Foxx Development Holdings Inc.: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information set forth in the Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed with the Securities and Exchange Commission (the “SEC”) on October 15, 2025. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC.

Overview

Foxx Development Holdings Inc. (“we,” “our”, “us”, or the “Company”) was incorporated on November 13, 2023 under the name “Acri Capital Merger Sub I Inc.” On September 26, 2024 (the “Closing”), Acri Capital Acquisition Corporation, a Delaware corporation and our parent company at the time, (“ACAC”) consummated a previously announced business combination pursuant to the terms of the business combination agreement, dated February 18, 2024 (as amended on May 31, 2024, collectively, the “Business Combination Agreement”), by and among us, ACAC, Acri Capital Merger Sub II Inc., a Delaware corporation and our wholly-owned subsidiary at the time (“Merger Sub”), and Foxx Development Inc., a Texas corporation incorporated on May 17, 2017 (“Old Foxx”), pursuant to which (i) ACAC merged with and into us (the “Reincorporation Merger”), with us surviving the Reincorporation Merger, and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as our wholly-owned Delaware subsidiary (the “Acquisition Merger”). The Reincorporation Merger, the Acquisition Merger, and the transactions contemplated under the Business Combination Agreement, are collectively referred to as the “Business Combination”.

Upon Closing, we were renamed as “Foxx Development Holdings Inc.”, and the Merger Sub was renamed as “Foxx Development Inc.” (the “Subsidiary”).

The ACAC securities previously traded on the Nasdaq Capital Market (“Nasdaq”) were delisted and ceased trading following the Closing. On September 27, 2024, one business day after the Closing, our Common Stock and Warrants became listed on the Nasdaq under trading symbols “FOXX” and “FOXXW,” respectively.

Together with our Subsidiary, we are a technology innovation firm specializing in the communications sector. Since our establishment in 2017, we have expanded our presence to include various locations throughout the United States, such as San Francisco, CA, Dallas, TX, Atlanta, GA, Los Angeles, CA, Miami, FL, and New York, NY. This expansion enables us to provide sales, retail, distribution, and after-sales support services while simultaneously driving innovation through active research and development efforts aimed at pioneering new customization standards and services.

Our business model involves providing comprehensive hardware and software specifications to original design manufacturers. Once the products are developed, we engage with third-party agencies to secure necessary testing and certifications, including Equipment Authorizations from the FCC and certifications from the Global Mobile Suppliers Association. We currently offer a range of Foxx-branded products, including tablets, smartphones, wearables, and expects to launch other high-quality communication terminals. Our products are generally priced competitively after considering various factors such as product costs, research and development investments, regulatory compliance, testing expenses, and shipping costs. Our customers are primarily distributors who sell Foxx-branded products in the U.S. public channels and to major carriers in the United States such as T-Mobile, AT&T, and Verizon. Our customers also included individual e-commerce customers from TikTok Shop, which we began our e-commerce operations in March 2024.

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 bulk with us, we place purchase orders with suppliers to manufacture the products that meet customers’ products specifications and budget requirements. Prior to 2023, we 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 expect 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 range 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 to expand product range and reaching a broader customer base, we will be able to move away from relying on limited customers and suppliers. As we dedicated our resources to expansion, we experienced a significant decrease in the sales of tablet and mobile phone products during the year ended June 30, 2024 as compared to the same period in 2023: (i) new customers began orders in much smaller quantities as compared to our previous customer in order to build up a trustworthy relationship; (ii) similarly and relevantly, we placed order with new suppliers in much smaller quantities to build up relationship and ensure the quality of the products; and (iii) new product models on both tablet and mobile phones order by new customers required approximately 6-9 months from development to mass production.

