Filed Pursuant to Rule 424(b)(3) and Rule 424(c)
  Registration Statement No. 333-278451
   
  May 16, 2024

 

PROSPECTUS SUPPLEMENT NO. 1

 

  

MOBIX LABS, INC.

9,500,000 SHARES OF CLASS A COMMON STOCK

 

This prospectus supplement amends the prospectus dated May 13, 2024 (as supplemented to date, the “Prospectus”) of Mobix Labs, Inc. a Delaware corporation (the “Company”), which forms a part of the Company’s Registration Statement on Form S-1, as amended (No. 333-278451). This prospectus supplement is being filed to update and supplement the information included or incorporated by reference in the Prospectus with the information contained in our Current Report on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on May 14, 2024, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, filed with the SEC on May 15, 2024, as set forth below. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement.

 

Shares of our Class A Common Stock are listed on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “MOBX”. On May 15, 2024, the closing price of our Class A Common Stock was $2.78.

 

Investing in the Company’s Class A Common Stock involves risks. See “Risk Factors” beginning on page 14 of the Prospectus and under similar headings in any amendments or supplements to the Prospectus.

 

Neither the SEC nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus Supplement No. 1 is May 16, 2024.

 

 

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 8, 2024

 

MOBIX LABS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   001-40621   98-1591717
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer
Identification No.)

 

15420 Laguna Canyon Road, Suite 100

Irvine, California

 

 

92618

(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (949) 808-8888

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange
on which registered
Class A Common Stock, par value $0.00001 per share   MOBX   Nasdaq Global Market
Redeemable warrants, each warrant exercisable for one share of Class A Common Stock   MOBXW   Nasdaq Capital Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement

 

As previously announced, on May 8, 2024, Mobix Labs, Inc., a Delaware corporation (the “Company” or “Mobix Labs”), entered into a Business Combination Agreement (the “Business Combination Agreement”) with RaGe Systems, Inc, a Delaware corporation (“RaGE Systems”), and Mobix Merger Sub III, LLC, a Delaware limited liability company (“Merger Sub”) to acquire RaGE Systems, a leader in radio frequency joint design and manufacturing services for aggregate consideration of $12,000,000. RaGE Systems specializes in developing products for 5G communications, mmWave imaging, and software defined radio targeting the commercial, industrial, and defense and aerospace sectors. The Business Combination Agreement provides that, upon the terms and subject to the conditions set forth therein, RaGE Systems will be merged with and into the Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly-owned subsidiary of the Company. The respective boards of directors of the Company and RaGE Systems unanimously approved the Business Combination Agreement.

 

Upon the closing of the Merger, the Company will issue to the stockholders of RaGE Systems a number of shares of Mobix Labs Class A Common Stock (the “Class A Common Stock”) equal to the quotient of (a) $10,000,000 divided by (b) the VWAP (as defined in the Business Combination Agreement) of Class A Common Stock for the fifteen (15) trading days up to and including the fifth business day prior to the closing date. In addition, the Company will pay to the RaGE stockholders an aggregate cash amount of $2,000,000 as follows: (a) $200,000 to be paid on the closing date; (b) $1,000,000 to be paid on November 15, 2024 and (c) $800,000 to be paid on April 15, 2025.

 

Consummation of the Merger, which is expected to occur in May 2024, is subject to the satisfaction or waiver of customary closing conditions, including the absence of a material adverse effect with respect to the other party, the accuracy of the other party’s representations and warranties, subject to certain materiality standards set forth in the Business Combination Agreement, the satisfactory completion of the Company’s due diligence investigation and compliance in all material respects with the other party’s obligations under the Business Combination Agreement.

 

In connection with the Merger, and on terms and conditions to be determined by the Company, the Company will enter into employment agreements with each of the RaGE stockholders (the “Employment Agreements”). Pursuant to the Business Combination Agreement, the RaGE stockholders will also be entitled to receive possible earn-out payments of up to $8,000,000 over eight fiscal quarters in a combination of cash and stock based upon the satisfaction of certain financial metrics. The Business Combination Agreement also provides the RaGE stockholders with “piggy-back” registration rights, subject to certain requirements and customary conditions.

 

The foregoing summary of the Business Combination Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Business Combination Agreement attached hereto as Exhibit 2.1 and incorporated herein by reference.

 

The Business Combination Agreement has been attached as an exhibit hereto to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, RaGE Systems, or Merger Sub, their respective businesses, or the actual conduct of their respective businesses during the period prior to the consummation of the Merger. The representations, warranties and covenants contained in the Business Combination Agreement were made only for purposes of the Business Combination Agreement as of the specific dates therein, were solely for the benefit of the parties to the Business Combination Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Business Combination Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, the representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time and investors should not rely on them as statements of fact.

 

1

 

 

Item 3.02 Unregistered Sales of Equity Securities

 

The information regarding the Business Combination Agreement and the issuance of the shares of Class A Common Stock contemplated thereunder set forth in Item 1.01 of this Current Report on Form 8-K is incorporated into this Item 3.02 by reference.

 

The securities comprising the stock consideration to be issued in connection with the Merger have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act for transactions by an issuer not involving any public offering. The Company’s reliance upon Section 4(a)(2) of the Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by the Company and RaGE Systems that did not involve a public offering, (b) there were only two recipients and (c) representations from the RaGE stockholders to support such exemption, including with respect to the Seller’s status as an “accredited investor” (as that term is defined in Rule 501(a) of Regulation D promulgated under Section 4(a)(2) of the Securities Act).

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit No.   Description
99.1   Business Combination Agreement, dated as of May 8, 2024.
104   Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

2

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Mobix Labs, Inc.
   
Date: May 14, 2024 By: /s/ Keyvan Samini
  Name:  Keyvan Samini
  Title: President and Chief Financial Officer

 

 

3

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission File Number 001-40621

 

Mobix Labs, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   98-1591717

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

15420 Laguna Canyon Rd., Suite 100 

Irvine, California 92618

(Address of principal executive offices and zip code)

 

(949) 808-8888 

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock, par value $0.00001 per share   MOBX   Nasdaq Global Market
Redeemable warrants, each warrant exercisable for one share of Class A Common Stock   MOBXW   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
  Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares of the registrant’s Class A Common Stock and Class B Common Stock outstanding as of May 14, 2024 was 24,932,816 and 2,254,901, respectively.

 

 

 

 

 

 

  

MOBIX LABS, INC.

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION 1
     
Item 1. Financial Statements (unaudited) 1
     
  Condensed Consolidated Balance Sheets 2
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss 3
     
  Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 4
     
  Condensed Consolidated Statements of Cash Flows 5
     
  Notes to Condensed Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 48
     
Item 4. Controls and Procedures 48
     
PART II. OTHER INFORMATION 50
     
Item 1. Legal Proceedings 50
     
Item 1A. Risk Factors 50
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 73
     
Item 3. Defaults Upon Senior Securities 73
     
Item 4. Mine Safety Disclosures 73
     
Item 5. Other Information 73
     
Item 6. Exhibits 73
     
  Signatures 74

 

i

 

 

Cautionary Note Regarding Forward-Looking Statements

 

This report contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. In this Quarterly Report on Form 10-Q, forward-looking statements include, but are not limited to, any statements regarding:

 

  Mobix Labs, Inc’s (“Mobix Labs”) financial and business performance;
     
  Mobix Labs’ intent to pursue acquisitions of companies and technologies;

 

  changes in Mobix Labs’ strategy, future operations, financial position, estimated revenues and losses, forecasts, projected costs, prospects and plans;

 

  the implementation, market acceptance and success of Mobix Labs’ products and technology in the wireless and connectivity markets and in potential new categories for perception;

 

  demand for Mobix Labs’ products and the drivers of that demand;

 

  Mobix Labs’ opportunities and strategies for growth;

 

  competition in Mobix Labs’ industry, the advantages of Mobix Labs’ products and technology over competing products and technology existing in the market, and competitive factors including with respect to technological capabilities, cost and scalability;

 

  Mobix Labs’ ability to scale in a cost-effective manner and maintain and expand its manufacturing and supply chain relationships;

 

  Mobix Labs’ expectation that it will incur substantial expenses and continuing losses for the foreseeable future;

 

  Mobix Labs’ expectations regarding reliance on a limited number of customers and efforts to diversify its customer base;

 

  the impact of health epidemics, including the COVID-19 pandemic, on Mobix Labs’ business and industry and the actions Mobix Labs may take in response thereto;

 

  Mobix Labs’ expectations regarding its ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

 

  general economic and socio-political conditions and their impact on demand for the Mobix Labs technology and supply chain for Mobix Labs;

 

  future capital requirements and sources and uses of cash; and

 

  the outcome of any known and unknown litigation and regulatory proceedings.

 

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q, and current expectations, forecasts, and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing the views of Mobix Labs as of any subsequent date, Mobix Labs undertakes no obligations to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

You should not place undue reliance on these forward-looking statements. As a result of a number of known and unknown risks and uncertainties, the actual results or performance of Mobix Labs may be materially different from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ include the risks and uncertainties set forth in “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

 

ii

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Mobix Labs, Inc.

Unaudited Condensed Consolidated Financial Statements

March 31, 2024 and 2023

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and September 30, 2023 (unaudited)   2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months and six months ended March 31, 2024 and 2023 (unaudited)   3
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months and six months ended March 31, 2024 and 2023 (unaudited)   4
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2024 and 2023 (unaudited)   5
Notes to Condensed Consolidated Financial Statements (unaudited)   6

 

1

 

 

MOBIX LABS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share amounts)

 

   March 31,   September 30, 
   2024   2023 
ASSETS        
Current assets        
Cash  $2,993   $89 
Accounts receivable, net   461    53 
Inventory   361    319 
Prepaid expenses and other current assets   633    369 
Total current assets   4,448    830 
           
Property and equipment, net   1,763    1,859 
Intangible assets, net   11,151    5,287 
Goodwill   10,759    5,217 
Operating lease right-of-use assets   946    1,030 
Deferred transaction costs       4,125 
Other assets   430    400 
Total assets  $29,497   $18,748 
           

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ EQUITY (DEFICIT)

          
Current liabilities          
Accounts payable  $6,693   $8,995 
Accrued expenses and other current liabilities   7,036    4,519 
Deferred purchase consideration   803     
Notes payable   400    1,286 
Notes payable – related parties   2,763    3,793 
Simple agreements for future equity (“SAFEs”)       1,512 
Operating lease liabilities, current   332    318 
Total current liabilities   18,027    20,423 
           
Earnout liability   3,621     
PIPE make-whole liability   1,639     
Deferred tax liability   176    86 
Operating lease liabilities, noncurrent   1,109    1,280 
Other noncurrent liabilities   772     
Total liabilities   25,344    21,789 
           
Commitments and contingencies (Note 14)          
           
Redeemable convertible preferred stock          
Founders Convertible Preferred Stock, $0.00001 par value, no shares authorized, issued or outstanding at March 31, 2024; 600,000 shares authorized, 588,235 shares issued and outstanding at September 30, 2023        
Series A Convertible Preferred Stock, $0.00001 par value, no shares authorized, issued or outstanding at March 31, 2024; 2,000,000 shares authorized, 1,666,666 shares issued and outstanding at September 30, 2023; liquidation preference of $2,300 at September 30, 2023       2,300 
           
Stockholders’ equity (deficit)          
Legacy Mobix common stock, $0.00001 par value, no shares authorized, issued or outstanding at March 31, 2024; 57,400,000 shares authorized, 16,692,175 issued and outstanding at September 30, 2023        
Class A common stock, $0.00001 par value, 285,000,000 shares authorized; 23,600,558 and no shares issued and outstanding at March 31, 2024 and September 30, 2023, respectively        
Class B common stock, $0.00001 par value, 5,000,000 shares authorized; 2,254,901 and no shares issued and outstanding at March 31, 2024 and September 30, 2023, respectively        
Additional paid-in capital   89,394    78,421 
Accumulated deficit   (85,241)   (83,762)
Total stockholders’ equity (deficit)   4,153    (5,341)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)  $29,497   $18,748 

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

MOBIX LABS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(unaudited, in thousands, except share and per share amounts)

 

   Three months ended
March 31,
   Six months ended
March 31,
 
   2024   2023   2024   2023 
                 
Net revenue                
Product sales  $1,145   $32   $1,430   $711 
                     
Costs and expenses                    
Cost of revenue   952    209    1,281    903 
Research and development   1,397    2,633    2,959    6,050 
Selling, general and administrative   7,358    9,029    23,021    14,823 
Loss from operations   (8,562)   (11,839)   (25,831)   (21,065)
                     
Interest expense   248    794    1,105    877 
Change in fair value of earnout liability   (5,174)       (29,938)    
Change in fair value of PIPE make-whole liability   (3,336)       (432)    
Change in fair value of private warrants   420        480     
Change in fair value of SAFEs       508    10    558 
Merger-related transaction costs expensed           4,009     
Other non-operating losses, net   1,049        1,049     
Loss before income taxes   (1,769)   (13,141)   (2,114)   (22,500)
Provision (benefit) for income taxes   (16)   1    (1,296)   32 
Net loss and comprehensive loss   (1,753)   (13,142)   (818)   (22,532)
Deemed dividend from warrant price adjustment   661        661     
Net loss available to common stockholders  $(2,414)  $(13,142)  $(1,479)  $(22,532)
                     
Net loss per common share:                    
Basic  $(0.09)  $(0.94)  $(0.06)  $(1.71)
Diluted  $(0.21)  $(0.94)  $(0.10)  $(1.71)
Weighted-average common shares outstanding:                    
Basic   28,045,995    14,025,304    24,259,035    13,189,879 
Diluted   29,199,253    14,025,304    24,914,569    13,189,879 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

MOBIX LABS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE

CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited, in thousands, except share and per share amounts)

 

   Founders
Redeemable
Convertible
Preferred Stock
   Series A
Redeemable
Convertible
Preferred Stock
   Contingently
Redeemable
Common Stock
   Legacy
Common Stock
   Class A
Common Stock
   Class B
Common Stock
   Additional
Paid-in
   Accumulated   Total
Stock-holders’
Equity
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
Balance at September 30, 2023   588,235   $    1,666,666   $2,300       $    16,692,175   $       $       $   $78,421   $(83,762)  $(5,341)
Issuance of common stock                           482,171                         3,286        3,286 
Issuance of contingently redeemable common stock for acquisition of EMI Solutions, Inc.                   964,912    8,856                                     
Lapse of redemption feature on common stock                   (964,912)   (8,856)   964,912                        8,856        8,856 
Issuance of warrants in connection with notes payable                                                   107        107 
Stock-based compensation                                                   12,705        12,705 
Reverse recapitalization transactions, net (Note 3)   (588,235)       (1,666,666)   (2,300)           (18,139,258)       22,901,838        2,254,901        (16,182)       (16,182)
Issuance of common stock upon exercise of stock options                                   168,235                         
Issuance of common stock upon exercise of warrants                                   369,671                         
Issuance of common stock upon vesting of RSUs                                   104,748                         
Net income                                                       935    935 
                                                                            
Balance at December 31, 2023      $       $       $       $    23,544,492   $    2,254,901   $   $87,193   $(82,827)  $4,366 
Stock-based compensation                                                   1,441         1,441 
Reverse recapitalization transactions, net (Note 3)                                                   99        99 
Issuance of common stock upon exercise of stock options                                   29,880                         
Issuance of common stock upon vesting of RSUs                                   26,186                         
Deemed dividend from warrant price adjustment                                                   661    (661)    
Net loss                                                       (1,753)   (1,753)
Balance at March 31, 2024      $       $       $       $    23,600,558   $    2,254,901   $   $89,394   $(85,241)  $4,153 
                                                                            
Balance at September 30, 2022   588,235   $    1,666,666   $2,300       $    11,868,397   $       $       $   $34,722   $(44,141)  $(9,419)
Issuance of common stock                           773,889                        5,295        5,295 
Issuance of common stock upon exercise of warrants                           300,000                        900        900 
Stock-based compensation                                                   3,856        3,856 
Net loss                                                       (9,390)   (9,390)
                                                                            
Balance at December 31, 2022   588,235   $    1,666,666   $2,300       $    12,942,286   $       $       $   $44,773   $(53,531)  $(8,758)
Issuance of common stock                           219,475                        1,500        1,500 
Issuance of common stock in settlement of loss contingency                           1,233,108                        8,434        8,434 
Issuance of common stock to service providers                           29,334                        201        201 
Issuance of warrants to service providers                                                   10        10 
Issuance of warrants in connection with notes payable                                                   811        811 
Stock-based compensation                                                   5,779         5,779 
Net loss                                                       (13,142)   (13,142)
Balance at March 31, 2023   588,235   $    1,666,666   $2,300       $    14,424,203   $       $       $   $61,508   $(66,673)  $(5,165)

