Company: FOXX
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-043597
Chunk: 258

Company: Foxx Development Holdings Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Item 2
Chunk 258
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 of 4,200,000 contingent
earnout shares (“Earnout Shares”) in the form of our common stock. The Earnout Shares will be issued upon certain vesting
schedules based on our financial performance for the fiscal year ended June 30, 2024 and 2025. The Earnout Shares are classified as a
liability at the closing of the Business Combination on September 26, 2024 and measured at fair value at each reporting period, with changes
in fair value included in the consolidated statements of operations.

When determining the fair
value measurements for earnout liabilities which are required to be recorded at fair value, the Company considers the principal or most
advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants
would use in pricing the earnout liabilities arising from the Business Combination.

The Company developed a Monte
Carlo Model that values the earnout subject revenue milestones. The Monte Carlo Model technique applied generates many possible (but random)
price paths for the underlying(s) via simulation, and then calculates the associated payment value of the security features. The price
of the underlying common stock is modeled such that it follows a geometric Brownian motion with constant drift, and constant volatility.
The stock price is determined by a random sampling from a normal distribution. Since the underlying random process is the same, for enough
price paths, the value of security is derived from path dependent scenarios and outcomes.

The model simulates the underlying
economic factors, including the projected revenue that influenced which of these events would occur, when they were likely to occur, and
the specific terms that would be in effect at the time (i.e., stock price, revenue, etc.). Probabilities were assigned to each variable
such as the timing and pricing of events over the term of the instruments based on management projections. This led to a cash flow simulation
over the life of the instrument. A discounted cash flow was completed to determine the value for the earnout liabilities.

Prior to the Business Combination,
we were a private company and lacked company-specific historical and implied volatility information of its stock, and as such, the expected
revenue volatility was based on historical volatility of industry outlook and the expected revenue volatility and stock volatility was
based on the historical volatility of publicly traded peer companies for a term equal to the remaining expected term of the earnout period.

48

Item 3. Quantitative and Qualitative Disclosures
About Market Risk

Not applicable.