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
|
|
(I.R.S. Employer
|
|
|
|
1405 Pioneer Street
|
|
(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.
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
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page |
|
|
|
|
||
|
|
|
3 |
||
|
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
|
8 |
|
|
|
|
|
||
|
PART IV |
|
|
|
|
|
|
|
11 |
||
|
|
|
|
||
|
|
|
|
12 |
2
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.
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.
3
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.
4
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;” |
5
| ● | 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.
6
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.
7
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.
|
* |
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 |
8
| 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 |
9
| 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 |
10
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* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
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).
11
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 |
12
MULLEN AUTOMOTIVE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MULLEN AUTOMOTIVE, INC.
FINANCIAL STATEMENTS
September 30, 2021 and 2020
|
|
|
|
|
|
|
Page |
|
|
F-2 |
|
|
|
|
|
|
Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended September 30, 2021 and 2020 |
|
F-5 |
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended September 30, 2021 and 2020 |
|
F-7 |
|
|
|
|
|
|
F-8 |
F-1
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
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
MULLEN AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEETS
F-4
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
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
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
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.
F-8
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
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
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
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
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
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
F-14
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 |
F-15
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:
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.
F-16
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
F-17
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.
F-18
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 $6,418,500 were issued between January 2021 and September 2021. The new issuances bear interest at 15% and mature in one year and included with warrants to acquire shares of common stock based on a specified formula. Interest is accrued in arrears until the last business day of each calendar year quarter. The default rate on the note increases to 20% when quarterly interest payments are not timely made by MTI.
Convertible Notes
F-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible |
|
Interest |
|
Default |
|
Maturity |
|
Warrants |
|
Exercise |
|
Exercise |
||
|
Date of Issuance |
|
Note ($) |
|
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 |
|
15 |
% |
20 |
% |
12/7/2021 |
|
10,188 |
|
12/7/2025 |
|
$ |
8.84 |
|
12/7/2020 |
|
|
27,500 |
|
15 |
% |
20 |
% |
12/7/2021 |
|
8,490 |
|
12/7/2025 |
|
$ |
8.84 |
|
12/15/2020 |
|
|
157,500 |
|
15 |
% |
20 |
% |
12/15/2021 |
|
44,572 |
|
12/15/2025 |
|
$ |
8.84 |
|
12/15/2020 |
|
|
157,500 |
|
15 |
% |
20 |
% |
12/15/2021 |
|
44,572 |
|
12/15/2025 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
660,000 |
|
15 |
% |
— |
|
1/7/2022 |
|
203,757 |
|
1/7/2026 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
33,000 |
|
15 |
% |
— |
|
1/7/2022 |
|
10,188 |
|
1/7/2026 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
27,500 |
|
15 |
% |
— |
|
1/7/2022 |
|
8,490 |
|
1/7/2026 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
— |
|
— |
|
— |
|
— |
|
2,038 |
* |
1/7/2026 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
192,500 |
|
15 |
% |
— |
|
