U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to _______

Commission File Number 001-42285

Foxx Development Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware		99-5119494
(State or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)

15375 Barranca Parkway C106

Irvine, CA 92618

(Address of principal executive offices)

+201-962-5550

(Issuer’s telephone number including area code)

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	FOXX	The Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50	FOXXW	The Nasdaq Stock Market LLC

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date. As of February 13, 2026, there are 7,005,191 shares of common stock issued and outstanding.

FOXX DEVELOPMENT HOLDINGS INC.

CONTENTS

PART 1 – FINANCIAL INFORMATION	1

Item 1. – Financial Statements (unaudited)	1

Condensed Consolidated Balance Sheets	1

Condensed Consolidated Statements of Operations and Comprehensive Loss	2

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	3

Condensed Consolidated Statements of Cash Flows	4

Notes to Condensed Consolidated Financial Statements	5

Item 2. – Management’s Discussion and Analysis of Financial Condition And Results of Operations	33

Item 3. – Quantitative and Qualitative Disclosures about Market Risk	50

Item 4. – Controls and Procedures	50

PART II – OTHER INFORMATION	51

Item 1. – Legal Proceedings	51

Item 1A. – Risk Factors	51

Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3. – Defaults Upon Senior Securities	52

Item 4. – Mine Safety Disclosures	52

Item 5. – Other Information	52

Item 6. – Exhibits	52

SIGNATURES	53

PART I: FINANCIAL INFORMATION

Item 1. - Financial Statements

FOXX DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,			June 30,
	2025			2025
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	1,769,684		$	1,875,453
Accounts receivable, net of allowance for credit losses of $478,526 and $595,907, as of December 31, 2025 and June 30, 2025, respectively		6,318,106			6,786,792
Inventories		10,182,579			12,686,739
Contract assets		138,664			454,842
Prepaid expenses and other receivables, net of allowance for credit losses of $518,226 and $317,282, as of December 31, 2025 and June 30, 2025, respectively		1,376,395			1,837,812
Prepaid expenses - related party		-			8,000
Amount due from related parties		53,157			-
Total Current Assets		19,838,585			23,649,638

PROPERTY AND EQUIPMENT, NET		102,321			131,722

NON-CURRENT ASSETS
Operating right-of-use assets		20,947,327			1,063,438
Security deposits		1,155,516			1,155,016
Total Non-current Assets		22,102,843			2,218,454

Total Assets	$	42,043,749		$	25,999,814

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable	$	29,678,545		$	26,244,987
Other payables and accrued liabilities		2,938,652			3,570,959
Other payable - related parties		35,263			272,917
Contract liabilities		23,525			378
Income taxes payable		65,243			76,743
Current maturity of long-term loan		23,383			23,743
Operating lease liabilities - current		1,187,583			211,525
Total Current Liabilities		33,952,194			30,401,252

NON-CURRENT LIABILITIES
Operating lease liabilities - non-current		19,851,890			889,827
Long-term loan - non-current		61,376			73,418
Total Non-current Liabilities		19,913,266			963,245

Total Liabilities		53,865,460			31,364,497

COMMITMENTS AND CONTINGENCIES (See Note 18)

STOCKHOLDERS’ DEFICIT
Common stock, $0.0001 par value, 50,000,000 shares authorized as of December 31, 2025 and June 30, 2025; 6,962,811 and 6,780,597 shares issued and outstanding as of December 31, 2025 and June 30, 2025, respectively		696			678
Additional paid-in capital		15,389,806			14,686,705
Accumulated deficit		(27,198,420	)		(20,047,064	)
Accumulated other comprehensive loss		(13,793	)		(5,002	)
Total Stockholders’ Deficit		(11,821,711	)		(5,364,683	)

Total Liabilities and Stockholders’ Deficit	$	42,043,749		$	25,999,814

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

FOXX DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	For the Three Months Ended						For the Six Months Ended
	December 31,			December 31,			December 31,			December 31,
	2025			2024			2025			2024
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

