Company: FOXX
Filing Date: 2025-10-15
Form Type: 10-K
Source: 0001213900-25-098953
Chunk: 47

Company: Foxx Development Holdings Inc.
Filing Date: 2025-10-15
Form: 10-K
Item: Item 1
Chunk 47
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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 on our assumption of providing 100% valuation allowance was purely based on our historical operating losses.
Once we began generating profit, we will re-evaluate whether providing 100% valuation allowance is appropriate or if we can reassess
such number.

Earnout
Liabilities 

At
the Closing, pursuant to the Business Combination Agreement, the Original Foxx Shareholders were entitled to
receive up 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