Mobix Labs(MOBX) - 2024 Q4 - Annual Report

PART I Item 1. Business The company designs connectivity components and grows through strategic acquisitions in diverse high-tech markets - The company's core business involves designing and selling components for advanced wireless and wired connectivity, RF, switching, and EMI filtering technologies across multiple high-growth markets[227][17] - A key component of the company's growth strategy is the acquisition of complementary businesses, including Cosemi (2021), EMI Solutions (December 2023), and RaGE Systems (May 2024)[211][212][213] - For the fiscal year ended September 30, 2024, sales to Leidos Holdings, Inc, represented approximately 40% of net revenues, indicating significant customer concentration[2] - The company competes with large, established semiconductor firms such as Qualcomm, NXP, and Qorvo in the wireless sector and with companies like Amphenol and TE Connectivity in the interconnect products market[3][4] Item 1A. Risk Factors The company faces going concern risks, material weaknesses in internal controls, and potential Nasdaq delisting - The company has a history of operating losses and negative cash flows, which raises substantial doubt about its ability to continue as a going concern[288][286] - Multiple material weaknesses in internal control over financial reporting have been identified, affecting the control environment, risk assessment, and IT general controls[342][343][344] - The company received delinquency notices from Nasdaq for failing to maintain minimum market value and bid price, creating a risk of delisting[387] - The dual-class common stock structure concentrates voting control with directors and management, limiting the influence of Class A stockholders[377][378][1] Item 1C. Cybersecurity Cybersecurity risk management is overseen by the audit committee, with no material incidents reported to date - The audit committee of the Board, along with the management team, has primary responsibility for assessing and managing cybersecurity risks[451] - To date, the company has not experienced any cybersecurity threats or incidents that have materially affected its operations, business strategy, or financial condition[426] Item 2. Properties The company leases all its principal facilities, which are considered adequate for current and future operations Leased Properties | Location | Use | Square footage | | :--- | :--- | :--- | | Irvine, CA | Corporate headquarters | 19,436 | | Irvine, CA | Design, manufacturing and sales | 6,149 | | Lowell, MA | Design, manufacturing and sales | 5,085 | | Newburyport, MA | Design, manufacturing | 2,400 | Item 3. Legal Proceedings The company settled several disputes and is defending two lawsuits for alleged unpaid fees - Three disputes with plaintiff Manuchehr Neshat were fully settled via a global Settlement Agreement and Release in October 2024, which is not expected to have a material impact[8] - The company is defending a lawsuit from law firm Rutan & Tucker, LLP, which seeks to recover approximately $700,000 in legal fees[428] - A lawsuit was filed by Creditors Adjustment Bureau, Inc, to recover a purported debt of approximately $132,000[454] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, and it has no history of paying cash dividends - The company's Class A Common Stock and Public Warrants are traded on Nasdaq under the symbols "MOBX" and "MOBXW"[11] - As of December 6, 2024, there were 33,681,049 Class A shares held by 277 record holders and 2,129,901 Class B shares held by six record holders[12] - The company has never paid cash dividends on its Common Stock and does not expect to declare any in the foreseeable future[431] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew significantly through acquisitions, but operating losses widened and liquidity concerns raise going concern doubts Overview The company's strategy focuses on acquisitions to scale revenue, highlighted by its merger and the RaGE Systems purchase - The company's corporate strategy has evolved to include acquisitions in diverse sectors like aerospace, military, and medical technology to scale revenue[18] - On December 21, 2023, the company completed its merger with Chavant Capital Acquisition Corp, becoming a public company and raising gross proceeds of $21.0 million[50][460] - In May 2024, Mobix Labs acquired RaGE Systems for consideration of 3.2 million shares of Class A Common Stock (valued at $7.7 million) and $2.0 million in cash[20][49] Results of Operations Acquisitions drove a 426% revenue increase, though higher SG&A expenses widened the operating loss Fiscal Year Performance Comparison | Metric (in thousands) | FY 2024 | FY 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $6,442 | $1,224 | 426% | | Gross Profit | $2,552 | $(396) | nm | | Loss from Operations | $(46,395) | $(35,544) | 31% | | Net Loss | $(20,034) | $(39,621) | (49)% | - Net revenue increased by $5.2 million (426%) in FY 2024, primarily due to sales from the acquisitions of EMI Solutions and RaGE Systems[24] - Selling, general and administrative (SG&A) expenses rose by 74% to $41.8 