1/7/2022 |
|
59,429 |
|
1/7/2026 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
82,500 |
|
15 |
% |
— |
|
1/7/2022 |
|
25,470 |
|
1/7/2026 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
192,500 |
|
15 |
% |
— |
|
1/7/2022 |
|
59,429 |
|
1/7/2026 |
|
$ |
8.84 |
|
1/7/2021 |
|
|
110,000 |
|
15 |
% |
— |
|
1/7/2022 |
|
33,960 |
|
1/7/2026 |
|
$ |
8.84 |
|
3/10/2021 |
|
|
660,000 |
|
15 |
% |
— |
|
3/10/2022 |
|
203,757 |
|
3/10/2026 |
|
$ |
8.84 |
|
3/10/2021 |
|
|
33,000 |
|
15 |
% |
— |
|
3/10/2022 |
|
10,188 |
|
3/10/2026 |
|
$ |
8.84 |
|
3/10/2021 |
|
|
27,500 |
|
15 |
% |
— |
|
3/10/2022 |
|
8,490 |
|
3/10/2026 |
|
$ |
8.84 |
|
5/7/2021 |
|
|
— |
|
— |
|
— |
|
— |
|
82,326 |
** |
5/7/2026 |
|
$ |
8.84 |
|
5/7/2021 |
|
|
— |
|
— |
|
— |
|
— |
|
33,316 |
** |
5/7/2026 |
|
$ |
8.84 |
|
5/7/2021 |
|
|
— |
|
— |
|
— |
|
— |
|
10,504 |
** |
5/7/2026 |
|
$ |
8.84 |
|
5/7/2021 |
|
|
— |
|
— |
|
— |
|
— |
|
19,167 |
** |
5/7/2026 |
|
$ |
8.84 |
|
5/16/2021 |
|
|
4,400,000 |
|
15 |
% |
20 |
% |
5/16/2022 |
|
1,358,112 |
|
5/16/2026 |
|
$ |
8.84 |
|
7/22/2021 |
|
|
2,420,000 |
|
15 |
% |
20 |
% |
7/22/22 |
|
746,961 |
|
7/22/2026 |
|
$ |
8.84 |
|
7/26/2021 |
|
|
1,100,000 |
|
15 |
% |
20 |
% |
7/26/22 |
|
339,528 |
|
7/26/2026 |
|
$ |
8.84 |
|
8/19/2021 |
|
|
1,100,000 |
|
15 |
% |
20 |
% |
8/19/22 |
|
339,528 |
|
8/19/2026 |
|
$ |
8.84 |
|
9/3/2021 |
|
|
550,000 |
|
15 |
% |
20 |
% |
9/3/22 |
|
169,764 |
|
9/3/2026 |
|
$ |
8.84 |
|
Total |
|
$ |
15,932,500 |
|
— |
|
— |
|
— |
|
4,924,447 |
|
— |
|
|
— |
|
* |
As part of placement agent, Cambria received five-year warrants to purchase 6% of the MTI common shares issuable under convertible notes sold in the Regulation D offering to investors introduced by the firm. |
|
** |
On May 7, 2021, additional warrants of 1,866,665 were added to the Exchange Agreement for no additional consideration to acquire additional common shares of common stock to four convertible debt holders given changes in the exchange share calculation, which will be consistent with the exchange share calculation of other convertible debt holders. The Exchange Agreement supersedes the original agreements that were issued by MTI and allows the |
F-20
convertible debt holder to exchange their debt for the newly created Series C Preferred Stock, par value of $0.001. The new series of preferred stock will be created upon the merger effectiveness date between Net Element and MAI.
Convertible Notes
Because the market price for MTI common stock on the date of the notes exceeded the notes’ conversion price of $0.6877 per share, a beneficial conversion feature in the amount of $10,613,630 was recorded as a discount on the notes. The discount is being amortized as additional interest over the life of the notes. At September 30, 2021, the balance of the unamortized discount is $8,060,555.
Company management evaluated the conversion features embedded in the convertible notes for classification and accounting under the provisions of ASC 815-40 and determined the conversion features met treatment as equity.
NOTE 6 – FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
Non-financial assets, such as property, equipment and leasehold improvements is required to be measured at fair value only when acquired or when an impairment loss is recognized. See “Note 12 - Property, Equipment and Leasehold Improvements, Net” for further information on impairment of fixed assets.
Financial instruments for which carrying value approximates fair value
Certain financial instruments that are not carried at fair value on the consolidated balance sheets are carried at amounts that approximate fair value, due to their short-term nature and credit risk. These instruments include cash and cash equivalents, accounts payable, accrued liabilities, and debt. We believe that the carrying value of term debt approximates fair value due to the variable rates associated with these obligations. Accounts payable are short-term in nature and generally terms are due upon receipt or within 30 to 90 days.
NOTE 7 – DEFICIENCY IN STOCKHOLDERS’ EQUITY
The accompanying financial statements include a retrospective recapitalization to reflect the composition of stockholder’s equity, as if they had existed for the periods presented.