In addition, on February 8, 2024, the U.S. Federal Communication Commission stopped accepting new enrollment in the Affordable Connectivity Program (ACP) and announced that the ACP will stop accepting new applications and enrollments on February 7, 2024, and will stop funding for enrolled customers starting on April 30, 2024. Temporarily impacted by such a change in ACP, most of our new customers are cutting down their sales teams in anticipation of the reduced customer base, which affects the demand for our products across all channels during the year ended June 30, 2024; and on the other hand, our competitors have stockpiled their products during the year ended June 30, 2024, due to severely declining sales and they have started lower their sale price on their products which affected the demand of our products. However, we may continue to target end-users who are eligible for the Lifeline Program, which is administered by the Universal Service Administrative Company (USAC) and receives funding from the Universal Service Fund, a government program that receives annual contributions from telecommunications companies or their customers. At the same time, because we have initiated our strategic shifts to diversify our product offerings, we expect to target customers who are interested in other mobile devices, tablets, and IoT products. In addition, we began launching our products through TikTok Shop in March 2024 and we expect to grow our sales through this e-commerce channel.

For the three months ended September 30, 2025, our sales remained consistent with our historical level, as we retained our three major customers and continued to sell our new products and services during the period. In addition, we have launched new wearable products, such as smart watches, smart rings, smart glasses, trackers and headsets, and App service commission revenue in May 2025 which have driven up our sales for these wearable products and App service commission revenue for the three months ended September 30, 2025 as compared to the same period in 2024.

The Business Combination

Incorporated as a Delaware corporation under the name “Acri Capital Merger Sub I Inc.” on November 13, 2023, we entered into the Business Combination Agreement on February 18, 2024, as amended on May 31, 2024, by and among us, ACAC, Merger Sub, and Old Foxx.

Upon the Closing of the Business Combination on September 26, 2024, ACAC merged with and into us, with us surviving the Reincorporation Merger, and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as our wholly owned Delaware subsidiary after the Acquisition Merger.

Merger Consideration

Immediately prior to the effective time of the Reincorporation Merger (the “Reincorporation Merger Effective Time”), which was on September 25, 2024, one business day prior to the Closing, (i) each issued and outstanding ACAC unit was automatically separated into one (1) share of ACAC Class A common stock and one-half (1/2) of one ACAC warrant, and (ii) each share of ACAC Class A common stock held by ACAC stockholders who validly redeemed their shares of ACAC Class A common stock (each “ACAC Redeeming Share”) was automatically cancelled and ceased to exist and thereafter represented only the right to be paid a pro-rata redemption price.

• At the Reincorporation Merger Effective Time on September 25, 2024, (i) each share of ACAC Class A or Class B common stock issued and outstanding (other than ACAC Redeeming Shares) was converted automatically into one (1) share of our common stock, par value $0.0001 per share (the “Common Stock”), and (ii) each issued and outstanding ACAC warrant was converted automatically into one (1) redeemable our warrant, exercisable for one (1) share of our Common Stock at an exercise price of $11.50 per share (the “Warrant”).
• At the Closing on September 26, 2024, by virtue of the Acquisition Merger and the Business Combination Agreement, and without any action on the part of any party to the Business Combination Agreement or affiliate or security thereof, the issued and outstanding shares of common stock of Old Foxx (“Old Foxx Common Stock”) held by exiting holders of Old Foxx common stock (the “Old Foxx Stockholders”) immediately prior to the Closing (including shares of Old Foxx Common Stock issuable upon conversion of the principal and accrued interest of promissory notes of Old Foxx issued in the Transaction Financing, as defined below) were cancelled and automatically converted into (i) the right to receive, without interest, the applicable portion of 5,000,000 shares of our Common Stock (the “Closing Payment Stock”, 500,000 of which are subject to the Escrow Arrangement noted below), and (ii) the contingent right to receive the applicable portion of the Earnout Shares (as defined below), if, as and when payable in accordance with the earnout provisions of the Business Combination Agreement.

Upon Closing, we were renamed as “Foxx Development Holdings Inc.”, and the Merger Sub was renamed as “Foxx Development Inc.” (i.e. the Subsidiary).

Pursuant to the Business Combination Agreement, 500,000 shares of the Closing Payment Stock in aggregate were deposited (the “Escrow Arrangement”) to a segregated escrow account and would be released to the Old Foxx Stockholders if and only if, prior to or upon the one-year anniversary of the Business Combination Agreement, the Affordable Connectivity Program (ACP) managed by the U.S. Federal Communication Commission is reauthorized by the U.S. Congress with funding of no less than $4 billion in total for such reauthorized period; or otherwise be cancelled and forfeited by the Registrant without consideration.

