cash and cash equivalents of approximately $0.6 million, while accumulated deficit and working capital deficit were approximately $11.0 million and $4.6 million, respectively. During the year ended June 30, 2024, we had net loss of approximately $3.4 million and net operating cash outflow of approximately $4.7 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 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 and other financial institutions or private lender;
• Financial support and credit guarantee commitments from our related parties; and
• Equity financing.

As such, 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 financial statements are issued. The 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 year ended June 30, 2024 and 2023.

Operating activities

Net cash used in operating activities was approximately $4.7 million for the year ended June 30, 2024 and was primarily attributable to (i) approximately $3.4 million net loss, (ii) approximately $0.3 million increased in accounts receivable due to provision of credit term to our new customers during the year, (iii) approximately $1.7 million increased in contract assets due to engagement with new vendors which required purchase deposits to secure relevant transactions, (iv) approximately $1.8 million increased in inventories due to change in our business strategy where we rented warehouse in the U.S. to store our inventories, (v) approximately $63,000 increased in prepaid expenses and other current assets, and security deposit, (vi) approximately $33,000 in payment of operating lease liability, and (vii) approximately $16,000 decreased in income taxes payable. The cash outflow was offset by (viii) non-cash expenses of approximately $0.3 million, which includes depreciation, accrued interest expenses from incurred from convertible notes, and amortization of operating right-of-use assets, (ix) approximately $1.4 million increased in accounts payable due to purchase of more inventories with vendors to meet customer demand, (x) approximately $0.6 million increased in contract liabilities due to a higher number of sales orders that had not yet been fulfilled but with advance payments made by customers to us to reserve products, (xi) approximately $0.2 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.

Net cash provided by operating activities was approximately $30,000 for the year ended June 30, 2023 and was primarily attributable to (i) approximately $0.1 million net income, (ii) approximately $0.6 million decreased in prepayment and other current assets as we have utilized prepaid purchase orders during the period. The inflow was offset by (iii) approximately $0.6 million decreased in customer deposit as we have fulfilled more of our sales orders during the period and (iv) approximately $0.1 million decreased in accounts payable to a related party as we made full repayment to our related party vendor.

Investing activities

Net cash used in investing activities was approximately $9,000 for the year ended June 30, 2024, attributable to the purchase of office equipment and furniture.

Net cash used in investing activities was approximately $0.1 million for the year ended June 30, 2023, attributable to purchase of an automobile for our business uses.

Financing activities

Net cash provided by financing activities was approximately $3.5 million for the year ended June 30, 2024, mainly attributable to $4.0 million proceeds from issuance of convertible promissory notes to New Bay in November 2023 and March 2024, offset by approximately $0.4 million in payments of deferred offering costs, the repayment of related party loans of approximately $0.1 million, and the principal payments of long-term loan of approximately $16,000.

Net cash provided by financing activities was approximately $1.8 million for the year ended June 30, 2023, primarily attributable to $2.0 million proceeds from convertible promissory note offset by the repayment of related party loans of approximately 0.2 million.

Off-Balance Sheet Arrangements

As of June 30, 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.

Critical Accounting Estimate

The financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these 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 financial statements. Certain accounting estimates are particularly sensitive because of their significance to 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 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. As of June 30, 2024 and 2023, we had recognized valuation allowance of $2,034,318 and $1,172,171, respectively. 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.

ACAC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of ACAC’s financial condition and results of operations should be read in conjunction with ACAC’s audited consolidated financial statements and the related notes to those statements included herein. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. ACAC’s actual results could differ materially from those discussed in the forward-looking statements as a result of many factors, including those factors set forth in the sections titled “Risk Factors” and “Forward-Looking Statements”, which you should review for a discussion of some of the factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this proxy statement/prospectus.

Unless the context otherwise requires, all references in this subsection to the “Company,” “ACAC”, “we,” “us” or “our” refer to the business of ACAC and its subsidiaries prior to the consummation of the Business Combination.