Preferred Stock
On November 5, 2021, we filed an Amended and Restated Articles of Incorporation which included the rights and privileges of Preferred Stock Series A and Series B. Under the terms of our Articles of Incorporation, the Board of Directors may determine the rights, preferences and terms of our authorized but unissued shares of preferred stock.
Dividends
The holders of Preferred Stock are entitled to non-cumulative dividends if declared by the Board of Directors. The holders of the Preferred Stock Series A and Series B shall participate on a pro rata basis (on an “as converted” basis to common stock) in any cash dividend paid on common stock. No dividends have been declared or paid during the years ended September 30, 2021 and 2020.
F-21
Liquidation
Holders of Preferred Stock are entitled to receive a liquidation preference prior to any distribution to holders of Common Stock. Upon occurrence of a liquidation transaction, the Preferred Stock would be redeemed by the issuer for the applicable original issue price. However, if the holders of Preferred Stock would receive a greater amount of consideration had the Preferred Stock been converted immediately prior to such transaction, the Preferred Stock shall be deemed to have been converted for the purposes of the redemption amount.
Conversion
Preferred Stock Series A is convertible at any time at the option of the holder into Common Stock at a conversion rate of one for one hundred basis with common shares of at any time after the date of issuance of such shares into such number of fully paid and non-accessible shares of Common Stock. Preferred Stock Series B is convertible at any time at the option of the holder into Common Stock at a conversion rate of one for one basis with common shares at any time after the date of issuance of such shares into such number of fully paid and non-accessible shares of Common Stock.
Additionally, all outstanding shares of the Preferred Stock shall automatically convert into shares of the underlying Common Stock upon the Company’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act, the public offering price of which results in aggregate cash proceeds to the Company of not less than $50 million, net of underwriting discounts and commissions (a “Qualified IPO”).
Voting Rights
Holders of Preferred Stock are entitled to the same voting rights as the holders of common stock and to notice of shareholders’ meetings. The holders of Common Stock and Preferred Stock shall vote together as a single class (on an as-converted basis) on all matters. Each holder of Preferred Stock is entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Preferred Stock could be converted.
Common Stock
We have 500,000,000 shares of common stock authorized with $0.001 par value per share. There were 7,048,386 and 5,086,225 shares of common stock issued and outstanding at September 30, 2021 and 2020, respectively.
The holders of Common Stock are entitled to one vote for each share of Common Stock held at all meetings of shareholders. In the event of a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the common shareholders are entitled to receive the remaining assets following distribution of liquidation preferences, if any, to the holders of our preferred stock. The holders of common stock are not entitled to receive dividends unless declared by our Board of Directors. To date, no dividends were declared or paid to the holders of common stock.
F-22
Warrants
The following table summarizes warrant activity for the years ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
MAI shares |
|
Exercise Price |
|
|
Warrants outstanding at September 30, 2019 |
|
97,308 |
|
$ |
8.84 |
|
Warrants exercised |
|
— |
|
$ |
— |
|
Warrants granted |
|
420,242 |
|
$ |
8.84 |
|
Warrants expired |
|
— |
|
$ |
— |
|
Warrants outstanding at September 30, 2020 |
|
540,905 |
|
$ |
8.84 |
2020-2021 Warrants
The warrants are exercisable for a five-year period commencing upon issuance . The estimated fair value of the MAI warrants issued and outstanding is $8,166,441 using the Black-Scholes option valuation model. The assumptions used that represent management’s best estimates of the fair value of the Company’s warrants issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
|
|
Expected term (in years) |
|
|
5.0 |
|
|
Volatility |
|
|
63.9 |
% |
|
Dividend yield |
|
|
0.00 |
% |
|
Risk-free interest rate |
|
|
0.34%-0.82 |
% |
|
Common stock price |
|
$ |
5.43 |
|
The allocation of the fair value of these warrants was included as a debt discount on the consolidated balance sheet and amortized to interest expense over the scheduled maturity dates of the various promissory notes.
