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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

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

For the fiscal year ended September 30, 2021

or

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

For the transition period from ____ to ___

Commission file number: 001-34887

MULLEN AUTOMOTIVE INC.

(Exact name of registrant as specified in its charter)

Delaware

    

86-3289406

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

1405 Pioneer Street
Brea, California 92821

(Address of principal executive offices)

Registrant’s telephone number, including area code: (714) 613-1900

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001

MULN

The Nasdaq Stock Market, LLC (Nasdaq Capital Market)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES   NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES   NO

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES  NO

The aggregate market value of the registrant’s common equity, other than shares held by persons who may be deemed affiliates of the registrant, as of March 31, 2021 was approximately $47.1 million.

The registrant had 23,383,202 shares of common stock outstanding as of December 27, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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EXPLANATORY NOTE

Mullen Automotive Inc. (the “Company”) is filing this Amendment No. 1 to its Annual Report on Form 10-K (“Form 10-K/A”), originally filed with the Securities and Exchange Commission on December 29, 2021 (the “Original Form 10-K”), solely for the purposes of (i) identifying Mark Betor, who was inadvertently omitted, as a member of the Audit Committee under Item 10 of Part III, (ii) amending and supplementing the “Security Ownership of Certain Beneficial Owners” section under Item 12 of Part III, and (iii) to correct a scrivener’s error with respect to wording contained in Notes 17 and 19 to the Notes to Consolidated Financial Statements.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our Principal Executive Officer and Principal Financial Officer are filed as exhibits to this Form 10-K/A.

Except as described above, no other changes have been made to the Original Form 10-K. Among other things, forward-looking statements made in the Original Form 10-K have not been revised to reflect events that occurred or facts that became known to us after the filing of the Original Form 10-K, and such forward-looking statements should be read in their historical context.

1

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TABLE OF CONTENTS

  

    

    

Page

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

3

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

8

PART IV

Item 15.

Exhibits and Financial Statement Schedules

11

SIGNATURES

12

2

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PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The directors and executive officers of the Company and their respective ages, and positions with the Company and certain business experience as of the date of this Report are set forth below. There are no family relationships among any of the directors or executive officers.

There are no material legal proceedings to which any director or executive officer of the Company, or any associate of any director or executive officer of the Company, is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

Name

    

Age

    

Position

    

Director Class

David Michery

55

Chief Executive Officer, President and Chairman of the Board

Class I

Kerri Sadler

57

Chief Financial Officer

Jerry Alban

65

Chief Operating Officer and Director

Class I

Calin Popa

59

President—Ottava Automotive

Mary Winter

30

Secretary and Director

Class I

Kent Puckett

58

Director

Class II

Mark Betor

65

Director

Class II

William Miltner

 

59

 

Director

Class III

Jonathan New

 

61

 

Director

Class III

On November 5, 2021, upon the filing of the Second Amended and Restated Certificate of Incorporation, the Company’s Board of Directors was classified into three classes with staggered three-year terms (with the exception of the expiration of the initial terms of the Class I and Class II directors). Pursuant to this amendment to our Charter, our Board is now classified into three classes with staggered three-year terms (with the exception of the initial Class I and Class II directors), designated as follows:

Class I - David Michery, Jerry Alban, and Mary Winter, whose terms will expire at our first annual meeting of stockholders to be held after consummation of the Merger;
Class II - Kent Puckett and Mark Betor, whose terms will expire at our second annual meeting of stockholders to be held after consummation of the Merger; and
Class III - William Miltner and Jonathan New whose terms will expire at our third annual meeting of stockholders to be held after consummation of the Merger.

At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms expire will be elected to serve from the time of election and qualification until the third annual meeting following their election and until the successors are duly elected and qualified. This classification of the Board may have the effect of delaying or preventing changes in Mullen’s control of management. These directors may be removed for cause by the affirmative vote of the holders of at least two-thirds (2/3) of Mullen’s voting stock.

David Michery has served as the Chairman of the Board, President and Chief Executive Officer of the Company since the closing of the Merger and held those same positions at Mullen Technologies since its inception in 2018. His automotive experience began with the acquisition of Mullen Motor Company in 2012. Mr. Michery brings over 25 years within executive management, marketing, distressed assets, and business restructuring. He acquired the assets of Coda Automotive, formerly an independent EV manufacturer, through bankruptcy as an entryway into the EV business. We believe that Mr. Michery is qualified to serve as a director because of his operational and historical expertise gained from serving as our Chief Executive Officer, and his experience within various businesses, including automotive.

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Kerri Sadler was appointed Chief Financial Officer of Mullen Technologies Inc. in October 2021.  Previously, she served as the internal consultant and interim CFO while leading the finance and accounting team through annual audits, financial reviews. Ms. Sadler has domestic and international experience, which spans commercial and investment banking, automotive, and trading/treasury activities.  From 2016 to present, she has worked with emerging growth companies in developing their finance and accounting departments, the list of clients include Apollo Global Management, Faraday Future, and Mullen Technologies.  Within middle and senior manager roles, Ms. Sadler has worked for KPMG Consulting, Credit Suisse, and Toyota Financial Services.  Her career began with the Federal Deposit Insurance Corporation (FDIC) as a bank examiner/regulator.

Jerry Alban has served as the Chief Operating Officer of the Company since the closing of the Merger and held the same position at Mullen Technologies since June 2021. Prior to that position, he served as Chief Financial Officer at Mullen Technologies from April 2018 until November 2021. Mr. Alban also served as an internal consultant for the Company since January 2018. He brings 35 years of experience within private and public accounting, with the last 20 years serving in senior and executive management roles that spans controlling, processes, financial reporting and M&A activity. Mr. Alban has two undergraduate degrees, B.S. in Accounting from Central Washington University and B.S. in Forestry from Washington State University. We believe that Mr. Alban is qualified to serve as a director because of his experience gained from serving as Chief Financial Officer, and his finance and accounting expertise.

Calin Popa has served as President of the Automotive Electric Vehicles Division of Mullen Technologies since 2017. He has 34 years of experience within the automotive industry. Previously, Mr. Popa was Vice President of Manufacturing Engineering at Karma Automotive, LLC, f/k/a Fisker Automotive, from 2010 to 2017. Mr. Popa has held senior positions within product development, vehicle launch and manufacturing at well-known companies, including MAN, Ford, and Chrysler.

Mary Winter has served as director of the Company since the closing of the Merger and has been a director of Mullen Technologies since 2018. Ms. Winter has been an integral part of Mullen since inception. She currently serves as the Secretary of the Company and Board of Directors. Formerly, she was the Vice President of Operations for Mullen Technologies since 2014. We believe that Ms. Winter is qualified to serve as a director because of her business and operational knowledge of Mullen Technologies.

Kent Puckett has served on Mullen Technologies’ Board of Directors since 2018, serving as the Audit Committee Chair during that time. Previously, he served as the Chief Financial Officer of Mullen Technologies from 2012 to 2018. Mr. Puckett has many years of experience as a CFO with a proven track record of establishing cross-functional partnerships to deliver stellar results. He has led many companies in their audit and disclosure requirements, creating operations, marketing, and sales division budgets of multi-million dollars, and being accountable for the allocation of resources to exceed profit and sales goals. Mr. Puckett has a B.S. in Business Administration from Pensacola Christian College, and Advanced Studies in Management, Finance, Compliance, Insurance, Financial Consulting, Taxation and Financial Reporting, with an emphasis on Public Companies reporting and audit requirements. We believe that Mr. Puckett is qualified to serve as a director because of his finance and accounting background and experience.

Mark Betor has served as a director of the Company since the closing of the Merger and a director of Mullen Technologies since 2018, serving on on the Compensation Committee. Mr. Betor is a retired businessman and law enforcement officer. Since retirement, he has been involved with real estate investments and private business. We believe that Mr. Betor is qualified to serve as a director because of his vast experience within investments and private businesses.

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William Miltner has served as a director of the Company since the closing of the Merger. He has served as a litigation attorney for over 30 years. He is the co-founder of Miltner & Menck, APC, a full-service law firm, in San Diego, CA. Mr. Miltner successfully co-founded and co-managed the law firm of Perkins & Miltner, LLP, a respected San Diego litigation firm for 13 years. In 2006, when co-founder David Perkins left the practice of law, Miltner Law Group, APC, was founded. Mr. Miltner has represented many publicly traded and private companies including residential developers, construction contractors, title insurance companies and banking and lending institutions. His substantial experience includes representing and defending clients in complex real property, general business, construction, title insurance and lender litigation and transactional matters. Mr. Miltner is member of the American and San Diego County Bar Associations and American Business Trial Lawyers Association. He was admitted to The State Bar of California in 1988. We believe that Mr. Miltner is qualified to serve as a director because of his knowledge and experience within law practice areas and litigation matters.

