Filing summary
Entity and period: This is Chavant Capital Acquisition Corp.’s unaudited Form 10-Q for the quarter ended September 30, 2022, not an operating-company 10-Q filed by Mobix Labs, Inc. Chavant was a shell company seeking a business combination; Mobix Labs is discussed as a proposed merger target in a subsequent event.
Business context and financial position
Chavant had not begun operations or generated operating revenue. Its activity consisted of formation, its 2021 IPO, and pursuing a business combination. At September 30, 2022, it reported $9.673 million in its trust account, $80,209 in cash outside the trust, total assets of $9.753 million, and total liabilities of $810,508. Liabilities included a $362,000 sponsor promissory note and a $136,000 warrant liability. The company reported no long-term debt or off-balance-sheet financing arrangements.
Cash used in operating activities for the nine months was $428,146. Cash was $80,209 at quarter-end, down from $240,706 at December 31, 2021. The filing reports a $730,299 working-capital deficiency and states that outside-trust cash is insufficient to fund operations for at least 12 months without a business combination. Management says these conditions raise substantial doubt about the company’s ability to continue as a going concern.
Results and material changes
| Metric | Three months ended September 30, 2022 | Nine months ended September 30, 2022 |
|---|---|---|
| Operating revenue | None | None |
| Operating costs | $292,902 | $1,104,243 |
| Net income (loss) | $(63,074) | $576,070 |
| Trust-account interest income | $110,828 | $149,051 |
| Gain from lower warrant-liability fair value | $119,000 | $1,531,262 |
Q3 2022 shifted to a net loss from $794,541 net income in Q3 2021, as the prior-year period included a much larger $1.156 million warrant fair-value gain and operating costs were lower. Nine-month 2022 net income was $576,070 versus $746,554 from inception through September 30, 2021; the comparison periods differ in length. Warrant remeasurement gains are noncash and materially affect reported earnings. Profit margins are not meaningful because Chavant had no operating revenue.
In July 2022, shareholders approved extending the business-combination deadline from July 22, 2022 to January 22, 2023. Holders redeemed 7,046,967 shares, receiving $70.573 million, about $10.01 per share. The trust balance fell from $80.003 million at December 31, 2021 to $9.673 million at September 30, 2022. Chavant also agreed to deposit $0.033 per remaining public share for each monthly extension period; $94,351 had been deposited by quarter-end.
Outlook, risks, and unusual items
- On November 15, 2022, after quarter-end, Chavant and Mobix Labs entered into a business combination agreement. The proposed transaction includes a fully committed $30 million common-stock PIPE at $10 per share and was expected to close in the first half of 2023. Closing remained subject to shareholder approval, SEC effectiveness of a Form S-4, and other conditions.
- As of November 17, 2022, sponsor working-capital loan drawdowns totaled $562,000. Such loans are not assured; up to $1.5 million may be convertible into warrants at the lender’s option. The filing’s going-concern assessment notes that a business combination may not be completed within the available period.
- If no business combination is completed by January 22, 2023, the company generally must redeem public shares and liquidate; warrants would expire worthless. The sponsor’s ability to protect trust funds from certain creditor claims is subject to stated exceptions.
- Disclosure controls were deemed ineffective at September 30, 2022 because of a material weakness involving earnings-per-share presentation. Management described remediation plans but gave no assurance they would be effective.
- Disclosed risks include possible application of the Inflation Reduction Act’s 1% excise tax to certain post-2022 redemptions, potential Investment Company Act concerns and related restrictions, and possible CFIUS or other regulatory review that could delay or prevent the Mobix Labs transaction. The filing also cites inflation, market volatility, COVID-19, and the Ukraine conflict as uncertainties.
- No legal proceedings were reported. The filing identifies a contingent $2.8 million business-combination marketing fee, payable only if a transaction closes.
Important facts for investors to verify
- Confirm the filing entity: this 10-Q is for Chavant Capital Acquisition Corp., not Mobix Labs, and does not provide Mobix Labs’ operating results.
- Review the business-combination agreement, PIPE terms, closing conditions, shareholder approvals, and subsequent SEC filings for transaction status and any changes to the expected timing.
- Verify available liquidity, sponsor-loan balances and terms, extension deposits, and the consequences if the January 22, 2023 deadline is not extended or met.
- Assess the going-concern warning, earnings-per-share control weakness, and the extent to which reported earnings depend on noncash warrant revaluation.
- Evaluate redemption, excise-tax, CFIUS, and Investment Company Act risks, including how they could affect transaction proceeds and public shareholders.