NOTE 8 – LOSS PER SHARE
Earnings per common share (“EPS”) is computed by dividing net income allocated to common shareholders by the weighted-average common shares outstanding, excluding unvested common shares subject to repurchase or cancellation. Diluted EPS is computed by dividing income allocated to common shareholders plus dividends on dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average common shares outstanding plus amounts representing the dilutive effect of outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable.
For 2021 and 2020, the Series A Preferred Stock were excluded from the diluted share count because the result would have been antidilutive under the “if-converted method.”
The warrants to purchases common shares of stock also were excluded from the computation because the result would have been antidilutive.
F-23
NOTE 9 – MTI SHARE- BASED COMPENSATION
MTI has a share incentive plan as part of its annual discretionary share-based compensation programs. The plan includes consultants and employees, including directors and officers. For employees, they are notified of company share incentives during the onboarding process. The employee’s offer letter briefly describes the plan. Subject to the approval of MTI’s Board of Directors or its Compensation Committee and following the adoption of an equity incentive plan, employees are issued a specified number of shares of the MTI Common Shares. Employees are vested in 100% of the MTI shares after 12 months of continuous service. Additional MTI shares may be issued to employees over the next two years at anniversary date. Any disruption or separation of service results in the forfeiture of common shares. The total expense recognized for share awards represents the grant date fair value of such awards, which is generally recognized as a charge to income ratably over the vesting period.
Consulting agreements or MTI shares for services are determined by the number of MTI shares granted within the individual contracts, as well as the services provided by the consultant. The MTI shares specified within the individual agreements are negotiated and approved by our Chief Executive Officer. The consultant earns the MTI shares over the service period. The MTI shares are accounted for as professional fees within G&A expenses. Employee share issuances are part of Salaries expense. The expense recognized for share awards represents the grant date fair value of such awards, which is generally recognized as a charge to income ratably over the vesting period.
NOTE 10 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
September 30, 2020 |
||
|
Accrued Expenses and Other Liabilities |
|
|
|
|
|
|
|
Accrued expense - other |
|
$ |
2,051,696 |
|
$ |
16,021,442 |
|
Accrued payroll |
|
|
4,586,057 |
|
|
3,771,874 |
|
Accrued interest |
|
|
12,489,012 |
|
|
2,358,273 |
|
Total |
|
$ |
19,126,765 |
|
$ |
22,151,589 |
Accrued expenses – other at September 30, 2020 includes obligations arising from the $13.6 million AirSign advertising contract and the $1.4 million RedRock Outdoor Advertising, Inc. contract. The Company entered into these agreements to promote its electric vehicle capabilities with various national sporting events and within the New York market. However, the marketing campaigns never materialized. During 2021, the Company received a release of liability from both AirSign, Inc. and RedRock Outdoor Advertising, Inc. Both liabilities, along with the associated deferred advertising, were derecognized during January 2021.
Accrued payroll represents salaries and benefits that are owed to employees. More importantly, the payroll tax liabilities are reported within this account. Delinquent IRS and state tax liabilities on September 30, 2021, and September 30, 2020, are $3,904,720 and $3,987,596, respectively. These tax liabilities have priority liens over MTI assets due to nonpayment of tax debt. The lien protects the government’s interest in all MTI property, including real estate, personal property and financial assets. Refer to Note 17, Contingencies and Claims.
F-24
Accrued interest relates to finance charges on debt financing and represents interest on loans, and convertible notes payable throughout 2021. Refer to Note 5, Debt.
NOTE 11 - LIABILITY TO ISSUE STOCK
Liability represents stock payable that is accrued for and issuable at a future date for Preferred Management Partners and Cambria Investment Banking Services. Refer to Note 17.