Overview

We are a blank check company incorporated as a Delaware corporation on January 7, 2022, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”). We are actively searching and identifying suitable Business Combination target. We intend to effectuate our Business Combination using cash derived from the proceeds of our initial public offering (the “IPO”) and the sale of warrants (the “Private Placement Warrants”) in a private placement (the “Private Placement”) to the Company’s sponsor Acri Capital Sponsor LLC (the “Sponsor”), potential additional shares, debt or a combination of cash, shares and debt.

On June 14, 2022, the Company consummated the IPO of 8,625,000 units (the “Units”) (including 1,125,000 Units issued upon the full exercise of the over-allotment option). Each Unit consists of one share of Class A common stock, $0.0001 par value per share (the “Public Shares”), and one-half of one redeemable warrant, each whole Warrant entitling the holder thereof to purchase one share of Class A common stock (the “Class A common stock”) at an exercise price of $11.50 per share. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $86,250,000 on June 14, 2022.

Business Combination with Foxx

On February 18, 2024, we entered into a business combination agreement (as amended from time to time, the “Business Combination Agreement”), by and among us, Acri Capital Merger Sub I Inc., a Delaware corporation and our wholly-owned subsidiary (“Purchaser”, or “PubCo” upon and following the Business Combination), Acri Capital Merger Sub II Inc., a Delaware corporation and wholly-owned subsidiary of Purchaser (“Merger Sub”, together with us and the Purchaser, the “Purchaser Parties”), and Foxx Development Inc., a Texas corporation (“Foxx”), pursuant to which (i) Parent will merger with and into Purchaser (the “Reincorporation Merger”), and (ii) Foxx will merge with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of Purchaser (the “Acquisition Merger”). The Reincorporation Merger, the Acquisition Merger, and other transactions contemplated under the Business Combination Agreement, are collectively referred to as the “Foxx Business Combination”. Following consummation of the Foxx Business Combination (the “Closing”), Purchaser will become a publicly traded company.

On May 31, 2024, ACAC, PubCo, Merger Sub, and Foxx entered into an amendment to the Business Combination Agreement (the “BCA Amendment”). Pursuant to the BCA Amendment, ACAC, PubCo, Merger Sub, and Foxx agreed to revise the lock-up provision, which shall now provide that, each Pre-Closing Company Stockholder (as defined in the Business Combination Agreement) who holds more than 5% of issued and outstanding shares of common stock of Foxx (“Foxx Common Stock”) immediately prior to closing of the Business Combination (the “Closing”) except the Pre-Closing Company Stockholders who hold Foxx Common Stock issuable upon the conversion of certain convertible notes of Foxx, the Sponsor, and affiliates of the foregoing, will, subject to certain customary exceptions, agree not to sell any share of common stock of the PubCo (“PubCo Common Stock”) held by them until the earlier to occur of: (A) six months after the Closing, or (B) the date on which the last reported sale price of the PubCo Common Stock equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after the Closing, or earlier, in any case, if subsequent to the Closing, the PubCo completes a subsequent liquidation, merger, stock exchange or other similar transaction that results in all of ACAC’s stockholders having the right to exchange their shares for cash, securities or other property.

Additional Information about the Transaction and Where to Find It

The Business Combination has been approved by the boards of directors of ACAC, PubCo and Foxx, and will be submitted to stockholders of ACAC and the stockholders of Foxx for their approval. ACAC started mailing of a definitive proxy statement and other relevant documents to its stockholders on August 1, 2024, and the record date established for voting on the proposed transaction was on July 19. 2024. The special meeting of the stockholders of ACAC is scheduled to be held on August 27, 2024. ACAC stockholders are urged to read the definitive proxy statement/prospectus included in the Registration Statement on Form F-4 (File No. 333- 280613) that was filed publicly by the Purchaser and declared effective by the SEC on July 29, 2024. ACAC stockholders will also be able to obtain a free copy of the definitive proxy statement/prospectus, as well as other filings containing information about ACAC, without charge, at the SEC’s website (www.sec.gov (http://www.sec.gov)).

