Mobix Labs(MOBX) - 2023 Q3 - Quarterly Report

Part I: Financial Information Part I details the unaudited condensed financial statements, management's discussion and analysis of financial condition, and internal controls and procedures Financial Statements (Unaudited) Chavant Capital Acquisition Corp., a shell company, reported its unaudited condensed financial statements for the period ended September 30, 2023. The statements reflect the company's status as a Special Purpose Acquisition Company (SPAC) with no operating revenue. Key elements include a significant reduction in assets due to shareholder redemptions, a net loss for the nine-month period, and liabilities primarily composed of promissory notes, warrant liability, and a PIPE derivative liability. The company faces a going concern issue due to insufficient working capital Condensed Balance Sheets The balance sheet reflects a significant reduction in assets due to shareholder redemptions and an increasing shareholders' deficit, indicating financial strain Condensed Balance Sheet Summary (Unaudited) | Balance Sheet Items | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $7,525 | $175,788 | | Investment held in trust account | $8,676,157 | $9,835,409 | | Total Assets | $8,693,330 | $10,011,197 | | Liabilities | | | | Total Current Liabilities | $2,245,605 | $1,020,257 | | Warrant liability | $79,220 | $335,240 | | PIPE derivative liability | $1,200,538 | $1,065,297 | | Total Liabilities | $3,525,363 | $2,420,794 | | Ordinary shares subject to possible redemption | $8,576,157 | $9,735,409 | | Total Shareholders' Deficit | ($3,408,190) | ($2,145,006) | Condensed Statements of Operations The statements of operations show a net loss for the nine-month period, primarily driven by operating costs, partially offset by changes in fair value of liabilities and interest income Condensed Statements of Operations Summary (Unaudited) | Operations Data | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | | Loss from operations | ($239,376) | ($1,010,314) | | Change in fair value of warrant liability | $57,120 | $256,020 | | Interest and dividend earned on trust account | $88,700 | $313,506 | | Change in fair value of PIPE derivative liability | $87,680 | ($135,241) | | Net (Loss) Income | ($5,876) | ($576,029) | Condensed Statements of Changes in Shareholders' Deficit The statements illustrate a growing shareholders' deficit, primarily due to net losses and substantial share redemptions over the period - As of September 30, 2023, the company had 778,912 ordinary shares subject to possible redemption, a significant decrease from 8,000,000 at the beginning of 2022 due to multiple redemption events[14] - The total shareholders' deficit increased from ($2,145,006) at the beginning of 2023 to ($3,408,190) by September 30, 2023, driven by net losses and adjustments for share redemptions[14] Condensed Statements of Cash Flows Cash flow analysis reveals significant cash used in financing activities for share redemptions, partially offset by proceeds from sponsor promissory notes Condensed Statements of Cash Flows Summary (Unaudited) | Cash Flow Data (Nine months ended Sep 30) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($343,459) | ($428,146) | | Net cash provided by (used in) investing activities | $1,333,604 | $70,478,927 | | Net cash used in financing activities | ($1,158,408) | ($70,211,278) | | Net Change in Cash | ($168,263) | ($160,497) | | Cash - End of period | $7,525 | $80,209 | - For the nine months ended September 30, 2023, cash used in financing activities included $1,846,408 for the redemption of ordinary shares, partially offset by $688,000 in proceeds from a promissory note from the sponsor[17] Notes to Condensed Financial Statements The notes detail the company's formation as a SPAC, its proposed business combination with Mobix Labs, and significant financial events. Key disclosures include the terms of the Mobix Labs transaction, multiple extensions of the business combination deadline accompanied by shareholder redemptions, and the resulting Nasdaq non-compliance notices. The company's liquidity is constrained, raising substantial doubt about its ability to continue as a going concern, and it relies on loans from its sponsor for working capital. The notes also explain the accounting for complex financial instruments like warrants and a PIPE derivative liability - The company entered into a business combination agreement with Mobix Labs, Inc. on November 15, 2022. The deal includes a $30 million PIPE investment and the outside date for closing was extended to November 22, 2023[23][24][25] - The company received delisting notices from Nasdaq for failing to meet the minimum Market Value of Listed Securities (MVLS) and the minimum of 300 public holders. A hearing was held on November 9, 2023, to request an extension to regain compliance[26][27][28] - The company has extended its business combination deadline to January 22, 2024. These extensions led to significant redemptions, with shareholders redeeming 7,046,967 shares in July 2022, 96,991 shares in January 2023, and 77,130 shares in July 2023[36][37][38] - Management has concluded there is substantial doubt about the Company's ability to continue as a going concern due to significant costs and insufficient cash outside the Trust Account to operate for the next 12 months[53] - As of September 30, 2023, the company had drawn down a total of $1,350,000 in working capital loans from its sponsor, consisting of $1,150,000 in convertible notes and $200,000 in a non-convertible note[92] Fair Value of Financial Instruments (as of Sep 30, 2023) | Description | Level | Fair Value | | :--- | :--- | :--- | | Assets: | | | | Investments held in Trust Account | 1 | $8,676,157 | | Liabilities: | | | | PIPE Derivative Liability | 3 | $1,200,538 | | Warrant Liability | 2 | $79,220 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's status as a blank check company formed to effect a business combination, focusing on the proposed transaction with Mobix Labs. The analysis covers the results of operations, which