Jonathan New has served as a director of the Company since the closing of the Merger. He has served as the Chief Financial Officer of Motorsport Games, Inc. since January 2020. Prior to joining the Company, Mr. New was Chief Financial Officer of Blink Charging Co (NASDAQ: BLNK) from July 2018 to January 2020. Prior to Blink Charging Co, Mr. New was Chief Financial Officer of Net Element, Inc. (NASDAQ: NETE) from 2008 to July 2018. Mr. New is an experienced, driven and creative chief financial officer with over 30 years of corporate finance and accounting experience. He has a career of leading rapidly growing businesses through levels of increasing success. Mr. New is a Florida Certified Public Accountant and a member of the American Institute of Certified Public Accountants. We believe that Mr. New is qualified to serve as a director because of his in-depth experience within finance, accounting, and public markets.

Code of Ethics

We have adopted a Code of Ethics and Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer and our principal financial and accounting officer. A copy of our Code of Ethics and Business Conduct has been posted to the "Investor Relations—Governance" section of our Internet website at http://www.mullensua.com. We will provide a copy of our Code of Ethics and Business Conduct to any person without charge, upon written request to our Secretary at 1405 Pioneer Street, Brea, California 92821, phone (714) 613-1900, e-mail address InvestorRelations@mullenusa.com.

Committees of the Board of Directors

The Board of Directors currently has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

Audit Committee

The Audit Committee of the Board of Directors consists of Kent Puckett, Mark Betor and Jonathan New, Chair. The primary functions of the Audit Committee include, among other things:

reviewing and approving the engagement of the independent registered public accounting firm to perform audit services and any permissible non-audit services for the Company;
evaluating the performance of the Company’s independent registered public accounting firm and deciding whether to retain their services;
monitoring the rotation of partners on the engagement team of the Company’s independent registered public accounting firm;
reviewing the Company’s annual and quarterly financial statements and reports and discussing the statements and reports with the Company’s independent registered public accounting firm and management, including a review of disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”

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considering and approving or disapproving all related party transactions for the Company;
reviewing, with the Company’s independent registered public accounting firm and management, significant issues that may arise regarding accounting principles and financial statement presentation, as well as matters concerning the scope, adequacy and effectiveness of the Company’s financial controls;
conducting an annual assessment of the performance of the Audit Committee and its members, and the adequacy of its charter; and
establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding financial controls, accounting or auditing matters.

Each member of the Audit Committee satisfies the independence requirements under Nasdaq Capital Market listing standards and Rule 10A-3(b)(1) of the Exchange Act and is a person who the Board of Directors has determined has the requisite financial expertise required under the applicable requirements of Nasdaq Capital Market. In arriving at this determination, the Board of Directors examined each Audit Committee member’s scope of experience and the nature of their employment in the corporate finance sector. The Board of Directors has also determined that Jonathan New qualifies as an “audit committee financial expert,” as defined in applicable SEC rules.

Compensation Committee

The Compensation Committee of the Board of Directors consists of Kent Puckett, Chair, Jonathan New, and Mark Betor. The functions of the Compensation Committee include, among other things:

determining the compensation and other terms of employment of the Company’s chief executive officer and our other executive officers and reviewing and approving corporate performance goals and objectives relevant to such compensation;
reviewing and recommending to the full Board of Directors the compensation of the Board of Directors;
evaluating and administering the equity incentive plans, compensation plans and similar programs advisable for the Company, as well as reviewing and recommending to the Board of Directors the adoption, modification or termination of the Company’s plans and programs;
establishing policies with respect to equity compensation arrangements;
if required, reviewing with management the Company’s disclosures under the caption “Compensation Discussion and Analysis” and recommending to the full Board of Directors its inclusion in the Company’s periodic reports to be filed with the SEC; and
reviewing and evaluating, at least annually, the performance of the Compensation Committee and the adequacy of its charter.

The Board of Directors has determined that each member of the Compensation Committee is independent under Nasdaq Capital Market listing standards, a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act and an “outside director” as that term is defined in Section 162(m) of the Code.

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Nominating and Corporate Governance Committee

The Nominating and Governance Committee of the Board of Directors currently consists William Miltner, Chair, and Mark Betor. The functions of the Nominating and Corporate Governance Committee include, among other things, the following:

reviewing periodically and evaluating director performance on the Board of Directors and its applicable committees, and recommending to the Board of Directors and management areas for improvement;
interviewing, evaluating, nominating and recommending individuals for membership on the Board of Directors;
reviewing and recommending to our board of directors any amendments to the Company corporate governance policies; and
reviewing and assessing, at least annually, the performance of the Nominating and Corporate Governance committee and the adequacy of its charter.

The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee is independent under Nasdaq Capital Market listing standards.

Compensation Committee Interlocks and Insider

Composition of the Compensation Committee for the combined company has been determined. Each member appointed to the Compensation Committee is an “outside” director as that term is defined in Section 162(m) of the Internal Revenue Code, a “non-employee” director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act and independent within the meaning of the independent director guidelines of the Nasdaq Capital Market. None of the Company’s executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers who is serves on the Company’s Board of Directors or Compensation Committee following the merger.

Director Independence: Controlled Company Exemption

The Board determined that each of the directors on the Board other than the directors who are considered employees and/or insiders, qualify as independent directors, as defined under the listing rules of the Nasdaq, and the Board consists of a majority of “independent directors” as defined under the rules of the SEC and Nasdaq listing requirements. In addition, we are subject to the rules of the SEC and Nasdaq relating to the membership, qualifications, and operations of the audit, as discussed below.

David Michery controls a majority of the voting power of our outstanding capital stock. As a result, we are a “controlled company” under Nasdaq rules. As a controlled company, we are exempt from certain corporate governance requirements, including those that would otherwise require our Board of Directors to have a majority of independent directors and require that we either establish compensation and nominating and corporate governance committees, each comprised entirely of independent directors, or otherwise ensure that the compensation of our executive officers and nominees of directors are determined or recommended to the Board of Directors by independent members of the Board of Directors. While we do not currently intend to rely on any of these exemptions, we will be entitled to do so for as long as we are considered a “controlled company,” and to the extent we rely on one or more of these exemptions, holders of our capital stock will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The table below contains information regarding the beneficial ownership of our Common Stock as of December 27, 2021 by (i) each person who is known to us to beneficially own more than 5% of our Common Stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our directors and executive officers as a group.

Each stockholder’s percentage of ownership in the following table is based upon, as applicable, 23,383,202 shares of Common Stock, 15,358 shares of Series A Preferred Stock, 5,567,319 shares of Series B Preferred Stock, and 5,178,280 shares of Series C Preferred Stock outstanding as of December 27, 2021. Each share of Series A Preferred Stock converts into 100 shares of Common Stock. The Series B Preferred Stock and the Series C Preferred are convertible at any time by the holder into shares of Common Stock on a share-for-share basis.  Beneficial ownership is determined in accordance with SEC rules and regulations.

To our knowledge, except as otherwise noted below and subject to applicable community property laws, each person or entity named in the following table has the sole voting and investment power with respect to all shares that he, she or it beneficially owns. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Mullen Automotive Inc. 1405 Pioneer Street, Brea, CA 92821.

Series A

Series C

Total

Preferred

Series B

Preferred

Voting

    

Common Stock (1)

    

Stock

    

Preferred Stock

    

Stock

    

Power (2)

    

Name of Beneficial Owners

    

Shares

    

%  

    

Shares

    

%  

    

Shares

    

%  

    

Shares

    

%  

    

%  

  

Named Executive Officers and Directors

  

  

  

  

  

  

  

  

  

David Michery (3)

44,109,775

76.7

%  

14,904

97.0

%  

5,567,319

100

%  

10,225,111

97.6

%  

87.7

%  

Jerry Alban

 

12,075

*

 

 

 

 

 

 

  

 

*

 

Kent Pucket

 

18,400

*

 

 

 

 

 

 

  

 

*

 

Mark Betor

 

60,950

*

 

 

 

 

 

 

  

 

*

 

Mary Winter

 

18,400

*

 

 

 

 

 

 

  

 

*

 

William Miltner

 

 

 

 

 

 

 

  

 

*

 

Jonathan New

 

 

 

 

 

 

 

  

 

*

 

Directors and Executive Officers as a Group (8 Persons) (3)

 

44,227,774

84.7

%  

14,904

 

97.0

%  

5,567,319

 

100

%  

10,225,111

 

97.6

%  

87.8

%  

5% Beneficial Owners:

 

  

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

Tiffany N. Drohan (4) c/o Drohan 2772 Howard Hughes Parkway, Suite 500S, Las Vegas, NV 89169

 

2,491,326

10.7

%  

 