Special Meeting III and Extension Notes

On April 9, 2024, the Company held a special meeting of stockholders (the “Special Meeting III”), at which the stockholders of the Company approved, among other things, the proposal to amend the then-effective Company Charter to allow the Company until April 14, 2024 to consummate the Business Combination, and, without another stockholder vote, to elect to extend the deadline to complete a Business Combination (the “Combination Deadline”) on a monthly basis for up to nine (9) times, up to January 14, 2025, by depositing the lesser of (i) $50,000 and (ii) $0.033 for each public share into the Trust Account. Upon the stockholders’ approval, on April 10, 2024, the Company filed a certificate of amendment to the Charter which became effective upon filing (the Charter upon the amendment, the “Third Amended Charter”). In connection with the Special Meeting III, 1,439,666 shares of Class A common stock of the Company were redeemed and cancelled.

Pursuant to the Third Amended Charter, the Company may extend the Combination Deadline on a monthly basis from April 14, 2024 for up to nine times, up to January 14, 2025, by depositing $50,000 each month into the Trust Account. Following the Special Meeting III, the Sponsor deposited four monthly payments, and Foxx deposited one monthly payment into the Trust Account to extend the Combination Deadline to September 14, 2024. The five monthly payments were evidenced by four promissory notes issued by the Company to the Sponsor and one promissory note issued by the Company to Foxx, each in the principal amount of $50,000.

Working Capital Note

The Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. Any such loans would be on an interest-free basis and would be repaid only from funds held outside the trust account or from funds released to us upon completion of the Business Combination. We may issue such working capital notes to the Sponsor, officers, directors, of their affiliates, evidencing the terms of such loans.

On December 5, 2023 and June 11, 2024, respectively, the Company issued an unsecured promissory note of $500,000 (collectively, the “Working Capital Notes”) to the Sponsor. The proceeds of the Working Capital Notes, which may be drawn down from time to time until the Company consummates its initial business combination, and will be used as general working capital purposes.

The Working Capital Notes are non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial business combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holder of the Working Capital Notes has the right, but not the obligation, to convert the Working Capital Notes, in whole or in part, respectively, into private placement warrants of the Company, as described in the prospectus of the Company (File Number 333-263477), by providing the Company with written notice of its intention to convert the Working Capital Notes at least two business days prior to the closing of the Company’s initial business combination. The number of Warrants to be received by the holder in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the holder, by (y) $1.00.

The issuance of the Working Capital Notes were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

On July 23, 2024, the Company received a letter (the “ Letter ”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“ Nasdaq ”) that, for the last 30 consecutive business days, the Market Value of Listed Securities (“MVLS”) for the Company was below the $35 million minimum MVLS requirement for continued listing on the Nasdaq Capital Market (the “Capital Market”) under Nasdaq Listing Rule 5550(b)(2) (the “ MVLS Rule ”). The Letter is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the Company’s securities.

In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company will have 180 calendar days, or until January 20, 2025 (the “Compliance Period”), to regain compliance with the MVLS Rule. To regain compliance with the MVLS Rule, the MVLS for the Company must be at least $35 million for a minimum of 10 consecutive business days at any time during this Compliance Period. If the Company regains compliance with the MVLS Rule, Nasdaq will provide the Company with written confirmation and will close the matter.

If the Company does not regain compliance with the MVLS Rule by the Compliance Date, Nasdaq will provide written notification that its securities will be subject to delisting. In the event of such notification, the Nasdaq rules permit the Company an opportunity to appeal Nasdaq’s determination.

The Company is monitoring its MVLS and is evaluating options to regain compliance with the MVLS Rule. However, there can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing standards.