REVENUES, NET	$	16,716,572		$	17,480,231		$	36,939,873		$	40,592,283
COST OF GOODS SOLD		14,499,792			15,289,565			31,978,526			38,003,441
GROSS PROFIT		2,216,780			2,190,666			4,961,347			2,588,842
OPERATING EXPENSES:
Selling expenses		1,142,567			1,626,740			2,044,223			2,841,782
General and administrative expenses		3,103,576			2,042,169			5,532,249			3,003,416
Research and development - related party		-			45,584			-			68,376
Research and development		193,208			717,273			499,640			724,301
Total Operating Expenses		4,439,351			4,431,766			8,076,112			6,637,875

LOSS FROM OPERATIONS		(2,222,571	)		(2,241,100	)		(3,114,765	)		(4,049,033	)
OTHER (EXPENSE) INCOME
Interest expense		(2,003,236	)		(1,042,198	)		(4,015,141	)		(1,451,193	)
Other (expense) income, net		(60,107	)		1,861			(21,450	)		1,861
Change in fair value of earnout liabilities		-			4,705,583			-			4,655,722
Total Other (Expense) Income, net		(2,063,343	)		3,665,246			(4,036,591	)		3,206,390

(LOSS) INCOME BFORE INCOME TAXES		(4,285,914	)		1,424,146			(7,151,356	)		(842,643	)

PROVISION FOR INCOME TAXES		-			-			-			-

NET (LOSS) INCOME		(4,285,914	)		1,424,146			(7,151,356	)		(842,643	)

OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment		(2,266	)		-			(8,791	)		-

COMPREHENSIVE (LOSS) INCOME	$	(4,288,180	)	$	1,424,146		$	(7,160,147	)	$	(842,643	)

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
Basic		6,892,729			7,280,366			6,836,356			5,389,365	*
Diluted		6,892,729			7,280,366			6,836,356			5,389,365	*

(LOSS) INCOME PER SHARE
Basic	$	(0.62	)	$	0.20		$	(1.05	)	$	(0.16	)
Diluted	$	(0.62	)	$	0.20		$	(1.05	)	$	(0.16	)

Giving retroactive effect to reverse recapitalization effected on September 26, 2024 to reflect exchange ratio of approximately 3.3033 as described in Note 4.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

FOXX DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS’ EQUITY (DEFICIT)

	For the Six Months Ended December 31, 2025
					Additional						Accumulated other
	Common stock				paid-in			Accumulated			comprehensive
	Shares		Amount		capital			deficit			loss			Total
BALANCE, June 30, 2025		6,780,597	$	678	$	14,686,705		$	(20,047,064	)	$	(5,002	)		(5,364,683	)
Stock-based compensation expenses		-		-		296,797			-			-			296,797
Foreign currency translation		-		-		-			-			(6,525	)		(6,525	)
Net loss		-		-		-			(2,865,442	)		-			(2,865,442	)
BALANCE, September 30, 2025 (Unaudited)		6,780,597		678		14,983,502			(22,912,506	)		(11,527	)		(7,939,853	)
Issuance of common stock under EIP		182,214		18		(18	)		-			-			-
Stock-based compensation expenses		-		-		406,322			-			-			406,322
Foreign currency translation		-		-		-			-			(2,266	)		(2,266	)
Net loss		-		-		-			(4,285,914	)		-			(4,285,914	)
BALANCE, December 31, 2025 (Unaudited)		6,962,811	$	696	$	15,389,806		$	(27,198,420	)	$	(13,793	)	$	(11,821,711	)

	For the Six Months Ended December 31, 2024
					Additional						Accumulated other
	Common stock				paid-in			Accumulated			comprehensive
	Shares*		Amount		capital			deficit			loss		Total
BALANCE, June 30, 2024		3,303,333	$	330	$	7,024,162		$	(11,026,928	)	$	-	$	(4,002,436	)
Conversion of convertible promissory notes into common stock upon completion of reverse recapitalization		1,696,668		170		15,408,515			-			-		15,408,685
Issuance of common stock upon completion of reverse recapitalization		2,270,096		227		(2,100,865	)		-			-		(2,100,638	)
Earnout liabilities		-		-		(5,688,007	)		-			-		(5,688,007	)
Transaction costs		-		-		(893,577	)		-			-		(893,577	)
Net loss		-		-		-			(2,266,789	)		-		(2,266,789	)
BALANCE, September 30, 2024 (Unaudited)		7,270,097		727		13,750,228			(13,293,717	)		-		457,238
Issuance of common stock through exercise of warrants		10,500		1		120,749			-					120,750
Stock-based compensation expenses		-		-		200,954			-					200,954
Net income		-		-		-			1,424,146					1,424,146
BALANCE, December 31, 2024 (Unaudited)		7,280,597	$	728	$	14,071,931		$	(11,869,571	)	$	-	$	2,203,088