 

%  

5.0

%

Acuitas Group Holdings, LLC (5) 2120 Colorado Avenue, #230 Santa Monica, CA 90404

 

11,363,838

9.9

% (11)

 

 

 

3,450,124

 

45.6

%  

9.9

%  

Drawbridge Investments, LLC (6) 211 Boulevard of the Americas, Suite 205, Lakewood, NJ 08701

8,130,384

9.9

% (11)

2,334

15.2

%

5,567,319

100

%

%  

9.9

%  

TDR Capital Pty Limited (7) 4 Murchison Street Mittagong, New South Wales 2575, Australia

 

6,058,008

9.9

% (11)

 

 

 

3,042,322

 

14.6

%  

9.9

%  

JADR Consulting Group PTY Limited (8) Suite 61.06, 25 Martin Place Sydney NSW 2000

3,230,474

9.9

% (11)

1,494,909

8.1

%  

6.2

%  

Esousa Holdings, LLC (9) 211 E 43rd St., 4th Fl. New York, NY 10017

2,564,855

9.9

% (11)

364,468

2.6

%  

4.9

%  

Ault Global Holdings, Inc. (10) 11411 Southern Highlands Parkway, Suite 240 Las Vegas, NV 89141

 

2,406,676

9.3

% (11)

 

 

 

 

1,211,300

 

6.9

%  

4.7

%  

*

Less than 1%.

(1) In computing the number of shares of Common Stock beneficially owned by a person and the percentage of beneficial ownership of that person, shares of Common Stock underlying notes, options, warrants or shares of Series A Preferred

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Stock, Series B Preferred Stock and Series C Preferred Stock held by that person that are convertible or exercisable, as the case may be, within 60 days of December 27, 2021 are included. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
(2) Percentage total voting power represents voting power with respect to all outstanding shares of Common Stock, Series A Preferred, Series B Preferred and Series C Preferred. The Common Stock, Series A Preferred, Series B Preferred and Series C Preferred vote together as a single class on all matters submitted to a vote of stockholders, except as may otherwise be required by the terms of the Amended and Restated Certificate of Incorporation of the Company or as may be required by law. Each holder of Series A Preferred is entitled to 1,000 votes per share and each share of the Series B Preferred Stock and the Series C Preferred Stock is entitled to one vote per share. Percentage total voting power also includes any shares of Common Stock underlying notes, options, warrants and or shares of Series C Preferred Stock issuable pursuant to certain purchase rights held by that person that are convertible or exercisable, as the case may be, within 60 days of December 27, 2021.
(3) With regards to David Michery, consists of (i) 7,421,120 shares of Common Stock held directly by Mr. Michery, and (ii) the following shares over which Mr. Michery has voting power pursuant to Voting Agreements (as described below): (a) 2,534,081 shares of Common Stock, (b) 1,490,400 shares of Common Stock issuable upon conversion of 14,904 shares of Series A Preferred Stock, (c) 5,567,319 shares of Common Stock issuable upon conversion of Series B Preferred, (d) 4,925,655 shares of Common Stock issuable upon conversion of Series C Preferred, (e) 14,417,504 shares of Common Stock issuable upon exercise of warrants, (f) 5,299,456 shares of Common Stock issuable upon conversion of 5,299,456 shares of Series C Preferred Stock that the grantee of the proxy has the right to purchase until November 5, 2022, and (g) 2,454,240 shares of Common Stock issuable upon conversion of convertible notes.  Effective as of the Closing Date of the Merger, Mr. Michery entered into voting agreements with certain holders of the Company’s securities (the “Voting Agreements”) pursuant to which such holders agreed to vote as directed by Mr. Michery, and also granted Mr. Michery an irrevocable proxy, at an annual or special meeting of stockholders or through the solicitation of a written consent of stockholders on any election of directors of the Company or any proposal to approve a change of control of the Company, which includes a merger, sale or other disposition of the securities of the Company or all or substantially all of its assets. The Voting Agreements have a term of three years or longer.
(4) Includes shares of Common Stock owned by entities controlled by Tiffany N. Drohan, directly by Keith Drohan, the spouse of Ms. Drohan, and entities controlled by Mr. Drohan, over which Ms. Drohan disclaims beneficial ownership.
(5) Share amount consists of (i) 7,913,714 shares of Common Stock issuable upon exercise of warrants, (ii) 2,703,015 shares of Common Stock issuable upon conversion of Series C Preferred, and (iii) 747,109 shares of Common Stock issuable upon conversion of 747,109 shares of Series C Preferred Stock that the stockholder has the right to purchase until November 5, 2022.
(6) Share amount consists of (i) 2,329,665 shares of Common Stock issuable upon the conversion of the principal amount and accrued interest as of September 30, 2021 of a convertible note, (ii) 233,400 shares of Common Stock issuable upon conversion of 2,334 shares of Series A Preferred Stock, and (iii) 5,567,319 shares of Common Stock issuable upon conversion of Series B Preferred Stock.  
(7) Share amount consists of (i) 3,015,686 shares of Common Stock issuable upon exercise of warrants, (ii) 1,050,032 shares of Common Stock issuable upon conversion of Series C Preferred Stock, and (iii) 1,992,290 shares of Common Stock issuable upon conversion of 1,992,290 shares of Series C Preferred Stock that such holder has the right to purchase until November 5, 2022.  
(8) Share amount consists of (i) 124,575 shares of Common Stock issuable upon conversion of a convertible note, (ii) 1,610,990 shares of Common Stock issuable upon exercise in full of warrants, (iii) 498,764 shares of Common Stock issuable upon conversion of Series C Preferred, and (iv) 996,145 shares of Common Stock issuable upon conversion of 996,145 shares of Series C Preferred Stock that such holder has the right to purchase until November 5, 2022.  
(9) Share amount consists of (i) 477,666 shares of Common Stock, (ii) 339,595 shares of Common Stock issuable upon exercise of warrants, (iii) 1,383,126 shares of Common Stock issuable upon exercise in full of pre-funded warrants, (iv) 138,071 shares of Common Stock issuable upon conversion of Series C Preferred, and (v) 226,397 shares of Common Stock issuable upon conversion of 226,397 shares of Series C Preferred Stock that such holder has the right to purchase until November 5, 2022.  Excludes up to 21,676,301 shares of Common Stock issuable pursuant to an Equity Line of Credit dated September 1, 2021 pursuant to which Esousa committed to purchase up to an aggregate of up to $30.0 million, of $2.5 million per month, in Common Stock over a 12-month period.  
(10) Share amount consists of (i) 414,384 shares of Common Stock issuable upon conversion of 414,384 shares of Series C Preferred Stock, (ii) 1,195,376 shares of Common Stock issuable upon exercise of warrants, and (iii) 796,916 shares

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of Common Stock issuable upon conversion of 796,916 shares of Series C Preferred Stock that such holder has the right to purchase until November 5, 2022.  Digital Power Lending, LLC, which acquired the securities, is a wholly-owned subsidiary of Ault Global Holdings, Inc., which filed a Schedule 13G with the SEC on November 17, 2021.
(11) The number of shares of Common Stock beneficially owned by such stockholder include the aggregate number of shares issuable upon exercise of derivative instruments held by the stockholder.  The percentage of Common Stock beneficial ownership and total voting power, however, reflect a 9.9% beneficial ownership limitation pursuant to the terms of warrants, preferred stock and/or convertible notes held by the stockholder, in that such derivative securities may not be exercisable, exchangeable or convertible, as applicable, to the extent that the holder or any of its affiliates would beneficially own in excess of 9.9% of the number of shares of Common Stock issuable upon exercise or conversion of such securities calculated in accordance with Section 13(d) of the Exchange Act.

Equity Compensation Plan Table

The following table summarizes our equity compensation plan information as of September 30, 2021. Information is included for equity compensation plans approved by our stockholders and equity compensation plans not approved by our stockholders

    

    

    

(c)

(a)

(b)

Number of securities

Number of securities

Weighted-average

remaining available

to be issued upon

exercise price per

for future issuance

exercise of outstanding options,

share of outstanding options,

under equity compensation

Plan Category

warrants and rights

warrants and rights

plans (excluding securities

Equity compensation plans approved by stockholders

154,005

$

10.73

209,693

Equity compensation plans not approved by stockholders

 

$

 

Total

 

154,005

 

10.73

 

209,693

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Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as a part of this Annual Report on Form 10-K:
1. Financial Statements.

The consolidated financial statements of Mullen Technologies, Inc. and notes thereto and the reports of the independent registered public accounting firms thereon are set forth beginning on page F-1 and filed as part of this Report.

2. Exhibits.

The exhibits filed or furnished as part of this Annual Report on Form 10-K are those listed in the following Exhibit Index.

EXHIBIT INDEX

Exhibit No.