NOTE 12 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment, and leasehold improvements, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
September 30, |
||
|
|
|
2021 |
|
2020 |
||
|
Building |
|
$ |
804,654 |
|
$ |
807,154 |
|
Furniture and Equipment |
|
|
111,102 |
|
|
114,879 |
|
Vehicles |
|
|
45,887 |
|
|
45,887 |
|
Computer Hardware and Software |
|
|
139,742 |
|
|
129,967 |
|
Machinery and Equipment |
|
|
2,597,654 |
|
|
2,615,311 |
|
Leasehold Improvements |
|
|
66,379 |
|
|
76,675 |
|
Subtotal |
|
|
3,765,418 |
|
|
3,789,873 |
|
Less: Accumulated Depreciation |
|
|
(2,583,941) |
|
|
(2,247,877) |
|
Property, Equipment and Leasehold Improvements, Net |
|
$ |
1,181,477 |
|
$ |
1,541,996 |
Depreciation expense related to property, equipment and leasehold improvements for the years ended September 30, 2021, and 2020 was $354,125 and $702,068, respectively.
NOTE 13 – OTHER ASSETS
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
September 30, 2020 |
||
|
Other Assets |
|
|
|
|
|
|
|
Coda Materials |
|
$ |
76,587 |
|
$ |
207,000 |
|
Advance Payments on long-lived assets |
|
|
— |
|
|
51,806 |
|
Notes Receivable |
|
|
90,552 |
|
|
79,939 |
|
Show Room Cars |
|
|
2,739,995 |
|
|
210,483 |
|
Security Deposits |
|
|
186,640 |
|
|
212,782 |
|
Deposit on Property (See Note 15) |
|
|
1,240,000 |
|
|
— |
|
Total Other Assets |
|
$ |
4,333,774 |
|
$ |
762,010 |
F-25
NOTE 14 – OPERATING EXPENSES
General and Administrative Expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
Professional fees |
|
$ |
6,991,246 |
|
$ |
5,260,142 |
|
Salaries |
|
|
6,091,520 |
|
|
2,437,934 |
|
Depreciation and amortization |
|
|
720,805 |
|
|
725,796 |
|
Lease |
|
|
1,776,198 |
|
|
905,231 |
|
Settlements and penalties |
|
|
1,532,378 |
|
|
219,655 |
|
Employee benefits |
|
|
368,563 |
|
|
216,349 |
|
Utilities and office expense |
|
|
345,766 |
|
|
213,361 |
|
Advertising and promotions |
|
|
413,771 |
|
|
156,241 |
|
Taxes and licenses |
|
|
73,527 |
|
|
67,607 |
|
Repairs and maintenance |
|
|
244,868 |
|
|
55,050 |
|
Other |
|
|
835,299 |
|
|
169,775 |
|
Total |
|
$ |
19,393,941 |
|
$ |
10,427,141 |
Within professional fees is MTI shares for services, which is the issuance of MTI shares for services rendered to consultants and professional service firms. The expense is recorded at fair value of MTI shares issued (see Note 13, Other Assets). For the fiscal year ended September 30, 2021 and 2020, the Company recorded $2,460,529 and $2,929,179, respectively, for shares for services.
Research and development consist of the following:
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended |
||||
|
|
|
September 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
Research & Development |
|
|
|
|
|
|
|
Professional fees |
|
$ |
3,009,027 |
|
$ |
1,667,077 |
|
Total |
|
$ |
3,009,027 |
|
$ |
1,667,077 |
Research and development costs are expensed as incurred. Research and development expenses primarily consist of Mullen Five EV show car development and are primarily comprised of personnel-related costs for employees and consultants.
In December 2020, the Company entered into an agreement with Thurner, Inc. to design and develop two show electric vehicles. The planned finalization is expected to occur in 2021. The total cost for Phase 1 is $483,254.
In December 2020, MTI entered into a Statement of Work with Phiaro, Inc. for its show car development for approximately $1.6 million. The show car project program started in December 2020 and is anticipated to be finished November 2021. The program is for the initial show car development of the Mullen Five, which is a mid-size electric SUV. The program start began in January 2021. The initial show cars in development consist of two mid-size electric SUVs.