Giving retroactive effect to reverse recapitalization effected on September 26, 2024 to reflect exchange ratio of approximately 3.3033 as described in Note 4.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

FOXX DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended
	December 31,			December 31,
	2025			2024
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,151,356	)	$	(842,643	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		23,365			23,587
Interest expense from convertible promissory notes		-			140,740
Amortization of operating right of use assets		872,890			107,224
Provision of credit losses, net		83,563			63,000
Stock-based compensation expenses		703,119			200,954
Change in fair value of earnout liabilities		-			(4,655,722	)
Gain on disposal of equipment		(2,790	)		-
Impairments of inventories		1,570,862			-
Change in operating assets and liabilities:
Accounts receivable		586,067			(7,454,174	)
Inventories		933,297			(13,997,419	)
Contract assets		316,178			79,023
Prepaid expenses and other current assets		260,474			(892,774	)
Amount due from related parties		(45,157	)		140
Security deposits		(500	)		(573,807	)
Accounts payable		3,433,558			22,705,175
Contract liabilities		23,147			134,707
Income taxes payable		(11,500	)		(253,932	)
Other payables and accrued liabilities		(631,493	)		873,182
Other payable - related parties		(237,654	)		(54,799	)
Operating lease liabilities		(818,659	)		(77,694	)
Net cash used in operating activities		(92,589	)		(4,475,232	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		-			(68,336	)
Proceeds from disposal of equipment		8,826			-
Net cash provided by (used in) investing activities		8,826			(68,336	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to short-term loans		-			(291,208	)
Principal payments of long-term loan		(12,402	)		(9,477	)
Proceeds from convertible promissory note		-			9,000,000
Proceeds from reverse recapitalization, net of payments of transaction costs		-			19,710,288
Proceeds from issuance of common stock through exercise of warrants		-			120,750
Payment of redemption payable		-			(20,499,790	)
Payments of deferred transaction costs		-			(131,400	)
Net cash (used in) provided by financing activities		(12,402	)		7,899,163

EFFECT OF EXCHANGE RATE CHANGES		(9,604	)		-

NET CHANGE IN CASH		(105,769	)		3,355,595

CASH, beginning of the period		1,875,453			587,448

CASH, end of the period	$	1,769,684		$	3,943,043

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income tax	$	11,500		$	50
Cash paid for interest	$	4,723,963		$	730,795

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Initial recognition of operating right-of-use assets and lease liabilities	$	20,756,779		$	750,338
Modification of operating right-of-use assets and lease liabilities	$	-		$	121,655
Conversion of convertible promissory notes into common stock	$	-		$	15,408,685
Reverse recapitalization transaction costs net against additional-paid in capital	$	-		$	893,577
Deferred transaction costs included in other payables and accrued liabilities	$	-		$	300,000
Initial recognition of earnout liabilities	$	-		$	5,688,007

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

FOXX DEVELOPMENT HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Nature of business and organization

Foxx Development Holdings Inc. (“Foxx” or the “Company”) was incorporated on November 13, 2023 under the name “Acri Capital Merger Sub I Inc.” On February 18, 2024, the Company entered into a business combination agreement (as amended on May 31, 2024, the “Business Combination Agreement”), by and among the Company, Acri Capital Acquisition Corporation, a Delaware corporation and our parent company at the time (“ACAC”), Acri Capital Merger Sub II Inc., a Delaware corporation and our wholly-owned subsidiary at the time (“Merger Sub”), and Foxx Development Inc. (“Old Foxx”), a Texas corporation incorporated on March 17, 2017 primarily engaged in the sales of electronic products, pursuant to which (i) ACAC merged with and into the Company, with the Company as the surviving Delaware corporation (the “Reincorporation Merger”), and (ii) Old Foxx merged with and into Merger Sub, with Merger Sub surviving as a wholly-owned Delaware subsidiary of the Company (the “Acquisition Merger”). The Reincorporation Merger, the Acquisition Merger, and other transactions contemplated under the Business Combination Agreement, are collectively referred to as the “Business Combination” (See Note 4).