    

Description of Exhibit

23.1*

Consent of Independent Registered Public Accounting Firm (Daszkal Bolton LLP)

31.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934

31.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934

32.1*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350

101.INS*

The following financial information from the Annual Report on Form 10-K for the fiscal year ended September 30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language), is filed electronically herewith: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Loss; (iii) Consolidated Statement of Changes in Stockholders’ Equity (Deficit); (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104*

Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101).

* Filed herewith (furnished herewith with respect to Exhibit 32.1).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Mullen Automotive Inc.

January 10, 2022

By:

/s/ David Michery

David Michery

Chief Executive Officer, President and Chairman of the Board

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MULLEN AUTOMOTIVE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

MULLEN AUTOMOTIVE, INC.

FINANCIAL STATEMENTS

September 30, 2021 and 2020

   

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Financial Statements:

Consolidated Balance Sheets at September 30, 2021 and 2020

F-4

Consolidated Statements of Operations for the Years Ended September 30, 2021 and 2020

F-5

Consolidated Statements of Deficiency in Stockholders’ Equity for the Years Ended September 30, 2021 and 2020

F-6

Consolidated Statements of Cash Flows for the Years Ended September 30, 2021 and 2020

F-7

Notes to Consolidated Financial Statements

F-8

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Mullen Automotive Inc.

Brea, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of the Mullen Automotive Inc. (the “Company”) at September 30, 2021 and 2020, and the related consolidated statements of operations, deficiency in stockholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the financial statements, the Company has sustained net losses, has indebtedness in default, and has liabilities in excess of assets of approximately $42.5 million at September 30, 2021, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Financial Statements

As discussed in Note 1, until the consummation of its merger with Net Element, Inc. on November 5, 2021, the Company operated as a component of Mullen Technologies, Inc. and was not a stand-alone entity. The consolidated financial statements of the Company reflect the assets, liabilities and expenses directly attributable to the Company, as well as allocations deemed reasonable by management, to present the financial position, results of operations, and cash flows of Mullen Automotive Inc. on a stand-alone basis, and do not necessarily reflect the financial position, results of operations, and cash flows of Mullen Automotive Inc. in the future or what they would have been had the Company been a separate, stand-alone entity during the periods presented.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

F-2

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

FINANCIAL STATEMENT PRESENTATION – ALLOCATION OF SHARED COSTS

Critical Audit Matter Description

As discussed in Note 1 and Note 3 to the financial statements, The historical costs and expenses reflected in these financial statements include an allocation for certain corporate and shared service functions historically provided by Mullen Technologies, Inc., former Parent, including, but not limited to, executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology, and other shared services. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of consolidated headcount, tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.

We identified the auditing of management’s assumptions regarding the allocation of general corporate expenses from Mullen Technologies, Inc., as a critical audit matter. Auditing management’s allocation of shared costs was especially challenging and highly judgmental because of the assumptions of costs that would have been incurred had Mullen Automotive, Inc. operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. Inherent estimation uncertainty was primarily attributed to assumptions used by management in its cost allocation model which involved a high degree of subjectivity.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

Obtaining an understanding and evaluating the design over the determination of direct and shared costs
Reviewing contracts for identification of shared costs
Testing the completeness of the underlying data used in management’s cost allocation
Evaluating the reasonableness of management’s assumptions by performing a retrospective review of the prior year assumptions
Evaluating the appropriateness and consistency of management’s methods and assumptions used in developing cost allocation

/s/ Daszkal Bolton LLP

We have served as the Company’s auditor since 2020.

Fort Lauderdale, Florida

December 29, 2021

F-3

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MULLEN AUTOMOTIVE, INC.

CONSOLIDATED BALANCE SHEETS

    

September 30, 

 

    

2021

    

2020

 

ASSETS

 

  

 

  

CURRENT ASSETS

 

  

 

  

Cash and cash equivalents

$

42,174

$

33,368

Materials and supplies

 

55,753

 

43,083

Deferred advertising

 

261,550

 

15,054,000

Prepaid Expenses

 

6,201,247

 

Other current assets

 

250,331

 

201,067

TOTAL CURRENT ASSETS

 

6,811,055

 

15,331,518

Property, equipment and leasehold improvements, net

 

1,181,477

 

1,541,996

Intangibles assets, net

 

2,495,259

 

2,622,796

Right-of-use assets

 

2,350,929

 

1,729,112

Other assets

 

4,333,774

 

762,010

TOTAL ASSETS

 

17,172,494

 

21,987,432

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

CURRENT LIABILITIES

 

  

 

  

Accounts payable

 

5,206,310

 

2,688,176

Accrued expenses and other current liabilities

 

19,126,765

 

22,151,589

Liability to issue shares

 

7,027,500

 

Lease liabilities, current portion

 

599,898

 

336,765

Notes payable, current portion

 

39,200,970

 

33,048,471

TOTAL CURRENT LIABILITIES

 

71,161,443

 

58,225,001

Notes payable, net of current portion

 

247,612

 

283,881

Lease liabilities, net of current portion

 

1,857,894

 

1,482,569

Other liabilities

 

5,617,192

 

4,500,000

TOTAL LIABILITIES

 

78,884,141

 

64,491,451

Commitments and Contingencies (Note 16)

 

  

 

  

DEFICIENCY IN STOCKHOLDERS' EQUITY

 

  

 

  

Preferred Stock; $0.001 par value; 58,000,000 shares authorized; 5,667,683 and 5,684,108 shares issued and outstanding at September 30, 2021 and 2020 respectively.

 

5,668

 

5,684

Common Stock; $0.001 par value; 500,000,000 shares authorized; 7,048,386 and 5,086,225 issued and outstanding at September 30, 2021 and 2020 respectively.

 

7,048

 

5,086

Additional Paid-in Capital

 

88,650,286

 

63,619,280

Accumulated Deficit

 

(150,374,649)

 

(106,134,069)

TOTAL DEFICIENCY IN STOCKHOLDERS' EQUITY

 

(61,711,647)

 

(42,504,019)

TOTAL LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY

$

17,172,494

$

21,987,432

F-4

Table of Contents

MULLEN AUTOMOTIVE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended September 30,

    

2021

    

2020

OPERATING EXPENSES

 

  

 

  

General and administrative

$

19,393,941

$

10,427,141

Research and development

 

3,009,027

 

1,667,077

Total Operating Expense

 

22,402,968

 

12,094,218

Loss from Operations

 

(22,402,968)

 

(12,094,218)

Interest expense

 

(21,168,232)

 

(18,094,234)

Other financing costs

 

(1,559,961)

 

Gain on extinguishment of indebtedness, net

 

890,581

 

Other income (expense), net

 

 

10,490

Net Loss

$

(44,240,580)

$

(30,177,962)

Net Loss per Share

$

(8.56)

$

(5.23)

Weighted average shares outstanding, basic and diluted

 

5,171,144

 

5,765,148

F-5

Table of Contents

MULLEN AUTOMOTIVE, INC.

CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS’ EQUITY

    

Preferred Stock

    

    

    

    

    

    

    

    

    

Deficiency in

Series A

Series B

Common Stock

Paid-in

Accumulated

Stockholders'

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Balance, October 1, 2019

 

116,789

$

116

 

$

 

6,444,072

$

6,444

$

42,073,841

$

(75,956,107)

$

(33,875,706)

Shares issued for cash

 

 

 

 

 

30,897

 

31

 

1,628,335

 

 

1,628,366

Warrant issuances

 

 

 

 

 

 

 

2,092,600

 

 

2,092,600

Shares issued for conversion of debt

 

 

 

3,492,707

 

3,493

 

523,129

 

523

 

12,797,024

 

 

12,801,040

Stock-based compensation

 

 

 

 

 

162,739

 

163

 

3,966,121

 

 

3,966,284

Issuance of preferred stock for conversion of common stock

 

 

 

2,074,612

 

2,075

 

(2,074,612)

 

(2,075)

 

 

 

Beneficial conversion feature of convertible debt

 

 

 

 

 

 

 

1,061,359

 

 

1,061,359

Net loss

 

 

 

 

 

 

 

 

(30,177,962)

 

(30,177,962)

Balance, September 30, 2020

 

116,789

 

116

 

5,567,319

 

5,568

 

5,086,225

 

5,086

 

63,619,280

 

(106,134,069)

 

(42,504,019)

Shares issued for cash

 

 

 

 

 

126,119

 

126

 

4,799,948

 

4,800,074

 

  

Shares issued for legal settlement

 

 

 

 

 

39,235

 

39

 

1,259,961

 

1,260,000

 

  

Warrant issuances

 

 

 

 

 

 

 

14,007,258

 

14,007,258

 

  

Issuance of common stock for conversion of preferred stock

 

