UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______________ to ______________
Commission
File Number
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(State or other jurisdiction of incorporation or organization) |
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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 | ||
| Capital Market | ||||
| 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.
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
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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 ☐ |
| 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 January 31, 2025 was and , respectively.
MOBIX LABS, INC.
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements (unaudited) | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 41 |
| Item 4. | Controls and Procedures | 41 |
| PART II. OTHER INFORMATION | 44 | |
| Item 1. | Legal Proceedings | 44 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44 |
| Item 5. | Other Information | 44 |
| Item 6. | Exhibits | 45 |
| Signatures | 46 | |
| i |
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q for Mobix Labs, Inc. (the “Company”, “we”, “us” or “our”) 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:
| ● | our financial and business performance; | |
| ● | our ability to regain compliance with listing rules of the Nasdaq Stock Market LLC (“Nasdaq”), as well as any decisions that we may make in order to regain compliance; | |
| ● | our intent to pursue acquisitions of companies and technologies; | |
| ● | changes in our strategy, future operations, financial position, estimated revenues and losses, forecasts, projected costs, prospects and plans; | |
| ● | our expectation regarding our ability to continue as a going concern and ability to obtain sufficient liquidity to meet our operating needs and satisfy our obligations; | |
| ● | the impact of the acquisitions of EMI Solutions, Inc. and RaGE Systems, Inc., and any impact on our business and results of operations; | |
| ● | the implementation, market acceptance and success of our products and technology in the wireless and connectivity markets and in potential new categories for expansion; | |
| ● | the demand for our products and the drivers of that demand; | |
| ● | our opportunities and strategies for growth; | |
| ● | competition in our industry, the advantages of our products and technology over competing products and technology existing in the market, and competitive factors including with respect to technological capabilities, cost and scalability; | |
| ● | our ability to scale in a cost-effective manner and maintain and expand our manufacturing and supply chain relationships; | |
| ● | our expectation that we will incur substantial expenses and continuing losses for the foreseeable future; | |
| ● | our expectations regarding reliance on a limited number of customers and efforts to diversify our customer base; | |
| ● | our expectations regarding our 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 our technology and on the supply chain on which we rely; | |
| ● | 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 our views as of any subsequent date, and we undertake no obligation 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.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
| ● | the inability to maintain our listing of securities on Nasdaq; | |
| ● | the inability to meet future capital requirements and the risk that we will be unable to raise additional capital in the future on attractive terms or at all, as well as the dilutive impact that may have on our stockholders; |
| ii |
| ● | the risk that we are unable to successfully commercialize our products and solutions, or experience significant delays in doing so; | |
| ● | the risk that we may not be able to generate sufficient income from operations to sustain ourselves; | |
| ● | the risks concerning our ability to continue as a going concern; | |
| ● | the risk that we experience difficulties in managing our growth and expanding operations; | |
| ● | the risk that we may not be able to consummate planned strategic acquisitions, or fully realize anticipated benefits from past or future acquisitions or investments; | |
| ● | the risk that litigation may be commenced against us; | |
| ● | the risk that our patent applications may not be approved or may take longer than expected, and we may incur substantial costs in enforcing and protecting our intellectual property; | |
| ● | our ability to attract new customers and grow our customer base; and | |
| ● | the risk that the price of our securities may be volatile due to a variety of factors, including changes in the political administration as well as any impact that may have on laws and regulations, changes in the competitive industries in which we operate, variations in performance across competitors, the global supply chain, and macro-economic and social environments affecting our business and changes in our capital structure. |
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by geopolitical tensions, including the further escalation of war between Russia and Ukraine or the conflict pertaining to the Middle East, and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. However, we encourage you to review our risk factors as set forth in our annual report on Form 10-K for our fiscal year ended September 30, 2024, filed with the Securities and Exchange Commission on December 26, 2024.
| iii |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Mobix Labs, Inc.
Unaudited Condensed Consolidated Financial Statements
December 31, 2024 and 2023
| 1 |
MOBIX LABS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
| December 31, | September 30, | |||||||
| 2024 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred purchase consideration | ||||||||
| Notes payable, current | ||||||||
| Notes payable – related parties, current | ||||||||
| Operating lease liabilities, current | ||||||||
| Total current liabilities | ||||||||
| Notes payable, noncurrent | ||||||||
| Notes payable – related parties, noncurrent | ||||||||
| Earnout liability | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Class A common stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2024 and September 30, 2024, respectively | ||||||||
| Class B common stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2024 and September 30, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
MOBIX LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands, except share and per share amounts)
Three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ( | ) | ||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| Selling, general and administrative | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Interest expense | ||||||||
| Change in fair value of earnout liability | ( | ) | ||||||
| Change in fair value of warrants | ||||||||
| Change in fair value of PIPE make-whole liability | ||||||||
| Merger-related transaction costs expensed | ||||||||
| Other non-operating losses, net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision (benefit) for income taxes | ( | ) | ( | ) | ||||
| Net income (loss) and comprehensive income (loss) | $ | ( | ) | $ | ||||
| Net income (loss) per share of Class A and Class B Common Stock: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Weighted-average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
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 Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Class B common stock to Class A common stock | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of notes payable to Class A common stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of RSUs | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of contingently redeemable common stock for acquisition of EMI Solutions, Inc. | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lapse of redemption feature on common stock | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with notes payable | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reverse recapitalization transactions, net (Note 3) | ( | ) | ( | ) | ( | ) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of RSUs | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
MOBIX LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Issuance of warrants in connection with notes payable, charged to interest expense | ||||||||
| Change in fair value of earnout liability | ( | ) | ||||||
| Change in fair value of warrants | ||||||||
| Change in fair value of PIPE make-whole liability | ||||||||
| Merger-related transaction costs expensed | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Other non-cash items | ( | ) | ||||||
| Changes in operating assets and liabilities, net of acquisition of business: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Acquisition of EMI Solutions, Inc., net of cash acquired | ( | ) | ||||||
| Acquisition of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of notes payable | ||||||||
| Proceeds from issuance of convertible notes | ||||||||
| Principal payments on notes payable | ( | ) | ( | ) | ||||
| Principal payments on notes payable – related parties | ( | ) | ||||||
| Deferred consideration paid for acquisition of business | ( | ) | ||||||
| Proceeds from the Merger and PIPE | ||||||||
| Merger-related transaction costs paid | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of notes payable to common stock | $ | $ | ||||||
| Unpaid Merger-related transaction costs | ||||||||
| Contingently redeemable convertible stock issued for acquisition of EMI Solutions, Inc. | ||||||||
| Unpaid purchase consideration for acquisition of businesses | ||||||||
| Conversion of SAFEs to common stock | ||||||||
| Issuance of warrants in connection with notes payable, recorded as debt discount | ||||||||
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, designs, develops and sells components and systems for advanced wireless and wired connectivity, radio frequency (“RF”), switching and electromagnetic interference (“EMI”) filtering technologies used in the consumer commercial, industrial, automotive, medical, aerospace, defense and other markets. The Company’s wireless systems solutions include products for advanced RF and millimeter wave (“mmWave”) 5G communications, mmWave imaging, software defined radio and custom RF integrated circuits targeting the commercial, industrial, and defense and aerospace sectors. The Company’s interconnect products, including EMI filter inserts and filtered and non-filtered connectors, are designed for and currently used in aerospace, military, defense and medical applications. The Company’s True Xero active optical cables (“AOCs”) are designed to meet customer needs for high-quality active optical cable solutions at an affordable price. 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 $
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 and other operating expenses. For the three months ended December 31, 2024 and 2023, the Company incurred losses
from operations of $
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 funds 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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, 2024 and the related notes which provide a more complete discussion of the Company’s accounting policies and certain other information. The September 30, 2024 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 December 31, 2024 and its condensed consolidated results of operations and cash flows for the three months ended December 31, 2024 and 2023. The condensed consolidated results of operations for the three months ended December 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2025 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 net revenue 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 awards; | |
| ● | valuation of common stock for periods prior to the Merger; | |
| ● | impairment assessments of goodwill and long-lived assets; | |
| ● | measurement of liabilities carried at fair value, including the earnout liability, the PIPE make-whole liability and liability-classified warrants; | |
| ● | purchase price allocations and valuations of net assets acquired in business combinations; and, | |
| ● | provisions for income taxes and related valuation allowances and tax uncertainties. |
Cash
As
of December 31, 2024 and September 30, 2024, 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
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 December 31, 2024 and September 30, 2024 and bad debt expense for the three months ended December 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, manufacturing labor, 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 revenue and is a permanent reduction of the carrying value of inventory. The reserve for excess and obsolete inventory as of December 31, 2024 and September 30, 2024 and write-downs of obsolete inventory for the three months ended December 31, 2024 and 2023 were not material.