reflect a net loss driven by operating costs, and the company's liquidity and capital resources. A key concern highlighted is the company's working capital deficiency and the substantial doubt about its ability to continue as a going concern, which management plans to address through the business combination and continued reliance on sponsor loans Overview and Proposed Mobix Labs Transaction This section provides an overview of the company's SPAC status, the proposed business combination with Mobix Labs, and ongoing Nasdaq compliance challenges - The company is a blank check company that consummated its IPO on July 22, 2021, raising $80 million. As of September 30, 2023, after multiple redemptions, the trust account holds $8,676,157[127][133] - The company entered into a definitive business combination agreement with Mobix Labs on November 15, 2022. The transaction includes a $30 million PIPE investment and is expected to be listed on Nasdaq upon closing[134][135] - The company is not in compliance with Nasdaq's continued listing rules for minimum market value and minimum public holders. It has requested an extension from a Nasdaq Hearings Panel to regain compliance, with a decision pending[137][140][142] Results of Operations The results of operations show a net loss for the three and nine months ended September 30, 2023, primarily due to operating costs Comparison of Operating Results | Period | Net (Loss) / Income | Key Drivers | | :--- | :--- | :--- | | Three months ended Sep 30, 2023 | ($6,000) | Operating costs of ~$239k, offset by gains on warrant/PIPE liability and interest income | | Three months ended Sep 30, 2022 | ($63,000) | Operating costs of ~$293k, partially offset by gains on warrant liability and interest income | | Nine months ended Sep 30, 2023 | ($576,000) | Operating costs of ~$1.01M and loss on PIPE liability, partially offset by gain on warrant liability and interest income | | Nine months ended Sep 30, 2022 | $576,000 | Gain on warrant liability of ~$1.53M and interest income, offsetting operating costs of ~$1.1M | Liquidity and Capital Resources The company faces significant liquidity challenges and a working capital deficiency, relying on sponsor loans to fund operations and the proposed business combination - As of September 30, 2023, the company had only $7,525 of cash held outside the trust account and a working capital deficiency of $2,228,432[150] - Management has concluded that the limited cash raises substantial doubt about the company's ability to continue as a going concern for the next 12 months. The company is reliant on loans from its sponsor to fund working capital[153][154] - To fund operations and combination deadline extensions, the company has drawn down a total of $1,350,000 in working capital loans from its sponsor as of September 30, 2023. Up to $1,500,000 of such loans are convertible into warrants[161][168] Controls and Procedures Management evaluated the company's disclosure controls and procedures and concluded they were not effective as of September 30, 2023. This is due to the persistence of material weaknesses identified as of December 31, 2022, related to an insufficient control environment, lack of personnel with adequate accounting knowledge, and specific control deficiencies over complex accounting transactions and third-party valuations. Remediation efforts are underway but are not yet complete - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023[178] - The ineffectiveness is due to material weaknesses, including a lack of sufficient personnel with appropriate accounting knowledge and experience[179] - Specific material weaknesses exist in controls over: (1) calculation of EPS and cash flow classification, (2) accounting for complex instruments like the PIPE, and (3) the review of third-party valuations[180] Part II: Other Information Part II addresses critical other information, including significant risk factors and details regarding unregistered equity sales and the use of IPO proceeds Risk Factors The primary risk factor highlighted is the potential for Nasdaq to delist the company's securities. The company has received notices of non-compliance for failing to meet the minimum Market Value of Listed Securities (MVLS) and the minimum number of public holders. While a hearing has been held to request an extension, there is no assurance it will be granted or that the company can regain compliance, which could severely limit trading and liquidity of its securities - The company's securities are at risk of being delisted from Nasdaq for failure to meet continued listing requirements[187] - The company received a delisting notice for failing to meet the $35 million minimum Market Value of Listed Securities (MVLS) rule and another for not having at least 300 public holders[188][189] - A hearing was held on November 9, 2023, to request more time to regain compliance, but there is no guarantee an extension will be granted. Delisting would lead to adverse consequences, including reduced liquidity and classification as a "penny stock"[192][194][196] Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sale of 3,400,000 Private Warrants to the sponsor and underwriters for $3.4 million, concurrent with the IPO. It also outlines the use of proceeds from the IPO and private placement, noting that after underwriting fees and expenses, $80 million was initially placed in the trust account. Subsequent redemptions in connection with business combination deadline extensions have significantly reduced the trust account balance to $8,676,157 as of September 30, 2023 - Simultaneously with the IPO, the company completed a private sale of 3,400,000 Private Warrants at $1.00 per warrant, generating gross proceeds of $3,400,000[198] - The initial $80 million in the trust account has been reduced by redemptions. In total, 7,221,088 Public Shares have been redeemed for approximately $72.4 million across three extension votes[202] - As of September 30, 2023, the balance in the Trust Account was $8,676,157, with 778,912 ordinary shares remaining subject to redemption[202]