(16,426)

 

(16)

 

 

 

1,642,563

 

1,643

 

(1,627)

 

 

Stock-based compensation

 

 

 

 

 

154,245

 

154

 

4,965,466

 

 

4,965,620

Net loss

 

 

 

 

 

 

 

 

(44,240,580)

 

(44,240,580)

Balance, September 30, 2021

 

100,363

$

100

 

5,567,319

$

5,568

 

7,048,387

$

7,048

$

88,650,286

$

(150,374,649)

$

(61,711,647)

F-6

Table of Contents

MULLEN AUTOMOTIVE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended September 30,

    

2021

    

2020

Cash Flows from Operating Activities

 

  

 

  

Net Loss

$

(44,240,580)

$

(30,177,962)

Adjustments to reconcile net loss to net cash used in operating

 

  

 

  

activities:

 

  

 

  

Depreciation and amortization

 

720,805

 

725,796

Impairment charge - materials

 

74,495

 

93,244

Employee stock compensation

 

2,505,091

 

1,037,105

Issuance of shares for services

 

2,460,530

 

2,929,179

Issuance of stock for legal settlement

 

1,260,000

 

Non-cash interest and other operating activities

 

12,956,583

 

2,019,642

Non-cash lease expense

 

507,189

 

270,854

Amortization of debt discount

 

8,211,648

 

16,008,454

Gain on extinguishment of debt

 

(890,581)

 

Changes in operating assets and liabilities:

 

  

 

  

Material and supplies

 

(87,165)

 

(11,545)

Other current assets

 

(49,265)

 

(9,701)

Other assets

 

(3,571,768)

 

215,336

Accounts payable

 

5,666,261

 

741,215

Accrued expenses and other liabilities

 

(2,554,813)

 

(4,378,816)

Lease liabilities

 

(490,545)

 

(244,257)

Net cash used in operating activities

 

(17,522,115)

 

(10,781,456)

Cash Flows from Investing Activities

 

  

 

  

Purchase of equipment

 

(43,893)

 

(270,501)

Purchase of intangible assets

 

(117,890)

 

(296,511)

Net cash used in investing activities

 

(161,783)

 

(567,012)

Cash Flows from Financing Activities

 

  

 

  

Proceeds from shares issued for cash

 

4,800,074

 

1,628,366

Proceeds from issuance of notes payable

 

12,768,500

 

12,118,309

Proceeds from liability to issue preferred C shares

 

705,000

 

Payment of notes payable

 

(580,870)

 

(4,586,663)

Net cash provided by financing activities

 

17,692,704

 

9,160,012

Increase (decrease) in cash

 

8,806

 

(2,188,456)

Cash, beginning of year

 

33,368

 

2,221,824

Cash, ending of year

$

42,174

$

33,368

Supplemental disclosure of Cash Flow information:

 

  

 

  

Cash paid for interest

$

15,136

$

800,423

Cash paid for taxes

$

$

Supplemental disclosure for non-cash activities:

 

  

 

  

Refinance of existing debt

$

$

43,923,042

Issuance of shares to settle debt

$

$

12,801,040

Liability to issue shares in exchange for prepaid expenses

$

6,322,500

$

Initial recognition of right-of-use assets and lease liabilities

$

$

1,383,447

Right-of-use assets obtained in exchange of operating lease liabilities

$

1,129,003

$

680,144

Indebtedness settled via issuance of stock

$

1,300,000

$

38,912,640

Release of deferred advertising

$

15,054,000

F-7

Table of Contents

MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Mullen Automotive, Inc. (“MAI”, “Mullen”, “we” or the “Company”) is a development-stage electronic vehicle (EV) manufacturer. The Company operated as the EV division of Mullen Technologies, Inc. (“MTI”) until November 5, 2021, at which time the Company underwent a capitalization and corporate reorganization by way of a spin-off by MTI to its shareholders, followed by a reverse merger with and into Net Element, Inc. (“NETE”).

Basis of Presentation and Principles of Consolidation

Our consolidated financial statements include the accounts of Mullen Automotive and our wholly-owned subsidiary, Mullen Investment Properties, LLC, which was established in August 2021 to hold our real estate, when acquired. Intercompany accounts and transactions, if any, are eliminated.

The financial statements reflect the financial position and results of operations of Mullen, which have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”).

As MTI has not historically prepared financial statements for Mullen, and Mullen did not exist as a legal entity prior to November 5, 2021, these financial statements have been prepared from the financial records of MTI on a carve-out basis. The consolidated balance sheets include all of the MAI Assets. The consolidated Statements of operations for each of the years ended September 30, 2021 and 2020, reflect all expenses and activities directly attributable to MAI, and an allocation of MTI’s general and administrative expenses incurred in each of those years, as these expenditures were shared by MAI. In some instances, certain expenses were not allocated as they would have related directly to MAI. All inter-entity balances and transactions have been eliminated.

The equity capital presented in the financial statements reflect the retrospective application of the November 5, 2021 capitalization and corporate reorganization arising from the merger transaction with NETE.

These financial statements have been prepared based upon the historical cost amounts recorded by MTI. These financial statements may not be indicative of MAI financial performance and do not necessarily reflect what its financial position, results of operations, and cash flows would have been had Mullen operated as an independent entity during the years presented.

NOTE 2 – LIQUIDITY, CAPITAL RESOURCES, AND GOING CONCERN

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern. Our principal sources of liquidity at September 30, 2021, consists of existing cash of approximately $42,000. During the year ended September 30, 2021, the Company used $19.4 million of cash for operating activities and had a deficiency in working capital of approximately $14.7 million. Subsequent to September 30, 2021, the Company obtained additional financing in the amount of $79.6 million in unsecured convertible notes and equity commitments (See Note 18 – Subsequent Events).

The Coronavirus (“COVID-19”) continues to impact countries, communities, supply chains and markets, global financial markets, and various industries. To date, COVID-19 has had a material and disruptive impact on our strategy in EV product development and the ability to obtain external financing to fund its development activities. Company management is unable to predict whether the global pandemic will continue to have a material impact on our future financial condition and results of operations.

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Table of Contents

MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Going Concern

As an early-stage development company, our ability to access capital is critical. Our management plans to raise additional capital through a combination of equity and debt financings, strategic alliances and licensing arrangements. Company management has evaluated whether there are any conditions and events, considered in aggregate, which raise substantial doubt about its ability to continue as a going concern over the next twelve months from the date of filing this report. Since inception, we have incurred significant accumulated losses of approximately $150.1 million, and management expects to continue to incur operating losses over the near future. Proceeds from the business combination with Net Element, the exercise of warrants, and a qualified public offering, should they materialize, are expected to provide Mullen with sufficient liquidity and capital resources to fund its operating expenses and capital requirements for at least the next 12 months from issuance (See Note 18 - Subsequent Events). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions.

Push-Down Accounting

The carve-out financial statements reflect costs and expenses incurred by MTI on behalf of MAI, including interest costs. As a result, share-based compensation and other equity transactions (such as issuances of warrants and stock conversion rights embedded in issuances of indebtedness) are reflected in these carve-out financial statements. Accordingly, the classification of debt and equity issuances by MTI have been pushed down and reflected with similar classification in these carve-out financial statements. In addition, certain right-of-use assets and related lease liabilities of MTI have been pushed down to MAI.

Reverse Merger and Recapitalization

The November 2021 Business Combination with Net Element was accounted for as a reverse merger and recapitalization, with Net Element treated as the “acquired” company for accounting purposes. The Business Combination was accounted as the equivalent of Mullen Automotive, Inc. issuing stock for the net assets of Net Element, accompanied by a recapitalization. Accordingly, these financial statements reflect the share capital and weighted average shares outstanding via a retrospective recapitalization as shares representing the exchange ratio established in the Business Combination.

Use of Estimates

The preparation of carve-out financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the carve-out financial statements and the reported amounts of total expenses in the reporting periods. Estimates are used for, but not limited to, fair value of long-lived assets, fair value of financial instruments, depreciable lives of property and equipment, income taxes, contingencies, and inputs used to value stock-based compensation, valuation of common and preferred stock issued by MTI.

Additionally, the rates of interest on several debt agreements have been imputed where there was no stated interest rate within the original agreement. The imputed interest results in adjustments to the debt amounts reported in our condensed carve-out financial statements prepared under U.S. GAAP. Loan valuations issues can arise when trying to determine the debt attributes, such as discount rate, credit loss factors, liquidity discounts, and pricing.

F-9

Table of Contents

MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for adjustments about the carrying values of assets and liabilities and the recording of costs and expenses that are not readily apparent from other sources. The actual results may differ materially from these estimates.