Intangible Assets, net
The
Company’s intangible assets principally consist of acquired developed technology and customer relationships and have finite lives
ranging from to
| 8 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
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 regularly reviews its 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 assets. The Company performs 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 these assets is determined by
comparing the forecasted undiscounted cash flows attributable to such assets including any cash flows upon their eventual disposition
to their carrying value. If the carrying value of the assets exceeds the forecasted undiscounted cash flows, then the assets are written
down to their fair value. The Company did
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 ended December 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.
The Company’s non-financial assets, including property and equipment, intangible assets and goodwill, are measured at estimated fair value on a nonrecurring basis. These assets are adjusted to fair value only when an impairment is recognized, or in the event an asset is held for sale.
Basic and diluted net income (loss) per share attributable to common stockholders is presented using 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 similar to 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 Income (Loss) Per Share.
Comprehensive Income (Loss)
Comprehensive income (loss) includes the Company’s net income (loss) as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. There were no differences between the Company’s net income (loss) and comprehensive income (loss) for the three months ended December 31, 2024 and 2023.
Revenue Recognition
The Company accounts for revenue from contracts with customers in accordance with ASC 606, Revenue from Contracts with Customers. The Company derives its revenues primarily from product sales to equipment manufacturers. The Company recognizes product revenue when it satisfies performance obligations under the terms of its contracts and upon transfer of control when title transfers (either upon shipment to or receipt by the customer, as determined by the terms of the contract) net of accruals for estimated sales returns and allowances. Such sales returns and allowances were not material for the three months ended December 31, 2024 and 2023. The Company does not have material variable consideration, and the Company’s revenue arrangements do not contain significant financing components. Payment terms are principally net 30 days to net 45 days.
The Company generally offers a limited warranty to customers covering a period of twelve months which obligates the Company to repair or replace defective products. The warranty is not sold separately and does not represent a separate performance obligation. Therefore, the Company accounts for such warranties under ASC Topic 460, Guarantees, and the estimated costs of warranty claims are accrued as cost of revenue in the period the related revenue is recorded. The Company accrues for warranty and indemnification issues if a loss is probable and can be reasonably estimated. Warranty and indemnification expenses have historically been insignificant.
The Company includes shipping and handling fees billed to customers as part of net revenue. The Company includes shipping and handling costs associated with outbound freight in cost of revenue. Sales and other taxes the Company collects, if any, are excluded from revenue.
There were no contract assets recorded on the condensed consolidated balance sheets as of December 31, 2024 or September 30, 2024. In some instances, the Company receives a partial payment of the sales price from the customer at the time an order is placed. Any such prepayments are recorded as a liability included in “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets and are recognized in net revenue when the Company satisfies the related performance obligations, typically as products are shipped. All incremental customer contract acquisition costs are expensed as incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.
| 10 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Accounting Pronouncements Recently Adopted
None.
Recently Issued Accounting Pronouncements Not Yet 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 November 2023, the FASB issued Accounting Standards Update (“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.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”). ASU 2024-03 requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The ASU is effective for the Company’s fiscal year beginning October 1, 2027, and for interim periods within the Company’s fiscal year beginning October 1, 2028, with early adoption permitted. The Company is currently evaluating the ASU to determine the impact it will have on the Company’s financial statements and related disclosures.
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 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 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 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 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. |
| 11 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
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 stockholder, as described below; | |
| ● | The Company entered into an amendment to its Business Combination Marketing Agreement, as described below; | |
| ● | The
Company assumed the | |
| ● | The Company adopted the 2023 Employee Stock Purchase Plan and the 2023 Equity Incentive Plan, as described in Note 17, Stock-Based Compensation; | |
| ● | 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 shares of Class A Common Stock of Chavant at a price of $ per share for
an aggregate amount of $
The PIPE investors also received warrants to purchase shares of Class A Common Stock at an exercise price of $ per share, of which warrants to purchase shares are immediately exercisable and warrants to purchase shares are exercisable upon obtaining stockholder approval, which the Company obtained on January 3, 2025.
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, shares of Class A Common Stock at
a price of $ per share. The aggregate purchase price of $
In connection with the execution of the Sponsor PIPE Subscription Agreement, Legacy Mobix Labs issued to the Sponsor a warrant to purchase shares of Legacy Mobix Labs Stock at an exercise price of $ 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 shares of Legacy Mobix Labs Stock, converted into 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
shares issued pursuant to the Sponsor PIPE Subscription Agreement described above, the Sponsor agreed to forgive approximately
$
| 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 stockholder of Chavant, pursuant to which the stockholder agreed to withdraw its redemption of ordinary shares of Chavant (“Ordinary Shares”) prior to the Merger. In consideration therefor, Mobix Labs issued the stockholder a warrant to purchase shares of Legacy Mobix common stock at an exercise price of $ per share, exercisable upon the Closing. The warrant was exercised at the Closing and, following net settlement into shares of Legacy Mobix Common Stock, converted into 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 shares of Class A Common Stock.
