Company: FOXX
Filing Date: 2025-10-15
Form Type: 10-K
Source: 0001213900-25-098953
Chunk: 590

Company: Foxx Development Holdings Inc.
Filing Date: 2025-10-15
Form: 10-K
Item: Item 2
Chunk 590
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 to a total 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 were classified as a liability at the Closing 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.

ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As
a