Risks and Uncertainties

We operate within an industry that is subject to rapid technological change, intense competition, and serves an industry that has significant government regulations. It is subject to significant risks and uncertainties, including competitive, financial, developmental, operational, technological, required knowledge of industry governmental regulations, and other risks associated with an emerging business. Any one or combination of these or other risks could have a substantial influence on our future operations and prospects for commercial success.

Cash and Cash Equivalents

Company management considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. We did not have any cash equivalents at September 30, 2021 or September 30, 2020.

Deferred Advertising

At September 30, 2021, deferred advertising consists of upfront costs paid related to auto shows occur during November 2021 and January 2022. At September 30, 2020, deferred advertising represented a marketing campaign, financed by a third party that was carried as a deferred charge on the consolidated balance sheet until the launch of the marketing campaign. These deferred advertising charges of $15 million were associated with the AirSign advertising contract and the RedRock Outdoor Advertising Display advertising contract. The marketing campaigns were not launched, and we received a release of liability from both AirSign, Inc. and RedRock Outdoor Advertising, Inc. Both liabilities, along with the associated deferred advertising were derecognized in January 2021.

Prepaid Expenses and Other Current Assets

Prepaid expenses consist of various advance payments made for goods or services to be received in the future. These prepaid expenses include insurance and other contracted services requiring up-front payments.

Property, Equipment and Leasehold Improvements, Net

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred.

Estimated Useful Lives

Description

    

Life

Buildings

30 Years

Furniture and Equipment

5 Years

Computer and Software

1 - 3 years

Machinery and Equipment

5 Years

Leasehold Improvements

Shorter of the estimated useful life or the underlying lease term

Vehicles

5 Years

F-10

Table of Contents

MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Expenditures for major improvements are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon sale or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Company management continually monitors events and changes in circumstances that could indicate that the carrying balances of its property, equipment and leasehold improvements may not be recoverable in accordance with the provisions of ASC 360, “Property, Plant, and Equipment.” When such events or changes in circumstances are present, we assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Income Taxes

Prior to Mullen’s capitalization and corporate reorganization, our operations were included in the tax filings of MTI. The cash and deferred tax positions between us and MTI and are formalized in a tax sharing agreement.

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

There are transactions that occur during the ordinary course of business for which the ultimate tax determination may be uncertain. At September 30, 2021 and 2020, there were no material changes to either the nature or the amounts of the uncertain tax positions.

The Company’s income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. We maintain a full valuation allowance against the value of our U.S. and state net deferred tax assets because management does not believe the recoverability of the tax assets meets the “more likely than not” likelihood at September 30, 2021 and 2020.

Intangible Assets

Intangible assets consist of acquired and developed intellectual property and website development costs. In accordance with ASC 350, “Intangibles—Goodwill and Others,” goodwill and other intangible assets with indefinite lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. Intangible assets with determinate lives are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Amortizable intangible assets generally are amortized on a straight-line basis over periods up to 36 months. The costs to periodically renew our intangible assets are expensed as incurred.

Other Assets

Other assets are comprised primarily of Coda electric vehicles, related parts and security deposits related to the Company’s property leases related to the EV business only.

F-11

Table of Contents

MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Extinguishment of Liabilities

The Company derecognizes financial liabilities when the Company’s obligations are discharged, cancelled, or expired.

Leases

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, “Leases” (ASU 2016-02). The core principle of ASU 2016-02 is that lessees should recognize on its balance sheet, assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset for the lease term. Lessees shall classify all leases as finance or operating leases. The Company adopted ASU 2016-02, on October 1, 2019, which resulted in the recognition of the right-of-use assets and related obligations on its carve-out financial statements.

Accrued Expenses

Accrued expenses are expenses that have been incurred but not yet paid and are classified within current liabilities on the consolidated balance sheets.

General and Administrative Expenses

General and administrative (“G&A”) expenses include all non-production related expenses incurred by us in any given period. This includes expenses such as professional fees, salaries, rent, repairs and maintenance, utilities and office expense, employee benefits, depreciation and amortization, advertising and marketing, settlements and penalties, taxes, and licenses. Advertising costs are expensed as incurred and are included in G&A expenses. Other than trade show expenses which are deferred until occurrence of the future event, we expense advertising costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.”

Research and Development Costs

Research and development costs are expensed as incurred and includes impairment charges in the amounts of $74,495 and $93,244 for the years ended September 30, 2021 and 2020, respectively. Research and development expenses primarily consist of costs associated with the development of our Mullen Five show car.

Share-Based Compensation

We account for share-based awards issued by MTI in accordance with ASC Subtopic 718-10, “Compensation – Share Compensation”, which requires fair value measurement on the grant date and recognition of compensation expense for all common shares of MTI issued to employees, non-employees and directors. The fair value of non-marketable share-based awards has been estimated based on an independent valuation. The MTI common and preferred share valuations have been appraised by an independent financial valuation advisor, based on assumptions management believes to be reasonable. Key assumptions and approaches to value used in estimating fair value, includes economic and industry data; business valuation; prior transactions; option value method and other cost, income and market value approaches. Share-based compensation is included within general and administrative expenses. Beginning on July 1, 2021, share based compensation awards have been valued based on valuation of the trading price of Net Element common stock, as adjusted for the share exchange ratio in the merger. See Note 9 for the amount of share-based compensation expense that is included within General and Administrative expenses for the years ended September 30, 2021 and 2020.

F-12

Table of Contents

MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Financing Costs

Pursuant to the terms of the First Amendment to the Company’s Agreement and Plan of Merger with Net Element, we incurred a daily $13,333 penalty for delays in the consummation of the merger transaction. We recorded a charge of approximately $1,560,000 associated with these delays, which is included in the consolidated statement of operations for the fiscal year ended September 30, 2021 and included in accounts payable in the consolidated balance sheet at September 30, 2021.

Related Party Transactions

We have related party transactions with certain of our directors, officers, and principal shareholders. These transactions, which are primarily long-term in nature, include operational loans, convertible debt, and warrants for financial support associated with the borrowing of funds and are entered into in the ordinary course of business.

Fair Value of Financial Instruments

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, Company management considers the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – 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 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Concentrations of Business and Credit Risk

We maintains cash balances in several financial institutions that are insured by either the Federal Deposit Insurance Corporation or the National Credit Union Association up to certain federal limitations, generally $250,000. At times, our cash balance may exceed these federal limitations and maintains significant cash on hand at certain of its locations. However, we have not experienced any losses in such accounts and management believes we are not exposed to any significant credit risk on these accounts. There were no amounts in excess of insured limitations at September 30, 2021 and 2020.

Recently Issued and Adopted Accounting Standards

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04) (Topic 350), “Intangibles - Goodwill and Others.” ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value

F-13

Table of Contents

MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. We adopted ASU 2017-04, on October 1, 2020, which did not have a material impact on our consolidated balance sheets.

In September 2018, the FASB issued Accounting Standards Update No. 2018-07 (ASU 2018-07) ASU No. 2018-07 (Topic 718), “Compensation—Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606. We adopted ASU 2018-07, on October 1, 2020, which did not have a material impact on our consolidated statements of operations.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related earnings per share guidance for both Subtopics. The ASU will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years and early adoption is permitted. Company management is evaluating the future impact this guidance on our consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU will be effective for fiscal years beginning after December 15, 2021, (December 15, 2023 for smaller reporting companies). We have issued debt and equity instruments, the accounting for which could be impacted by this update. Company management is evaluating the impact this guidance on our financial condition and results of operations.

In July 2021, the FASB issued ASU No. 2021-05, Lessors – Certain Leases with Variable Lease Payments (Topic 842). The amendments in this update affect lessors with lease contracts that have (1) have variable lease payments that do not depend on a reference index or a rate, and (2) would have resulted in the recognition of a selling loss at lease commencement if classified a sales-type or direct financing. The ASU will be effective for fiscal years beginning after December 15, 2021. Company management is evaluating the impact this guidance will have on our consolidated financial statements.

NOTE 4 – INTANGIBLE ASSETS

For the years ended September 30, 2021 and 2020, we incurred website development and trademark costs of $117,890 and $296,511, respectively. These costs historically have been capitalized, as the website is in the development stage, resulting in improved functionality. Amortization of the website commenced when the website was placed in service for its intended use during the fourth quarter of 2021. Legal fees incurred for registration of trademarks account for all of the costs of trademark at September 30, 2021. Amortization of these costs will commence when the trademark application and registration process has been completed.

The weighted average useful life of the intellectual property is 3.0 years. Identifiable intangible assets with definite lives are amortized over the period of estimated benefit using the straight-line method and the estimated useful lives of

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MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

three years. The straight-line method of amortization represents management’s best estimate of the distribution of the economic value of the identifiable intangible assets.