Results of Operations

We have neither engaged in any operations nor generated any operating revenues to date except the preparation and completion of the IPO and the search for a target candidate following the consummation of the IPO. Our only activities from inception through June 30, 2024 were organizational activities and those necessary to prepare for the IPO and search for a target candidate. We do not expect to generate any operating revenues until after the completion of the Business Combination. We expect to generate non-operating income in the form of interest income on marketable securities held after the IPO. We expect that we will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, the Business Combination.

For the three months ended June 30, 2024 and 2023, we had net loss of $245,297 and net income of $90,945, respectively, mainly from income on our investment less our formation and operating costs and tax expenses. For the six months ended June 30, 2024 and 2023, we had net loss of $142,648 and net income of $454,603, respectively, mainly from income on our investment less our formation and operating costs and tax expenses.

Liquidity and Capital Resources

The Company’s liquidity needs up to June 30, 2024 had been satisfied through initial payment from the Sponsor of $25,000, proceeds from the Private Placement of $5,240,000, and loan from sponsor of $2,503,327.

On June 14, 2022, we consummated the IPO of 8,625,000 Public Units at a price of $10.00 per unit (including 1,125,000 units issued upon the fully exercise of the over-allotment option), generating gross proceeds of $86,250,000. Simultaneously with the closing of the IPO and exercise of the over-allotment option in full by the underwriters, we consummated the sale of 5,240,000 warrants as Private Warrants, at a price of $1.00 per warrant, with each warrant entitling the registered holder to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, generating gross proceeds of $5,240,000. Following the closings of the IPO and the sales of the Private Warrants on June 14, 2022, a total of $87,975,000 (or $10.20 per share) was placed in the Trust Account.

As of June 30, 2024, the Company had cash of $4,665 and a working capital deficit of $3,346,481 (excluding taxes payable which will be paid out from Trust).

On February 8, 2023, in connection with the Special Meeting I, 4,981,306 shares of Class A common stock of the Company were rendered for redemption at $10.33 per share. On July 11, 2023, in connection with the Special Meeting II, 388,644 shares of Class A common stock of the Company were redeemed and cancelled at $10.82 per share. On May 9, 2024, in connection with the New Extension Amendment Proposal, 1,439,666 shares of Class A common stock of the Company were redeemed and cancelled at $11.24 per share, resulting in approximately $21.2 million remaining in the Trust Account as of June 30, 2024.

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, excluding deferred underwriting commissions, to complete the Business Combination. We may withdraw interest from the Trust Account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete the Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete the Business Combination.

In order to fund working capital deficiencies or finance transaction costs in connection with the Business Combination, the Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If the Company completes the Business Combination, it would repay such loaned amounts. In the event that the Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used for such repayment. Up to $3,000,000 of such loans may be convertible into warrant, at a price of $1.00 per warrant at the option of the lender.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to the Business Combination. Moreover, we may need to obtain additional financing either to complete the Business Combination or because we become obligated to redeem a significant number of our Public Shares upon completion of the Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.

Pursuant to the Third Amended Charter, the Company may extend the Combination Deadline on a monthly basis from April 14, 2024 for up to nine times, up to January 14, 2025, by depositing $50,000 each month into the Trust Account. As of the date of this report, between July 12, 2023 and March 12, 2024, an aggregate of $675,000 of extension payments, or nine monthly extension payments of $75,000, were deposited into the Trust Account, which enabled the Company to extend the period of time it has to consummate the Business Combination on a monthly basis from July 14, 2023 to April 14, 2024. Following the Special Meeting III, the Sponsor deposited four monthly payments, and Foxx deposited one monthly payment, into the Trust Account, to extend the Combination Deadline to September 14, 2024. The five monthly payments were evidenced by four promissory notes issued by the Company to the Sponsor and one promissory note issued by the Company to Foxx (the “Foxx Note”), each in the principal amount of $50,000.

In connection with each monthly extension payments, the Company issued unsecured promissory notes (each an “Extension Note”) to the Sponsor.