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

MOBIX LABS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

   Six months ended
March 31,
 
   2024   2023 
Operating activities        
Net loss  $(818)  $(22,532)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   230    225 
Amortization of intangible assets   636    421 
Issuance of warrants in connection with notes payable, charged to interest expense   884    644 
Change in fair value of earnout liability   (29,938)    
Change in fair value of PIPE make-whole liability   (432)    
Change in fair value of private warrants   480     
Change in fair value of SAFEs   10    558 
Merger-related transaction costs expensed   4,009     
Stock-based compensation   14,146    9,635 
Deferred income taxes   (1,296)    
Other non-cash items   (536)   29 
Changes in operating assets and liabilities, net of acquisition of business:          
Accounts receivable   (23)   394 
Inventory   113    121 
Prepaid expenses and other current assets   (257)   167 
Other assets       (293)
Accounts payable   1,358    (553)
Accrued expenses and other current liabilities   (255)   2,474 
Net cash used in operating activities   (11,689)   (8,710)
           
Investing activities          
Acquisition of EMI Solutions, Inc., net of cash acquired   (1,110)    
Acquisition of property and equipment   (40)   (15)
Net cash used in investing activities   (1,150)   (15)
           
Financing activities          
Proceeds from issuance of common stock   3,286    6,897 
Proceeds from exercise of common stock warrants       900 
Proceeds from issuance of notes payable   246    1,100 
Proceeds from issuance of notes payable – related parties       106 
Proceeds from issuance of convertible notes   200    250 
Principal payments on notes payable   (1,177)   (350)
Principal payments on notes payable – related parties   (1,030)   (106)
Proceeds from the Merger and PIPE   21,014     
Merger-related transaction costs paid   (6,796)   (250)
Net cash provided by financing activities   15,743    8,547 
           
Net increase (decrease) in cash   2,904    (178)
Cash, beginning of period   89    178 
Cash, end of period  $2,993   $ 
           
Supplemental cash flow information          
Cash paid for interest  $368   $ 
Cash paid for income taxes        
           
Non-cash investing and financing activities:          
Unpaid Merger-related transaction costs  $1,575   $2,745 
Contingently redeemable convertible stock issued for acquisition of EMI Solutions, Inc.   8,856     
Deferred purchase consideration for acquisition of EMI Solutions, Inc.   886     
Conversion of SAFEs to common stock   1,522     
Deemed dividend from warrant price adjustment   661     
Issuance of warrants in connection with notes payable, recorded as debt discount   107    167 
Issuance of common stock to service providers       201 

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, in thousands, except share and per share amounts)

 

Note 1 — Company Information

 

Mobix Labs, Inc. (“Mobix Labs” or the “Company”), a Delaware corporation based in Irvine, California, is a fabless semiconductor company developing mmWave 5G and C-Band wireless solutions and delivering connectivity and electromagnetic filtering products for next generation communication systems supporting the aerospace, military, defense, medical and other markets requiring high reliability products. The Company’s wireless mmWave 5G integrated circuits currently in development are designed to deliver advantages in performance, efficiency, size, and cost. The Company’s True Xero active optical cables are designed to meet customer needs for high-quality active optical cable solutions at an affordable price. The Company’s electromagnetic filtering products, which were acquired in the EMI Solutions, Inc. (“EMI Solutions”) acquisition, are designed for, and are currently used in aerospace, military, defense and medical applications. These technologies are designed for large and rapidly growing markets where there is increasing demand for higher performance communication and filtering systems which utilize an expanding mix of both wireless and connectivity technologies.

 

On December 21, 2023, (the “Closing Date”), Chavant Capital Acquisition Corp. (“Chavant”) consummated the merger pursuant to the Business Combination Agreement, dated November 15, 2022 (as amended, supplemented or otherwise modified, the “Business Combination Agreement”), by and among Chavant, CLAY Merger Sub II, Inc., a Delaware corporation and newly formed, wholly-owned direct subsidiary of Chavant (“Merger Sub”), and Mobix Labs, Inc. (“Legacy Mobix”), a Delaware corporation, pursuant to which, among other things, Merger Sub merged with and into Legacy Mobix, with Legacy Mobix surviving the merger as a wholly-owned direct subsidiary of Chavant (together with the other transactions related thereto, the “Merger”). In connection with the consummation of the Merger (the “Closing”), Chavant changed its name from “Chavant Capital Acquisition Corp.” to “Mobix Labs, Inc.” and Legacy Mobix changed its name from “Mobix Labs, Inc.” to “Mobix Labs Operations, Inc.” As a result of the Merger, the Company raised gross proceeds of $21,014, including the contribution of $1,264 of cash held in Chavant’s trust account and the $19,750 private investment in public equity (“PIPE”) at $10.00 per share of Chavant’s Class A Common Stock. The common stock and public warrants of the combined company began trading on The Nasdaq Stock Market LLC under the symbols “MOBX” and “MOBXW,” respectively, on December 22, 2023.

 

Throughout the notes to the condensed consolidated financial statements, unless otherwise noted or otherwise suggested by context, the “Company” refers to Legacy Mobix prior to the consummation of the Merger, and to the Company after the consummation of the Merger.

 

Going Concern

 

The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. Since inception, the Company has incurred operating losses and negative cash flows from operations, primarily as a result of its ongoing investment in product development. For the six months ended March 31, 2024 and 2023, the Company incurred losses from operations of $25,831 and $21,065, respectively, and as of March 31, 2024 the Company had an accumulated deficit of $85,241. The Company has historically financed its operations through the issuance and sale of equity securities and the issuance of debt. The Company expects to continue to incur operating losses and negative cash flows from operations for the foreseeable future and will need to raise additional debt or equity financing to fund its operations and satisfy its obligations. While the Company recently entered into a committed equity facility to raise additional capital, the amount and timing of the proceeds, if any, the Company may receive from the sale of shares of Class A Common Stock thereunder will depend on a number of factors, including the numbers of shares the Company may elect to sell, the timing of such sales, the future market price of the Company’s Class A Common stock and the payment of the cash commitment fee (see Note 16—Equity). Management believes that there is substantial doubt concerning the Company’s ability to continue as a going concern as the Company currently does not have adequate liquidity to meet its operating needs and satisfy its obligations beyond the next approximately ninety days.

 

While the Company will seek to raise additional capital, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to existing stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing debt securities, such debt securities would have rights, preferences and privileges senior to those of preferred and common stockholders. The terms of debt securities or borrowings may impose significant restrictions on the Company’s operations. The capital markets have in the past, and may in the future, experience periods of volatility that could impact the availability and cost of equity and debt financing. In addition, recent and potential future increases in federal fund rates set by the Federal Reserve, which serve as a benchmark for rates on borrowing, could adversely impact the cost or availability of debt financing.

 

6

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

If the Company is unable to obtain additional financing, or if such transactions are successfully completed but do not provide adequate financing, the Company may be required to reduce its operating expenditures, which could adversely affect its business prospects, or the Company may be unable to continue operations. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.

 

Note 2 — Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Merger was accounted for as a reverse recapitalization of the Company because Legacy Mobix has been determined to be the accounting acquirer under ASC Topic 805 – Business Combinations. Under this method of accounting, Chavant is treated as the “acquired” company for financial reporting purposes. This determination was primarily based on holders of Legacy Mobix capital stock comprising a relative majority of the voting power of the Company upon consummation of the Merger and having the ability to nominate the majority of the governing body of the Company, Legacy Mobix senior management comprising the senior management of the Company, and Legacy Mobix operations comprising the ongoing operations of the Company. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Legacy Mobix with the Merger being treated as the equivalent of Legacy Mobix issuing shares for the net assets of Chavant, accompanied by a recapitalization. The net assets of Chavant were recognized as of the Closing at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Legacy Mobix and the accumulated deficit of Legacy Mobix has been carried forward after Closing. All issued and outstanding securities of Chavant upon Closing were treated as issuances of securities of the Company upon the consummation of the Merger.

 

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and include the accounts of Mobix Labs, Inc. and its subsidiaries. The Company’s fiscal year ends on September 30. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended September 30, 2023 and the related notes which provide a more complete discussion of the Company’s accounting policies and certain other information. The September 30, 2023 condensed consolidated balance sheet was derived from the Company’s audited financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s condensed consolidated financial position as of March 31, 2024 and its condensed consolidated results of operations and cash flows for the periods ended March 31, 2024 and 2023. The condensed consolidated results of operations for the three months and six months ended March 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2024 or for any other future annual or interim period.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

7

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Use of Estimates

 

The preparation of the Company’s condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of certain assets and liabilities; the reported amounts of revenues and expenses for the periods covered and certain amounts disclosed in the notes to the condensed consolidated financial statements. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates and assumptions. Areas requiring significant estimates and assumptions by the Company include, but are not limited to:

 

  valuation of stock-based compensation and equity-based awards;

 

  valuation of common stock for periods prior to the Merger;

 

  impairment assessments of goodwill and long-lived assets;

 

  measurement of the earnout liability, the PIPE make-whole liability and other liabilities carried at fair value;

 

  purchase price allocation and valuations of net assets acquired in business combinations; and,

 

  provisions for income taxes and related valuation allowances and tax uncertainties.

 

Cash

 

As of March 31, 2024 and September 30, 2023, the Company’s cash balance consisted of demand deposits held at large financial institutions. The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Company had no cash equivalents as of March 31, 2024 or September 30, 2023. The amount of deposits maintained at any financial institution may exceed federally insured limits. The Company places its cash with high credit quality financial institutions and has not experienced any losses on its deposits of cash.

 

Accounts Receivable, net

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. For trade accounts receivable from customers, the Company performs ongoing credit evaluations of its customers and maintains an allowance for expected credit losses. The allowance for expected credit losses represents the Company’s best estimate based on current and historical information, and reasonable and supportable forecasts of future events and circumstances. Accounts receivable deemed uncollectible are charged against the allowance for expected credit losses when identified. The allowance for expected credit losses as of March 31, 2024 and September 30, 2023 and bad debt expense for the six months ended March 31, 2024 and 2023 were not material.

 

Inventory

 

Inventory is stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Inventory costs consist of purchased materials, outside manufacturing costs, inbound freight and receiving costs, and capitalized overhead. The Company records an inventory reserve for losses associated with excess and obsolete items, based on available information and the Company’s current expectations of future demand, product obsolescence and market conditions. Any provision for excess and obsolete inventory is charged to cost of sales and is a permanent reduction of the carrying value of inventory. The reserve for excess and obsolete inventory as of March 31, 2024 and September 30, 2023 and write-downs of obsolete inventory for the six months ended March 31, 2024 and 2023 were not material.

 

8

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Intangible Assets, net

 

The Company’s intangible assets principally consist of acquired developed technology and customer relationships and have finite lives ranging from one to fifteen years. The Company amortizes intangible assets over their useful lives on a straight-line basis, which the Company believes approximates the pattern in which the economic benefits of the intangible assets are expected to be utilized. To the extent that an acquired developed technology is incorporated in, or used to produce, a product the Company currently produces and sells, the related amortization expense is included in cost of revenue in the statements of operations and comprehensive loss. Amortization expense on other acquisition-related intangible assets is included in operating expenses.

 

Impairment of Long-Lived Assets

 

The Company reviews its long-lived assets, consisting of property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company did not record any impairment losses on long-lived assets for the three months and six months ended March 31, 2024 and 2023.

 

Goodwill

 

Goodwill represents the excess of the fair value of purchase consideration of an acquired business over the fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis on July 31, or more frequently if circumstances change or an event occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company did not record any goodwill impairment losses for the three months and six months ended March 31, 2024 and 2023.

 

Business Combinations

 

The Company allocates the purchase price of an acquisition to the tangible assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated fair values. The excess of the purchase price over the fair values of the net assets acquired is recorded as goodwill.

 

Accounting for business combinations requires that management make significant estimates and assumptions to determine the fair value of assets acquired and liabilities assumed at the acquisition date. Although management believes the assumptions and estimates to be reasonable and appropriate, they are inherently uncertain. Critical estimates in valuing certain acquired assets may include, but are not limited to, expected future cash flows including revenue growth rate assumptions from product sales, customer contracts and acquired technologies, expected costs to develop acquired technology into commercially viable products, estimated cash flows from the projects when completed, including assumptions associated with the technology migration curve and expected selling, general and administrative costs. The discount rates used to discount expected future cash flows to present value are typically derived from a weighted-average cost of capital analysis and are adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company uses a three-tiered hierarchy for inputs used in measuring fair value that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are market participant assumptions based on market data obtained from sources independent of the Company. Unobservable inputs are the Company’s own assumptions of what market participants would use in pricing an asset or liability based on the best information available in the circumstances. The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

 

9

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

As a basis for considering such assumptions, a three-tier hierarchy is used in management’s determination of fair value based on the reliability and observability of inputs as follows:

 

Level 1 — Observable inputs that include quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 — Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

 

Net Income (Loss) Per Share

 

Basic and diluted net income (loss) per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Under the two-class method, net income (loss) is attributed to the Class A and Class B common stock and other participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of shares and the effect of potentially dilutive securities outstanding during the period. For a period in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share because potentially dilutive common shares are not assumed to have been issued if their effect is antidilutive. See Note 18, Net Loss Per Share.

 

Comprehensive Loss

 

Comprehensive loss includes the Company’s net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. There were no differences between the Company’s net loss and comprehensive loss for the three months and six months ended March 31, 2024 and 2023.

 

Accounting Pronouncements Recently Adopted

 

The Company is an “emerging growth company,” as defined in the Securities Act. Under the Jumpstart Our Business Startups Act of 2012, an emerging growth company has the option to adopt new or revised accounting guidance either (i) within the same periods as otherwise applicable to public business entities, or (ii) within the same time periods as non-public business entities, including early adoption when permissible. With the exception of accounting guidance the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time periods as non-public business entities.

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”), which provides guidance on measurement of credit losses on financial instruments. This ASU adds a current expected credit loss impairment model to GAAP that is based on expected losses rather than incurred losses whereby a broader range of reasonable and supportable information is required to be utilized in order to derive credit loss estimates. The Company adopted this guidance on a modified retrospective basis on October 1, 2023, with no material impact to the condensed consolidated financial statements.

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 as if the acquiring entity had originated the contracts. The Company adopted this guidance on a prospective basis to business combinations occurring on or after October 1, 2023, with no material impact on its financial position or results of operations.

 

10

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 expands segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The disclosures required under ASU 2023-07 are also required for public entities with a single reportable segment. The ASU is effective for the Company’s fiscal year beginning October 1, 2024 and for interim periods within the Company’s fiscal year beginning October 1, 2025, with early adoption permitted. The Company does not expect adoption of ASU 2023-07 will have a material impact on its financial position or results of operations.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The ASU is effective for the Company’s fiscal year beginning October 1, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company does not expect adoption of ASU 2023-09 will have a material impact on its financial position or results of operations.

 

Note 3 — Reverse Recapitalization

 

As discussed in Note 1, Company Information, the Closing of the Merger occurred on December 21, 2023. In the Merger, as provided for in the Business Combination Agreement:

 

  All of Legacy Mobix’s 18,139,258 issued and outstanding shares of common stock were cancelled and converted into the same number of shares of the Company’s Class A Common Stock;

 

  All of Legacy Mobix’s Founders Redeemable Convertible Preferred Stock and Series A Redeemable Convertible Preferred Stock, totaling 2,254,901 shares, was converted into the same number of shares of the Company’s Class B Common Stock;

 

  All of Legacy Mobix’s convertible notes were converted into shares of Legacy Mobix common stock immediately prior to Closing and pursuant to their terms, totaling 30,045 shares, which were then cancelled and converted into the same number of shares of the Company’s Class A Common Stock;

 

  All of Legacy Mobix’s SAFEs were converted into 150,953 shares of the Company’s Class A Common Stock;

 

  All of Legacy Mobix’s stock options and warrants were assumed by the Company and converted into the same number of stock options or warrants to purchase shares of the Company’s Class A Common Stock, with no change to their exercise prices, vesting conditions or other terms; and

 

  All of Legacy Mobix’s restricted stock units (“RSUs”) were assumed by the Company and converted into an RSU covering the same number of shares of the Company’s Class A Common Stock.

 

The other related events that occurred in connection with the Closing include the following:

 

  The Company entered into the PIPE Subscription Agreements, as described below;

 

  The Company entered into the Sponsor PIPE Subscription Agreement, Sponsor Warrant and Sponsor Letter Agreement, as described below;

 

  The Company entered into a non-redemption agreement with a shareholder, as described below;

 

11

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

  The Company entered into an amendment to its Business Combination Marketing Agreement, as described below;

 

  The Company assumed the 6,000,000 public warrants (“Public Warrants”) and 3,400,000 private placement warrants (“Private Warrants”) originally issued by Chavant in 2021 in connection with its initial public offering, as described in Note 4, Warrants;

 

  The Company adopted the 2023 Employee Stock Purchase Plan and the 2023 Equity Incentive Plan, as described in Note 17, Equity Incentive Plans;

 

  The Company adopted an amended and restated certificate of incorporation and amended and restated bylaws; and

 

  The Company entered into indemnification agreements with each of its directors and officers.