Additionally, the Old Foxx Stockholders would be entitled to receive “Earnout Shares”, which refer to 4,200,000 shares of our Common Stock, subject to the vesting schedule (the “Vesting Schedule”) as follows:

• (i) in connection with the financial performance for the fiscal year ending June 30, 2024:

(A) 700,000 Earnout Shares would be issued to Foxx Stockholders on a pro rata basis if and only if our audited consolidated financial statements for the fiscal year ending June 30, 2024 (“2024 Audited Financial Statements”), prepared in accordance with the Generally Accepted Accounting Principles of the United States (“U.S. GAAP”) and filed with the SEC on Form 10-K by us after Closing, would reflect our revenue for the fiscal year ending June 30, 2024 (the “2024 Revenue”) to be no less than $67,000,000 (including $67,000,000) and less than $84,000,000 (excluding $84,000,000);

(B) 1,400,000 Earnout Shares would be issued to Foxx Stockholders on a pro rata basis if and only if the Registrant 2024 Revenue reflected in the 2024 Audited Financial Statements would be no less than $84,000,000 (including $84,000,000) and less than $100,000,000 (excluding $100,000,000);

(C) 2,100,000 Earnout Shares would be issued to Foxx Stockholders on a pro rata basis if and only if the 2024 Revenue reflected in the 2024 Audited Financial Statements would be no less than $100,000,000 (including $100,000,000);

provided, however, that the Earnout Shares would be issued and delivered pursuant to one paragraph from (i)(A)-(i)(C) above only once; and

• (ii) In connection with the financial performance for the fiscal year ending June 30, 2025:

(A) 700,000 Earnout Shares would be issued to Old Foxx Shareholders on a pro rata basis if and only if our audited consolidated financial statements for the fiscal year ending June 30, 2025 (“2025 Audited Financial Statements”), prepared in accordance with U.S. GAAP and filed with the SEC on Form 10-K by us after Closing, would reflect revenue of the Registrant for the fiscal year ending June 30, 2025 (the “2025 Revenue”) to be no less than $77,050,000 (including $77,050,000) and less than $96,600,000 (excluding $96,600,000);

(B) 1,400,000 Earnout Shares would be issued to Old Foxx Stockholders on a pro rata basis if and only if the 2025 Revenue reflected in the 2025 Audited Financial Statements would be no less than $96,600,000 (including $96,600,000) and less than $115,000,000 (excluding $115,000,000);

(C) 2,100,000 Earnout Shares will be issued to Old Foxx Stockholders on a pro rata basis if and only if the 2025 Revenue reflected in the 2025 Audited Financial Statements would be no less than $115,000,000 (including $115,000,000);

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

On October 24, 2024, upon the filing of the 2024 Audited Financial Statements as part of the Annual Report of the Company on Form 10-K filed with the SEC (the “2024 10-K”), any Earnout Shares that the Old Foxx Shareholders would be entitled to receive under the Vesting Schedule were automatically forfeited, as the Company did not meet any of the vesting conditions for the fiscal year ended June 30, 2024 within the Vesting Schedule.

In addition, on October 15, 2025, upon the filing of the 2025 Audited Financial Statements as part of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed with the SEC (the “2025 10-K”), any Earnout Shares that the Old Foxx Shareholders would be entitled to receive under the Vesting Schedule were automatically forfeited, as the Company did not meet any of the vesting conditions for the fiscal year ended June 30, 2025 within the Vesting Schedule.

In addition to the foregoing, pursuant to that certain amendment to the Underwriting Agreement, by and between EF Hutton LLC and ACAC, dated February 20, 2024, 43,125 shares of our Common Stock were issued to EF Hutton LLC at the Closing.

Public Listing

The ACAC securities previously traded on Nasdaq were delisted without any action needed to be taken on the part of the holders of such securities and are no longer traded on Nasdaq following the Closing. On September 27, 2024, one business day after the Closing, our Common Stock and Warrants became listed on the Nasdaq Capital Market (“Nasdaq”) under trading symbols “FOXX” and “FOXXW,” respectively.