Following the consummation of the Business Combination (the “Closing”) on September 26, 2024, the Company was renamed as “Foxx Development Holdings Inc.” and became a publicly traded company. The Merger Sub was renamed as “Foxx Development Inc.” and became the Delaware subsidiary of the Company.

On August 29, 2023, Foxx Technology Pte Ltd, a Singapore private company (“Foxx Technology”), was incorporated in Singapore, with Old Foxx holding 51% of the equity interests in Foxx Technology. Foxx Technology operated in the field of the manufacture of wireless communications equipment, and the wholesale of handphones, handphone peripheral equipment and other telecommunications equipment. On July 30, 2024, Foxx submitted the application to dissolve Foxx Technology to the Accounting and Corporate Regulatory Authority (ACRA) of Singapore. On November 4, 2024, ACRA granted Foxx Technology’s application and struck it off from the company register of Singapore.

On March 3, 2025, Foxx Development (Singapore) Pte. Ltd (“Foxx Singapore”) was incorporated in Singapore. Foxx Singapore primarily engaged in assembling electronic products, and was 100% owned by the Company. Foxx Singapore had no significant operations as of December 31, 2025.

On April 8, 2025, Foxx Technologies Inc (“Foxx Tech”) was incorporated in the State of California. Foxx Tech is 100% owned by the Company. Foxx Tech had no significant operations as of December 31, 2025.

On May 19, 2025, Nexus IQ Technology Inc (“Nexus IQ”) was incorporated in the State of Delaware. Nexus IQ primarily engaged in developing, sales and rental of products involving Artificial Intelligence of Things (“AIoT”) technologies and was 100% owned by the Company. Nexus IQ began winding down its operations, disposed of related AIoT equipment, and sold its AIoT products to a third party.

Note 2 — Going Concern

In assessing the Company’s ability to continue as a going concern, the Company monitors and analyses its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses, and capital expenditure obligations.

The Company primarily engages in the sales of electronic products. Debt financing in the form of convertible notes, loans from bank, third parties, and related parties, and cash generated from operations have been utilized to finance the working capital. The Company’s management has considered whether there is substantial doubt about its ability to continue as a going concern due to (1) net cash used in operating activities of approximately $90,000 for the six months ended December 31, 2025, (2) net loss of approximately $7.2 million for the six months ended December 31, 2025, and (3) working capital deficit of approximately $14.1 million as of December 31, 2025.

If the Company is unable to generate sufficient funds to finance its 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, the Company may have to consider supplementing its available sources of funds through the following sources:

●

Other sources of available financing from banks in the United States of America and other financial institutions or private lenders;

●

Financial support and credit guarantee commitments from the Company’s related parties; and

●

Equity financing.

The Company can make no assurance that required financing will be available in the amounts needed, or on terms commercially acceptable to the Company, if at all. If one or more of these events do not occur, or if subsequent capital raises are insufficient to bridge any financial and liquidity shortfall, there would likely be a material adverse effect on the Company and it would materially adversely affect its ability to continue as a going concern.

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

Note 3 — Basis of presentation and significant accounting policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial position and operation results have been included. Interim results are not necessarily indicative of results for a full year. The information in this Quarterly Report on Form 10-Q (the “10-Q”) should be read in conjunction with information in the Annual Report for the fiscal year ended June 30, 2025, on Form 10-K filed by the Company with the SEC on October 15, 2025.

Principles of consolidation

The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.

A subsidiary is an entity in which the Company, directly or indirectly, controls more than one-half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the Board of Directors, or to cast a majority of votes at the meetings of directors.