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 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 shares of Class A Common Stock will be distributed to the Earnout Recipients if the volume-weighted average price (“VWAP”) of the Class A Common Stock exceeds $ for any twenty trading days within a period of thirty consecutive trading days during the Earnout Period and an additional shares of Class A Common Stock will be distributed to the Earnout Recipients if the VWAP of the Class A Common Stock exceeds $ 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 $. As of December 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 $. As a result of changes in the estimated fair value of the liability, the Company recognized non-cash gains (losses) of $ and $, respectively, for the three months ended December 31, 2024 and 2023, which are included in “Change in fair value of earnout liability” in the condensed consolidated statements of operations and comprehensive income (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 shares of the Company’s Class A Common Stock in the event that the VWAP per share of the Class A Common Stock during a specified adjustment period is less than $ per share. The specified adjustment period ended on August 30, 2024 and the Company issued shares of its Class A Common Stock in settlement of the liability for the Make-Whole Shares.
The Company accounted for the Make-Whole Shares as liability-classified instruments because the events that determined the number of Make-Whole Shares issuable included events that were 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 $. As a result of subsequent changes in the fair value of the liability, the Company recorded a non-cash loss of $ for the three months ended December 31, 2023, which is included in “Change in fair value of PIPE make-whole liability” in the condensed consolidated statements of operations and comprehensive income (loss).
| 13 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
See Note 11, 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 $
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 | ||||
| Chavant founder shares, net of shares forfeited | ||||
| PIPE investors’ shares | ||||
| Settlement of PIPE warrant | ||||
| Sponsor PIPE subscription | ||||
| Settlement of Sponsor Warrant | ||||
| Settlement of warrant to non-redeeming shareholder | ||||
| Amendment to Business Combination Marketing Agreement | ||||
| Total Chavant shares outstanding immediately prior to the Merger | ||||
| Legacy Mobix rollover shares | ||||
| Conversion of Legacy Mobix convertible notes | ||||
| Conversion of Legacy Mobix SAFEs | ||||
| Total number of Class A common shares issued in the Merger | ||||
| Closing proceeds: | ||||
| Proceeds from Chavant trust fund | $ | |||
| Proceeds from PIPE investment | ||||
| Closing disbursements: | ||||
| Legacy Mobix Merger-related transaction costs | ( | ) | ||
| Chavant Merger-related transaction costs | ( | ) | ||
| Net cash proceeds from the Merger at Closing | ||||
| Legacy Mobix Merger-related transaction costs paid prior to closing | ( | ) | ||
| Net cash proceeds | ||||
| Non-cash activity: | ||||
| Conversion of Legacy Mobix convertible notes to Class A Common Stock | ||||
| Conversion of Legacy Mobix SAFEs to Class A Common Stock | ||||
| Conversion of Legacy Mobix redeemable convertible preferred stock to Class B Common Stock | ||||
| Unpaid Merger-related transaction costs assumed from Chavant | ( | ) | ||
| Unpaid Merger-related transaction costs of Legacy Mobix | ( | ) | ||
| Merger-related transaction costs expensed | ||||
| Liability-classified instruments: | ||||
| Fair value of earnout liability | ( | ) | ||
| Fair value of PIPE make-whole liability | ( | ) | ||
| Fair value of Private Warrants | ( | ) | ||
| Net equity impact of the Merger | $ | ( | ) | |
| 14 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Note 4 — Acquisitions
The Company acquired EMI Solutions, Inc. (“EMI Solutions”) in December 2023 and RaGE Systems, Inc. (“RaGE Systems”) in May 2024. The Company accounted for each of the acquisitions as a business combination. The following table summarizes the amount of the aggregate purchase consideration and the allocation to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.
| EMI Solutions | RaGE Systems | |||||||
| Purchase consideration: | ||||||||
| Contingently redeemable common stock | $ | $ | ||||||
| Class A Common Stock | ||||||||
| Cash consideration (at present value) | ||||||||
| $ | $ | |||||||
| Allocation: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Property and equipment | ||||||||
| Intangible asset—customer relationships | ||||||||
| Intangible asset—developed technology | ||||||||
| Intangible asset—backlog | ||||||||
| Intangible asset—trade name | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use asset | ||||||||
| Other assets | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Operating lease liability | ( | ) | ||||||
| Deferred tax liability | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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. Consideration for the acquisition consisted of shares
of the Company’s common stock with an estimated fair value of $
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 shares of common stock for a cash amount equal to $ 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 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 $
| 15 |
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.
RaGE Systems, Inc.
On
May 21, 2024, the Company completed the acquisition of RaGE Systems when the Company acquired all of the issued and outstanding common
shares of RaGE Systems pursuant to a business combination agreement (the “RaGE Business Combination Agreement”). RaGE Systems
specializes in developing products for 5G communications, mmWave imaging, and software defined radio targeting the commercial, industrial,
and defense and aerospace sectors. Aggregate consideration for the acquisition was $
The Company estimated the useful lives of the customer relationships, developed technology and trade name intangible assets are twelve years, seven years, and two and one-half years, respectively. The goodwill is primarily attributed to expected synergies for the combined operations and is not deductible for income tax purposes.
Pursuant
to the RaGE Business Combination Agreement, the RaGE stockholders are entitled to receive possible earn-out payments of up to $
Pro forma information
The following table shows unaudited pro forma net revenue and net loss of the Company for the three months ended December 31, 2023, as if the acquisitions of EMI Solutions and RaGE Systems had each 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 acquisitions occurred on October 1, 2022.
Three months ended December 31, 2023 | ||||
| Net revenue | $ | |||
| Net loss | $ | ( | ) | |
| 16 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Note 5 — Inventory
Inventory consists of the following:
| December 31, | September 30, | |||||||
| 2024 | 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Note 6 — Property and Equipment, net
Property and equipment, net consists of the following:
| Estimated Useful | December 31, | September 30, | ||||||||
| Life (years) | 2024 | 2024 | ||||||||
| Equipment and furniture | $ | $ | ||||||||
| Laboratory equipment | ||||||||||
| Leasehold improvements | ||||||||||
| Property and equipment, gross | ||||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||||
Depreciation
expense for the three months ended December 31, 2024 and 2023 was $
Note 7 — Intangible Assets, net
Intangible assets, net consist of the following:
| Estimated | December 31, 2024 | September 30, 2024 | ||||||||||||||||||||||||
| Useful Life (years) | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||
| Developed technology | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Customer relationships | ( | ) | ( | ) | ||||||||||||||||||||||
| Trade names | ( | ) | ( | ) | ||||||||||||||||||||||
| Backlog | ( | ) | ( | ) | ||||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The
Company recorded amortization expense related to intangible assets of $
| 17 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Estimated future amortization expense for intangible assets by fiscal year as of December 31, 2024 is as follows:
| Years ending September 30, | ||||
| 2025 (remaining nine months) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 8 — Goodwill
The following table summarizes changes in the carrying amount of goodwill during the three months ended December 31, 2024 and 2023.