 

PIPE Subscription Agreements

 

In connection with the Merger, Chavant entered into the PIPE Subscription Agreements with certain accredited investors and pursuant to which the investors agreed to purchase an aggregate of 1,975,000 shares of Class A Common Stock of Chavant at a price of $10.00 per share for an aggregate amount of $19,750 in cash. The number of shares purchased by the PIPE investors is subject to adjustment through the issuance of additional shares of Class A Common Stock in the event that the volume weighted average price (“VWAP”) of the Class A Common Stock is less than $10.00 over a specified period. See “Make-Whole Shares,” below.

 

The PIPE investors also received warrants to purchase 1,950,000 shares of Class A Common Stock at an exercise price of $0.01 per share, of which warrants to purchase 200,000 shares are immediately exercisable and warrants to purchase 1,750,000 shares are exercisable upon obtaining stockholder approval, which is expected to be obtained in 2024.

 

Sponsor PIPE Subscription Agreements, Sponsor Warrant and Sponsor Letter Agreement

 

On December 19, 2023, Chavant entered into the Sponsor PIPE Subscription Agreement with the Sponsor pursuant to which the Sponsor agreed to purchase, in a private placement that closed substantially concurrently with the Closing, 199,737 shares of Class A Common Stock at a price of $10.00 per share. The aggregate purchase price of $1,997 was paid through the forgiveness of certain obligations of Chavant. The number of shares purchased by the Sponsor is subject to adjustment through the issuance of additional shares of Class A Common Stock in the event that the VWAP of the Class A Common Stock is less than $10.00 over a specified period. See “Make-Whole Shares,” below.

 

In connection with the execution of the Sponsor PIPE Subscription Agreement, Legacy Mobix Labs issued to the Sponsor a warrant to purchase 272,454 shares of Legacy Mobix Labs Stock at an exercise price of $0.01 per share, exercisable upon the closing of the Sponsor PIPE Subscription Agreement (the “Sponsor Warrant”). The Sponsor Warrant was exercised at the closing of the Sponsor PIPE Subscription Agreement and, following net settlement into 272,182 shares of Legacy Mobix Labs Stock, converted into 272,182 shares of Class A Common Stock of the Company in connection with the Closing.

 

On December 20, 2023, Chavant also entered into a Sponsor Letter Agreement with the Sponsor pursuant to which, as consideration for the 199,737 shares issued pursuant to the Sponsor PIPE Subscription Agreement described above, the Sponsor agreed to forgive approximately $1,997 of aggregate outstanding obligations of Chavant. In addition, the Sponsor agreed to forfeit 658,631 Founder Shares and 400,000 Private Warrants that it held, in each case upon the Closing.

 

12

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Non-Redemption Agreement

 

On December 20, 2023, Chavant and Mobix Labs entered into a non-redemption agreement with a shareholder of Chavant, pursuant to which the shareholder agreed to withdraw its redemption of 73,706 ordinary shares of Chavant (“Ordinary Shares”) prior to the Merger. In consideration therefor, Mobix Labs issued the shareholder a warrant to purchase 202,692 shares of Legacy Mobix common stock at an exercise price of $0.01 per share, exercisable upon the Closing. The warrant was exercised at the Closing and, following net settlement into 202,489 shares of Legacy Mobix Common Stock, converted into 202,489 shares of Class A Common Stock of the Company in connection with the Closing.

 

Amendment to Business Combination Marketing Agreement

 

On December 21, 2023, Chavant entered into an amendment to the Business Combination Marketing Agreement, dated as of July 19, 2021 between Chavant and certain advisors wherein the parties agreed to resolve their differences with respect to marketing fees contemplated by the agreement and the advisors agreed to receive, in lieu of any cash payment of fees or reimbursement of expenses, an aggregate of 280,000 shares of Class A Common Stock. The number of shares is subject to adjustment through the issuance of additional shares of Class A Common Stock in the event that the VWAP of the Class A Common Stock is less than $10.00 over a specified period. See “Make-Whole Shares,” below.

 

Earnout Shares

 

In addition to the consideration paid at Closing, certain Legacy Mobix stockholders and certain holders of Legacy Mobix stock options (the “Earnout Recipients”) will be entitled to receive an additional aggregate 3,500,000 shares of Class A Common Stock issuable as earnout shares (the “Earnout Shares”) based on the achievement of trading price targets following the Closing and subject to the terms provided in the Business Combination Agreement. The Earnout Shares have a seven-year “Earnout Period,” commencing on the date that is the one year anniversary of the Closing, pursuant to which up to 1,750,000 shares of Class A Common Stock will be distributed to the Earnout Recipients if the VWAP of the Class A Common Stock exceeds $12.50 for any twenty trading days within a period of thirty consecutive trading days during the Earnout Period and an additional 1,750,000 shares of Class A Common Stock will be distributed to the Earnout Recipients if the VWAP of the Class A Common Stock exceeds $15.00 for any twenty trading days within a period of thirty consecutive trading days during the Earnout Period.

  

The Earnout Shares are accounted for as liability-classified instruments because the events that determine the number of Earnout Shares to which the Earnout Recipients will be entitled include events that are not solely indexed to the Company’s common stock. At the time of Closing, the Company estimated the aggregate fair value of its liability for the Earnout Shares using a Monte Carlo simulation model and recorded a liability of $33,559. As of March 31, 2024, none of the conditions for the issuance of any Earnout Shares had been achieved and the Company adjusted the carrying amount of the liability to its estimated fair value of $3,621. As a result of the decrease in the fair value of the liability, which is primarily the result of a decrease in the Company’s stock price between the Closing and March 31, 2024, the Company recognized non-cash gains of $5,174 and $29,938, respectively, for the three months and six months ended March 31, 2024, which are included in “Change in fair value of earnout liability” in the condensed consolidated statements of operations and comprehensive loss.

 

Make-Whole Shares

 

Pursuant to the PIPE Subscription Agreements, the Sponsor PIPE Subscription Agreement and the Amendment to Business Combination Marketing Agreement described above, Chavant agreed to issue additional shares of its Class A Common Stock (the “Make-Whole Shares”) to the PIPE Investors, the Sponsor and certain advisors with respect to 2,454,737 shares of the Company’s Class A Common Stock in the event that the VWAP per share of the Class A Common Stock during the thirty-day period (the “Adjustment Period”) commencing on the date that is thirty days after the date on which the PIPE resale registration statement is declared effective (the “Adjustment Period VWAP”) is less than $10.00 per share. In such case, the PIPE Investors will be entitled to receive a number of Make-Whole Shares equal to the number of shares of Class A Common Stock issued to the PIPE Investor multiplied by a fraction, the numerator of which is $10.00 minus the Adjustment Period VWAP and the denominator of which is the Adjustment Period VWAP. In the event that the Adjustment Period VWAP is less than $7.00, the Adjustment Period VWAP will be deemed to be $7.00.

 

13

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

The Make-Whole Shares are accounted for as liability-classified instruments because the events that determine the number of Make-Whole Shares issuable include events that are not solely indexed to the Company’s common stock. At the time of Closing, the Company estimated the aggregate fair value of its liability for the Make-Whole Shares using a Monte Carlo simulation model and recorded a liability of $2,071. As of March 31, 2024, the Make-Whole Shares had not been issued and the Company adjusted the carrying amount of the liability to its estimated fair value of $1,639. As a result of the decrease in the fair value of the liability, the Company recorded non-cash gains of $3,336 and $432, respectively, for the three months and six months ended March 31, 2024, which are included in “Change in fair value of PIPE make-whole liability” in the condensed consolidated statements of operations and comprehensive loss.

 

See Note 12, Fair Value Measurements, for additional information on the Company’s measurements with respect to the financial instruments issued in connection with the foregoing agreements.

 

Legacy Mobix incurred $6,363 of transaction costs in connection with the Merger, which was determined to be a capital-raising transaction for Legacy Mobix. At the time of the Closing, the Company allocated this amount between the equity-classified instruments and liability-classified instruments, based on their relative fair values, and recorded the $2,354 of costs associated with equity-classified instruments as a reduction of additional paid-in capital and charged the remaining $4,009 of costs associated with liability-classified instruments to expense. The Company also recognized a liability for unpaid transaction costs of Chavant totaling $3,090, which the Company recorded as a reduction of the proceeds of the Merger at the time of the Closing.

 

The following tables reconcile elements of the Merger to the Company’s condensed consolidated financial statements, and should be read in conjunction with the footnotes referenced above:

 

   Shares 
     
Chavant public shares, net of redemptions   111,005 
Chavant founder shares, net of shares forfeited   1,341,369 
PIPE investors’ shares   1,975,000 
Settlement of PIPE warrant   199,800 
Sponsor PIPE subscription   199,737 
Settlement of Sponsor Warrant   272,182 
Settlement of warrant to non-redeeming shareholder   202,489 
Amendment to Business Combination Marketing Agreement   280,000 
 Total Chavant shares outstanding immediately prior to the Merger   4,581,582 
      
Legacy Mobix rollover shares   18,139,258 
Conversion of Legacy Mobix convertible notes   30,045 
Conversion of Legacy Mobix SAFEs   150,953 
Total number of Class A common shares issued in the Merger   22,901,838 
      
Closing proceeds:     
Proceeds from Chavant trust fund  $1,264 
Proceeds from PIPE investment   19,750 
      
Closing disbursements:     
Legacy Mobix Merger-related transaction costs   (3,747)
Chavant Merger-related transaction costs   (2,219)
Net cash proceeds from the Merger at Closing   15,048 
      
Legacy Mobix Merger-related transaction costs paid prior to closing   (983)
Net cash proceeds   14,065 
      
Non-cash activity:     
Conversion of Legacy Mobix convertible notes to Class A Common Stock   206 
Conversion of Legacy Mobix SAFEs to Class A Common Stock   1,522 
Conversion of Legacy Mobix redeemable convertible preferred stock to Class B Common Stock   2,300 
Unpaid Merger-related transaction costs assumed from Chavant   (871)
Unpaid Merger-related transaction costs of Legacy Mobix   (1,633)
Merger-related transaction costs expensed   4,009 
      
Liability-classified instruments:     
Fair value of earnout liability   (33,559)
Fair value of PIPE make-whole liability   (2,071)
Fair value of Private Warrants   (150)
Net equity impact of the Merger  $(16,182)

 

Subsequent to the Closing, the Company paid $830 of the Merger-related transaction costs and negotiated a $99 reduction of the unpaid transaction costs.

 

14

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Note 4 — Warrants

 

Public and Private Warrants

 

In connection with its initial public offering, Chavant issued 6,000,000 Public Warrants and 3,400,000 Private Warrants (of which 400,000 Private Warrants were subsequently forfeited by the Sponsor), each of which entitles the holder to purchase one share of the Company’s Class A Common Stock at a price of $11.50 per share, subject to adjustments. The Public Warrants and Private Warrants are exercisable at any time commencing thirty days after the completion of the Merger and terminating five years after the completion of the Merger. The Company may redeem the Public Warrants at a price of $0.01 per warrant if the last reported sale of the Company’s Class A Common Stock equals or exceeds $18.00 per share for any twenty trading days within a thirty-day period after the Public Warrants become exercisable.

 

The Private Warrants are identical to the Public Warrants, except that the Private Warrants and shares of Class A Common Stock issuable upon the exercise of the Private Warrants are not transferable, assignable or salable until thirty days after the completion of the Merger, subject to certain limited exceptions. Additionally, the Private Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

 

Both the Public Warrants and Private Warrants are subject to adjustment if the Company issues additional equity securities for capital raising purposes at price (the “Newly Issued Price”) below specified levels; if the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds available for funding Merger at the Closing; and, if the VWAP of the Company’s Class A Common Stock during a specified period (“Market Value”) is below $9.20 per share. In such event, the exercise price of the warrants will be adjusted to be equal to 115% of the Market Value and the $18.00 per share redemption trigger price will be adjusted to be equal to 180% of the Newly Issued Price.

 

As a result of the issuances of shares under the PIPE Subscription Agreement and other agreements in connection with the Merger, the Company adjusted the exercise price of the warrants from $11.50 to $5.79 per share and adjusted the redemption trigger price from $18.00 to $9.06 per share. The Company recognized a noncash deemed dividend of $661 as a result of the warrant price adjustment.

 

Upon the Closing, the Company concluded that the Public Warrants meet the derivative scope exception for contracts in the Company’s own stock and recorded the Public Warrants in stockholders’ equity. The Company concluded that the Private Warrants do not meet the derivative scope exception and are accounted for as liabilities. Specifically, the Private Warrants contain provisions that affect the settlement amounts dependent upon the characteristics of the holder of the warrant, which is not an input into the pricing of a fixed-for-fixed option on equity shares. Therefore, the Private Warrants are not considered indexed to the Company’s stock and must be classified as a liability. At the time of Closing, the Company estimated the aggregate fair value of the Private Warrants using the Black-Scholes option-pricing model and recognized a liability of $150. As of March 31, 2024, all of the Private Warrants remained outstanding and the Company adjusted the carrying amount of the liability to its estimated fair value of $630. As a result of the increase in the fair value of the liability, the Company recorded non-cash losses of $420 and $480, respectively, for the three months and six months ended March 31, 2024, which are included in “Change in fair value of private warrants” in the condensed consolidated statements of operations and comprehensive loss.

 

15

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

PIPE Warrants

 

In connection with the PIPE Subscription Agreements, the Company issued the investors warrants to purchase shares of common stock at an exercise price of $0.01 per share. The Company evaluated these warrants and concluded that they meet the derivative scope exception for contracts in the Company’s own stock. Consequently, the PIPE warrants were recorded in stockholders’ equity.

 

Legacy Mobix Warrants

 

In connection with the Merger, all of Legacy Mobix’s outstanding warrants were assumed by the Company and converted into the same number of warrants to purchase shares of the Company’s Class A Common Stock, with no change to their exercise prices or other terms. Subsequent to the Merger, warrants to purchase an aggregate of 373,031 shares were exercised and converted into 369,671 shares of Class A Common Stock, with no cash proceeds to the Company.

 

During the six months ended March 31, 2024, Legacy Mobix issued warrants to purchase an aggregate of 51,020 shares of its common stock at $0.01 in connection with borrowings. See Note 11, Debt.

 

Also during the six months ended March 31, 2024, Legacy Mobix granted warrants to purchase an aggregate of 27,413 shares of common stock at a price of $0.01 per share to investors in connection with the sale of shares of its common stock. See Note 16, Equity.

 

As of March 31, 2024, the Company is obligated to issue warrants to purchase 130,000 shares of its Class A Common Stock at $0.01 per share to a service provider, in respect of services rendered to Legacy Mobix prior to the Merger. In addition, as described in Note 11, Debt, during the six months ended March 31, 2024 Legacy Mobix failed to repay the principal amount of a note payable by its maturity date and is obligated to issue warrants to purchase 103,000 shares of its Class A Common Stock at $0.01 per share to the lender as additional consideration. As of March 31, 2024, the Company has recorded a liability of $206 in the condensed consolidated balance sheet for the estimated fair value of the warrants. For the three months and six months ended March 31, 2024, the Company recognized a $526 gain from the change in the fair value of the liability, which is included in “Other non-operating losses, net” in the condensed consolidated statement of operations and comprehensive loss. The Company valued the warrants using a probability-weighted expected return model.

 

During the six months ended March 31, 2023, the Company issued warrants to purchase an aggregate of 300,000 shares of its common stock at $3.00 per share to non-service providers. In December 2022, the holders exercised these warrants and purchased 300,000 shares of the Company’s common stock for cash proceeds of $900. The Company also issued a warrant to purchase 400,000 shares of its common stock at $3.00 per share to a service provider. The Company recognized the $1,598 fair value of the warrant in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss for the six months ended March 31, 2023. Effective March 2023, the warrant was cancelled.

 

See Note 12, Fair Value Measurements, for additional information on the Company’s measurements with respect to the warrants issued in connection with the foregoing transactions.

 

16

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Note 5 — Acquisition of EMI Solutions, Inc.

 

On December 18, 2023, the Company completed the acquisition of EMI Solutions when the Company acquired all of the issued and outstanding common shares of EMI Solutions, which is accounted for as a business combination. EMI Solutions is a manufacturer of electromagnetic interference filtering products for military and aerospace applications. The Company believes the acquisition of EMI Solutions will complement its existing product offerings, expand its customer base and allow it to deliver solutions that address a wider variety of applications and markets.