Use of estimates and assumptions

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates.

Foreign currency translation and transactions

The reporting currency of the Company is the U.S. dollar. The functional currency for the holding company is the U.S. dollar (“USD”). In Singapore, the Company conducts its business in the local currency, Singapore dollar (“SGD”), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the Federal Reserve System at the end of the period. The statements of operations and cash flows are translated at the average translation rates during the reporting periods, and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive loss. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Translation adjustments are included in accumulated other comprehensive loss. The balance sheet amounts, with the exception of stockholders’ deficit at December 31, 2025, were translated at SGD 1.29 to USD 1.00. The average translation rates applied to the unaudited condensed consolidated statements of operations and cash flows for the six months ended December 31, 2025, were SGD 1.29 to USD 1.00. The stockholders’ equity accounts were translated at their historical rates. Amounts reported on the unaudited condensed consolidated statement of cash flows will not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheets.

Segments

The Company uses the management approach in determining reportable operating segments. The management approach considers the internal reporting used by the chief operating decision maker (“CODM”), which is the Company’s Chief Executive Officer and his direct reports, for making operating decisions about the allocation of resources and the assessment of performance in determining the Company’s reportable operating segments. The Company’s CODM reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues, cost of revenues, and gross profit by business lines (electronic products revenues and App Service (as defined below) commission revenue) for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. In addition, all of the Company’s revenues are derived solely from the U.S. Accordingly, no geographical information is presented. Management has determined that the Company has one operating segment.

Accounts receivable

Accounts receivables are recognized and carried at the original invoiced amount less an allowance for any uncollectible accounts or credit losses. An allowance for credit losses for accounts receivables is established based on various factors, including historical payments and current economic trends. The Company reviews its allowance for credit loss by assessing individual accounts receivable over a specific aging and amount. All other balances are pooled based on historical collection experience. The estimate of expected credit losses is based on information about past events, current economic conditions, and forecasts of future economic conditions that affect collectability. Accounts receivable are written off on a case-by-case basis after exhaustive efforts at collection are made, net of any amounts that may be collected. As of December 31, 2025 and June 30, 2025, $478,526 and $595,907, respectively, of allowance for credit losses of accounts receivable was recorded, and the Company had net accounts receivable of $6,318,106 and $6,786,792, respectively.

Inventories

Inventories are stated at the lower cost or net realizable value. The estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Cost is determined using the “First in, First out” method. Inventories mainly include electronic products and accessories, which are purchased from the Company’s suppliers as merchandized goods and freight-in. At least a quarterly basis, inventories are reviewed for potential write-downs for estimated obsolescence or unmarketable inventories which equals the difference between the costs of inventories and the estimated net realizable value. The estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. When inventories are written down to net realizable value, they are not marked up subsequently based on changes in underlying facts and circumstances. As of December 31, 2025 and June 30, 2025, the Company had inventories of $10,182,579 and $12,686,739, respectively. During the three months ended December 31, 2025 and 2024, $1,086,547 and $0 inventory write-down were recorded, respectively. During the six months ended December 31, 2025 and 2024, $1,570,862 and $0 inventory write-down were recorded, respectively.

Contract assets

Contract assets consisted of cash deposited or advanced to suppliers for future inventory purchases. This amount is refundable and bears no interest. For any advances to suppliers determined by management that such advances will not be in receipts of inventories or refundable, the Company will recognize an allowance account to reserve such balances. Management reviews its advances to suppliers on a regular basis to determine if the allowance is adequate and adjusts the allowance when necessary. Delinquent account balances are written off against allowance for credit losses after management has determined that the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary. As of December 31, 2025 and June 30, 2025, no allowance for credit losses on contract assets was recorded.

Contract liabilities

Contract liabilities mainly consist of deposits received from customers before all the relevant criteria for revenue recognition are met and are recorded as customer deposits.