Accounting Treatment

While the legal acquirer in the Business Combination was ACAC, for financial accounting and reporting purposes under U.S. GAAP, Old Foxx was the accounting acquirer, and the Business Combination was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by ACAC for the stock of Old Foxx) does not result in a new basis of accounting, and the unaudited condensed consolidated financial statements of the combined company represent the continuation of the unaudited condensed consolidated financial statements of Old Foxx in many respects. Accordingly, the assets, liabilities and results of operations of Old Foxx became the historical financial statements of the combined company, and ACAC’s assets, liabilities, and results of operations were consolidated with Old Foxx beginning from the Closing on September 26, 2024. Operations prior to the Business Combination are presented as those of Old Foxx. The net assets of ACAC are recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded upon execution of the Business Combination.

Transaction Financing

In consideration of market conditions, pursuant to the Business Combination Agreement, the parties agreed to use commercially best efforts to secure financing to pay transaction expense and working capital of Foxx, including without limitation, a PIPE financing, private financing, redemption waiver, convertible debt, forward purchase agreement, backstop, or equity line of credit (collectively, the “Transaction Financing”).

On June 21, 2023, Old Foxx entered into a securities purchase agreement (the “Convertible Note Agreement 1”) with New Bay Capital Limited, a Hong Kong registered company (“New Bay”), and issued a promissory note (“Note 1”) to New Bay in the principal amount of $2 million with an interest rate of 7% per annum, convertible into shares of Old Foxx common stock at $30.00 per share upon the listing of Old Foxx common stock through an initial public offering. On December 21, 2023, Old Foxx issued into another securities purchase agreement (the “Convertible Note Agreement 2”) with New Bay with the same terms and conditions as the Convertible Note Agreement and issued another promissory note (“Note 2”) to New Bay in the principal amount of $2 million.

In connection with the Business Combination Agreement and all the transaction contemplated therein (the “Business Combination”), in the spring of 2024, Old Foxx and ACAC reached out to New Bay to seek its interest in participating in further financing in connection with the Business Combination.

After negotiations with New Bay, On March 15, 2024, Old Foxx and New Bay agreed to an amendment to amend both Convertible Note Agreement 1 and Convertible Note Agreement 2, and to amend Note 1 and Note 2, by removing the lock-up provisions as provided therein and allowing the unpaid principal and accrued interest on Note 1 and Note 2 to convert to Old Foxx common stock immediately prior to the closing of the Business Combination. New Bay also subscribed for a new promissory note (“Note 3”) in the principal amount of $2 million under the same terms and conditions as amended Note 1 and Note 2 (collectively, the “New Bay Notes”).

On March 15, 2024, Old Foxx and New Bay amended the terms of the Note 1 and Note 2 accordingly, and New Bay subscribed for a new promissory note (“Note 3”) in the principal amount of $2 million under the same terms and conditions as amended Note 1 and Note 2 (collectively “New Bay Notes”).

On February 20, 2024, New Bay introduced Old Foxx to BR Technologies PTE, Ltd. (“BR Technologies”), a Singapore-based company. On May 30, 2024, Old Foxx, BR Technologies and Grazyna Plawinski Limited, a Singapore-based company (“Grazyna”), entered into a securities purchase agreement for issuance of promissory notes in the amount of up to $9.0 million with an interest rate of 7% per annum under the same terms and conditions as provided in the New Bay Notes. A promissory note was issued by Old Foxx to BR (the “Note 4”) in the principal amount of $6 million and promissory notes issued by Old Foxx to Grazyna (the “Note 5”) in the total principal amount of $3 million on September 12, 2024.

Immediately prior to the Closing, all the accrued and unpaid principal and interests on the New Bay Notes, Note 4, and Note 5 were converted into: (x) 212,050 shares of Old Foxx common stock for the New Bay Notes, (y) 200,882 shares of Old Foxx common stock for Note 4, and (z) 100,690 share of Old Foxx common stock for Note 5, at a price of $30.00 per share. At the Closing, all of the converted shares of Old Foxx common stock were cancelled in exchange for the holders’ pro rata share of the Closing Payment Shares using the exchange ratio of 3.3033, resulting in (x) 700,473 shares of our Common Stock issued to New Bay, (y) 663,581 shares of our Common Stock issued to BR Technologies, and (z) 332,614 shares of our Common Stock issued to Grazyna.

