Company: FOXX
Filing Date: 2025-10-15
Form Type: 10-K
Source: 0001213900-25-098953
Chunk: 878

Company: Foxx Development Holdings Inc.
Filing Date: 2025-10-15
Form: 10-K
Item: Item 4
Chunk 878
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, and the Company had deferred transaction costs of $893,577 and charged against
shareholders’ deficit (See Note 4). As of June 30, 2025 and 2024, the Company had deferred transaction costs of $0 and $462,177,
respectively.

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 years ended June 30, 2025 and 2024. 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. As of June 30, 2025, the Earnout Shares were forfeited (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. All of the convertible notes were converted into