NOTE 15 – LEASES
MTI has entered into various operating lease agreements for certain of its offices, manufacturing and warehouse facilities, and corporate jet. We have implemented the provisions of ASC 842, on October 1, 2019. Operating leases are included in right-of-use assets, and current and noncurrent portion of lease liabilities, as appropriate. These right-of-use assets also
F-26
includes any lease payments made and initial direct costs incurred at lease commencement and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements which require payments for both lease and non-lease components and has elected to account for these as a single lease component. Certain leases provide for annual increases to lease payment based on an index or rate. We calculate the present value of future lease payments based on the index or at the lease commencement date for new leases.
The table below presents information regarding our lease assets and liabilities.
Operating Lease Commitments
Our leases primarily consist of land, land and building, or equipment leases. Our lease obligations are based upon contractual minimum rates. Most leases provide that we pay taxes, maintenance, insurance and operating expenses applicable to the premises. The initial term for most real property leases is typically 1 to 3 years, with renewal options of 1 to 5 years, and may include rent escalation clauses. For financing obligations, a portion of the periodic lease payments is recognized as interest expense and the remainder reduces the obligations. For operating leases, rent is recognized on a straight-line basis over the lease term, including scheduled rent increases and rent holidays.
On April 27, 2021, MTI entered into a 4-month lease agreement to lease a 127,400 square-foot manufacturing plant on 100 acres located at One Greentech Drive, Robinsonville (Tunica County), MS from May 1, 2021 through July 31, 2021 for $50,000 per month. MTI also has an option to purchase the property for $12.0 million. The lease agreement will terminate on the earlier of the (a) closing of the purchase of the property or (b) MTI’s termination of the lease. On March 12, 2021, MTI paid $240,000 into escrow for the asset purchase. Consummation of the purchase is contingent upon completion of satisfactory inspection, review of environmental report, etc. Furniture, fixtures, equipment and other assets are included as part of the purchase. On July 23, 2021, the parties entered into a first amendment to the agreement, whereby the lease is extended for an additional six months. On July 26, 2021, MTI paid $1,000,000 (“extension payment”) pursuant to the first amendment to the lease agreement (payments will remain at $50,000 per month through January 31, 2022). The source of the funds to make the extension payment came from proceeds received from the issuance of a convertible note
F-27
with TDR Capital Pty Limited. The extension payment deposited into escrow will be credited to the purchase price upon closing. As of 11/12/2021, the property was purchased from Saleen Motors International, LLC for $12,000,000. The lease was cancelled on the purchase date of the aforesaid property. Refer to Note 19, Subsequent Events.
The following table reflects maturities of operating lease liabilities at September 30, 2021:
NOTE 16 – INCOME TAXES
On December 2, 2019, we entered into a tax sharing agreement with Mullen Technologies Inc. Although our results are included in the Mullen Technologies consolidated tax return for U.S. federal income tax purposes, our tax provision is calculated primarily as though MAI was a separate taxpayer. However, under certain circumstances, transactions between us and Mullen Technology are assessed using consolidated tax return rules. Tax sharing agreement governs the payment of tax liabilities and entitlement to refunds thereof, allocate responsibility for, and cooperation in, the filing of tax returns, and provide for certain other matters relating to taxes
For the years ended September 30, 2021 and 2020, we had income tax NOL carryforwards of approximately $193 million for Federal and $192 million for California, which will expire as follows:
F-28
|
|
|
|
|
|
|
|
|
|
|
2021 - $ |
|
2021 - % |
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit at statutory rate |
|
$ |
(9,247,200) |
|
21.00 |
% |
|
State income taxes |
|
|
800 |
|
0.00 |
% |
|
Permanent Differences |
|
|
158,166 |
|
(0.36) |
% |
|
Valuation Allowance |
|
|
9,091,163 |
|
(20.65) |
% |
|
Other |
|
|
(2,129) |
|
0.00 |
% |
|
Total (benefit) provision for income taxes |
|
$ |
800 |
|
0.00 |
% |
We record deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid. Deferred income tax assets and liabilities are recorded based on the differences between the financial reporting and income tax bases of assets and liabilities.