Three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Acquisition of EMI Solutions | ||||||||
| Balance at end of period | $ | $ | ||||||
Note 9 — Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| December 31, | September 30, | |||||||
| 2024 | 2024 | |||||||
| Accrued compensation and benefits | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Accrued interest | ||||||||
| Deferred revenue | ||||||||
| Committed equity facility fees | ||||||||
| Unpaid Merger-related transaction costs | ||||||||
| RaGE Earn-out | ||||||||
| Other | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
Note 10 — Debt
Debt consists of the following:
| December 31, | September 30, | |||||||
| 2024 | 2024 | |||||||
| Notes payable | $ | $ | ||||||
| 7% promissory notes – related parties | ||||||||
| Notes payable – related parties | ||||||||
| Total debt | ||||||||
| Less: Amounts classified as current | ( | ) | ( | ) | ||||
| Noncurrent portion | $ | $ | ||||||
| 18 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Notes Payable
In
December 2024, the Company entered into a $
Also
in December 2024, the Company entered into an agreement for the purchase and sale of future receipts with an unrelated buyer pursuant
to which the Company agreed to sell to the buyer certain future trade receipts in the aggregate amount of $
During
the quarter ended December 31, 2024, the Company and the holders of two notes agreed to convert the outstanding principal and accrued
interest, totaling $
During
the three months ended December 31, 2023, the Company entered into two promissory notes having an aggregate principal amount of $
As
of December 31, 2024, notes payable having an aggregate remaining principal balance of $
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
In
October 2024, the Company and the holder of one promissory note, having a principal balance of $
Notes Payable — Related Parties
As
of December 31, 2024 and September 30, 2024, the Company had one outstanding note payable to a related party, with a principal balance
of $
SAFEs
In
connection with the Merger, all of the outstanding SAFEs, representing an original purchase amount of $
| 19 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Convertible Notes
During
the three months ended December 31, 2023, the Company issued convertible notes having an aggregate principal amount of $
Note 11 — 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 December 31,
2024 and September 30, 2024 because the notes payable, the
Fair Value Hierarchy
Liabilities measured at fair value on a recurring basis as of December 31, 2024 are as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Earnout liability | $ | $ | $ | $ | ||||||||||||
| PIPE Common Warrants | ||||||||||||||||
| Private Warrants | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company classifies the earnout liability, the PIPE Common Warrants and the Private Warrants 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 three months ended December 31, 2024 or 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:
| Three months ended December 31, 2024: | Earnout Liability | Liability Classified Warrants | ||||||
| Balance, September 30, 2024 | $ | $ | ||||||
| Change in fair value included in net loss | ||||||||
| Balance, December 31, 2024 | $ | $ | ||||||
| Three months ended December 31, 2023: | Earnout Liability | Liability Classified Warrants | PIPE Make-Whole Liability | SAFEs | ||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ||||||||||||
| Liabilities recognized | ||||||||||||||||
| Conversion to Class A Common Stock in the Merger | ( | ) | ||||||||||||||
| Change in fair value included in net income | ( | ) | ||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| 20 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
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 31, 2024 | September 30, 2024 | |||||||
| Stock price | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Contractual term | years | years | ||||||
PIPE Common Warrants
The Company estimates the fair value of the PIPE Common Warrants using the Black-Scholes option pricing model, which utilizes significant assumptions, including volatility, expected term and risk-free rate. The following table summarizes the assumptions used in estimating the fair value of the PIPE Common Warrants at the respective dates:
| December 31, 2024 | September 30, 2024 | |||||||
| Stock price | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Risk-free rate | – | % | – | % | ||||
| Contractual term | – years | – years | ||||||
Note 12 — Leases
The
Company has entered into operating leases for office space. The leases have remaining terms ranging from
Effective
October 1, 2024, the Company entered into an operating lease with a related party for a
The following lease costs are included in the condensed consolidated statements of operations and comprehensive income (loss):
Three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
Cash
paid for amounts included in the measurement of operating lease liabilities for the three months ended December 31, 2024 and 2023 was
$
The
Company has amended an office lease to provide for the use of additional space, which is not yet available for the Company’s use.
At such time as the additional space is available to it—which the Company anticipates will occur in 2025—the Company expects
to recognize an increase in the right-of-use asset and lease liability of approximately $
| 21 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
The following table reconciles the undiscounted cash flows to the operating lease liabilities recorded on the condensed consolidated balance sheet as of December 31, 2024:
| Years ending September 30, | ||||
| 2025 (remaining nine months) | $ | |||
| 2026 | ||||
| 2027 | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current obligations under leases | ( | ) | ||
| Long-term lease obligations | $ | |||
Note 13 — Commitments and Contingencies
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 December 31, 2024 or September 30, 2024.
Note 14 — Income Taxes
The
Company recorded a provision (benefit) for income taxes of $(
In
connection with the December 2023 acquisition of EMI Solutions, during the three months ended December 31, 2023 the Company recognized
additional deferred tax liabilities totaling $
| 22 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Note 15 — 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. As of December 31, 2024, the board of directors had not designated any series of preferred stock, and no shares of preferred stock were issued or outstanding.
During
the three months ended December 31, 2024, the Company sold shares of its Class A Common Stock to an unaffiliated investor for
net proceeds of $
During
the three months ended December 31, 2023, Legacy Mobix sold shares of its common stock at various dates in private placements
for net proceeds of $
As of December 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 | ||||
| Class A Common Stock outstanding | ||||
| Reserve for conversion of Class B Common Stock | ||||
| Reserve for exercise of the Public Warrants and Private Warrants | ||||
| Reserve for exercise of other common stock warrants | ||||
| Reserve for Earnout shares | ||||
| Reserve for RaGE Earn-out | ||||
| Stock options and RSUs outstanding | ||||
| Awards available for grant under 2023 Equity Incentive Plan | ||||
| Awards available for grant under 2023 Employee Stock Purchase Plan | ||||
| Common stock available for issuance |
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.
Note 16 — Warrants
Outstanding warrants consist of the following:
| December 31, 2024 | September 30, 2024 | |||||||
| Public Warrants | ||||||||
| Private Warrants | ||||||||
| PIPE Warrants | ||||||||
| PIPE Common Warrants | ||||||||
| Other warrants | ||||||||
| Total | ||||||||
| 23 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Liability-Classified Warrants
The
Company accounts for the Private Warrants as liabilities because they do not meet the derivative scope exception for contracts in the
Company’s own stock. 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 $
The
Company also accounts for the PIPE Common Warrants—issued in a July 2024 private placement—as liabilities because they do
not meet the derivative scope exception for contracts in the Company’s own stock. As of December 31, 2024, the Company adjusted
the carrying amount of the liability for the PIPE Common Warrants to its estimated fair value of $
Other 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 shares were exercised and converted into shares of Class A Common Stock, with no cash proceeds to the Company.
During
the three months ended December 31, 2023, the Company issued warrants to purchase an aggregate of
In
addition, during the three months ended December 31, 2023 Legacy Mobix failed to repay the principal amount of a note payable by its
maturity date and was obligated to issue warrants to purchase
The Company’s 2023 Equity Incentive Plan 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 Company has reserved shares of its Class A Common Stock for issuance under the terms of the 2023 Equity Incentive Plan. Prior to the Merger, Legacy Mobix had three equity incentive plans which provided for the issuance of stock-based compensation awards.
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.