    

September 30, 2021

    

September 30, 2020

 

Gross

 

 

Net

 

Gross

 

 

Net

 

Carrying

    

Accumulated

    

Carrying

    

Carrying

    

Accumulated

    

Carrying

Finite-Lived Intangible Assets

 

Amount

Amortization

 

Amount

 

Amount

Amortization

 

Amount

Website design and development

$

2,660,391

$

(221,699)

$

2,438,692

$

2,597,091

$

$

2,597,091

Intellectual property

 

71,182

 

(69,205)

 

1,977

 

71,182

 

(45,477)

 

25,705

Trademark

 

54,590

 

 

54,590

 

 

 

Total Finite-Lived Intangible Assets

$

2,786,163

$

(290,904)

$

2,495,259

$

2,668,273

$

(45,477)

$

2,622,796

Total future amortization expense for finite-lived intellectual property is as follows:

Years Ended September 30, 2021

    

Future Amortization

2022

$

888,774

2023

 

886,797

2024

 

719,688

Total Future Amortization Expense

$

2,495,259

For the years ended September 30, 2021 and 2020, amortization expense for the intangible assets was $245,427 and $23,728 respectively.

NOTE 5 – DEBT

Short-term debt comprises a significant component of the Company’s funding needs. Short-term debt is generally defined as debt with principal maturities of one-year or less. Long-term debt is defined as principal maturities of one year or more.

Short and Long-Term Debt

The following is a summary of our indebtedness at September 30, 2021:

Net Carrying Value

    

Unpaid Principal 

    

    

    

Contractual

    

Contractual 

Type of Debt

    

Balance

    

Current

    

Long-Term

    

 Interest Rate

    

Maturity

Matured Notes

$

5,838,591

$

5,838,591

$

 

0.00% - 15.00

%  

2016 - 2021

Promissory Notes

 

23,831,912

 

23,831,912

 

 

28.00

%  

2021 – 2022

Demand Note

 

500,000

 

500,000

 

 

27.00

%  

2020

Convertible Unsecured Notes

 

15,932,500

 

15,932,500

 

 

15.00%-20.00

%  

2021 - 2022

Real Estate Note

 

283,881

 

36,269

 

247,612

 

5.00

%  

2023

Loan Advances

 

1,122,253

 

1,122,253

 

 

0.00% - 10.00

%  

2019 – 2020

Less: Debt Discount

 

(8,060,555)

 

(8,060,555)

 

 

NA

 

NA

Total Debt

$

39,448,582

$

39,200,970

$

247,612

 

NA

 

NA

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MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Scheduled Debt Maturities

The following scheduled debt maturities at September 30, 2021:

 

Years Ended September 30,

    

2021

    

2022

    

2023

    

Total

Total Debt

$

39,200,970

$

$

247,612

$

39,448,582

The following is a summary of our indebtedness at September 30, 2020:

Net Carrying Value

    

Unpaid Principal 

    

    

    

Contractual

    

Contractual 

Type of Debt

 

Balance

Current

Long-Term

 

 Interest Rate

 

Maturity

Matured Notes

$

4,828,450

$

4,828,450

$

 

0.00% - 15.00

%  

2016 - 2019

Promissory Notes

 

25,288,063

 

25,288,063

 

 

0.00% - 28.00

%  

2021 – 2022

Demand Note

 

500,000

 

500,000

 

 

27.00

%  

2020

Convertible Unsecured Notes

 

1,867,500

 

1,867,500

 

 

20.00

%  

2021

Real Estate Note

 

318,384

 

34,503

 

283,881

 

5.00

%  

2023

Loan Advances

 

1,931,017

 

1,931,017

 

 

0.00% - 10.00

%  

2019 – 2020

Less: Unamortized Debt Discount

 

(1,401,062)

 

(1,401,062)

 

 

NA

 

NA

Total Debt

$

33,332,352

$

33,048,471

$

283,881

 

NA

 

NA

Notes and Advances

We enter into promissory notes with third parties and company officers to support our operations. Promissory notes typically are for less than three years maturity and carry interest rates from 0% to 28.0%. For many of the notes listed above, the scheduled maturity date has passed, and we currently are in default of the matured loan. Company management is working with the creditors to remediate the $5,960,574 in promissory notes and loan advances that are in default. Promissory notes and loan advances that are in default still accrue interest after their scheduled maturity date. There are no financial covenants associated with the promissory notes and loan advances, and there are no compliance waivers that have been received from creditors. We record imputed interest on promissory notes and advances which are deemed to be below the market interest rate. For the years ended September 30, 2021 and 2020, we recorded interest expense of $21,168,232 and $18,094,234, respectively.

In some instances, MTI issues shares of common stock or warrants along with the issuance of promissory notes, resulting in the recognition of a debt discount which is amortized to interest expense over the term of the promissory note. Debt discount amortization for the fiscal year ended September 30, 2021, and 2020, was $8,211,648 and $16,008,454, respectively.

During 2021, MTI issued shares of stock to certain creditors in satisfaction of debt payments or in settlement of indebtedness. These agreements essentially exchanged a predetermined amount of stock to settle debt. For the fiscal year ended September 30, 2021 and 2020, the carrying amount of indebtedness that was settled via issuance of MTI shares was $1,300,000 and $38,912,640, respectively.

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MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Convertible Debt Issuances and Warrants

TDR Relationship

On May 16, 2021, we received debt financing through MTI entering into an unsecured $4.4 million convertible note agreement with TDR Capital. The convertible note is issued with OID of 10% ($0.4 million); carries an interest rate of 15% and has a maturity date of one year. The convertible note is unsecured and includes detached warrants to acquire up to 17,446,000 shares of MTI common stock (1,358,112 MAI warrants). The MTI warrant exercise price is $0.6877 (MAI exercise price is $8.84) per common share and expires five years from the date of issuance. The value ascribed to the warrants was $24,358,875, resulting in an additional debt discount of $3,726,816 and a beneficial conversion discount of $673,184. These discounts are being amortized over the 12-month term of the debt. The number of shares issuable upon conversion are determined according to the formula:  Conversion Amount/Conversion Price, subject to certain adjustments. However, , ownership in our TDR Capital (together with their affiliates) upon conversion is limited to a 9.9% ownership cap in shares of MTI’s common stock then outstanding after giving effect to the issuance of common stock issuable upon exercise of the warrants.

Convertible Debt Issuances and Warrants, continued

On July 26, 2021, we received debt financing through MTI entering into an unsecured $1.1 million convertible note agreement with TDR Capital. The convertible note is issued with OID of 10% or $0.1 million; carries an interest rate of 15% and has a maturity date of one year. The convertible note is unsecured and includes detached warrants to acquire up to 4,361,500 shares of MTI common stock (339,528 MAI warrants). The MTI warrant exercise price is $0.6877(MAI exercise price is $8.84) per common share and expires five years from the date of issuance. The number of conversion shares issuable upon conversion is determined according to the formula:  Conversion Amount/Conversion Price, subject to certain adjustments. However, upon conversion, ownership by TDR Capital (together with their affiliates) is limited to a 9.9% ownership cap in shares of MTI’s (MAI’s) common stock then outstanding after giving effect to the issuance of common stock issuable upon exercise of the warrants.

On September 3, 2021, we received debt financing through MTI entering into an unsecured $6.6 million convertible note agreement with TDR Capital. The initial sale and purchase is $550,000 principal and detached warrants to acquire up to 2,180,750 shares of MTI stock (169,764 MAI warrants). The second sale and purchase is $6,050,000 principal and detached warrants to acquire up to 23,988,500 shares of MTI stock (1,867,423 MAI warrants). The combined convertible notes are issued with OID of 10% ($0.66 million); carries an interest rate of 15% and has a maturity date of one year. The MTI warrant exercise price is $0.6877 (MAI exercise price is $8.84) per common share and expires five years from the date of issuance. The number of conversion shares issuable upon conversion is determined according to the formula:  Conversion Amount/Conversion Price of $0.6877, subject to certain adjustments. However, upon conversion, ownership by TDR Capital (together with their affiliates) is limited to a 9.9% ownership cap in shares of MTI’s (MAI’s) common stock then outstanding after giving effect to the issuance of common stock issuable upon exercise of the warrants. As of September 30, 2021, only $550,000 was received from TDR Capital for this convertible debt issuance. Refer to Commitments and Contingencies, Note 17 and Subsequent Events, Note 19.