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 experience. 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 on 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 dedicate 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 diversify 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 intelligent products. Our capacity to broaden our products portfolio, offer new services and attract a more diversified customer base could significantly influence our future operating results.

Results of Operations

Comparison for the three months ended September 30, 2025 and 2024

(Unaudited)

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Revenues

Our revenue is primarily derived from sales of electronic products. The total revenues decreased by approximately $2.9 million, or 12.5%, to approximately $20.2 million for the three months ended September 30, 2025 as compared to $23.1 million for the three months ended September 30, 2024. The decrease of the total revenue was mainly attributable to the decrease in mobile phone products revenues, which accounted for 87% of our sales.

Our revenues from our revenue categories are summarized as follows:

(Unaudited)

(Unaudited)

Tablet product sales were insignificant in our operations for the three months ended September 30, 2025. Revenue from the sales of tablets increased by approximately $46,000, or 961.4%, to approximately $51,000 for the three months ended September 30, 2025 from $5,000 for the same period in 2024. Revenue from sales of phones decreased by approximately $5.2 million, or 22.8%, to approximately $17.7 million for the three months ended September 30, 2025 from $22.9 million for the same period in 2024 as the consumers’ spending power was weakened and the mobile phone replacement rate was lowered. Previously, consumers tended to replace their phones every six months, whereas now many keep the same device for over a year. Revenue from sales of wearable products and others increased by approximately $2.1 million, or 100.0%, to approximately $2.1 million for the three months ended September 30, 2025 from $0 for the three months ended September 30, 2024, as we rolled out some new wearable products beginning in October 2024. Revenue from App service commission increased by approximately $0.2 million, or 76.3%, to approximately $0.4 million for the three months ended September 30, 2025 from $0.2 million for the three months ended September 30, 2024, as we engaged more partners and generate more income by providing installation of App service to our partners on our mobile devices and procure the distribution of these devices to the end users. Revenue from other services increased by approximately $2,000, or 100.0%, to approximately $2,000 for the three months ended September 30, 2025 from $0 for the three months ended September 30, 2024, as we started to generate income by providing other logistic and warehouse management services in April 2025.

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 $5.2 million, or 23.0%, to approximately $17.5 million for the three months ended September 30, 2025 as compared to $22.7 million for the three months ended September 30, 2024. The decrease in cost of goods sold is a direct result of an decrease in our revenue, consistent with the decrease in mobile phone production costs, which accounted for 88% of our cost of goods sold.

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

(Unaudited)

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Our cost of goods sold for tablets increased by approximately $35,000, or 758.4%, to approximately $40,000 for the three months ended September 30, 2025 from $5,000 for the same period in 2024. Cost of goods sold for mobile phone products decreased by approximately $7.3 million, or 32.4%, to approximately $15.3 million for the three months ended September 30, 2025 from $22.7 for the same period in 2024, which is consistent with the direct result of an decrease in our revenue, as we negotiated with our vendor to cover shipping and tariff costs beginning in July 2025. Cost of goods sold for wearable products and others increased by approximately $2.1 million, or 100.0%, to approximately $2.1 million for the three months ended September 30, 2025 from $0 for the same period in 2024, which is also the direct result of an increase in our revenue as we rolled out some new wearable products beginning in October 2024. Cost of goods sold for other services increased by approximately $400, or 100.0% to approximately $400 for the three months ended September 30, 2025 from $0 for the same period in 2024, which is also the direct result of an increase in our other revenue as we started to generate income by providing other services in April 2025.

Gross Profit

Our gross profit increased by approximately $2.3 million, or 589.3%, to approximately $2.7 million for the three months ended September 30, 2025, from $0.4 for the three months ended September 30, 2024.

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

(Unaudited)

(Unaudited)

For the three months ended September 30, 2025 and 2024, our overall gross profit percentage was 13.6% and 1.7%, respectively. The increase in gross profit percentage of 11.8% was primarily due to the increase in gross profit percentage for all products and services.

Gross profit percentage of tablets increased from 1.8% for the three months ended September 30, 2024 to 20.6% for the same period in 2025. This was primarily due to the decrease in sales of those with higher unit selling prices and lower unit purchase prices, and the reduction of shipping and tariff costs as we negotiated with our vendor to cover such costs.