million, largely driven by a $20.6 million stock-based compensation charge recognized upon the Merger's completion[499][26] - A non-cash gain of $31.9 million was recognized due to the decrease in the fair value of the earnout liability, driven by the decline in the company's stock price[28] Liquidity and Capital Resources The company has a critical liquidity shortage, with substantial doubt about its ability to continue as a going concern - Management has substantial doubt about the company's ability to continue as a going concern, as it lacks adequate liquidity beyond the next ninety days[484] - As of September 30, 2024, the company's cash balance was $266 thousand, with a working capital deficit of $20.8 million[37] Cash Flow Summary | Activity (in thousands) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,388) | $(14,626) | | Net cash used in investing activities | $(1,108) | $(633) | | Net cash provided by financing activities | $19,673 | $15,170 | Critical Accounting Policies and Estimates Significant estimates are used for valuing complex financial instruments, stock options, and business combinations - The company uses a Monte Carlo simulation model to estimate the fair value of liability-classified instruments like the earnout liability[98][43][99] - The fair value of stock options is estimated using the Black-Scholes option-pricing model, which requires significant management assumptions[490][72] - Accounting for business combinations requires significant estimates to allocate the purchase price to the fair value of assets acquired and liabilities assumed[105][76] - Goodwill totaled $16.1 million as of September 30, 2024; a $1.3 million impairment charge was recorded in FY 2024 for acquisition-related intangible assets[78][107][109] Item 8. Financial Statements and Supplementary Data The audited financial statements include an auditor's report expressing substantial doubt about the company's going concern status Report of Independent Registered Public Accounting Firm The auditor's report highlights substantial doubt about the company's ability to continue as a going concern - The independent auditor's report includes a paragraph highlighting substantial doubt about the Company's ability to continue as a going concern due to recurring operating losses[87][115] - The auditor, PricewaterhouseCoopers LLP, issued an opinion that the consolidated financial statements present fairly in conformity with U.S. GAAP[86] Consolidated Financial Statements The statements detail the company's financial position, operating results, and cash flows for fiscal years 2024 and 2023 Consolidated Balance Sheets Summary | Category (in thousands) | Sept 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Total Current Assets | $5,271 | $830 | | Total Assets | $39,088 | $18,748 | | Liabilities & Equity | | | | Total Current Liabilities | $26,107 | $20,423 | | Total Liabilities | $33,558 | $21,789 | | Total Stockholders' Equity (Deficit) | $5,530 | $(5,341) | Consolidated Statements of Operations Summary | Metric (in thousands) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Revenue | $6,442 | $1,224 | | Loss from Operations | $(46,395) | $(35,544) | | Net Loss | $(20,034) | $(39,621) | | Net Loss per Share (Basic) | $(0.73) | $(2.71) | Consolidated Statements of Cash Flows Summary | Activity (in thousands) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,388) | $(14,626) | | Net cash used in investing activities | $(1,108) | $(633) | | Net cash provided by financing activities | $19,673 | $15,170 | | Net increase (decrease) in cash | $177 | $(89) | Notes to Consolidated Financial Statements Key notes detail the going concern issue, reverse recapitalization accounting, and acquisition details - Note 1 reiterates that operating losses and negative cash flows lead to substantial doubt about its ability to continue as a going concern[153] - Note 3 explains that the merger with Chavant was accounted for as a reverse recapitalization, with Legacy Mobix being the accounting acquirer[129] - Note 4 provides details on the acquisitions of RaGE Systems (total consideration $9.5M) and EMI Solutions (total consideration $10.9M)[640][651][637] - Note 18 details that the merger closing triggered a performance condition for 5,000,000 RSUs, leading to the recognition of $20.6 million in stock-based compensation expense in FY2024[537][538] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were not effective - Management concluded that the company's internal control over financial reporting was not effective as of September 30, 2024[566] - Key material weaknesses identified include an ineffective control environment with insufficient accounting personnel, an inadequate risk assessment process, and a lack of formal controls[549][550][568] - The company also identified material weaknesses in its IT general controls related to change management, user access, and computer operations[569][330] - A remediation plan is underway, which includes hiring additional personnel and implementing new controls, but it will not be considered remediated until fully tested over time[571][554]