Prior
to the Merger, Legacy Mobix agreed, contingent upon closing of the Merger, to issue an aggregate of RSUs (of which
| 24 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
During
the three months ended December 31, 2024, the Company and a former employee entered into certain agreements wherein the Company agreed
to accelerate the vesting of common stock warrants and grant the holder an additional common stock warrants. The warrants
are immediately exercisable and have an exercise price of $
| Number of units | Weighted- Average Grant Date Fair Value per Unit | |||||||
| Outstanding at September 30, 2024 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Outstanding at December 31, 2024 | ||||||||
Unrecognized compensation expense related to RSUs was $ as of December 31, 2024 and is expected to be recognized over a weighted-average period of years.
Stock Options
| Number of Options | Weighted- Average Exercise Price per Share | Weighted- Average Remaining Contractual Term (years) | ||||||||||
| Outstanding at September 30, 2024 | $ | |||||||||||
| Forfeited | ( | ) | ||||||||||
| Outstanding at December 31, 2024 | ||||||||||||
| Exercisable at December 31, 2024 | ||||||||||||
Unrecognized stock-based compensation expense related to stock options, totaling $ as of December 31, 2024, is expected to be recognized over a weighted-average period of years. The aggregate intrinsic value of stock options outstanding and stock options exercisable as of December 31, 2024 was $ and $, respectively. The total intrinsic value of options exercised during the three months ended December 31, 2024 and 2023 was $ and $, respectively. The total fair value of options that vested during the three months ended December 31, 2024 and 2023 was $ and $, respectively.
| 25 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
The weighted-average grant date fair value of options granted during the three months ended December 31, 2023 was $; options were granted during the three months ended December 31, 2024. The fair value of stock options granted was estimated with the following assumptions:
| Three months ended December 31, 2023 | ||||||||
| Range | ||||||||
| Low | High | |||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (years) | ||||||||
| Three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cost of revenue | $ | $ | ||||||
| Research and development | ||||||||
| Selling, general and administrative | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
The Company computes net income (loss) per share of Class A and Class B Common Stock using the two-class method. Basic net income (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. In periods where their effect is dilutive, potentially dilutive securities are included in the computation of diluted income (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 income (loss) per share.
| 26 |
MOBIX LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited, in thousands, except share and per share amounts)
Three months ended December 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic net income (loss) per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Denominator: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Diluted net income (loss) per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Reallocation of net loss as a result of conversion of Class B to Class A Common Stock | ( | ) | ||||||||||||||
| Reallocation of net income (loss) | ( | ) | ||||||||||||||
| Allocation of net income (loss) | $ | ( | ) | ( | ) | |||||||||||
| Denominator: | ||||||||||||||||
| Number of shares used in basic earnings per share calculation | ||||||||||||||||
| Conversion of Class B to Class A Common Stock | ||||||||||||||||
| Dilutive effect of stock options, warrants and RSUs | ||||||||||||||||
| Number of shares used in per share computation | ||||||||||||||||
| Diluted net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
For purposes of applying the if converted method or treasury stock method for calculating diluted earnings per share, the Public Warrants, Private Warrants, PIPE Common Warrants, and Placement Agent Warrants result in anti-dilution. For the three months ended December 31, 2024, the RSUs and stock options also result in anti-dilution. Therefore, these securities are not included in the computation of diluted net loss per share. The Earnout Shares and shares issuable under the RaGE Earn-out were not included for purposes of calculating the number of diluted shares outstanding because the number of dilutive shares is based on a contingency which had not been met, and the contingency was not resolved, during the periods presented herein.
| Three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Public Warrants and Private Warrants | ||||||||
| PIPE Common Warrants | ||||||||
| Other common stock warrants | ||||||||
| Earnout shares | ||||||||
| Shares issuable under RaGE Earn-out | ||||||||
| RSUs | ||||||||
| Stock options | ||||||||
| PIPE make-whole shares | ||||||||
| 27 |
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 December 31, 2024, one customer accounted for
As
of December 31, 2024, one customer had a balance due that represented
Note 20 — Geographical Information
Revenues by Geographic Region
The Company’s net revenue by geographic region, based on ship-to location, are summarized as follows:
Three months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Other | ||||||||
| Total net revenue | $ | $ | ||||||
Long-Lived Assets
Substantially all of the Company’s long-lived assets are located in the United States.
Note 21 — Subsequent Events
In
January 2025, the Company entered into a stock purchase agreement with an unaffiliated investor pursuant to which the investor may purchase shares
of its Class A Common Stock, together with warrants to purchase
| 28 |
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, the Cautionary Note Regarding Forward-Looking Statements as well as the risks and uncertainties set forth in our other SEC filings to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.
All amounts in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are in thousands, except numbers of shares and per share amounts.
Overview
Based in Irvine, California, Mobix Labs designs, develops and sells components and systems for advanced wireless and wired connectivity, radio frequency (“RF”), switching and electromagnetic interference (“EMI”) filtering technologies. Our solutions are used in the consumer commercial, industrial, automotive, medical, aerospace, defense and other markets. 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 systems solutions include products for advanced RF and millimeter wave (“mmWave”) 5G communications, mmWave imaging, software defined radio and custom RF integrated circuits (“ICs”) targeting the commercial, industrial, and defense and aerospace sectors. Our interconnect products, including EMI filter inserts and filtered and non-filtered connectors, are designed for and are currently used in aerospace, military, defense and medical applications. Our True Xero active optical cables (“AOCs”) are designed to meet customer needs for high-quality active optical cable solutions at an affordable price. 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.
We were founded with the goal of simplifying the development and maximizing the performance of wireless mmWave 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 high reliability (“HiRel”) technology, as part of our commitment to enhancing communication services. We have developed and/or acquired an extensive intellectual property (“IP”) 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 revenue for our products by serving large and rapidly growing markets where we believe there are increasing demands for higher performance communication technologies, including both wireless and wired connectivity systems. We are actively pursuing customer engagements with manufacturers of wireless communications, aerospace, military, defense, medical and HiRel products.
| 29 |
In 2021, we completed the acquisition of substantially all of the assets including IP of Cosemi Technologies, Inc. (“Cosemi”), an Irvine, California-based global supplier of high-speed connectivity solutions. The acquired products and IP 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—and 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
Private Placement
On July 22, 2024, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an institutional accredited investor in connection with a private placement (the “Private Placement”). Pursuant to the Securities Purchase Agreement, on July 24, 2024, we issued an unregistered pre-funded warrant (the “Pre-Funded Warrant”) to purchase up to 2,877,698 unregistered shares of our Class A Common Stock. We also issued unregistered warrants to purchase an aggregate of 5,755,396 shares of our Class A Common Stock (“PIPE Common Warrants”). We received gross proceeds from the Private Placement of $4,000, before payment of fees and expenses to the placement agent of $415. In August 2024, the investor exercised the Pre-Funded Warrant in full, for net cash proceeds to us of $3.
The PIPE Common Warrants are comprised of Series A warrants to purchase up to 2,877,698 shares of Class A Common Stock (the “Series A Warrants”) and Series B warrants to purchase up to 2,877,698 shares of Class A Common Stock (the “Series B Warrants”). The PIPE Common Warrants have an exercise price of $1.39 per share and are exercisable beginning on the effective date of stockholder approval of the issuance of the shares of Class A Common Stock upon exercise of the PIPE Common Warrants, which was obtained on January 3, 2025. The Series A Warrants will expire on January 3, 2030 and the Series B warrants will expire on January 3, 2026.
