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

Company: Foxx Development Holdings Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Item 1
Chunk 15
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Payables on shares redemption 

Payables on shares redemption
consisted of payables to the ACAC shareholders who exercised their redemption rights in connection with the Business Combination (See
Note 4).

Contract liabilities

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

Earnout liabilities

At the Closing of the Business
Combination, pursuant to the Business Combination Agreement, the stockholders of Old Foxx were entitled to receive up to a total of 4,200,000 contingent
earnout shares (“Earnout Shares”) 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 year
ended June 30, 2024 and 2025. The Earnout Shares are classified as a liability and measured at fair value, with changes in fair value
included in the consolidated statements of operations (See Note 17).

Convertible instrument

The Company accounts for its convertible instrument in accordance with
ASC 470-20 “Debt with Conversion and Other Options”, whereby the convertible instrument is initially accounted
for as a single unit of account, unless it contains a derivative that must be bifurcated from the host contract in accordance with ASC 815-15 Derivatives
and Hedging — Embedded Derivatives or the substantial premium model in ASC 470-20 Debt applies.
If the equity securities underlying the embedded conversion option are readily convertible to cash, such as publicly traded common shares,
the embedded conversion option is likely to meet the net settlement criterion to be considered a derivative. If the equity securities
underlying the conversion option are not readily convertible to cash, the embedded conversion option may not meet the net settlement criterion,
and therefore would not meet the definition of a derivative. Because the convertible instrument has a fixed conversion price and therefore,
it lacks an underlying and does not meet the requirement of a derivative. As a result, the Company determined its embedded conversion
option does not meet the definition of a derivative for bifurcation.

Revenue recognition

The Company recognizes revenue
to depict the transfer of promised goods or services (that is, an asset) to customers in an amount that reflects the consideration to
which the Company expects to receive in exchange for those goods or services. An asset is