Earnout liabilities

At the Closing of the Business Combination, pursuant to the Business Combination Agreement, the stockholders of Old Foxx were entitled to receive up to a total of 4,200,000 contingent Earnout Shares (as defined below) in the form of common stock of the Company, par value $0.0001 per share (“Common Stock”). The Earnout Shares would be issued upon certain vesting schedules based on the Company’s financial performance for the fiscal years ended June 30, 2025 and 2024. The earnout conditions failed to meet the indexation guidance under ASC 815-40-15, therefore, the earnout shares are required to be classified as a liability rather than equity. As a result, the Earnout Shares are classified as liability and measured at fair value, with changes in fair value included in the consolidated statements of operations.

Convertible instrument

The Company accounts for its convertible instrument in accordance with the Financial Accounting Standards Board (“FASB”)’s Accounting Standards Codification (“ASC”) No. 470-20 “Debt with Conversion and Other Options ”, whereby the convertible instrument is initially accounted for as a single unit of account, unless it contains a derivative that must be bifurcated from the host contract in accordance with ASC 815-15 Derivatives and Hedging — Embedded Derivatives or the substantial premium model in ASC 470-20 Debt applies. If the equity securities underlying the embedded conversion option are readily convertible to cash, such as publicly traded common shares, the embedded conversion option is likely to meet the net settlement criterion to be considered a derivative. If the equity securities underlying the conversion option are not readily convertible to cash, the embedded conversion option may not meet the net settlement criterion and therefore would not meet the definition of a derivative. Because the convertible instrument has a fixed conversion price and therefore, it lacks an underlying and does not meet the requirement of a derivative. As a result, the Company determined its embedded conversion option does not meet the definition of a derivative for bifurcation. All the convertible notes were converted into the Company’s Common Stock on September 26, 2024 as part of the business combination.

Revenue recognition

The Company recognizes revenue to depict the transfer of promised goods or services (that is, an asset) to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services. An asset is transferred when the customer obtains control of that asset. It also requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.

To achieve that core principle, the Company applies the five steps defined under ASC 606, Revenue from Contracts with Customers: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company’s main business is selling electronic products to 1) wholesale customers and 2) individual E-commerce customers, and the Company’s revenue also came from 3) the App Service commission from providing installation of applications on the Company’s mobile devices and revenue share from clicks and impressions.

Wholesale Customers

The Company recognizes a contract with a customer when the contract is committed in writing, the rights of parties, including payment terms, are identified, the contract has commercial substance, and collectability is probable.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting in ASC 606. A contract’s transaction price is allocated to each performance obligation identified in the arrangement based on the relative standalone selling price of each distinct good or service in the contract and recognized as revenue when, or as, the performance obligation is satisfied. For all the Company’s wholesale contracts, the Company has identified one performance obligation, which is primarily satisfied at a point in time upon delivery of products based on terms stated in the contracts, either on Free on Board (“FOB”) shipping point or destination, depending on the specified contract. The Company’s customers generally either pay for the order in full balance prior to shipment or in partial payments with credit terms of 30 to 90 days after shipment depending on the specified contract. No sales returns are being given to its wholesale customers as they were being given additional 1-3% of products on top of each customer’s order (see Note 3 - “Warranty” below). There is no transaction prices allocated to future periods or future obligations and no revenue was recognized for performance obligations satisfied in previous periods.

Warranty

The Company generally provides 30-day warranties or 1-year warranties for its product sold to its wholesale customer if an additional 1-3% of products on top of each customer’s order was not provided. For the sale transactions that were provided with 1-3% of products on top of each customer’s order, these additional 1-3% products were recognized as cost of goods sold at the same time the respective sale is recognized. For the sales transactions that the Company provided limited warranties to both wholesale customers and e-commerce customers, the Company records estimated future warranty costs under ASC 460, Guarantees. Such estimated costs for warranties are estimated at the time of delivery, and these warranties are not service warranties separately sold by the Company. Generally, the estimated claim rates of warranties are based on actual warranty experience or the Company’s best estimate. As of December 31, 2025 and June 30, 2025, the Company accrued warranty reserves of $439,475 and $328,438, respectively recorded under accrued liabilities and other current liabilities, and these reserves were recognized based on estimation and judgment from the Company’s management.