In connection with the Private Placement, we paid the placement agent fees and expenses of $415 and issued the placement agent warrants to purchase an aggregate of 201,439 shares of our Class A Common Stock (the “Placement Agent Warrants”). The Placement Agent Warrants have an exercise price of $1.7375 per share, became exercisable upon stockholder approval on January 3, 2025 and will expire on January 3, 2030. Moreover, upon any exercise for cash of the PIPE Common Warrants, we are obligated to pay the placement agent cash fees aggregating 8% of the gross exercise price and issue to the placement agent warrants to purchase a number of shares of our Common Stock equal to 7.0% of the aggregate number of such shares of our common stock underlying the PIPE Common Warrants.
We also entered into a registration rights agreement and filed with the Securities and Exchange Commission a registration statements to register for resale the shares of Common Stock issuable upon exercise of the PIPE Common Warrants, the Pre-Funded Warrants and the Placement Agent Warrants, which became effective on August 28, 2024.
Acquisition of RaGE Systems Inc.
On May 21, 2024, we completed the previously announced acquisition of RaGE Systems. RaGE Systems designs, develops and manufactures wireless systems solutions, including products for 5G communications, mmWave imaging, and software defined radio targeting the commercial, industrial, and defense and aerospace sectors. We believe the acquisition of RaGE Systems expands our expertise in wireless communications and will allow us to deliver solutions that address a wider variety of applications and markets.
| 30 |
Aggregate consideration for the acquisition of RaGE Systems consisted of 3,214,045 shares of our Class A Common Stock, having a fair value of $7,682 at the closing date, and $2,000 in cash. We also entered into employment agreements with each of the RaGE Systems stockholders. The RaGE Systems 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 Systems business combination agreement also provides the RaGE Systems stockholders with “piggy-back” registration rights, subject to certain requirements and customary conditions.
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 interconnect products, including electromagnetic interference filtering products for aerospace, military, defense and medical applications. We believe the acquisition of EMI Solutions complements our existing product offerings, expanded our customer base and allows 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.
Financing Activities
During the three months ended December 31, 2024, we had additional financing activity, consisting of the issuance of a note payable, an agreement for the sale and purchase of future receipts and the sale of shares of our Class A Common Stock. See “Liquidity and Capital Resources,” below, and 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.
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. Our Class A Common Stock and Public Warrants (“Public Warrants”) began trading on Nasdaq under the symbols “MOBX” and “MOBXW,” respectively, on December 22, 2023.
| 31 |
Results of Operations
Comparison of the Three Months Ended December 31, 2024 and 2023
| (dollars in thousands) | Three months ended December 31, | Change | ||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Net revenue | $ | 3,169 | $ | 285 | 2,884 | 1,012 | % | |||||||||
| Cost of revenue | 1,482 | 329 | 1,153 | 350 | % | |||||||||||
| Gross profit | 1,687 | (44 | ) | 1,731 | nm | |||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 611 | 1,562 | (951 | ) | (61 | )% | ||||||||||
| Selling, general and administrative | 15,706 | 15,663 | 43 | — | ||||||||||||
| Loss from operations | (14,630 | ) | (17,269 | ) | 2,639 | (15 | )% | |||||||||
| Interest expense | 211 | 857 | (646 | ) | (75 | )% | ||||||||||
| Change in fair value of earnout liability | 1,940 | (24,764 | ) | 26,704 | (108 | )% | ||||||||||
| Change in fair value of warrants | 2,658 | 60 | 2,598 | nm | ||||||||||||
| Change in fair value of PIPE make-whole liability | — | 2,904 | (2,904 | ) | (100 | )% | ||||||||||
| Merger-related transaction costs expensed | — | 4,009 | (4,009 | ) | (100 | )% | ||||||||||
| Other non-operating losses, net | 402 | 10 | 392 | nm | ||||||||||||
| Loss before income taxes | (19,841 | ) | (345 | ) | (19,496 | ) | nm | |||||||||
| Provision (benefit) for income taxes | (2 | ) | (1,280 | ) | 1,278 | (100 | )% | |||||||||
| Net income (loss) and comprehensive income (loss) | $ | (19,839 | ) | $ | 935 | $ | (20,774 | ) | nm | |||||||
“nm” indicates amount is not meaningful.
Net Revenue
We derive our net revenue 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 ended December 31, 2024 and 2023). Sales and other taxes we collect, if any, are excluded from net revenue. We account for all shipping and handling as fulfillment activities and we recognize shipping revenue and any related costs concurrently with the related product revenues. Our net revenue fluctuates based on a variety of factors, including the timing of the receipt of orders from our customers, product mix, competition, global economic conditions, and other factors.
Our net revenue was $3,169 for the three months ended December 31, 2024 compared to $285 for the three months ended December 31, 2023, an increase of $2,884 or 1,012%. The increase principally reflects the addition of sales of our interconnect products, which we acquired in our December 2023 acquisition of EMI Solutions, and wireless systems solutions, which we acquired in our May 2024 acquisition of RaGE Systems.
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 engineering services or the manufacture or sourcing of products, facility costs and depreciation.
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Cost of revenue was $1,482 for the three months ended December 31, 2024 compared to $329 for the three months ended December 31, 2023, an increase of $1,153 or 350%. The change principally reflects the addition of sales of our interconnect products and wireless systems solutions as discussed above.
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 $611 for the three months ended December 31, 2024 compared to $1,562 for the three months ended December 31, 2023, a decrease of $951 or 61%. 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. These decreases were partly offset by the addition of research and development expenses of the businesses we acquired during fiscal year 2024.
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 $15,706 for the three months ended December 31, 2024 compared to $15,663 for the three months ended December 31, 2023, an increase of $43. The change reflects a $1,646 charge for estimated amounts payable under the RaGE Earn-out in connection with our acquisition of RaGE Systems, the addition of selling, general and administrative expenses of the businesses we acquired during fiscal 2024, higher insurance costs and higher amortization of intangible assets. These increases were largely offset by lower stock-based compensation expense. Stock based-compensation expense for the three months ended December 31, 2023 included the impact of certain awards whose vesting is contingent on both the completion of the Merger and the satisfaction of a service condition. Upon completion of the Merger, we recognized a “catch-up” of stock-based compensation expense of $10,858 for the portion of the service period that had elapsed from the date of the awards through December 31, 2023. During the three months ended December 31, 2024, we recognized additional stock-based compensation expense of $6,917 resulting from the acceleration of certain stock-based compensation awards.
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 $211 for the three months ended December 31, 2024 compared to $857 for the three months ended December 31, 2023, a decrease of $646 or 75%. The decrease principally reflects higher costs in the three months ended December 31, 2023 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 the notes to our unaudited condensed consolidated financial statements included herein.
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We estimated the fair value of the earnout liability as of the Closing of the Merger at $33,559. As of December 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 $3,620. As a result of changes in the estimated fair value of the liability, we recognized non-cash gains (losses) of $(1,940) and $24,764, respectively, for the three months ended December 31, 2024 and 2023. The changes in the estimated fair value of the earnout liability are principally due to changes in price of our Class A Common Stock during the respective periods.