 

Consideration for the acquisition consisted of 964,912 shares of the Company’s common stock with an estimated fair value of $8,856 and $2,200 in cash. Of the cash portion of the consideration, the Company paid $155 at the time of the consummation of the acquisition and subsequently paid an additional $1,000. The remaining $1,045 cash portion of the consideration is payable in quarterly installments of $174 through June 2025.

 

The merger agreement with EMI Solutions provided that in the event that Legacy Mobix did not complete an initial public offering (including the Merger) within twenty-four months following the completion of the acquisition of EMI Solutions, the sellers could require the Company to pay all unpaid cash consideration and provided the sellers a “put right” wherein the sellers could require that the Company repurchase the 964,912 shares of common stock for a cash amount equal to $6.84 per share. The Company evaluated the terms of the related agreement and concluded that the shares of common stock issued as consideration were contingently redeemable common stock, and required recognition as temporary equity, because the events that determine whether the Company will be required to repurchase the 964,912 shares of its common stock for cash are not within the Company’s control. At the time of completion of the acquisition, the Company estimated the fair value of the contingently redeemable common stock at $8,856, based upon the fair value of the Legacy Mobix common stock, adjusted to include the fair value of the put right. The Company estimated the fair value of the put right using the Black-Scholes option pricing model with the following assumptions: expected volatility of 55.0%; no expected dividend yield; risk-free interest rate of 4.5%; and a contractual term of two years. The Company included this amount as part of the value of the purchase consideration. After the Closing of the Merger with Chavant on December 21, 2023, the common stock was no longer contingently redeemable, and the Company reclassified the value of the contingently redeemable common stock to permanent equity at its carrying value of $8,856, with no gain or loss recognized.

 

The following table summarizes the amount of the aggregate purchase consideration and the preliminary allocation to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, of which the valuation of intangible assets is subject to finalization:

 

Purchase consideration:    
Contingently redeemable common stock issued to seller  $8,856 
Cash consideration (at present value)   2,041 
   $10,897 
Allocation:     
Cash  $45 
Accounts receivable   387 
Inventory   155 
Other current assets   7 
Property and equipment   107 
Other assets   30 
Intangible asset—customer relationships   6,100 
Intangible asset—backlog   300 
Intangible asset—trade name   100 
Goodwill   5,542 
Accounts payable   (227)
Accrued expenses   (263)
Deferred tax liability   (1,386)
   $10,897 

 

17

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

The Company estimated the useful life of customer relationships is fifteen years, the useful life of the trade name is two years and the useful life of the backlog is one year. The goodwill is primarily attributed to expected synergies for the combined operations and is not deductible for income tax purposes.

 

The operating results of EMI Solutions are included in the Company’s condensed consolidated financial statements for periods subsequent to the acquisition date. The amounts of revenues and net loss of EMI Solutions included in the Company’s condensed consolidated statement of operations and comprehensive loss for the six months ended March 31, 2024 were $997 and $454, respectively.

 

The following table shows unaudited pro forma revenues and net loss of the Company, as if the acquisition of EMI Solutions had been completed as of October 1, 2022. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of future operations or results had the acquisition occurred on October 1, 2022.

 

   Three months ended
March 31,
   Six months ended
March 31,
 
   2024   2023   2024   2023 
                 
Revenues  $1,145   $678   $2,197   $2,015 
Net loss   (1,753)   (13,129)   (733)   (22,692)

 

Note 6 — Inventory

 

Inventory consists of the following:

 

   March 31,   September 30, 
   2024   2023 
         
Raw materials  $183   $265 
Finished goods   178    54 
Total inventory  $361   $319 

 

18

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Note 7 — Property and Equipment, net

 

Property and equipment, net consists of the following:

 

   Estimated Useful Life  March 31,   September 30, 
   (years)  2024   2023 
            
Equipment and furniture  5 - 7  $924   $858 
Laboratory equipment  5   621    601 
Leasehold improvements  Shorter of estimated useful life or remaining lease term   891    850 
Construction in progress      584    584 
Property and equipment, gross      3,020    2,893 
Less: Accumulated depreciation      (1,257)   (1,034)
Property and equipment, net     $1,763   $1,859 

 

Depreciation expense for the three months ended March 31, 2024 and 2023 was $117 and $112, respectively. Depreciation expense for the six months ended March 31, 2024 and 2023 was $230 and $225, respectively.

 

Note 8 — Intangible Assets, net

 

Intangible assets, net consist of the following:

 

   Estimated  March 31, 2024   September 30, 2023 
  

Useful Life

(years)

  Gross  

Accumulated

Amortization

   Net   Gross  

Accumulated

Amortization

   Net 
                            
Developed technology  7-10  $7,289   $(2,644)  $4,645   $7,289   $(2,238)  $5,051 
Customer relationships  10-15   6,400    (195)   6,205    300    (64)   236 
Trade names  2   100    (14)   86             
Backlog  1   300    (85)   215             
      $14,089   $(2,938)  $11,151   $7,589   $(2,302)  $5,287 

 

The Company recorded amortization expense related to intangible assets of $399 and $210 during the three months ended March 31, 2024 and 2023, respectively, and $636 and $421 during the six months ended March 31, 2024 and 2023, respectively. The weighted-average remaining lives of intangible assets as of March 31, 2024 were developed technology 5.9 years; customer relationships 14.5 years; trade names 1.7 years; and backlog nine months.

 

Estimated future amortization expense for intangible assets by fiscal year as of March 31, 2024 is as follows:

 

Years ending September 30,    
     
2024 (remaining six months)  $799 
2025   1,361 
2026   1,258 
2027   1,247 
2028   1,213 
Thereafter   5,273 
Total  $11,151 

 

19

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Note 9 — Goodwill

 

The following table summarizes changes in the carrying amount of goodwill during the six months ended March 31, 2024. There were no changes in the carrying amount of goodwill during the six months ended March 31, 2023.

 

Balance at September 30, 2023  $5,217 
Acquisition of EMI   5,542 
Balance at March 31, 2024  $10,759 

 

Note 10 — Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

   March 31,   September 30, 
   2024   2023 
         
Accrued compensation and benefits  $1,765   $2,841 
Liability-classified warrants   206     
Accrued professional fees   706    273 
Accrued interest   132    304 
Deferred revenue   43    138 
Committed equity facility fees   1,575     
Unpaid Merger-related transaction costs   1,240     
Other   1,369    963 
Total accrued expenses and other current liabilities  $7,036   $4,519 

 

Note 11 — Debt

 

Debt consists of the following:

 

   March 31,   September 30, 
   2024   2023 
         
Notes payable  $400   $1,286 
7% promissory notes – related parties   2,763    3,349 
Notes payable – related parties       444 
SAFEs       1,512 
Total debt   3,163    6,591 
Less: Amounts classified as current   (3,163)   (6,591)
Noncurrent portion  $   $ 

 

Notes Payable

 

During the six months ended March 31, 2024, the Company entered into two promissory notes payable having an aggregate principal amount of $250 with unrelated investors to meet its working capital needs. The notes bear interest at rates ranging from 6% to 76% per annum. One note having an original principal amount of $150 matures in November 2024, requires weekly principal payments of $4 and is guaranteed by an officer and director of the Company. The other note, having a principal amount of $100, is unsecured, matured in January 2024 and was repaid by the Company in February 2024.

 

20

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

In connection with the issuance of one of the notes, the Company issued the purchaser a warrant to purchase an aggregate of 47,020 shares of its common stock at $0.01. The warrant has a contractual term of twelve months and is immediately exercisable. The Company evaluated the warrant and determined that it met all the requirements for equity classification under ASC 815. The Company accounted for the warrant as a detachable warrant at its fair value, using the relative fair value method. The portion of the proceeds allocated to the warrant of $79 was recorded as an increase to additional paid-in capital and as a discount to notes payable on the condensed consolidated balance sheet. The Company is amortizing the discount over the term of the related note using the effective interest method. The Company valued the warrant at the time of issuance using the Black-Scholes option pricing model with the following assumptions: expected volatility of 55.6%; no expected dividend yield; risk-free interest rate of 5.3%; and a contractual term of twelve months.

 

One note, issued in September 2023 and having a principal amount of $531, provided that in the event the Company failed to pay the principal amount by its October 5, 2023 maturity date, the Company must issue the purchaser as additional consideration a warrant to purchase 28,000 shares of its common stock for the first calendar month, and warrants to purchase an additional 25,000 shares for each successive calendar month, during which the note remained unpaid. The Company did not repay the note by its maturity date and the Company is currently obligated to issue the purchaser warrants to purchase an aggregate of 103,000 shares of its common stock. The warrants are immediately exercisable and have an exercise price of $0.01 per share. In January 2024, the Company repaid this note in full.

 

During the six months ended March 31, 2023, the Company entered into five promissory notes payable having an aggregate principal amount of $1,100 with unrelated investors to meet its working capital needs. The notes matured at various dates through March 2024. During the six months ended March 31, 2023, the Company repaid $350 under one of these notes. In connection with the issuance of the notes, the Company gave the purchasers warrants to purchase an aggregate of 35,464 shares of its common stock at an exercise price of $0.01 per share. One promissory note also provided that in the event the Company failed to pay the principal amount on the maturity date, the Company must issue the purchaser a warrant to purchase an additional 15,000 shares of its common stock for each seven-day period thereafter until such time as the principal is repaid in full. Through March 31, 2023, the Company had issued the purchaser additional warrants to purchase an aggregate of 165,000 shares of its common stock.

 

As of March 31, 2024, promissory notes payable having a remaining principal balance of $400 were outstanding and are included in “Notes payable” in the condensed consolidated balance sheet.

 

7% Promissory Notes — Related Parties

 

The Company has two outstanding promissory notes with related parties which the Company assumed in 2020 as part of an asset acquisition. The promissory notes bear interest at 7% per annum, are unsecured and do not require principal payments prior to the maturity date. The notes had an initial maturity date of August 2022, but were amended in May 2022 to extend their maturity to July 2023. During the six months ended March 31, 2024 the Company made principal payments of $586 on one of the notes and as of March 31, 2024 an aggregate principal amount of $2,763 remains outstanding. The 7% promissory notes are included in “Notes payable — related parties” in the condensed consolidated balance sheet.

 

Notes Payable — Related Parties

 

As of September 30, 2023, two notes payable—related parties having an aggregate principal balance of $444 were outstanding. During the six months ended March 31, 2024, the Company repaid each of the notes in full.

 

During the six months ended March 31, 2023, the Company issued a promissory note having a principal balance of $106 to an employee of the Company, and repaid the note in full.

 

21

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

SAFEs

 

In connection with the Merger, all of the outstanding SAFEs, representing an original purchase amount of $1,000, were converted into 150,953 shares of the Company’s Class A Common Stock and the $1,512 carrying amount of these SAFEs was credited to equity, with no gain or loss recognized. As of March 31, 2024, no SAFEs remain outstanding.

 

The Company remeasured the SAFEs to fair value at each reporting date. For the six months ended March 31, 2024 and 2023, the Company recorded increases in the fair value of the SAFEs of $10 and $50, respectively. The change in fair value of the SAFEs is reported in “Change in fair value of SAFEs” in the condensed consolidated statements of operations and comprehensive loss.

 

Convertible Notes

 

During the six months ended March 31, 2024, the Company issued convertible notes having an aggregate principal amount of $200 to unaffiliated investors. The convertible notes matured in February 2024, bore interest at 16% per annum, were unsecured and had a conversion price of $6.84 per share. The principal amount of the convertible notes and any accrued interest thereon was convertible into shares of the Company’s common stock, at the election of each holder, at any time prior to maturity. In connection with the issuance of the convertible notes, the Company issued the investors warrants to purchase an aggregate of 4,000 shares of Legacy Mobix common stock at an exercise price of $0.01 per share. The warrants are immediately exercisable and have a one-year term. In connection with the Merger, all outstanding convertible notes were converted into 30,045 shares of the Company’s Class A Common Stock and the $206 carrying amount of the notes and accrued interest thereon was credited to equity, with no gain or loss recognized. As of March 31, 2024, no convertible notes remain outstanding.

 

Note 12 — Fair Value Measurements

 

The carrying amounts of the Company’s cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company believes the aggregate carrying value of debt approximates its fair value as of March 31, 2024 and September 30, 2023 because the notes payable, the 7% promissory notes - related parties, the notes payable - related parties and the convertible notes each mature or were converted within one year of the respective balance sheet dates.

 

Fair Value Hierarchy

 

Liabilities measured at fair value on a recurring basis as of March 31, 2024 are as follows:

 

   Level 1   Level 2   Level 3   Total 
                 
Earnout liability  $   $   $3,621   $3,621 
PIPE make-whole liability           1,639    1,639 
Private Warrants and other warrants           836    836 
                     
Total  $   $   $6,096   $6,096 

 

22

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

The Company classifies the earnout liability, the PIPE make-whole liability, the Private Warrants and other warrants and the SAFEs as Level 3 financial instruments due to the judgment required to develop the assumptions used and the significance of those assumptions to the fair value measurement. No financial instruments were transferred between levels of the fair value hierarchy during the six months ended March 31, 2024 or March 31, 2023. The following table provides a reconciliation of the balance of financial instruments measured at fair value on a recurring basis using Level 3 inputs:

 

Six months ended March 31, 2024: 

Earnout

Liability

  

PIPE Make-Whole

Liability

  

Private

Warrants
and Other
Warrants

   SAFEs 
                 
Balance, September 30, 2023  $   $   $   $1,512 
Liabilities recognized   33,559    2,071    882     
Conversion to Class A Common Stock in the Merger               (1,522)
Change in fair value included in net loss   (29,938)   (432)   (46)   10 
                     
Balance, March 31, 2024  $3,621   $1,639   $836   $ 

 

 

Six months ended March 31, 2023:  SAFEs 
     
Balance, September 30, 2022  $1,983 
Change in fair value included in net loss   558 
      
Balance, March 31, 2023  $2,541 

 

Earnout Liability

 

The Company estimates the fair value of the earnout liability using a Monte Carlo simulation model that utilizes significant assumptions, including volatility, expected term and risk-free rate that determine the probability of achieving the earnout conditions. The following table summarizes the assumptions used in estimating the fair value of the earnout liability at the respective dates:

 

  

December 21,
2023

(Closing)

   March 31,
2024
 
         
Stock price  $10.66   $2.01 
Expected volatility   50%   60%
Risk-free rate   3.9%   4.1%
Contractual term   8 years    7.7 years 

 

PIPE Make-Whole Liability

 

The Company uses a Monte Carlo simulation model that utilizes significant assumptions, including volatility, expected term and risk-free rate, to estimate the fair value of the PIPE make-whole liability. The following table summarizes the assumptions used in estimating the fair value of the PIPE make-whole liability at the respective dates:

 

  

December 21,
2023

(Closing)

   March 31,
2024
 
         
Stock price  $10.17   $1.56 
Expected volatility   49%   51%
Risk-free rate   5.4%   5.4%
Contractual term   4 months     3 months 

 

23

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Note 13 — Leases

 

The Company has entered into operating leases for office space. The leases have remaining terms ranging from three months to 3.4 years and expire at various dates through August 2027. The leases do not contain residual value guarantees or restrictive covenants. The lease covering the Company’s 19,436 square foot headquarters in Irvine, California provides the Company an option to extend the lease for one additional five-year term, with rent at the then prevailing market rate. The lease requires a security deposit of $400, which is recorded in other assets in the condensed consolidated balance sheets.

 

The following lease costs are included in the condensed consolidated statement of operations and comprehensive loss: 

 

   Six months ended
March 31,
 
   2024   2023 
         
Operating lease cost  $200   $202 
Short-term lease cost   46    155 
Total lease cost  $246   $357 

 

Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended March 31, 2024 and 2023 was $273 and $264, respectively. As of March 31, 2024, the weighted-average remaining lease term was 3.4 years, and the weighted-average discount rate was 15.6%. The Company did not obtain any right-of-use assets in exchange for new operating or financing lease liabilities during the six months ended March 31, 2024. There were no leases that had not yet commenced as of March 31, 2024 that will create significant additional rights and obligations for the Company.

 

The following table reconciles the undiscounted cash flows to the operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2024:

 

Years ending September 30,    
     
2024 (remaining six months)  $275 
2025   526 
2026   545 
2027   515 
Total minimum lease payments   1,861 
Less: imputed interest   (420)
Present value of future minimum lease payments   1,441 
Less: current obligations under leases   (332)
Long-term lease obligations  $1,109 

 

Note 14 — Commitments and Contingencies

 

Noncancelable Purchase Commitments

 

The Company has unconditional purchase commitments for services which extend to various dates through September 2024. Future minimum payments under these unconditional purchase commitments as of March 31, 2024 totaled $615.