E-commerce Customers

The Company recognizes a contract with a customer when the contract is committed in writing and signed electronically on an e-commerce platform, the rights of parties, including payment terms, are identified, the contract has commercial substance, and collectability is probable.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting in ASC 606. For all the Company’s contracts, the Company has identified one performance obligation, which is primarily satisfied at a point in time upon delivery of products based on terms stated in the contracts on shipping destination at its individual customer shipping address, which is the Company’s obligation to deliver the product to the end user/individual customer, depending on the specified contract. The Company’s e-commerce customers pay the order in full balance prior to shipment to the e-commerce platform and the e-commerce platform withholds the payment for 30 days before remitting payments to the Company. The Company offered one month of free exchange or return. As a result, the Company recognized its revenues from the e-commerce customers, in the third-party e-commerce platform, net of estimated sales returns, discount, and rebate, as a consideration reducing the transaction price. Historically, sales returns were insignificant to the Company’s operations. For the three and six months ended December 31, 2025 and 2024, the Company did not recognize any estimated sales returns. There is no transaction prices allocated to future periods or future obligations and no revenue was recognized for performance obligations satisfied in previous periods.

App Service Commission Revenue

The Company provides an App Service (as defined below) by installing applications from App (as defined below) developer partners (the “Partners”) onto its mobile devices and facilitating the distribution of these devices to end users (the “App Service”). The App Service commission revenue is generated when end users interact with Partner-developed mobile applications (“App” or “Apps”) installed on the Company’s mobile devices, such as through clicks and/or impressions, App activations, and/or additional App installations, triggering the Partners’ obligation to pay the Company its App revenue share (service commission). The revenue shares are considered variable consideration. Those revenue shares related to clicks, impressions, and additional App installations are determined based on the contract price negotiated between the Partners and the third-party advertisers, while those related to App activations are determined based on the number of App activations. The Partners are primarily responsible in developing and maintaining the App, and are the primary obligor to users of the application and determine and control the revenue shares (service commission) to pay the Company. No refund or return policy is provided to the Partners. The Company recognizes App Service commission revenue at a point in time when the activations and service commission is earned, which is when the app activations, clicks/impressions, or additional app installations occur, and when the uncertainty of the variable consideration is resolved.

Practical expedient

The Company applies the practical expedient in ASC 606 to expense as incurred, the costs to obtain a contract with a customer when the amortization period is one year or less. The Company has no material incremental costs for obtaining contracts with customers that the Company expects the benefit of those costs to be longer than one year, which need to be recognized as assets for the three and six months ended December 31, 2025 and 2024.

Interest expenses

Interest expenses consist primarily of interest incurred on convertible notes, unpaid purchase balance from a vendor (see Note 10), and borrowings and others. For the three months ended December 31, 2025 and 2024, the Company had interest expenses that amounted to $2,003,236 and $1,042,198, respectively. Of the total interest expense for the three months ended December 31, 2025, $2,000,569 was related to unpaid purchase balance and $2,667 to borrowings and others. Of the total interest expense for the three months ended December 31, 2024, $1,042,198 was related to unpaid purchase balance. For the six months ended December 31, 2025 and 2024, the Company had interest expenses that amounted to $4,015,141 and $1,451,193, respectively. Of the total interest expense for the six months ended December 31, 2025, $4,008,672 was related to unpaid purchase balance and $6,469 to borrowings and others. Of the total interest expense for the six months ended December 31, 2024, $140,740 was related to convertible notes, $1,305,933 to unpaid purchase balance, and $4,520 to borrowings and others.

Lease

The Company accounts for leases in accordance with ASC 842, Leases. The Company categorizes leases with contractual terms longer than 12 months as either operating or finance. Finance leases are generally those leases that substantially utilize or pay for the entire asset over their estimated life. All other leases are categorized as operating leases. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease. As of December 31, 2025 and June 30, 2025, the Company does not have finance leases.

The Company determines if an arrangement is, or contains, a lease at inception. Operating lease assets represent the Company’s right to control the use of an identified asset for a period of time, or term, in exchange for consideration, and operating lease liabilities represent its obligation to make lease payments arising fro

SEC Form 10-Q filed by Foxx Development Holdings Inc.