Significant components of the Company’s net deferred tax assets as of September 30, 2021, are as follows:
For the years ended September 30, 2021 and 2020, we recorded a full valuation allowance against the deferred tax assets because we do not believe that the deferred tax assets recorded in 2021 and 2020 are more likely than not to be realizable.
We follow the guidance for accounting for uncertainty in income taxes in accordance with FASB ASC 740, which clarifies uncertainty in income taxes recognized in an enterprise’s financial statements. The standard also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken, or expected to be taken, in an income tax return. Only tax positions that meet the more likely than not recognition threshold may be recognized. In addition, the standard provides guidance on derecognition, classification, interest and
F-29
penalties, accounting in interim periods, and disclosure. As of September 30, 2021, the Company has recorded $15.2M related to unrecognized tax benefits. Tax years for 2014 through 2021 are subject to examination by the tax authorities.
Tax Reform. The Tax Cuts and Jobs Act of 2017 (the “TJCA”) was enacted on December 22, 2017, and among other changes, reduced the federal statutory tax rate from 35.0% to 21.0%. In accordance with U.S. GAAP for income taxes, as well as SEC Staff Accounting Bulletin No. 1187 (“SAB”), the Company made a reasonable estimate of the impacts of the TJCA and recorded this estimate in Company results for the year ended September 30, 2021. SAB 118 allows for a measurement period of up to one year, from the date of enactment, to complete the accounting for the impact of TJCA. As of September 20, 2021, our analysis of under SAB 118 was completed and resulted in no material adjustments to the provisional amounts recorded as of September 30, 2021.
NOTE 17 – CONTINGENCIES AND CLAIMS
ASC 450 governs the disclosure and recognition of loss contingencies, including potential losses from litigation, regulatory, tax and other matters. The accounting standard defines a “loss contingency” as “an existing condition, situation, or set of circumstances involving uncertainty as to possible loss to an entity that will ultimately be resolved when one or more future events occur or fail to occur.” ASC 450 requires accrual for a loss contingency when it is “probable that one or more future events will occur confirming the fact of loss” and “the amount of the loss can be reasonably estimated.”
From time to time, we are subject to asserted and actual claims and lawsuits arising in the ordinary course of business. Company management reviews any such legal proceedings and claims on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our consolidated financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, management evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. We do not record liabilities when the likelihood is probable, but the amount cannot be reasonably estimated.
Preferred Management Partners, Inc. – Consulting Agreement
On September 23, 2021, MAI entered into a consulting arrangement with Preferred Management Partners, Inc. The Company hereby engages Preferred Management, Inc. to resume negotiations between MAI and Qiantu Motor Cars to enable the Company to procure the intellectual property ownership rights related to the K-50 automobile. As compensation for entering into this agreement and providing services to MAI, the consultant will receive 750,000 unrestricted publicly traded shares of the Company’s common stock registered on Form S-8 registration statement. If the consultant is successful, the Company will pay the consultant an additional 750,000 unrestricted shares of common stock registered on Form S-8 registration statement. As of this date, the Form S-8 registration statement has not been filed; however, the transaction is properly accounted for within the prepaid account and the liability for to issue future shares on the balance sheet.
Debt Financing
On September 3, 2021, the Company received debt financing through MTI entering into an unsecured $6.6 million convertible note agreement with TDR Capital. The initial sale and purchase was comprised of a $550,000 convertible note and detached warrants to acquire up to 2,180,750 shares in MTI stock (169,764 MAI warrants). The second sale and purchase was comprised of a $6,050,000 convertible note and detached warrants to acquire up to 23,988,500 shares in MTI stock (1,867,423 MAI warrants). The series of funding began October 5, 2021 and ended on 11/5/2021, the aggregate
F-30
funds received was $5.44 million, net of OID of 10% or $0.61 million. Refer to Note 5, Debt and Note 19, Subsequent Events.