 

24

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Loss Contingency

 

In fiscal year 2021, the Company recognized a liability for a contingent loss related to a business acquisition. The Company estimated the amount of the liability at $8,434, which was accrued in the condensed consolidated balance sheet as of September 30, 2022. During the six months ended March 31, 2023, the Company issued 1,233,108 shares of its common stock in settlement of this liability.

 

Litigation

 

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company does not believe it is currently a party to any material legal proceedings, nor is the Company aware of any other pending or threatened litigation that the Company believes would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

 

Indemnifications

 

In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with customers, suppliers and vendors. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred in connection with its service, breach of representations or covenants, intellectual property infringement or other claims made against such parties. These provisions may limit the time within which an indemnification claim can be made. The Company has not in the past incurred significant expense defending against third party claims, nor has it incurred significant expense under its standard service warranties or arrangements with its customers, suppliers and vendors. Accordingly, the Company has not recognized any liabilities for these indemnification provisions as of March 31, 2024 or September 30, 2023.

 

Note 15 — Income Taxes

 

The Company recorded a provision (benefit) for income taxes of $(16) and $1 for the three months ended March 31, 2024 and 2023, respectively, and a provision (benefit) for income taxes of $(1,296) and $32 for the six months ended March 31, 2024 and 2023, respectively. The provision (benefit) for income taxes for the three months and six months ended March 31, 2024 and 2023 was calculated using the discrete year-to-date method. In connection with the acquisition of EMI, the Company recognized an additional deferred tax liability of $1,386 associated with acquired intangible assets. Based on the availability of these tax attributes, the Company determined that it expects to realize a greater portion of its existing deferred tax assets and for the six months ended March 31, 2024 the Company recognized an income tax benefit of $1,296, principally resulting from a reduction in the valuation allowance on its deferred tax assets. For the six months ended March 31, 2023, the Company’s provision for income taxes differs from an amount calculated based on statutory tax rates principally due to the Company recording a valuation allowance against the net operating losses it generated during the period. The Company establishes a valuation allowance when necessary to reduce the carrying amount of its deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. In evaluating the Company’s ability to realize deferred tax assets, the Company considers all available positive and negative evidence, including historical operating results, potential limitations on the Company’s ability to carry forward net operating losses, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based on these factors, the Company has established a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized.

 

Note 16 — Equity

 

In connection with the Merger, the Company adopted its amended and restated certificate of incorporation and amended and restated bylaws. The amended and restated certificate of incorporation authorizes the issuance of preferred stock, Class A Common Stock and Class B Common Stock.

 

25

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Common Stock

 

The Company is authorized to issue 285,000,000 shares of Class A Common Stock and 5,000,000 shares of Class B Common Stock. Holders of Class A and Class B common stock are each entitled to receive ratably any dividends or distributions as may be declared from time to time by the board of directors. Each class of common stock is subordinate to the Company’s preferred stock with respect to rights upon liquidation of the Company. Neither class of common stock is redeemable at the option of the holders. The holders of Class A and Class B common stock are entitled to vote together as a single class, with each holder of outstanding shares of Class A Common Stock entitled to one vote for each share of Class A Common Stock and each holder of outstanding shares of Class B Common Stock entitled to ten votes for each share of Class B Common Stock. Holders of shares of Class B Common Stock may elect at any time to convert each outstanding share of Class B Common Stock into one share of Class A Common Stock. Shares of Class B Common Stock are also subject to automatic conversion into shares of Class A Common Stock upon the occurrence of certain events or, if not previously converted, upon the seventh anniversary of the Closing.

 

During the six months ended March 31, 2024, Legacy Mobix sold 482,171 shares of its common stock at various dates in private placements for net proceeds of $3,286. In connection with the issuance of these shares, Legacy Mobix also granted one investor a warrant to purchase 27,413 shares of common stock at a price of $0.01 per share. The warrant is immediately exercisable and has a term of one year. The Company determined the warrant to be a freestanding equity instrument with no subsequent remeasurement. The Company determined the amount recognized within additional paid-in capital by allocating the proceeds received among the shares of common stock and the warrant issued based on their relative fair values.

 

During the six months ended March 31, 2023, the Legacy Mobix sold 993,364 shares of its common stock at various dates in private placements for net proceeds of $6,795.

 

As of March 31, 2024, the number of shares of Class A Common Stock available for issuance under the Company’s amended and restated articles of incorporation were as follows:

 

Authorized number of shares of Class A Common Stock   285,000,000 
Class A Common Stock outstanding   23,600,558 
Reserve for conversion of Class B Common Stock   2,254,901 
Reserve for exercise of the Public Warrants and Private Warrants   9,000,000 
Reserve for exercise of other common stock warrants outstanding or issuable   3,320,020 
Shares issuable under PIPE make-whole provision   1,052,030 
Reserve for earnout shares   3,500,000 
Stock options and RSUs outstanding   8,601,088 
Awards available for grant under 2023 Equity Incentive Plan   2,290,183 
Awards available for grant under 2023 Employee Stock Purchase Plan   858,935 
Common stock available for issuance   230,522,285 

 

Preferred Stock

 

In connection with the Merger, all outstanding shares of Legacy Mobix Founders Redeemable Convertible Preferred Stock and Series A Redeemable Convertible Preferred Stock were cancelled and converted into 2,254,901 shares of the Company’s Class B Common Stock.

 

The amended and restated certificate of incorporation authorizes the Company to issue 10,000,000 shares of preferred stock, par value $0.00001, and the Company’s board of directors is authorized to designate one or more series of preferred stock, to fix the number of shares constituting any such series of preferred stock, and the powers, preferences and rights of any such series of preferred stock. Through March 31, 2024, the board of directors had not designated any such series of preferred stock and the Company had not issued any shares of preferred stock. As of March 31, 2024 no shares of preferred stock were outstanding.

 

26

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

The Company has never declared or paid any dividends on any class of its equity securities and does not expect to do so in the near future.

 

Committed Equity Facility

 

On March 18, 2024, the Company entered into a Purchase Agreement (“Purchase Agreement”) and a related Registration Rights Agreement with B. Riley Principal Capital II (“B. Riley”) which provides the Company the right, in its sole discretion, and subject to the satisfaction of the conditions set forth therein, to sell to B. Riley up to 9,500,000 newly issued shares of its Class A Common Stock (subject to certain limitations) from time to time. Any sales of Class A Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the Company’s option, and the Company is under no obligation to sell any securities to B. Riley. The per share purchase price that B. Riley will pay for shares of Class A Common Stock will be determined by reference to the volume weighted average price of the Class A Common Stock measured over the regular trading session or intraday period of the trading session on Nasdaq on the date of each purchase, in each case as defined in the Purchase Agreement, less a three percent discount.

 

As consideration for B. Riley’s commitment to purchase shares of the Company’s Class A Common Stock, the Company agreed to pay a cash commitment fee in the amount of $1,500. B. Riley will withhold 30% in cash from the total aggregate purchase price until B. Riley has received the entire cash commitment fee. If any portion of the commitment fee remains unpaid on the earlier of the termination of the agreement or December 15, 2024, then the Company must pay B. Riley the remainder of the commitment fee in cash. The Company also agreed to reimburse B. Riley for reasonable legal fees and disbursements in an amount not to exceed $75 upon the execution of the Purchase Agreement and Registration Rights Agreement and $5 per fiscal quarter. In April 2024, the Company filed a registration statement with the Securities and Exchange Commission to register under the Securities Act, the offer and resale by B. Riley of up to 9,500,000 shares of Class A Common Stock that the Company may elect to sell to B. Riley pursuant to the Purchase Agreement.

 

As of March 31, 2024, the Company had not sold any shares under the Purchase Agreement. The amount and timing of the proceeds the Company receives from the sale of shares of Class A Common Stock pursuant to the Purchase Agreement, if any, will depend on a number of factors, including the numbers of shares the Company may elect to sell, the timing of such sales, the future market price of the Company’s Class A Common stock and the payment of the cash commitment fee. The cash commitment and other fees under the Purchase Agreement totaling $1,575 are included in “Other non-operating losses, net” in the condensed consolidated statement of operations and comprehensive loss for the three months and six months ended March 31, 2024.

 

Note 17 — Equity Incentive Plans

 

In connection with the Merger, the Company adopted of 2023 Equity Incentive Plan, which provides for the issuance of stock options, restricted stock awards, RSUs and other stock-based compensation awards to employees, directors, officers, consultants or others who provide services to the Company. The specific terms of such awards are to be established by the board of directors or a committee thereof. The Company has reserved 2,290,183 shares of its Class A Common Stock for issuance under the terms of the 2023 Equity Incentive Plan. As of March 31, 2024, the Company had not issued any awards under this plan.

 

Also in connection with the Merger, the Company adopted the 2023 Employee Stock Purchase Plan to assist eligible employees in acquiring stock ownership in the Company. Under the 2023 Employee Stock Purchase Plan, eligible employees may elect to enroll in the plan, designate a portion of eligible compensation to be withheld by the Company during an offering period, and purchase shares of the Company’s Class A Common Stock at the end of such offering period. The price of the shares purchased shall not be less than 85% of the fair market value of a share on the enrollment date or on the purchase date, whichever is lower. The Company has reserved 858,935 shares of its Class A Common Stock for issuance under the terms of the 2023 Employee Stock Purchase Plan. As of March 31, 2024, the Company had not commenced any offering period nor sold any shares under this plan.

 

27

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Prior to the Merger, Legacy Mobix had three equity incentive plans which provided for the issuance of stock-based compensation awards and immediately prior to the Merger, Legacy Mobix RSUs and stock options were outstanding under these plans. Under the terms of the 2023 Equity Incentive Plan, no further awards may be made under the Legacy Mobix equity incentive plans.

 

Restricted Stock Units

 

In connection with the Merger, all of Legacy Mobix’s RSUs were assumed by the Company and converted into an RSU covering the same number of shares of the Company’s Class A Common Stock.

 

In November 2022, Legacy Mobix and certain of its officers and key employees agreed to enter into amended RSU agreements relating to an aggregate of 10,000,000 RSUs and in March 2023 and May 2023, Legacy Mobix and certain of its officers and key employees agreed to forfeit the 10,000,000 RSUs. The RSUs to these officers and key employees were replaced with a commitment from the Company, contingent upon closing of the Merger, to issue an aggregate of 5,000,000 RSUs (of which 1,000,000 were modified to common stock warrants upon the holder’s termination of employment) over three years, beginning on the first anniversary of the Closing of the Merger. Because the vesting of these awards was subject to both a service condition and a performance condition (the completion of the Merger), the Company determined that vesting of the awards was not probable and did not recognize any stock-based compensation expense for these awards prior to the Closing.

 

Upon Closing, the performance condition was satisfied, and vesting of the awards is subject only to a service condition. As a result, the Company is required to recognize the value of these awards over the requisite service period. During the six months ended March 31, 2024, the Company recognized stock-based compensation expense of $11,846 relating to these RSUs and warrants, which includes a catch-up for the portion of the service period completed prior to the performance condition being satisfied. Also during the six months ended March 31, 2024, in connection with a separation of employment, the Company modified 1,000,000 RSUs held by an employee such that the RSUs—which were subject to forfeiture under their original terms—would continue to vest over their original service period. Because the fair value of the modified awards was lower than the grant-date fair value of the original awards, the Company recognized a $2,242 reduction of stock-based compensation expense during the three months ended March 31, 2024.

 

During the six months ended March 31, 2023, certain employees agreed to forfeit 670,000 RSUs with no current replacement award. As a result, the Company recognized $3,706 of additional stock-based compensation expense in the six months ended March 31, 2023.

 

A summary of activity in the Company’s RSUs for the six months ended March 31, 2024 is as follows:

 

   Number
of units
   Weighted-Average
Grant Date Fair
Value per Unit
 
         
Outstanding at September 30, 2023   209,494   $6.84 
Performance-based RSUs   3,999,999   $8.65 
Vested   (130,934)  $6.84 
Outstanding at March 31, 2024   4,078,559   $8.61 

 

No RSUs vested during the six months ended March 31, 2023. Unrecognized compensation expense related to RSUs was $33,946 as of March 31, 2024 and is expected to be recognized over a weighted-average period of 3.8 years.

 

28

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Stock Options

 

In connection with the Merger, all Legacy Mobix stock options were assumed by the Company and converted into the same number of stock options of the Company, with no change to their exercise prices, vesting conditions or other terms. Stock option activity for the six months ended March 31, 2024 is as follows:

 

   Number
of Options
   Weighted-
Average
Exercise Price
per Share
   Weighted-
Average
Remaining
Contractual
Term (years)
 
Outstanding at September 30, 2023   5,905,684   $4.28            
Granted   32,200   $6.84      
Exercised   (474,313)  $5.91      
Forfeited   (941,042)  $6.53      
Outstanding at March 31, 2024   4,522,529   $3.66    6.3 
Exercisable at March 31, 2024   4,041,704   $3.29    6.1 

 

The terms of stock option awards permit a “net share settlement” for exercises of stock options, at the Company’s discretion. Stock options exercised during the six months ended March 31, 2024 include options to purchase an aggregate of 474,313 shares which were exercised and settled for 198,115 shares of Class A Common Stock, with no cash proceeds to the Company.

 

Unrecognized stock-based compensation expense related to stock options, totaling $1,911 as of March 31, 2024, is expected to be recognized over a weighted-average period of 2.0 years. The aggregate intrinsic value of stock options outstanding and stock options exercisable as of March 31, 2024 was $3,626 and $3,626, respectively. The total intrinsic value of options exercised during the six months ended March 31, 2024 and 2023 was $1,938 and $0, respectively. The total fair value of options that vested during the six months ended March 31, 2024 and 2023 was $1,221 and $1,887, respectively.

 

The weighted-average grant date fair value of options granted during the six months ended March 31, 2024 and 2023 was $3.50 and $3.58, respectively. The fair value of stock options granted was estimated with the following assumptions:

 

   Six months ended March 31, 
   2024   2023 
   Range   Range 
   Low   High   Low   High 
                 
Expected volatility   54.8%   55.6%   52.4%   53.6%
Expected dividend yield   0%   0%   0%   0%
Risk-free interest rate   3.9%   4.4%   3.6%   4.2%
Expected term (years)   4.5    5.3    5.0    5.8 

 

The condensed consolidated statements of operations and comprehensive loss include stock-based compensation expense as follows:

 

   Three months ended
March 31,
   Six months ended
March 31,
 
   2024   2023   2024   2023 
                 
Cost of revenue  $   $11   $   $22 
Research and development   274    541    775    1,083 
Selling, general and administrative   1,167    5,227    13,371    8,530 
Total stock-based compensation expense  $1,441   $5,779   $14,146   $9,635 

 

29

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Note 18 — Net Loss Per Share

 

The Company computes net loss per share of Class A and Class B Common Stock using the two-class method. Basic net loss per share is computed using the weighted-average number of shares outstanding during the period. Diluted net income loss per share is computed using the weighted-average number of shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of stock options, warrants, RSUs and other contingently issuable shares. The dilutive effect of outstanding stock options, warrants, RSUs and other contingently issuable shares is reflected in diluted earnings per share by application of the more dilutive of (a) the two-class method or (b) the if-converted method and treasury stock method, as applicable. The computation of the diluted net income (loss) per share of Class A Common Stock assumes the conversion of Class B Common Stock, while the diluted net income (loss) per share of Class B Common Stock does not assume the conversion of those shares.

 

In periods where the Company has a net loss, most potentially dilutive securities are not included in the computation as their impact is anti-dilutive; those potentially dilutive securities whose impact is dilutive are included in the computation. For the three months and six months ended March 31, 2024, the PIPE make-whole liability and liability-classified warrants are included in the computation of diluted loss per share as if the underlying shares had been issued as of the later of the beginning of the fiscal period or the date of issuance of those securities. Inclusion of those securities under the if-converted method increases both the net loss for the period and the number of shares used in the per share computation and is dilutive to the Company’s net loss per share.

