Company: FOXX
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-043597
Chunk: 124

Company: Foxx Development Holdings Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Item 8
Chunk 124
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, 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 transferred when the customer obtains control
of that asset. It also requires the Company to identify contractual performance obligations and determine whether revenue should be recognized
at a point in time or over time, based on when control of goods and services transfers to a customer.

To achieve that core principle, the Company applies the five steps
defined under ASC 606 “Revenue from Contracts with Customers”: (i) identify the contract(s) with a customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction
price to the performance obligations in the contract, and (v) recognize revenue when (or as