Gross profit percentage for mobile phones increased from 0.7% for the three months ended September 30, 2024 to 13.0% for the same period in 2025. This was primarily due to the increasing sales in new phone models with higher gross profit margins and the reduction of shipping and tariff costs as we negotiated with our vendor to cover such costs.

For the three months ended September 30, 2025, our gross profit percentage of wearable products was 1.2%. We did not sell wearable products for the three months ended September 30, 2024.

For the three months ended September 30, 2025 and 2024, our gross profit percentage of App service commission was 100.0%. This high margin was primarily attributable to the nature of App service commission revenue, which was commission based revenue that was earned at a point in time when the revenue is generated from the App, that is when clicks and/or impressions, activation of Apps, and installation of additional Apps occur at a point in time when the end users of the mobile devices interact with those Apps. We earned the App revenue share (service commission) from our partners without incurring any direct cost, as the pre-installation expenses were included in the research and development expenses prior to installation, and any labor costs with minimal time spent were immaterial to be allocated to cost of revenue.

For the three months ended September 30, 2025, our gross profit percentage of other services was 81.0%. We did not have other logistic and warehouse management services for the three months ended September 30, 2024.

Operating Expenses

Total operating expenses increased by approximately $1.4 million, or 64.8%, to approximately $3.6 million for the three months ended September 30, 2025, from approximately $2.2 million for the three months ended September 30, 2024.

Our operating expenses are summarized as follows:

(Unaudited)

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

Selling Expenses

Selling expenses decreased approximately $0.3 million, or 25.8%, to approximately $0.9 million for the three months ended September 30, 2025, from approximately $1.2 million for the three months ended September 30, 2024. The decreased selling expenses was mainly attributable to approximately $0.4 million decrease in commission, payroll and payroll related expenses and approximately $0.1 million decrease in consulting fees during the three months ended September 30, 2025, as we reduced salespersons and consultants to cut expenses and improve profitability to improve cost efficiency. The decrease was offset by approximately $0.1 million increase in stock-based compensation as we granted restricted stock units in November 2024 to our sales team members under employee incentive plan and approximately $0.1 million increase in sampling, testing and certification expenses.

General and Administrative Expenses

General and administrative expenses increased approximately $1.4 million, or 152.7%, to approximately $2.4 million for the three months ended September 30, 2025 from approximately $1.0 million for the three months ended September 30, 2024. The increased general and administrative expense were mainly attributable to the approximately $0.5 million increase in professional expense on audit and accounting fees as we became a public company, approximately $0.2 million increase in salary and wages as we made more new hires after we became a public company, and approximately $0.7 million increase in rent due to the new factory and warehouse lease that commenced in July 2025.

Research and Development — related party

Research and development (“R&D”) expenses from a related party decreased by approximately $23,000, or 100.0%, where the decrease was primarily due to an R&D project which commenced in 2024 and was completed in June 2025. During the three months ended September 30, 2024, a related party completed additional 10% of the remaining 5G development project pursuant to a R&D agreement between us and the related party, and we recognized a R&D expense approximately of $23,000 accordingly based on the progression of the R&D project. We did not have this expense for the same period in 2025.

Research and Development

R&D expenses increased by approximately $0.3 million, or 4,260.2%, from $7,000 for the three months ended September 30, 2024 to $0.3 million for the same period in 2025. The increase is due to hiring of more employees and engaging third parties to provide development services for new products after we became a public company. The increase is also attributable to approximately $57,000 increase in stock-based compensation as we granted restricted stock units in November 2024 to our R&D team members under the Incentive Plan.

Other expense, net

Our other expense, net is summarized as follows:

(Unaudited)

(Unaudited)

Total other expenses, net increased by approximately $1.5 million, or 330.0%, to approximately $2.0 million for the three months ended September 30, 2025, from approximately $0.5 million for the three months ended September 30, 2024. The increase was primarily due to the increase of approximately $1.7 million interest expenses incurred related to the financing offered by our vendors based upon the timing of our payment to their accounts payable offset by the decrease of approximately $0.1 million interest expenses incurred related to three convertible promissory notes that were converted into our Common Stock in September 2024.