 

   Three months ended
March 31,
 
   2024   2023 
   Class A   Class B   Common
Stock
 
Basic net loss per share:            
Numerator:            
Allocation of net loss  $(1,612)  $(141)  $(13,142)
Deemed dividend from warrant price adjustment   (608)   (53)    
Net loss available to common stockholders   (2,220)   (194)   (13,142)
Denominator:               
Weighted-average shares outstanding   25,791,094    2,254,901    14,025,304 
Basic net loss per share  $(0.09)  $(0.09)  $(0.94)
                
Diluted net loss per share:               
Numerator:               
Net loss available to common stockholders  $(2,220)  $(194)  $(13,142)
Change in fair value of PIPE make-whole liability   (3,068)   (268)    
Change in fair value of liability-classified warrants   (483)   (42)    
Reallocation of net loss as a result of conversion of Class B to Class A Common Stock   (504)        
Reallocation of net loss       19     
Allocation of net loss   (6,275)   (485)   (13,142)
                
Denominator:               
Number of shares used in basic earnings per share calculation   25,791,094    2,254,901    14,025,304 
Shares issuable in satisfaction of PIPE make-whole liability   1,052,030         
Shares issuable under liability-classified warrants   101,228         
Conversion of Class B to Class A Common Stock   2,254,901         
Number of shares used in per share computation   29,199,253    2,254,901    14,025,304 
Diluted net loss per share  $(0.21)  $(0.21)  $(0.94)

 

30

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

   Six months ended
March 31,
 
   2024   2023 
   Class A   Class B   Common
Stock
 
Basic net loss per share:            
Numerator:            
Allocation of net loss  $(742)  $(76)  $(22,532)
Deemed dividend from warrant price adjustment   (600)   (61)    
Net loss available to common stockholders  $(1,342)  $(137)  $(22,532)
Denominator:               
Weighted-average shares outstanding   22,004,134    2,254,901    13,189,879 
Basic net loss per share  $(0.06)  $(0.06)  $(1.71)
                
Diluted net loss per share:               
Numerator:               
Net loss available to common stockholders  $(1,342)  $(137)  $(22,532)
Change in fair value of PIPE make-whole liability   (392)   (40)    
Change in fair value of liability-classified warrants   (476)   (49)    
Reallocation of net loss as a result of conversion of Class B to Class A Common Stock   (226)        
Reallocation of net loss       6     
Allocation of net loss  $(2,436)  $(220)  $(22,532)
                
Denominator:               
Number of shares used in basic earnings per share calculation   22,004,134    2,254,901    13,189,879 
Shares issuable in satisfaction of PIPE make-whole liability   580,628           
Shares issuable under liability-classified warrants   74,906           
Conversion of Class B to Class A Common Stock   2,254,901         
Number of shares used in per share computation   24,914,569    2,254,901    13,189,879 
Diluted net loss per share  $(0.10)  $(0.10)  $(1.71)

 

For the purposes of applying the if converted method or treasury stock method for calculating diluted earnings per share, the Public Warrants, Private Warrants, RSUs and stock options result in anti-dilution. Therefore, these securities are not included in the computation of diluted net loss per share. The Earnout Shares were not included for purposes of calculating the number of diluted shares outstanding because the number of dilutive shares is based on a conversion contingency associated with the VWAP of the Class A Common Stock which had not been met, and the contingency was not resolved, during the periods presented herein. The potential shares of Class A Common Stock that were excluded from the computation of diluted net income (loss) per share attributable to stockholders for the periods presented because including them would have an antidilutive effect were as follows:

 

   Six months ended
March 31,
 
   2024   2023 
         
Public Warrants and Private Warrants   9,000,000     
Earnout shares   3,500,000     
RSUs   4,078,559    10,984,241 
Stock options   4,522,529    6,400,758 
Convertible preferred stock (on an as-converted basis)       2,254,901 
Common stock warrants       400,000 
Convertible notes       131,072 
    21,101,088    20,170,972 

 

31

 

 

MOBIX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited, in thousands, except share and per share amounts)

 

Note 19 — Concentrations

 

For the three months ended March 31, 2024, one customer accounted for 26% of the Company’s revenues. For the three months ended March 31, 2023, two customers accounted for 100% of the Company’s revenues. For the six months ended March 31, 2024, three customers accounted for 48% of the Company’s revenues. For the six months ended March 31, 2023, one customer accounted for 82% of the Company’s revenues. No other customer accounted for more than 10% of revenues in the respective periods. As of March 31, 2024, two customers had balances due that represented 48% of the Company’s total accounts receivable. As of September 30, 2023, two customers had balances due that represented 97% of the Company’s total accounts receivable.

 

Note 20 — Geographical Information

 

Revenues by Geographic Region

 

The Company’s revenues by geographic region, based on ship-to location, are summarized as follows:

 

   Three months ended
March 31,
   Six months ended
March 31,
 
   2024   2023   2024   2023 
                 
United States  $980   $32   $1,248   $298 
Czech Republic           17    185 
Thailand               225 
Other   165        165    3 
Total net revenue  $1,145   $32   $1,430   $711 

 

Long-Lived Assets

 

Substantially all of the Company’s long-lived assets are located in the United States.

 

Note 21 — Subsequent Events

 

Agreement to Acquire RaGE Systems, Inc. 

 

On May 8, 2024, the Company entered into an agreement (the “RaGE Business Combination Agreement”) to acquire RaGE Systems, Inc. (“RaGE Systems”) for aggregate consideration of $12,000. RaGE Systems specializes in developing products for 5G communications, mmWave imaging, and software defined radio targeting the commercial, industrial, and defense and aerospace sectors.

 

As consideration for the acquisition, the Company will issue the sellers a number of shares of its Class A Common Stock equal to the quotient of (a) $10,000 divided by (b) the VWAP (as defined in the RaGE Business Combination Agreement) of Mobix Class A Common Stock for the fifteen trading days up to and including the fifth business day prior to the closing date. In addition, the Company will pay the sellers an aggregate of $2,000 in cash, of which $200 will be payable on the closing date; $1,000 will be payable on November 15, 2024 and $800 will be payable on April 15, 2025. The Company will also enter into employment agreements with each of the RaGE stockholders. Pursuant to the RaGE Business Combination Agreement, the RaGE stockholders will also be entitled to receive possible earn-out payments of up to $8,000 over eight fiscal quarters, payable in a combination of cash and shares of the Company’s Class A Common Stock, based upon the satisfaction of certain financial metrics and continued employment with the Company. The RaGE Business Combination Agreement also provides the RaGE stockholders with “piggy-back” registration rights, subject to certain requirements and customary conditions. Consummation of the acquisition is subject to the satisfaction or waiver of customary closing conditions, including the satisfactory completion of the Company’s due diligence investigation, set forth in the RaGE Business Combination Agreement.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements included the Part I, Item 1 of this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements based upon current beliefs that involve risks, uncertainties, and assumptions, such as statements regarding our plans, objectives, expectations, intentions, and projections. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. You should carefully read the “Risk Factors” section to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

 

All amounts herein are in thousands, except share and per share amounts.

 

Overview

 

Based in Irvine, California, we are a fabless semiconductor company developing disruptive wireless mmWave 5G and C-Band wireless solutions and delivering connectivity and electromagnetic filtering products for next generation communications systems supporting the aerospace, military, defense, medical and other markets requiring high reliability (“HiRel”) and HiRel products. To enhance our product portfolio, we also intend to pursue acquisitions of companies with existing revenue which can be scaled, and which possess technologies that accelerate the speed, accessibility, and efficiency of disruptive or more efficient communications solutions, and which will also allow us to expand into strategically aligned industries. Our wireless mmWave 5G integrated circuits currently in development are designed to deliver significant advantages in performance, efficiency, size, and cost. Our True Xero active optical cables (“AOCs”), which have been in production for several years and were acquired in the Cosemi acquisition, are designed to meet customer needs for high-quality active optical cable solutions at an affordable price. Our electromagnetic interference (“EMI”) filtering products, which were acquired in the EMI Solutions, Inc. (“EMI Solutions”) acquisition, are designed for, and are currently used in aerospace, military, defense and medical applications. These innovative technologies are designed for large and rapidly growing markets where there is increasing demand for higher performance communication and filtering systems which utilize an expanding mix of both wireless and connectivity technologies.

 

On December 21, 2023, we consummated the merger pursuant to the business combination agreement, dated November 15, 2022 (as amended, supplemented or otherwise modified, the “Business Combination Agreement”), by and among Chavant, CLAY Merger Sub II, Inc., a Delaware corporation and newly formed, wholly-owned direct subsidiary of Chavant (“Merger Sub”), and Mobix Labs, Inc. (“Legacy Mobix”), a Delaware corporation, pursuant to which, among other things, Merger Sub merged with and into Legacy Mobix, with Legacy Mobix surviving the merger as a wholly-owned direct subsidiary of Chavant (together with the other transactions related thereto, the “Merger”). In connection with the consummation of the Merger (the “Closing”), Chavant changed its name from “Chavant Capital Acquisition Corp.” to “Mobix Labs, Inc.” (the “Company”) and Legacy Mobix changed its name from “Mobix Labs, Inc.” to “Mobix Labs Operations, Inc.”

 

Throughout this discussion, unless otherwise noted or otherwise suggested by context, all references to “we,” “us” or “our” refer to Legacy Mobix prior to the consummation of the Merger, and to the Company and its subsidiaries after the consummation of the Merger.

 

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We were founded with the goal of simplifying the development and maximizing the performance of wireless mmWave wireless 5G products by designing and developing high performance, cost-effective, and ultra-compact semiconductor components and solutions used for signal processing applications in wireless products. Since our inception, our corporate strategy has evolved to encompass the pursuit of acquisitions in diverse industry sectors, including aerospace, military, defense, medical and HiRel technology, as part of our commitment to enhancing communication services. We have developed and/or acquired an extensive intellectual property portfolio comprised of patents and trade secrets that are critical to commercializing our communication products and communications technologies. In leveraging our proprietary technology, we aim to scale the growth of our product revenue for our integrated circuits and components by serving large and rapidly growing markets where we believe there are increasing demands for higher performance communication technologies, including both wireless and connectivity systems. We are actively pursuing customer engagements with manufacturers of wireless communications, aerospace, military, defense, medical and HiRel products.

 

In 2021, we completed the acquisition of substantially all of the assets including intellectual property of Cosemi, an Irvine, California-based global supplier of high-speed connectivity solutions. Cosemi’s intellectual property portfolio included a broad range of AOCs and optical engines that deliver optimal connectivity to a wide range of applications, including home entertainment, gaming, augmented reality and virtual reality, video conferencing, medical, mobile devices and monitors, among others. The acquisition of Cosemi built the foundation for our current connectivity business. We believe the patented cable technology and AOC optical chip solutions from Cosemi along with our innovative wireless semiconductor technologies provide more opportunities in the wireless C-Band and mmWave 5G market as the need for faster, more reliable data transmission becomes ever more apparent, whether it is for the data center, infrastructure, home entertainment or consumer electronics market.

 

Recent Developments

 

Agreement to Acquire RaGE Systems Inc. 

 

On May 8, 2024, we entered into an agreement (the “RaGE Business Combination Agreement”) to acquire RaGE Systems, Inc. (“RaGE Systems”) for aggregate consideration of $12,000. RaGE Systems specializes in developing products for 5G communications, mmWave imaging, and software defined radio targeting the commercial, industrial, and defense and aerospace sectors.

 

As consideration for the acquisition, we will issue the sellers a number of shares of our Class A Common Stock equal to the quotient of (a) $10,000 divided by (b) the VWAP (as defined in the RaGE Business Combination Agreement) of our Class A Common Stock for the fifteen trading days up to and including the fifth business day prior to the closing date. In addition, we will pay the sellers an aggregate of $2,000 in cash, of which $200 will be payable on the closing date; $1,000 will be payable on November 15, 2024 and $800 will be payable on April 15, 2025. We will also enter into employment agreements with each of the RaGE stockholders. Pursuant to the RaGE Business Combination Agreement, the RaGE stockholders will also be entitled to receive possible earn-out payments of up to $8,000 over eight fiscal quarters, payable in a combination of cash and shares of our Class A Common Stock, based upon the satisfaction of certain financial metrics and continued employment with us. The RaGE Business Combination Agreement also provides the RaGE stockholders with “piggy-back” registration rights, subject to certain requirements and customary conditions. Consummation of the acquisition is subject to the satisfaction or waiver of customary closing conditions, including the satisfactory completion of our due diligence investigation, set forth in the RaGE Business Combination Agreement.

 

Committed Equity Facility

 

In March 2024, we entered into a Purchase Agreement (“Purchase Agreement”) and a related Registration Rights Agreement with B. Riley Principal Capital II (“B. Riley”) which provides us the right, in our sole discretion, and subject to the satisfaction of the conditions set forth therein, to sell to B. Riley up to 9,500,000 newly issued shares of our Class A Common Stock (the “Purchase Shares”) (subject to certain limitations) from time to time. Any sales of Class A Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B. Riley. The per share purchase price that B. Riley will pay for shares of Class A Common Stock will be determined by reference to the volume weighted average price of the Class A Common Stock measured over the regular trading session or intraday period of the trading session on Nasdaq on the date of each purchase, less a three percent discount. As of March 31, 2024, we had not sold any shares under the Purchase Agreement. The amount and timing of the proceeds, if any, that we may receive from the sale of shares of Class A Common Stock pursuant to the Purchase Agreement will depend on a number of factors, including the numbers of shares we may elect to sell, the timing of such sales, the future market price of our Class A Common stock and our payment of the cash commitment fee. See the notes to our unaudited condensed consolidated financial statements for further details.

 

The Merger

 

We accounted for the Merger as a reverse recapitalization. Under this method of accounting, Chavant is treated as the “acquired” company for financial reporting purposes. This determination was primarily based on holders of Legacy Mobix capital stock comprising a majority of the voting power of our common stock upon consummation of the Merger and having the ability to nominate the majority of our board of directors, Legacy Mobix’ senior management comprising our senior management, and Legacy Mobix’ operations comprising our ongoing operations. Accordingly, for accounting purposes, our financial statements represent a continuation of the financial statements of Legacy Mobix with the Merger being treated as the equivalent of Legacy Mobix issuing shares for the net assets of Chavant, accompanied by a recapitalization. We recognized the net assets of Chavant as of the Closing at historical cost, with no goodwill or other intangible assets recorded. Our operations prior to the Merger are presented as those of Legacy Mobix and the accumulated deficit of Legacy Mobix has been carried forward after Closing. All issued and outstanding securities of Chavant at the time of the Closing were treated as issuances of securities by us upon the consummation of the Merger.

 

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As a result of the Merger, we raised gross proceeds of $21,014, including the contribution of $1,264 of cash held in Chavant’s trust account and the $19,750 private investment in public equity (“PIPE”) at $10.00 per share of Chavant’s Class A Common Stock (“Class A Common Stock”). Our Class A Common Stock and Public Warrants (“Public Warrants”) began trading on The Nasdaq Stock Market LLC under the symbols “MOBX” and “MOBXW”, respectively, on December 22, 2023.

 

Acquisition of EMI Solutions, Inc.

 

On December 18, 2023, we completed the acquisition of EMI Solutions when we acquired all of the issued and outstanding common shares of EMI Solutions. EMI Solutions is a manufacturer of electromagnetic interference filtering products for aerospace, military, defense and medical applications. We expect the acquisition of EMI Solutions to complement our existing product offerings, expand our customer base and allow us to deliver solutions that address a wider variety of applications and markets. Consideration for the acquisition of EMI Solutions consisted of 964,912 shares of Legacy Mobix common stock and $2,200 in cash. We valued the common stock at $8,856, based on the fair value of the Legacy Mobix common stock at the time of the acquisition. Additional details of our accounting for our acquisition of EMI Solutions are included in the notes to our unaudited condensed consolidated financial statements included herein.

 

Cost Reductions

 

To address our capital limitations and focus our use of cash on the completion of the Merger, which closed on December 21, 2023, and our acquisition of EMI Solutions, which closed on December 18, 2023, we reduced our headcount and temporarily furloughed approximately half of our employees on an unpaid basis since the beginning of the fourth quarter of fiscal year 2023. We also reduced our use of outside services and other costs and deferred discretionary expenditures. As a result of these actions, we reduced our operating expenses—mainly in research and development—for the three months and six months ended March 31, 2024 compared to the comparable fiscal 2023 periods. In January 2024, we permanently reduced our headcount by approximately 35%, consisting of employees previously placed on temporary furlough.

 

Financing Activities

 

During the six months ended March 31, 2024, we had additional financing activity, principally consisting of the issuance of promissory notes, convertible notes and Legacy Mobix common stock. See “Liquidity and Capital Resources,” below, and our unaudited condensed consolidated financial statements for further details.

 

COVID-19 Pandemic, Supply Chain Disruptions and Impact of Inflation

 

The COVID-19 pandemic has caused, and may continue to cause, a disruption and restrictions on our ability to travel, temporary closures of our office buildings and the facilities of our customers or suppliers, cancellations or modification of events, and disruptions at our manufacturers and suppliers located in Vietnam, Taiwan and China, including the COVID-19 lockdown in Shanghai in the first half of 2022 that led to substantial delays in our supply chain in China. We have experienced delays in shipments and product launches that have negatively impacted our sales and operating results relating to our connectivity business, and any future delays, due to pandemics or otherwise, could have a materially negative effect in the future. We also experienced a decline in revenue for the year ended September 30, 2023 due to a decrease in product sales resulting from supply chain constraints that limited our ability to meet demand from our largest customer. In addition, the COVID-19 lockdown in Vietnam triggered operational and solvency challenges for our Vietnamese manufacturer beginning in the first half of calendar year 2023. In response, we transitioned to higher cost manufacturers in Taiwan in July 2023 to ramp up production. However, this shift has resulted, and will continue to result in, lower margins than expected.