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, 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 income (loss), the amounts of which may be substantial.
Change in Fair Value of Warrants
We account for the PIPE Common Warrants and the Private Warrants as liabilities because they do not meet the derivative scope exception for contracts in our own stock. We estimate the aggregate fair value of the 5,755,396 PIPE Common Warrants using the Black-Scholes option-pricing model. As of December 31, 2024, we adjusted the carrying amount of the liability for the PIPE Common Warrants to its estimated fair value of $4,429. As a result of the change in the fair value of the PIPE Common Warrants, for the three months ended December 31, 2024 we recorded a non-cash loss of $2,620.
At the time of Closing, we estimated the aggregate fair value of the 3,000,000 Private Warrants using the Black-Scholes option-pricing model and recognized a liability of $150. As of December 31, 2024, all of the Private Warrants remained outstanding and we adjusted the carrying amount of the liability to its estimated fair value of $368. As a result of changes in the fair value of the Private Warrants, we recorded non-cash losses of $38 and $60 for the three months ended December 31, 2024 and 2023, respectively. The gains and losses are included in “Change in fair value of warrants” in the unaudited condensed consolidated statements of operations and comprehensive income (loss). Additional information relating to the PIPE Common Warrants and the Private Warrants can be found in the notes to our unaudited condensed consolidated financial statements included herein.
The fair value of the PIPE Common Warrants and the Private Warrants 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, and may experience significant fluctuations in the future. Such price fluctuations will increase or decrease the value of the PIPE Common Warrants and the Private Warrants, and we may be required to recognize additional losses or gains in our statements of operations and comprehensive income (loss), the amounts of which may be substantial.
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 in the event that the VWAP per share of the Class A Common Stock during a specified adjustment period is less than $10.00 per share. The specified adjustment period ended on August 30, 2024 and the Company issued 1,052,029 shares of its Class A Common Stock in settlement of the liability for the Make-Whole Shares.
We accounted for the Make-Whole Shares as liability-classified instruments because the events that determined the number of Make-Whole Shares issuable included events that were not solely indexed to our common stock. At the time of Closing, we estimated the aggregate fair value of the liability for the Make-Whole Shares using a Monte Carlo simulation model and recorded a liability of $2,071. As a result of subsequent changes in the fair value of the liability, we recorded a non-cash loss of $2,904 for the three months ended December 31, 2023, which is included in “Change in fair value of PIPE make-whole liability” in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
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Other Non-Operating Losses, Net
For the three months ended December 31, 2024, other non-operating losses, net of $402 principally consist of a loss we recognized upon the conversion of the outstanding principal balance of a note payable and accrued interest thereon into shares of our Class A Common Stock.
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 ended December 31, 2024, our provision (benefit) for income taxes differs from an amount calculated based on statutory tax rates principally due to our recording a valuation allowance against the net operating losses we generated during the period because we did not expect that the deferred tax asset arising from our pretax book loss of $19,841 would be realized in the future.
For the three months ended December 31, 2023, we recognized an income tax benefit of $1,280. In connection with our acquisitions of EMI Solutions, we recognized additional deferred tax liabilities of $1,084 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 three months ended December 31, 2023 we recognized an income tax benefit of $1,280, principally resulting from reductions of the valuation allowance previously recorded against our deferred tax assets.
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 as a result of our ongoing investment in product development and other operating expenses we incur. 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 three months ended December 31, 2024 and 2023:
| Three months ended December 31, | Change | |||||||||||
| 2024 | 2023 | $ | ||||||||||
| Net cash used in operating activities | $ | (930 | ) | $ | (3,596 | ) | $ | 2,666 | ||||
| Net cash used in investing activities | — | (115 | ) | 115 | ||||||||
| Net cash provided by financing activities | 1,069 | 18,418 | (17,349 | ) | ||||||||
| Net increase in cash | 139 | 14,707 | $ | (14,568 | ) | |||||||
| Cash, beginning of period | 266 | 89 | ||||||||||
| Cash, end of period | $ | 405 | $ | 14,796 | ||||||||
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Operating Activities
For the three months ended December 31, 2024, net cash used in operating activities was $930, which included the impact of our net loss of $19,839, offset by net non-cash charges of $15,520 and net decreases in working capital items of $3,389. The net non-cash charges principally consisted of stock-based compensation expense of $9,802 for stock options and restricted stock units, losses of $2,658 from the change in fair value of warrants, a $1,940 loss on the change in fair value of the earnout liability and $594 of depreciation and amortization expense. The net working capital decrease principally consisted of an increase in accrued expenses together with decreases in accounts receivable and inventory.
For the three months ended December 31, 2023, net cash used in operating activities was $3,596, which included the impact of our net income of $935, net non-cash credits of $5,298 and net decreases in working capital items of $767. The net non-cash credits principally consisted of the $24,764 gain on the change in fair value of the earn-out liability and a deferred income tax benefit of $1,280, partially offset by stock-based compensation expense of $12,705 for stock options and restricted stock units, $4,009 of Merger related transaction costs expensed, a $2,904 loss on the change in the fair value of the PIPE make-whole liability, $729 of expense for the issuance of warrants in connection with borrowings and $350 of depreciation and amortization expense.
Investing Activities
Net cash used in investing activities for the three months ended December 31, 2023 of $115 consisted of payments for the acquisition EMI, net of acquired cash.
Financing Activities
Net cash provided by financing activities for the three months ended December 31, 2024 of $1,069 consisted of $600 in proceeds from the issuance of common stock and $675 in proceeds under an agreement for the purchase and sale of future receipts and the issuance of a note payable. These amounts were partially offset by principal payments on notes payable of $32 and the payment of deferred consideration of $174 for the acquisition of a business.
Net cash provided by financing activities for the three months ended December 31, 2023 of $18,418 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 $5,966 and $362 of principal payments on notes payable (including payments of $344 on notes payable—related parties).
Liquidity
As of December 31, 2024, our cash balance was $405 compared to $266 at September 30, 2024. We had a working capital deficit of $24,615 as of December 31, 2024 compared to a working capital deficit of $20,836 at September 30, 2024.
Our debt consists of notes payable with an aggregate amount of $794 and 7% promissory notes—related parties with an aggregate principal amount of $2,825. Of these amounts, notes having an aggregate principal amount of $1,624 have reached their maturity date and are currently due. The remainder require weekly or monthly payments in varying amounts through September 2026.
Our total liabilities as of December 31, 2024 were $40,310 compared to $33,558 as of September 30, 2024. The increase in our total liabilities is principally due to a $1,940 increase in the earnout liability, a $2,658 increase in the fair value of liability-classified warrants and a $1,646 increase in the liability for the RaGE Earn-out. The Business Combination Agreement provides that settlement of the earnout liability 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.