Provision for income taxes

The provision for income taxes are $0 for each of the three months ended September 30, 2025 and 2024 as we had made full allowance of our deferred tax assets on net operating losses.

Net Loss

Net loss increased by approximately $0.6 million, or 26.4%, to approximately $2.9 million of net loss for the three months ended September 30, 2025, from approximately $2.3 million net loss for the three months ended September 30, 2024. Such change was mainly due to the reasons discussed above.

Foreign Currency Translation Adjustment

Changes in foreign currency translation adjustment of approximately $7,000 are mainly due to the fluctuation of foreign exchange rates between SGD (the functional currency of one of our subsidiaries) and the USD dollar (reporting currency) for the three months ended September 30, 2025.

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 September 30, 2025, we had cash and cash equivalents of approximately $1.5 million, while we had working capital deficit of approximately $10.3 million and accumulated deficit of approximately $23.0 million. During the three months ended September 30, 2025, we had net loss of approximately $2.9 million and net operating cash outflow of approximately $0.4 million.

If we are unable to generate sufficient funds to finance the working capital requirements within the normal operating cycle of a twelve-month period from the date of the unaudited condensed consolidated financial statements are issued, we may have to consider supplementing our available sources of funds through the following sources:

• Other available sources of financing from banks, other financial institutions or private lenders;
• Financial support and credit guarantee commitments from our related parties; and
• Equity financing.

Our management has determined that the factors discussed above have raised substantial doubt about our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. The unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.

The following summarizes the key components of cash flows for the three months ended September 30, 2025 and 2024.

(Unaudited)

(Unaudited)

39

Operating activities

Net cash used in operating activities was approximately $0.4 million for the three months ended September 30, 2025 and was primarily attributable to (i) approximately $2.9 million net loss, (ii) approximately $6.0 million increase in accounts receivable due to the increase of credit sales during the period, (iii) approximately $0.5 million payment in operating lease liabilities as we commenced our factory and warehouse lease in July 2025, and (iv) approximately $0.1 million non-cash recovery of credit losses as we collected receivables that had been previously reserved for under the allowance for credit losses. The cash outflow was offset by (v) non-cash expenses of approximately $1.2 million, which includes depreciation, amortization of operating right-of-use assets, stock-based compensation, and impairment of inventories, (vi) approximately $5.4 million increase in accounts payable due to purchase with vendors to meet customer demand, (vii) approximately $0.8 million decrease in prepaid expenses and other current assets due to the decrease of prepaid rent payment in connection with our factory and warehouse leases which commenced in July 2025, (viii) approximately $0.7 million decrease in inventories as we engaged in dropship arrangement beginning in July 2025 where products were shipped directly to our customers rather than stored in our warehouse as inventory, (ix) approximately $0.4 million increase in contract liabilities aligned with the decrease of inventory, (x) approximately $0.3 million increase in other payables and accrued liabilities mainly due to accrued interest payable related to the financing offered by our vendors based upon the timing of our payment to their accounts payable and accrued professional fees that associated with business expansion, such as consulting fees, testing fees and legal fees, and (xi) approximately $0.2 million decrease in contract assets as we reduced new purchase and sold off inventory.

Net cash used in operating activities was approximately $0.2 million for the three months ended September 30, 2024 and was primarily attributable to (i) approximately $2.2 million net loss, (ii) approximately $12.1 million increase in accounts receivable due to the increase of credit sales during the period, (iii) approximately $2.8 million increase in inventories because we stored more inventories to meet the demand of our anticipated sales orders, (iv) approximately $0.6 million increase in security deposit because we rented more office space, (v) approximately $0.5 million decrease in contract liabilities aligned with the increase of inventory, and (vi) approximately $0.2 million increase in prepaid expenses and other current assets due to our prepaid rent payment in connection with our warehouse lease which commenced in February 2025. The cash outflow was offset by (i) non-cash expenses of approximately $0.3 million, which includes depreciation, accrued interest expenses incurred from the convertible notes, change in fair value of earnouts and amortization of operating right-of-use assets, (ii) approximately $17.9 million increase in accounts payable due to purchase of more inventories with vendors to meet customer demand, and (iii) approximately $0.2 million increase 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.