 

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To help mitigate the COVID-19 related disruptions at our contract manufacturers and suppliers where we experienced a delay in our supply chain to support our orders, we used higher cost shipping and manufacturing alternatives. Additional COVID-19 disruptions limited our supply availability, forcing us to move to less cost-effective components and materials. The higher cost shipping and manufacturing alternatives and components and materials resulting from supply chain disruptions negatively impacted our gross margin more than we anticipated in our outlook for our business. These constraints continue to exist and are expected to continue to materially impact our gross margin percentage. We are continuing to implement operational measures to minimize the turnaround time in fulfilling our orders. We are also currently designing and plan to introduce lower cost products as alternatives with more competitively priced components, aiming to maintain performance standards. However, there can be no assurance that these efforts will be sufficient to offset the negative impact of supply chain disruptions on our gross margin and net loss.

 

In addition to general levels of inflation that we have experienced, we are also subject to risk of specific inflationary pressures due to the expected continuing impacts of the COVID-19 pandemic and related global supply chain disruptions, including increases in commodity prices for materials and components and shipping costs that have had a negative impact on our gross margin. If inflation remains high or increases, our gross margin and results of operations will be further negatively impacted. To mitigate the effect of inflation, as described above, we are designing and plan to introduce lower cost products as alternatives with more competitively priced components, aiming to maintain performance standards. In addition, we have qualified another Taiwanese manufacturer for our connectivity products to foster competition among our manufacturers. However, there can be no assurance that these efforts will be sufficient to offset the negative impact of inflation on our gross margin and net loss.

 

Results of Operations

 

Comparison of the Three Months and Six Months Ended March 31, 2024 and March 31, 2023

 

(dollars in thousands)  Three months ended
March 31,
   Change 
   2024   2023   $   % 
                 
Net revenue                
Product sales  $1,145   $32    1,113    3,478%
                     
Costs and expenses                    
Cost of revenue   952    209    743    356%
Research and development   1,397    2,633    (1,236)   (47)%
Selling, general and administrative   7,358    9,029    (1,671)   (19)%
                     
Loss from operations   (8,562)   (11,839)   3,277    (28)%
                     
Interest expense   248    794    (546)   (69)%
Change in fair value of earnout liability   (5,174)       (5,174)   nm 
Change in fair value of PIPE make-whole liability   (3,336)       (3,336)   nm 
Change in fair value of private warrants   420        420    nm 
Change in fair value of SAFEs       508    (508)   (100)%
Other non-operating losses, net   1,049        1,049    nm 
                     
Loss before income taxes   (1,769)   (13,141)   11,372    (87)%
Provision for income taxes   (16)   1    (17)   Nm 
                     
Net loss and comprehensive loss  $(1,753)  $(13,142)  $11,389    (87)%

 

“nm” indicates amount is not meaningful.

 

36

 

 

(dollars in thousands)  Six months ended
March 31,
   Change 
   2024   2023   $   % 
                 
Net revenue                
Product sales  $1,430   $711    719    101%
                     
Costs and expenses                    
Cost of revenue   1,281    903    378    42%
Research and development   2,959    6,050    (3,091)   (51)%
Selling, general and administrative   23,021    14,823    8,198    55%
                     
Loss from operations   (25,831)   (21,065)   (4,766)   23%
                     
Interest expense   1,105    877    228    26%
Change in fair value of earnout liability   (29,938)       (29,938)   nm 
Change in fair value of PIPE make-whole liability   (432)       (432)   nm 
Change in fair value of private warrants   480        480    nm 
Change in fair value of SAFEs   10    558    (548)   (98)%
Merger-related transaction costs expensed   4,009        4,009    nm 
Other non-operating losses, net   1,049        1,049    nm 
                     
Loss before income taxes   (2,114)   (22,500)   20,386    (91)%
Provision for income taxes   (1,296)   32    (1,328)   nm 
                     
Net loss and comprehensive loss  $(818)  $(22,532)  $21,714    (96)%

 

“nm” indicates amount is not meaningful.

 

Net Revenue

 

We derive our net revenues primarily from product sales to equipment manufacturers. We recognize product revenue when we satisfy performance obligations under the terms of our contracts and upon transfer of control when title transfers (either upon shipment to or receipt by the customer, as determined by the contractual shipping terms of the contract), net of accruals for estimated sales returns and allowances (which were not material for the three months and six months ended March 31, 2024 and 2023). Sales and other taxes we collect, if any, are excluded from net revenue. Our revenues fluctuate based on a variety of factors, including the timing of the receipt of orders from our customers, product mix, competitor price offerings, global economic conditions, and other factors.

 

Our net revenues were $1,145 for the three months ended March 31, 2024 compared to $32 for the three months ended March 31, 2023, an increase of $1,113. The increase reflects the addition of $929 in sales of EMI filtering products, which we acquired in our December 18, 2023 acquisition of EMI Solutions. The increase also includes a $184 increase in sales of AOCs, which reflects the comparison against the quarter ended March 31, 2023, where our sales were adversely affected by supply chain constraints that limited our ability to fulfill customer orders.

 

For the six months ended March 31, 2024 our net revenues were $1,430 compared to $711 for the six months ended March 31, 2023, an increase of $719 or 101%. The change principally reflects the addition of $997 in sales of EMI filtering products, which we acquired in our acquisition of EMI Solutions. The increase in net revenues from our EMI filtering products was partly offset by a $278 decrease in sales of our AOCs, driven by reduced demand from our largest customer during the six months ended March 31, 2024.

 

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Cost of Revenue

 

Cost of revenue includes costs of materials, contract manufacturing services for the assembly, testing and shipping products, inbound freight, amortization of acquired developed technology, inventory obsolescence charges and other product-related costs. Cost of revenue also includes employee compensation and benefits (including stock-based compensation) of employees engaged in the sourcing of products, facility costs and depreciation.

 

Cost of revenue was $952 for the three months ended March 31, 2024 compared to $209 for the three months ended March 31, 2023, an increase of $743 or 356%. The change principally reflects the increase in sales of our EMI filtering products as discussed above, as well as higher sales volume in our AOCs.

 

Cost of revenue was $1,281 for the six months ended March 31, 2024 compared to $903 for the six months ended March 31, 2023, an increase of $378 or 42%. The change principally reflects the increase in sales of our EMI filtering products as discussed above, partly offset by lower cost of revenue for AOCs, consistent with the lower sales volume for those products.

 

Research and Development Expenses

 

Research and development expenses represent costs of our product design and development activities, including employee compensation and benefits (including stock-based compensation), outside services, design tools, supplies, facility costs, depreciation and amortization of acquired developed technology. We expense all research and development costs as incurred.

 

Research and development expenses were $1,397 for the three months ended March 31, 2024 compared to $2,633 for the three months ended March 31, 2023, a decrease of $1,236 or 47%. The decrease principally reflects lower employee compensation and benefits and lower stock-based compensation expense resulting from the cost reduction actions we initiated during the fourth quarter of our fiscal year ended September 30, 2023.

 

Research and development expenses were $2,959 for the six months ended March 31, 2024 compared to $6,050 for the six months ended March 31, 2023, a decrease of $3,091 or 51%. The decrease principally reflects lower employee compensation and benefits, lower costs for outside services and lower stock-based compensation expense resulting from the cost reduction actions we initiated during the fourth quarter of our fiscal year ended September 30, 2023.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses primarily include employee compensation and benefits (including stock-based compensation) of executive and administrative staff including human resources, accounting, information technology, sales and marketing, outside professional and legal fees, insurance, advertising and promotional programs, travel and entertainment, and facility costs.

 

Selling, general and administrative expenses were $7,358 for the three months ended March 31, 2024 compared to $9,029 for the three months ended March 31, 2023, a decrease of $1,671 or 19%. The decrease principally reflects a $4,059 decrease in stock-based compensation expense, which was largely offset by increased employee compensation and benefits, the addition of selling, general and administrative costs resulting from our acquisition of EMI Solutions, and increased insurance costs.

 

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Selling, general and administrative expenses were $23,021 for the six months ended March 31, 2024 compared to $14,823 for the six months ended March 31, 2023, an increase of $8,198 or 55%. The increase principally reflects a $4,842 increase in stock-based compensation expense, increased costs for outside services and higher employee compensation and benefits. The increase also reflects the addition of selling, general and administrative costs resulting from our acquisition of EMI Solutions and increased insurance costs. The increase in stock-based compensation expense principally related to certain awards whose vesting is contingent on both the completion of the Merger and the satisfaction of a service condition. Prior to the Merger, we did not recognize any expense for these awards because completion of the Merger and vesting of the awards was not probable. Upon completion of the Merger, we concluded that the vesting of these awards was probable, and we recognized stock-based compensation expense of $14,088 for the portion of the service period that had elapsed from the date of the awards through March 31, 2024. This charge was partly offset by a $2,242 reduction of stock-based compensation expense we recognized in connection with the modification of a portion of these RSUs in connection with a separation of employment. We expect to recognize the remaining $33,414 cost of these awards ratably over the period through their vesting dates, which extend to December 2027.

 

Interest Expense

 

Interest expense consists of cash and non-cash interest related to our related and unrelated party promissory notes, notes payable and convertible notes.

 

Interest expense was $248 for the three months ended March 31, 2024 compared to $794 for the three months ended March 31, 2023, a decrease of $546 or 69%. The decrease principally reflects higher costs in the three months ended March 31, 2023 for the value of warrants to purchase shares of our common stock that we issued in connection with borrowings.

 

Interest expense was $1,105 for the six months ended March 31, 2024 compared to $877 for the six months ended March 31, 2023, an increase of $228 or 26%. The increase principally reflects higher costs in the six months ended March 31, 2024 for the value of warrants to purchase shares of our common stock that we issued in connection with borrowings.

 

Change in Fair Value of Earnout Liability

 

In connection with the Merger, certain Legacy Mobix stockholders and certain holders of Legacy Mobix stock options will be entitled to receive an additional aggregate 3,500,000 shares of our Class A Common Stock based on the achievement of trading price targets following the Closing over a seven-year earnout period. We account for the earnout shares as liability-classified instruments because the events that determine the number of earnout shares to which the earnout recipients will be entitled include events that are not solely indexed to our common stock, and we remeasure the earnout liability to its estimated fair value at the end of each reporting period. Additional information relating to the earnout liability can be found in Note 3 of the notes to our unaudited condensed consolidated financial statements included herein.

 

We estimated the fair value of the earnout liability as of the Closing of the Merger at $33,559. As of March 31, 2024, none of the conditions for the issuance of any earnout shares had been achieved and we adjusted the carrying amount of the earnout liability to its estimated fair value of $3,621. As a result of the decrease in the liability subsequent to the Closing, we recognized non-cash gains of $5,174 and $29,938, respectively, for the three months and six months ended March 31, 2024. The decrease in the estimated fair value of the earnout liability was principally due to the decrease in price of our Class A Common Stock between the Closing and March 31, 2024.

 

The fair value of the earnout liability is based on a number of factors, including changes in the market price of our Class A Common Stock. We have experienced significant fluctuations in the market price of our Class A Common Stock in the period subsequent to the Closing, and may experience significant fluctuations in the future. Such price fluctuations will increase or decrease the value of the earnout liability, and we may be required to recognize additional losses or gains in our statements of operations and comprehensive loss, the amounts of which may be substantial.

 

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Change in Fair Value of PIPE Make-Whole Liability

 

In connection with the Merger, we agreed to issue additional shares of our Class A Common Stock to the holders of 2,454,737 shares of our Class A Common Stock in the event that the volume-weighted average price per share of our Class A Common Stock during a specified period is less than $10.00 per share. In such a case, we would be obligated to issue up to 1,052,030 additional shares of our Class A Common Stock. We account for the make-whole shares as liability-classified instruments because the events that determine the number of make-whole shares we will be obligated to issue are not solely indexed to our common stock and we remeasure the PIPE make-whole liability to its estimated fair value at the end of each reporting period. Additional information relating to the PIPE make-whole liability can be found in Note 3 of the notes to our unaudited condensed consolidated financial statements included herein.

 

We estimated the fair value of the PIPE make-whole liability as of Closing of the Merger at $2,071. As of March 31, 2024, the PIPE make-whole liability had not been settled and we adjusted the carrying amount of the make-whole liability to its estimated fair value of $1,639. As a result of the decrease in the liability subsequent to the Closing, we recognized non-cash gains of $3,336 and $432, respectively, for the three months and six months ended March 31, 2024.

 

Future fluctuations in the market price of our Class A Common Stock will increase or decrease the value of the PIPE make-whole liability, and we may be required to recognize additional losses or gains in our statements of operations and comprehensive loss, the amounts of which may be substantial.

 

Change in Fair Value of Private Warrants

 

In connection with the Merger, we assumed 3,000,000 private warrants (the “Private Warrants”) originally issued by Chavant. Each warrant, as adjusted, entitles the holder to purchase one share of our Class A Common Stock at a price of $5.79 per share. The Private Warrants are exercisable at any time commencing thirty days after the completion of the Merger and terminating five years after the completion of the Merger.

 

We concluded that the Private Warrants do not meet the derivative scope exception because they contain provisions that affect the settlement amounts dependent upon the characteristics of the holder of the warrant, which is not an input into the pricing of a fixed-for-fixed option on equity shares. Therefore, the Private Warrants are not considered indexed to our stock and must be classified as a liability. At the time of Closing, we estimated the aggregate fair value of the Private Warrants and recognized a liability of $150. As of March 31, 2024, the Private Warrants remained outstanding, and we adjusted the carrying amount of the liability to its estimated fair value of $630. This increase in the fair value of the liability subsequent to the Closing resulted in non-cash losses of $420 and $480, respectively, for the three months and six months ended March 31, 2024. Future fluctuations in the market price of our Class A Common Stock and other factors may increase or decrease the value of the liability for the Private Warrants, and we may be required to recognize additional losses or gains in our statements of operations and comprehensive loss, the amounts of which may be substantial.

 

Change in Fair Value of SAFEs

 

We evaluated the SAFEs and concluded that the SAFEs are classified as liabilities in the condensed consolidated balance sheets. We initially recorded the SAFEs at their fair value and remeasured the SAFEs to fair value at each subsequent reporting date. We estimated the fair value of the SAFEs immediately prior to the Merger was $1,522. In connection with the Merger, all of the outstanding SAFEs, representing an original purchase amount of $1,000, were converted into shares of our Class A Common Stock and the $1,522 fair value of the SAFEs was credited to equity, with no further gain or loss recognized.

 

For the three months ended March 31, 2024, we did not recognize any gain or loss from changes in the estimated fair value of the SAFEs because the SAFEs were no longer outstanding. For the three months ended March 31, 2023, the estimated fair value of the SAFEs increased by $508, and we recognized a $508 loss. For the six months ended March 31, 2024 and March 31, 2023, we recognized losses of $10 and $558, respectively, resulting from the change in the fair value of the SAFEs. As of March 31 2024, no SAFEs remain outstanding.

 

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Other Non-Operating Losses, Net

 

For the three months and six months ended March 31, 2024, other non-operating losses, net of $1,049 consisted of commitment and other fees of $1,575 payable under the committed equity facility, partly offset by gains of $526 on the change in the estimated fair value of liability-classified warrants to purchase shares of our Class A Common Stock issuable to a lender. We did not recognize any other non-operating losses, net during the three months and six months ended March 31, 2023.

 

Provision (Benefit) for Income Taxes

 

We account for income taxes using the asset and liability method whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the results of operations in the period the new laws are enacted. We record a valuation allowance to reduce the carrying amounts of our deferred tax assets unless it is more likely than not that such assets will be realized.

 

For the three months and six months ended March 31, 2024 we recognized an income tax benefit of $16 and $1,296, respectively. In connection with our December 2023 acquisition of EMI Solutions, we recognized an additional deferred tax liability of $1,386 associated with acquired intangible assets. Based on the availability of these tax attributes, we determined that we expect to realize a greater portion of our existing deferred tax assets and for the six months ended March 31, 2024 we recognized an income tax benefit of $1,296 for the resulting reduction of the valuation allowance previously recorded against our deferred tax assets.

 

For the three months and six months ended March 31, 2023, we did not recognize any tax benefit related to our pretax book losses of $13,141 and $22,500, respectively, because we did not expect that the deferred tax asset arising from our net operating losses would be realized in the future.

 

Liquidity and Capital Resources

 

Our primary use of cash is to fund operating expenses, working capital requirements, debt service obligations, capital expenditures and other investments.