Digital Power Lending, LLC

On July 22, 2021, the Company received debt financing through MTI entering into an unsecured $2.42 million convertible note agreement with Digital Power Lending, LLC. The convertible note is issued with OID of 10% or $0.242 million; carries an interest rate of 15% and has a maturity date of one year. The convertible note is unsecured and includes detached warrants to acquire up to 9,595,300 shares of MTI common stock (746,961 MAI warrants). The MTI warrant exercise price is $0.6877 (MAI exercise price is $8.84) per common share and expires five years from the date of issuance. The number of conversion shares issuable upon conversion of the conversion amount shall be determined according to the

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MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

formula:  Conversion Amount/Conversion Price, subject to certain adjustments. However, upon conversion, Digital Power Lending, LLC (together with their affiliates) is limited to a 9.9% ownership cap in shares of MTI’s common stock then outstanding after giving effect to the issuance of common stock issuable upon exercise of the warrants.

On August 19, 2021, the Company received debt financing through MTI entering into an unsecured $1.1 million convertible note agreement with Digital Power Lending, LLC. The convertible note is issued with OID of 10% or $0.1 million; carries an interest rate of 15% and has a maturity date of one year. The convertible note is unsecured and includes detached warrants to acquire up to 4,361,500 shares of MTI common stock (339,528 MAI warrants). The MTI warrant exercise price is $0.6877 (MAI exercise price is $8.84) per common share and expires five years from the date of issuance. The number of conversion shares issuable upon conversion of the conversion amount shall be determined according to the formula:  Conversion Amount/Conversion Price, subject to certain adjustments. However, upon conversion, Digital Power Lending, LLC. (together with their affiliates) is limited to a 9.9% ownership cap in shares of MTI’s common stock then outstanding after giving effect to the issuance of common stock issuable upon exercise of the warrants.

Convertible Debt to Equity Conversion (Exchange Agreements)

On May 7, 2021, and amended on May 20, 2021, MTI executed an exchange agreement with its existing convertible debt investors who hold $10,762,500 in MTI convertible debt. Upon consummation of the then proposed merger with Net Element, we and the investors agreed to exchange the convertible debt for shares of MAI’s Series C Preferred Stock, par value $0.001 per share. The right to additional purchases of preferred stock expires 12 months from the merger close date between Net Element and MAI. MTI originally issued 42,759,290 (3,717,898 MAI warrants).in detached warrants to purchase shares of MTI common stock as part of the convertible debt agreements with investors. Refer to Note 18, Subsequent Events for Amendment No. 6 and Joinder to the Exchange Agreement.

On July 22, 2021, the Exchange Agreement was amended to include the $2,420,000 debt financing and associated warrants with Digital Power Lending, LLC. The agreement represents Amendment No. 2 and Joinder to the Exchange Agreement that was signed on May 7, 2021 and amended on May 20, 2021. Upon consummation of the then proposed merger with Net Element, we and the investors agreed to exchange the convertible debt for shares of MAI’s Series C Preferred Stock, par value $0.001 per share.

On July 26, 2021, the Exchange Agreement was amended to include the $1,100,000 debt financing and associated warrants with TDR Capital. The agreement represents Amendment No. 3 and Joinder to the Exchange Agreement that was signed on May 7, 2021 and amended on May 20, 2021. Upon consummation of the then proposed merger with Net Element, we and the investors agreed to exchange the convertible debt for shares of MAI’s Series C Preferred Stock, par value $0.001 per share.

On August 19, 2021, the Exchange Agreement was amended to include the $1,100,000 debt financing and associated warrants with Digital Power Lending, LLC. The agreement represents Amendment No. 4 and Joinder to the Exchange Agreement that was signed on May 7, 2021 and amended on May 20, 2021. Upon consummation of the then proposed merger with Net Element, we and the investors agreed to exchange the convertible debt for shares of MAI’s Series C Preferred Stock, par value $0.001 per share.

Convertible Debt to Equity Conversion (Exchange Agreements), continued

On September 3, 2021, the Exchange Agreement was amended to include the $6,600,000 debt financing and associated warrants with TDR Capital. The agreement represents Amendment No. 5 and Joinder to the Exchange Agreement that was signed on May 7, 2021 and amended on May 20, 2021. Upon consummation of the then proposed merger with Net Element, we and the investors agreed to exchange the convertible debt for shares of MAI’s Series C Preferred Stock, par value $0.001 per share.

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MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Drawbridge Relationship

During July 2020, Drawbridge-DBI and MTI entered into a settlement agreement (the “Agreement”) to restructure the aggregate obligations owed to Drawbridge-DBI and the other DBI-affiliated entities. In connection with the Agreement, (a) the Sale-Leaseback obligation in the amount of $49,500,000 was replaced by a new note with a face value of $23,831,554, (b) the other indebtedness and advances from DBI-affiliated entities with a net book value of $9,935,086 were extinguished, and (c) MTI issued 71,516,534 MAI – 5,567,319)  Series B Preferred Shares to Drawbridge-DBI.

The amounts owed to Drawbridge-DBI is $33,296,648 and $25,092,994 as of September 30, 2021, and September 30, 2020 respectively, and are in default (See Note 18 – Subsequent Events). The amounts owed to other DBI-affiliated entities is $982,500 and $1,082,500, as of September 30, 2021, and September 30, 2020, respectively. The 2020 Drawbridge loan is currently recognized within the current portion of debt on the consolidated balance sheet.

SBA Loans

On April 14, 2020, MTI entered a promissory note (the “Note”) evidencing an unsecured loan (the “Loan”) in the amount of $885,426 made under the Paycheck Protection Program (the “PPP”). The Note matures on April 14, 2022 and bears interest at a rate of 1% per annum. Pursuant to the terms of the Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) and the PPP, the Company applied to the Lender for forgiveness for the amount due on the Loan. The amount eligible for forgiveness is based on the amount of Loan proceeds used (during the eight-week period after the Lender makes the first disbursement of Loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), interest on mortgage obligations, rent and utilities, subject to certain limitations and reductions in accordance with the CARES Act and the PPP. During November 2020, the SBA approved the loan forgiveness amount of $875,426 in principal and $5,155 in interest on November 20, 2020. The loan forgiveness is accounted for as a gain on debt extinguishment of $890,581 in the Consolidated Statement of Operations.

In September 2020, MTI entered a promissory note (the "Note") in the amount of $10,000 by the SBA under the EIDL program. Monthly installment payments on the Note will begin twelve months from the date of the Note, with the balance of any accrued principal and interest at 3.75% annually, payable thirty years from the date of the Note. An application was submitted to the Lender for loan forgiveness, which was approved for the full amount on February 18, 2021.

Convertible Notes

As of September 30, 2021, MTI issued unsecured convertible notes totaling $10,762,500, of which $6,418,500 were issued between January 2021 and September 2021. The new issuances bear interest at 15% and mature in one year and included with warrants to acquire shares of common stock based on a specified formula. Interest is accrued in arrears until the last business day of each calendar year quarter. The default rate on the note increases to 20% when quarterly interest payments are not timely made by MTI.

Convertible Notes

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MULLEN AUTOMOTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    

Convertible

    

Interest

    

Default 

    

Maturity 

    

Warrants 

    

Exercise 

    

Exercise 

Date of Issuance

 Note ($)

 Rate

Interest Rate

Date

(#)

Date

Price ($)

8/26/2020

$

1,000,000

15

%  

20

%  

8/26/2021

226,397

8/26/2025

$

8.84

8/26/2020

 

200,000

 

15

%  

20

%  

8/26/2021

 

45,279

 

8/26/2025

$

8.84

8/26/2020

 

200,000

 

15

%  

20

%  

8/26/2021

 

45,279

 

8/26/2025

$

8.84

8/26/2020

 

100,000

 

15

%  

20

%  

8/26/2021

 

22,640

 

8/26/2025

$

8.84

9/25/2020

 

105,000

 

15

%  

20

%  

9/25/2021

 

29,715

 

9/25/2025

$

8.84

9/25/2020

 

157,500

 

15

%  

20

%  

9/25/2021

 

44,572

 

9/25/2025

$

8.84

9/25/2020

 

105,000

 

15

%  

20

%  

9/25/2021

 

29,715

 

9/25/2025

$

8.84

10/12/2020

 

660,000

 

15

%  

20

%  

10/12/2021

 

203,757

 

10/12/2025

$

8.84

10/12/2020

 

33,000

 

15

%  

20

%  

10/12/2021

 

10,188

 

10/12/2025

$

8.84

10/12/2020

 

27,500

 

15

%  

20

%  

10/12/2021

 

8,490

 

10/12/2025

$

8.84

11/9/2020

 

660,000

 

15

%  

20

%  

11/9/2021

 

203,757

 

11/9/2025

$

8.84

11/9/2020

 

33,000

 

15

%  

20

%  

11/9/2021

 

10,188

 

11/9/2025

$

8.84

11/9/2020

 

27,500

 

15

%  

20

%  

11/9/2021

 

8,490

 

11/9/2025

$

8.84

12/7/2020

 

660,000

 

15

%  

20

%  

12/7/2021

 

203,756

 

12/7/2025

$

8.84

12/7/2020

 

33,000