Other commitments include (i) non-cancelable operating leases for equipment, office facilities and other property containing future minimum lease payments totaling $1,776 payable over the next three years, (ii) unpaid commitment and other fees of $1,553 payable in connection with the committed equity facility, (iii) deferred purchase consideration of $2,323 related to our acquisitions of EMI Solutions and RaGE Systems, payable at various dates through June 2025, and (iv) potential payments of up to $8,000 under the RaGE Earn-out, payable at various dates through March 2026.
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Going Concern
We incurred a loss from operations of $14,630 for the three months ended December 31, 2024, and we incurred losses from operations of $46,395 and $35,544 for the years ended September 30, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $124,296. 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. 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, 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.
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 fair value of liability-classified warrants, the provision for income taxes, the accounting for business combinations and the measurement of definite-lived intangible assets and goodwill.
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.
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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 31, 2024 | September 30, 2024 | |||||||
| Stock price | $ | 1.70 | $ | 1.06 | ||||
| Expected volatility | 75 | % | 70 | % | ||||
| Risk-free rate | 4.4 | % | 3.6 | % | ||||
| Contractual term | 7.0 years | 7.2 years | ||||||
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.
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.
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.
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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 consolidated statements of operations and comprehensive income (loss).
We classify stock-based compensation expense in our consolidated statements of operations and comprehensive income (loss) 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 and comprehensive income (loss) 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 value 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.
Intangible Assets and Goodwill
We have definite-lived 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.
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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.
We also have goodwill totaling $16,066 as of December 31, 2024, which 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 we test goodwill 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.
We assess all relevant qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the assessment indicates that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, a quantitative goodwill impairment test is not necessary. If the assessment of all relevant qualitative factors indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we would perform a quantitative goodwill impairment test. The quantitative impairment test for goodwill consists of a comparison of the fair value of a reporting unit with its carrying value, including the goodwill allocated to that reporting unit. If the carrying value of a reporting unit exceeds its fair value, we will recognize an impairment loss equal to the amount of the excess, limited to the amount of goodwill allocated to that reporting unit.
Our impairment tests require the use of judgment, including the identification of, and assignment of assets and liabilities to, asset groups and/or reporting units and the determination of fair values of asset groups or reporting units. We also must make significant assumptions and estimates, including 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 and estimates, we may use internal undiscounted cash flow estimates, quoted market prices (if available) or other available data.
We did not recognize any impairment charges during the three months ended December 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. 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.
Limitations on Effectiveness of Disclosure Controls and Procedures
In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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(b) of the Exchange Act, as of December 31, 2024. 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 December 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 control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of personnel with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. Additionally, our insufficient complement of personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions. | |
| ● | We did not design and maintain an effective risk assessment process at a precise enough level to identify new and evolving risks of material misstatement in our financial statements. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to our risks of material misstatement to financial reporting. |
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These material weaknesses contributed to the following additional material weaknesses:
| ● | We did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over (i) the preparation and review of account reconciliations and journal entries, (ii) maintaining appropriate segregation of duties, (iii) determining the appropriate grant date for stock options and evaluating the assumptions used within our Black-Scholes model to determine the fair value of option grants, and (iv) the review of the completeness and accuracy of the income tax provision and related disclosures. Additionally, we did not design and maintain controls over the classification and presentation of accounts and disclosures in our financial statements and to ensure revenue transactions are recorded in the correct period. | |
| ● | We did not design and maintain effective controls to identify and account for certain non-routine, unusual or complex transactions, including the proper application of U.S. GAAP of such transactions. Specifically, we did not design and maintain effective controls to (i) timely identify, account for and value business combinations and asset acquisitions, including the associated tax implications and (ii) timely identify, account for and value our financing arrangements. | |
| ● | We did not design and maintain effective controls to verify transactions are properly authorized, executed, and accounted for, including transactions related to incentive compensation arrangements. |
These material weaknesses resulted in adjustments to revenue, accrued expenses, general and administrative expenses, inventory, costs of products sold, the accounting for and classification of redeemable convertible preferred stock, founders preferred and common stock, stock-based compensation expense, other current assets, income tax expense and deferred tax liabilities, as well as the purchase price allocation for our business combination, as of and for the years ended September 30, 2022 and 2021; and, adjustments to stock-based compensation expense, accrued expenses, other current liabilities and the PIPE make-whole liability, as well as the purchase price allocations for our business combinations as of and for the interim periods ended December 31, 2023 and June 30, 2024, and as of and for the year ended September 30, 2024.
| ● | We did not design and maintain effective information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain (i) program change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately, (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel, (iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored, and (iv) program development controls to ensure that new software development is tested, authorized and implemented appropriately. These deficiencies did not result in a misstatement to our financial statements. |
Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to our annual or interim financial statements that would not be prevented or detected.
Remediation Plan
We have begun an implementation plan to remediate these material weaknesses, which we expect will result in significant future costs for us.
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Those remediation measures will include (i) hiring additional accounting and IT personnel to enhance our financial reporting, accounting and IT capabilities; (ii) designing and implementing controls to formalize roles and review responsibilities and designing and implementing controls over segregation of duties; (iii) designing and implementing controls to identify and evaluate changes in our business and the impact on our internal control over financial reporting; (iv) designing and implementing controls over the proper authorization of transactions; (v) designing and implementing controls to identify, account for, and value non-routine, unusual or complex transactions; (vi) designing and implementing formal accounting policies, procedures and controls supporting our financial close process, including controls over account reconciliations and journal entries; (vii) designing and implementing controls over determining the appropriate grant date for stock options and evaluating the assumptions used within the Black-Scholes model; (viii) designing and implementing controls over the completeness and accuracy of the income tax provision and related disclosure; (ix) designing and implementing controls over the classification and presentation of accounts and disclosures in our financial statements and to ensure revenue transactions are recorded in the correct period; (x) implementing a more sophisticated IT system; and (xi) designing and implementing IT general controls.
The material weaknesses will not be considered remediated until our remediation plan as described above has been fully implemented and we determine no further changes to the remediation plan are necessary, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively.
Notwithstanding the above, our management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Refer to Note 13—Commitments and Contingencies of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for disclosures regarding legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In connection with the settlement of litigation, on October 11, 2024, we agreed to issue a warrant to purchase 250,000 shares of Class A Common Stock to a former employee. Such warrants have an exercise price of $0.01 per share.
On November 25, 2024 and December 20, 2024, we agreed that two outstanding notes payable with an aggregate principal balance of $500,000, plus accrued interest of $45,896, would be converted into an aggregate of 631,805 shares of Class A Common Stock.
On December 4, 2024, we agreed to issue 40,000 shares of Class A Common Stock to two of our vendors in exchange for services rendered to us.
On December 26, 2024, we agreed to sell 521,739 shares of Class A Common Stock to an accredited investor for an aggregate of $600,000.
No underwriting discounts and commissions were paid with respect to the foregoing transactions. The issuances of the securities were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Item 5. Other Information.
| (c) | During
the three months ended December 31, 2024, none of our officers (as defined in Rule 16a-1(f) of the Exchange Act) or directors |
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Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MOBIX LABS, INC. | ||
| Date: February 12, 2025 | By: | /s/ Keyvan Samini |
| Keyvan Samini | ||
President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) | ||
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