 

We have incurred operating losses and negative cash flows, primarily as a result of our ongoing investment in product development. We expect to continue to incur operating losses and negative cash flows from operations associated with research and development expenses, selling, general, and administrative expenses and capital expenditures necessary to expand our operations, product offerings, and customer base with the ultimate goals of growing our business and achieving profitability in the future.

 

Cash Flows

 

The following table summarizes our unaudited condensed consolidated cash flows for the six months ended March 31, 2024 and 2023:

 

(dollars in thousands)  Six months ended
March 31,
   Change 
   2024   2023   $ 
             
Net cash used in operating activities  $(11,689)  $(8,710)  $(2,979)
Net cash used in investing activities   (1,150)   (15)   (1,135)
Net cash provided by financing activities   15,743    8,547    7,196 
Net increase (decrease) in cash   2,904    (178)  $3,082 
Cash, beginning of period   89    178      
Cash, end of period  $2,993   $      

 

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Operating Activities

 

For the six months ended March 31, 2024, net cash used in operating activities was $11,689, which included the impact of our net loss of $818 and net non-cash credits of $11,807, partly offset by net decreases in working capital items of $936. The net non-cash credits principally consisted of the $29,938 gain on the change in fair value of the earnout liability, a $432 gain on the change in the fair value of the PIPE make-whole liability and a deferred income tax benefit of $1,296, partially offset by stock-based compensation expense of $14,146 for stock options and restricted stock units, $4,009 of Merger related transaction costs expensed, $884 of expense for the issuance of warrants in connection with borrowings and $866 of depreciation and amortization expense. The net working capital decrease principally consists of an increase in accounts payable.

 

For the six months ended March 31, 2023, net cash used in operating activities was $8,710, which included the impact of our net loss of $22,532, partly offset by net non-cash charges of $11,512 and net decreases in working capital items of $2,310. The net non-cash charges principally consisted of the $9,635 of stock-based compensation expense for stock options and restricted stock units, $644 of expense for the issuance of warrants in connection with borrowings, a $558 loss on the change in the fair value of the SAFEs and $646 of depreciation and amortization expense. The net working capital decrease principally consists of an increase in accrued expenses.

 

Investing Activities

 

Net cash used in investing activities of $1,150 for the six months ended March 31, 2024 principally consisted of payments or the acquisition EMI, net of acquired cash.

 

Net cash used in investing activities of $15 for the six months ended March 31, 2023 consisted of payments for the acquisition of property and equipment.

 

Financing Activities

 

Net cash provided by financing activities for the six months ended March 31, 2024 of $15,743 consisted of the $21,014 proceeds from the merger and PIPE, $3,286 in proceeds from the issuance of common stock, and $446 in proceeds from issuance of notes payable and convertible notes. These amounts were partially offset by the payment of merger-related transaction costs of $6,796 and $2,207 of principal payments on notes payable (including payments of $1,030 on notes payable—related parties).

 

Net cash provided by financing activities for the six months ended March 31, 2023 of $8,547 consisted of $6,897 in proceeds from the issuance of common stock, $1,456 in proceeds from the issuance of notes payable and convertible notes and $900 in proceeds from the exercise of common stock warrants, partially offset by principal payments on notes payable of $456 and the payment of merger-related transaction costs of $250.

 

Liquidity

 

As of March 31, 2024, our cash balance was $2,993 compared to $89 at September 30, 2023. We had a working capital deficit of $13,579 as of March 31, 2024 compared to a working capital deficit of $19,593 at September 30, 2023.

 

In March 2024, we entered into the Purchase Agreement and a related Registration Rights Agreement with B. Riley which provides us the right, in our sole discretion, and subject to the satisfaction of the conditions set forth therein, to sell to B. Riley up to 9,500,000 Purchase Shares (subject to certain limitations) from time to time. Any sales of Class A Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B. Riley. The per share purchase price that B. Riley will pay for shares of Class A Common Stock will be determined by reference to the volume weighted average price of the Class A Common Stock measured over the regular trading session or intraday period of the trading session on Nasdaq on the date of each purchase, less a three percent discount. As of March 31, 2024, we had not sold any shares under the Purchase Agreement. The amount and timing of the proceeds, if any, that we may receive from the sale of shares of Class A Common Stock pursuant to the Purchase Agreement will depend on a number of factors, including the numbers of shares we may elect to sell, the timing of such sales, the future market price of our Class A Common stock and our payment of the cash commitment fee.

 

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Additionally, assuming the exercise of all Public Warrants and Private Warrants for cash, we will receive an aggregate of approximately $52,110 in gross proceeds from the exercise. However, we believe the likelihood that warrant holders will exercise their Public Warrants and Private Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the market price of our Class A Common Stock. When the market price for our Class A Common Stock is less than $5.79 (i.e., when the Public Warrants and Private Warrants are “out of the money”), we believe that warrant holders will be unlikely to exercise their Public Warrants and Private Warrants.

 

Our debt consists of notes payable with an aggregate amount of $400 and 7% promissory notes—related parties with an aggregate principal amount of $2,763. The notes payable mature at various dates through November 2024 and are unsecured. One of the notes requires weekly payments of $4; the remainder of the notes do not require any principal payments prior to maturity. The 7% promissory notes—related parties reached their maturity date of July 2023 and are currently due.

 

Our total liabilities as of March 31, 2024 were $25,344 compared to $21,789 as of September 30, 2023. The increase in our total liabilities is principally due to the amounts we recognized for the earnout liability and the PIPE make-whole liability, which totaled $5,260 as of March 31, 2024. The related agreements provide that the settlement of those liabilities is through the issuance of shares of our Class A Common Stock; we do not expect to make any cash payments in settlement of the earnout liability and the PIPE make-whole liability.

 

Other commitments include (i) non-cancelable operating leases for equipment, office facilities and other property containing future minimum lease payments totaling $1,861 payable over the next four years, (ii) unconditional purchase commitments of $615 for services which extend to various dates through September 30, 2024, (iii) commitment and other fees of $1,575 payable in connection with the committed equity facility, and (iv) deferred purchase consideration of $1,045 related to our acquisition on EMI, payable at various dates through June 2025.

 

Going Concern

 

We incurred a loss from operations of $25,831 for the six months ended March 31, 2024, and we incurred losses from operations of $35,544 and $23,714 for the years ended September 30, 2023 and 2022, respectively. As of March 31, 2024, we had an accumulated deficit of $85,241. We have historically financed our operations through the issuance and sale of equity securities and the issuance of debt. We expect to continue to incur operating losses and negative cash flows from operations for the foreseeable future and will need to raise additional debt or equity financing to fund our continuing operations, product development plans and capital expenditure requirements, to service our debt obligations and to make strategic investments. While we recently entered into the committed equity facility to raise additional capital, the amount and timing of the proceeds, if any, that we may receive from the sale of shares of Class A Common Stock thereunder will depend on a number of factors, including the numbers of shares we may elect to sell, the timing of such sales, the future market price of our Class A Common stock and our payment of the cash commitment fee. We believe that there is substantial doubt concerning our ability to continue as a going concern as we currently do not have adequate liquidity to meet our operating needs and satisfy our obligations beyond the next approximately ninety days.

 

While we will seek to raise additional capital, we cannot assure you that we will be able to obtain financing on acceptable terms, or at all, to provide the necessary interim funding to continue our operations and satisfy our obligations. If we raise funds by issuing equity securities, dilution to our existing stockholders may result. Any equity securities we issue may also provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, such debt securities would have rights, preferences and privileges senior to those of preferred and common stockholders. The terms of debt securities or borrowings may impose significant restrictions on our operations. The capital markets have in the past, and may in the future, experience periods of volatility that could impact the availability and cost of equity and debt financing. In addition, recent and potential future increases in federal fund rates set by the Federal Reserve, which serve as a benchmark for rates on borrowing, could adversely impact the cost or availability of debt financing.

  

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If we are unable to obtain additional financing, or if such transactions are successfully completed but do not provide adequate financing, we will not be able to continue operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the financial statements have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.

 

Critical Accounting Policies and Estimates

 

The preparation of our financial statements and related disclosures in accordance with U.S. GAAP requires that we make judgments, assumptions and estimates that affect the amounts reported in the unaudited condensed consolidated financial statements.

 

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require that we make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. We base our estimates and judgments on historical experience, current economic and industry conditions and other factors that we believe to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

 

Our most critical accounting estimates include the assumptions we use in the determination of the fair value of the earnout liability, the fair value of the PIPE make-whole liability, the fair value of common stock, stock-based compensation, the provision for income taxes, the accounting for business combinations and the measurement of definite-lived intangible assets.

 

Fair Value of Earnout Liability

 

We account for the earnout shares as liability-classified instruments because the events that determine the number of earnout shares to which the earnout recipients will be entitled include events that are not solely indexed to our common stock. We remeasure the earnout liability to its estimated fair value at the end of each reporting period.

 

We estimate the fair value of the earnout liability using a Monte Carlo simulation model that utilizes significant assumptions, including volatility, expected term and risk-free rate that determine the probability of achieving the earnout conditions. The following table summarizes the assumptions used in estimating the fair value of the earnout liability at the respective dates:

 

   December 21,
2023
(Closing)
  

March 31,

2024

 
         
Stock price  $10.66   $2.01 
Expected volatility   50%   60%
Risk-free rate   3.9%   4.1%
Contractual term   8 years    7.7 years 

 

Fair Value of PIPE Make-Whole Liability

 

We account for the make-whole shares as liability-classified instruments because the events that determine the number of make-whole shares we will be obligated to issue are not solely indexed to our common stock and we remeasure the PIPE make-whole liability to its estimated fair value at the end of each reporting period.

 

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We use a Monte Carlo simulation model that utilizes significant assumptions, including volatility, expected term and risk-free rate, to estimate the fair value of the PIPE make-whole liability. The following table summarizes the assumptions used in estimating the fair value of the PIPE make-whole liability at the respective dates:

 

   December 21,
2023
(Closing)
   March 31,
2024
 
         
Stock price  $10.17   $1.56 
Expected volatility   49%   51%
Risk-free rate   5.4%   5.4%
Contractual term   4 months     3 months 

 

Fair Value of Common Stock

 

The fair value of our common stock affects the accounting for, and measurement of, a number of transactions, including awards of stock-based compensation, sales of our common and preferred stock or warrants to purchase our common stock and business combinations. For periods subsequent to the Merger, we determine the fair value of our common stock based on quoted market prices. For periods prior to the Merger, there was no public market for our common stock and we determined the fair value of our common stock considering a number of objective and subjective factors, including: third-party valuations of our common stock, the valuation of comparable companies, sales of our common stock to outside investors in arms-length transactions, our forecasted financial performance, operational developments and milestones, the lack of marketability of our common stock, the likelihood of achieving a liquidity event, and the general and industry specific economic outlook, among other factors. We determined the fair value of our common stock in accordance with applicable elements of the American Institute of Certified Public Accountants guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.

 

The assumptions underlying our valuations represented our best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors or expected outcomes had changed, or if we had used significantly different assumptions or estimates, our stock-based compensation expense and equity-based valuations or the value of the business we acquired could have been materially different. Subsequent to the Merger, we determine the fair value of our common stock based on quoted market prices.

 

Stock-Based Compensation

 

Our stock-based compensation awards include stock options and restricted stock units. In some cases, other equity transactions, such as the sale of warrants to purchase our common stock are accounted for as equity-classified awards granted to employees. In each case, we must determine the fair value of the equity-based awards.

 

We estimate the fair value of stock options and warrants to purchase our common stock using the Black-Scholes-Merton (“Black-Scholes”) option-pricing model. The Black-Scholes option pricing model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include:

 

  the per share fair value of the underlying common stock;

 

  the exercise price;

 

  the risk-free interest rate;

 

  the expected term;

 

  expected stock price volatility over the expected term; and

 

  the expected annual dividend yield.

  

We recognize the fair value of each stock option award as compensation expense on a straight-line basis over the requisite service period, which is typically four years. We have elected to account for forfeitures as they occur and initially record stock-based compensation expense assuming all option holders will complete the requisite service period. If an employee forfeits an award because they fail to complete the requisite service period, we will reverse previously recognized stock-based compensation expense in the period the award is forfeited.

 

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Our restricted stock units entitle the holder to receive a number of shares of our common stock. The majority of our restricted stock units are subject to both service-based vesting conditions and performance conditions. We establish the fair value of each restricted stock unit based on the grant-date fair value of the underlying shares of our common stock. Our accounting for restricted stock units also requires that we evaluate the probability of achievement of applicable performance conditions. When we conclude that the achievement of a performance condition is not probable, we do not recognize any compensation cost for the restricted stock unit. We continually reevaluate the probability of achievement of performance conditions. If we subsequently determine the achievement of a performance condition is probable, we will be required to record a “catch-up” of previously unrecognized stock-based compensation expense, subject to any applicable time-based vesting.

 

We have also issued warrants to purchase common stock to employees and service providers in exchange for services to us and we determined that those warrants should be accounted for as equity-classified awards. We determined the fair value of these warrants at the date of issuance using the Black- Scholes option pricing model, based on the variables and assumptions discussed above, and recognized the fair value as stock-based compensation expense in our statements of operations and comprehensive loss.

 

We classify stock-based compensation expense in our statements of operations in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified. In future periods, we expect stock-based compensation expense to increase, due in part to our existing unrecognized stock-based compensation expense and as we grant additional stock-based awards to continue to attract and retain employees.

 

Provision for Income Taxes

 

We account for income taxes using the asset and liability method, whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We recognize the effect of a change in tax laws on deferred tax assets and liabilities in our results of operations in the period the new laws are enacted. We record a valuation allowance to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.

 

We recognize liabilities for uncertain tax positions based on a two-step process regarding recognition and measurement. We recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the local taxing authorities based on the technical merits of the position. We measure the amount of tax benefits recognized in the financial statements from such positions based on the largest benefit greater than 50% likely to be realized upon ultimate settlement with the related tax authority. Changes in recognition or measurement of an uncertain tax position are reflected in our statements of operations in the period in which the change in estimate occurs, based on new information not previously available.

 

Business Combinations

 

We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of the net assets acquired is recorded as goodwill.

 

Accounting for business combinations requires that we make significant estimates and assumptions to determine the fair value of assets acquired and liabilities assumed at the acquisition date. Although we believe the assumptions and estimates we use to be reasonable and appropriate, they are inherently uncertain. Critical estimates in valuing certain acquired assets may include, but are not limited to, expected future cash flows including revenue growth rate assumptions from product sales, customer contracts and acquired technologies, the expected costs to develop acquired technology into commercially viable products and the estimated cash flows from the projects when completed, including assumptions associated with the technology migration curve and expected selling, general and administrative costs. We derive the discount rates used to discount expected future cash flows to present value using a weighted-average cost of capital analysis adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of these assumptions, estimates or actual results.

 

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Definite-Lived Intangible Assets

 

We have acquisition-related intangible assets consisting of developed technology, customer relationships, tradenames and backlog. We record amortization expense associated with each definite-lived acquisition-related intangible asset based on its estimated useful life. We also review our acquisition-related intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes our regular review of our operating performance for indicators of impairment. Factors considered important that could trigger an impairment review include a significant underperformance relative to expected historical or projected future operating results, or a significant change in the manner of the use of the acquisition-related intangible assets.

 

We perform impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of the acquisition-related intangible asset is determined by comparing the forecasted undiscounted cash flows attributable to such acquisition-related intangible asset, including any cash flows upon their eventual disposition, to its carrying value. If the carrying value of the acquisition-related intangible asset exceeds the forecasted undiscounted cash flows, then the acquisition-related intangible asset is written down to its fair value.

 

Our impairment tests require that we apply judgment in estimating the amount and timing of future cash flows, discount rates, asset fair values and the expected useful lives of the acquisition-related intangible assets. To make these judgments, we may use internal undiscounted cash flow estimates, quoted market prices (if available) or other available data.

 

We did not record any impairment charges during the three months and six months ended March 31, 2024 and 2023. However, future cash flows may vary from what was expected, or assumptions and estimates we use in the fair value calculations may change, including those assumptions relating to the duration and severity of supply chain disruptions causing delays in shipments in our connectivity business, changes to backlog with our largest customer or other factors. Any such changes in assumptions or estimates could change the estimates of future cash flows we use to estimate fair values and could result in a decline in the estimated fair value of related assets. Such a decline in our estimates of the fair values of assets may result in future impairment charges.

 

Emerging Growth Company

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we will take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

 

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Smaller Reporting Company

 

Additionally, we are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the last business day of our second fiscal quarter, or (ii) our annual revenue exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our second fiscal quarter. If we continue to be a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from these certain reduced disclosure requirements that are available to smaller reporting companies.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as of March 31, 2024. In the course of that evaluation, we identified material weaknesses in our internal control over financial reporting as described below, and, as a result, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2024.

 

Material Weaknesses in Internal Control over Financial Reporting

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows:

 

  We did not design and maintain an effective con