Each of the Extension Notes is non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Business Combination and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The holder of the Extension Notes has the right, but not the obligation, to convert each Extension Note, in whole or in part, respectively, into Private Warrants of the Company, as described in the Prospectus, by providing the Company with written notice of its intention to convert the Extension Notes at least two business days prior to the closing of the Business Combination. The number of Private Warrants to be received by the holder in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the holder, by (y) $1.00.

The Foxx Note is non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) consummation of the Company’s initial business combination, and (ii) the date of the liquidation of the Company. The principal balance may be prepaid at any time, at the election of the Company. The Foxx Note is not convertible into any securities of the Company.

If we are unable to complete the Business Combination by the Combination Deadline, we may seek approval from our stockholders holding no less than 65% or more of the votes to approve to extend the Combination Deadline, and if we fail to obtain approval from our stockholders for such extension or we do not seek such extension, the Company will cease all operations.

As a result, management has determined that such additional condition also raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of June 30, 2024. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual Obligations

As of June 30, 2024 and December 31, 2023, we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.

The holders of the Founder Shares, the Private Warrants, and any warrants that may be issued upon conversion of working capital loans (and any underlying securities) will be entitled to registration rights pursuant to a registration rights agreement entered into in connection with the IPO. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of the Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.

Critical Accounting Policies and Estimates

In preparing the financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results may differ from these estimates. We have identified the following critical accounting policies and estimates:

Investments held in Trust Account

At June 30, 2024 and December 31, 2023, $21,214,423 and $36,672,846 of the assets held in the Trust Account, respectively, were held in money market funds, which are invested in short term U.S. Treasury securities.

The Company classifies its U.S. Treasury and equivalent securities as held-to-maturity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320 “Investments — Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance sheet and adjusted for the amortization or accretion of premiums or discounts.

Offering Costs

The Company complies with the requirements of 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”. Offering costs consisting principally of underwriting, legal, accounting and other expenses that are directly related to the IPO and charged to shareholders’ equity upon the completion of the IPO.

Warrants

We account 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, whether they 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. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. We determined that upon further review of the proposed form of warrant agreement, management concluded that the warrants included in the units issued in the IPO pursuant to the warrant agreement qualify for equity accounting treatment.

Common Stock Subject to Possible Redemption

The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Public Shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of June 30, 2024, common stock subject to possible redemption are presented at redemption value of $11.58 per share as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital or accumulated deficit if additional paid in capital equals to zero.

Net Income (Loss) per Share

The Company complies with accounting and disclosure requirements of FASB ASC 260, Earnings Per Share. In order to determine the net income (loss) attributable to both the redeemable shares and non-redeemable shares, the Company first considered the undistributed income (loss) allocable to both the redeemable common stock and non-redeemable common stock and the undistributed income (loss) is calculated using the total net loss less any dividends paid. The Company then allocated the undistributed income (loss) ratably based on the weighted average number of shares outstanding between the redeemable and non-redeemable common stock. Any remeasurement of the accretion to redemption value of the common stock subject to possible redemption was considered to be dividends paid to the public stockholders.

Recent Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update 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 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. We evaluated the potential impact of adopting this new guidance on our unaudited consolidated financial statements and related disclosures and believe that the adoption of this ASU did not have a material effect on our financial statements.

Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and our chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of June 30, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, during the period covered by this report, our disclosure controls and procedures were not effective due to the identified material weakness described below.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management’s Annual Report on Internal Control over Financial Reporting

As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company,

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at June 30, 2024. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we did not maintain effective internal control over financial reporting as of June 30, 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.

Following the identification of the material weakness, we plan to take remedial measures including:

• hiring more qualified accounting personnel with relevant GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework;
• implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; and
• establishing internal audit function by engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley Act compliance requirements and improvement of overall internal control.

This Annual Report on Form 10-K does not include an attestation report of internal controls from our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the year ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.