Investing activities

There were no investing activities for the three months ended September 30, 2025.

Net cash used in investing activities was approximately $35,000 for the three months ended September 30, 2024, attributable to the purchase of an automobile for our business uses.

Financing activities

Net cash provided by financing activities was approximately $7,000 for the three months ended September 30, 2025, mainly attributable to the principal payments of long-term loan of approximately $7,000.

Net cash provided by financing activities was approximately $28.3 million for the three months ended September 30, 2024, mainly attributable to approximately $19.7 million proceeds from the reverse recapitalization and $9.0 million proceeds from issuance of convertible promissory notes, offset by the repayment of short-term loans of approximately $0.3 million and approximately $0.1 million in payments of deferred transaction costs.

Off-Balance Sheet Arrangements

As of September 30, 2025, 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 Estimates

The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting estimates that are critical to the preparation of the unaudited condensed consolidated financial statements. Certain accounting estimates are particularly sensitive because of their significance to the unaudited condensed consolidated financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe that the critical accounting estimates, assumptions, and judgments that have the most significant impact on our unaudited condensed consolidated financial statements are described below.

Income Taxes

We record deferred tax assets and liabilities based on the net tax effects of tax credits, operating loss carryforwards, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes compared to the amounts used for income tax purposes. We regularly review our deferred tax assets for recoverability with consideration for such factors as historical losses, projected future taxable income, and the expected timing of the reversals of existing temporary differences. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes the deferred tax assets, based largely on the history of tax losses, warrant a full valuation allowance based on the weight of available negative evidence. Currently, the key factor in our assumption of providing 100% valuation allowance was purely based on our historical operating losses. Once we begin generating profit, we will re-evaluate whether providing 100% valuation allowance is appropriate or if we can reassess such number.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of the 2025 10-K. The risks and uncertainties that we face are not limited to those set forth in the 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities. There have been no material changes to the Company’s risk factors since the filing of the 2025 10-K, except as discussed below:

Implementation of tariffs and changes to or uncertainties related to tariffs and trade agreements could adversely affect our business.

The U.S. government has recently imposed tariffs on certain foreign goods from a variety of countries and regions that it perceives as engaging in unfair trade practices and has raised the possibility of imposing significant additional tariff increases or expanding the tariffs to capture other types of goods from other countries. For example, on April 2, 2025, the President of the United States signed Executive Order 14257, “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits” (the “Executive Order 14257”), to take action based on the results of certain investigations related to the causes of the U.S.’s large and persistent annual trade deficits in goods. In response, many of these foreign governments have imposed retaliatory tariffs on goods that their countries import from the U.S. or have enacted export restrictions on certain goods produced in their country. Uncertainties with respect to tariffs, trade agreements or any potential trade wars could negatively affect the global economy and demand for our products and could have a material adverse effect on our financial condition, results of operations and cash flows. Changes in tariffs and trade barriers could also result in adverse changes in the cost of sourcing and manufacturing our products, which could lead to increased costs that we may not be able to effectively pass on to customers, each of which could materially adversely affect our operating margins, results of operations and cash flows.

The enactment of legislation implementing changes in taxation of international business activities, the adoption of other corporate tax reform policies, or changes in tax legislation or policies could impact our future financial position and results of operations.

Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax jurisdictions where we intend to have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions are under heightened scrutiny and tax reform legislation is being proposed or enacted in a number of jurisdictions. Recently, in July 2025, the U.S. government enacted The One Big Beautiful Bill Act, Public Law No. 119021 (the “OBBBA”) which includes a broad range of tax reform provisions that may affect our financial results. The OBBBA includes, among other provisions, the allowance of immediate expensing of qualifying domestic research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act of 2017. The Company is currently assessing the potential impact of this legislation on its future financial position, results of operations, and cash flow. In accordance with U.S. GAAP, the effects will be recognized in the period of enactment.

In addition, many countries have enacted or plan to enact legislation and other guidance to align their international tax rules with the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer-pricing documentation rules, and nexus-based tax incentive practices. Such legislative initiatives may materially negatively impact our financial condition and results of operations generally.