Equity Financing
On May 7, 2021, MTI executed a $20,000,000 equity purchase agreement with the Acuitas Group Holdings, who committed to purchase shares of the MAI Series C Preferred Stock at a price of $8.84 per share. Upon NASDAQ uplifting and trading volume of stock, this equity will commence funding. On November 4, 2021, Acuitas Group Holdings wired $20,000,000 to MTI before the merger effective date with Net Element that occurred on November 5, 2021. As part of the transaction, Acuitas Group Holdings received 5,915,639 warrants with an adjusted exercise price of $8.83 and matures in five years.
Cambria – Investment Banking Services Agreement
On July 16, 2021 and September 8, 2021, MTI agreed to a proposal with Cambria a placement agent services for investment offerings up to $3,000,000. As a result of the agreement, MTI is obligated to pay a financing fee of 6.0% of aggregate gross proceeds and warrants equal to 6.0% of the offering. To date, Cambria has raised $750,000 in equity financing. The equity purchases of Series C Preferred Stock have detached warrants with strike price of $8.84. The warrants have a five-year maturity. Since the Series C Preferred Stock has not been issued to the investor due to pending merger between MAI and Net Element, the transaction is being accounted for within the prepaid account and the liability for to issue shares on the balance sheet.
Table below represents the post-merger shares for equity capitalization. As of September 30, 2021, there was no issuances of Series C preferred Stock and associated warrants.
| ● | Represents placement agent fees to Cambria. |
Drawbridge Acknowledgement, Waiver and Consent
On July 16, 2021, MTI and Drawbridge entered into an agreement whereby Drawbridge acknowledged, waived, and consented to the contribution and spin-off of Mullen’s EV assets into a new entity. As indicated in Note 1 to the financial statements, the spin-off occurred occur immediately prior to the merger with Net Element. As part of the agreement, Drawbridge was paid $10,000,000 that was applied towards the outstanding principal balance and includes a waiver of default. The principal reduction to the indebtedness to Drawbridge occurred on November 15, 2021.
F-31
International Business Machines (“IBM”)
We previously recorded a $4.5 million liability associated with a lawsuit with IBM, in which IBM contended that we had not fulfilled our obligations pursuant to a contract entered into during 2017. On April 28, 2020, the Supreme Court of the State of New York granted summary judgment in favor of IBM’s claim for breach of contract. The Court, however, found that a trial (inquest) was required to determine the damages to which IBM is entitled. We proposed an offer in settlement to resolve the matter, with the parties proceeding under the Joint Development and Technology License Agreement and all rights restored to us under the Trademark License Agreement. On December 1, 2021, the Supreme Court of the State of New York entered a judgment of $5.6 million to IBM. On December 2, 2021, we filed a Notice of Appeal. As a result, we recorded an additional charge, increasing the liability to the adjudicated amount.
Federal and State Tax Liabilities
We have recorded a $3.8 million liability at September 30, 2021 associated with past due amounts owed to the Internal Revenue Service (“IRS”) and the Employment Development Department of California (“EDD”) for failing to remit payroll taxes associated with MTI and the Company’s employees.
The IRS has filed a lien on substantially all of our assets. On April 28, 2021, MTI entered into an installment agreement with the EDD to pay $10,000 per month related to unpaid state payroll tax liabilities of $388,352 plus accrued interest. Monthly payments of $10,000 are being made and will continue until paid in full.
Raymond James and Associates (“RJA”) – Investment Banking Services Agreement
On May 5, 2020, MTI entered into an agreement with Raymond James & Associates for public offering and placement agent services. The agreement called for payment of a cash retainer of $50,000, which remains unpaid. Upon the closing of any public offering, regardless of whether RJA procured the agreement regarding the offering, we are obligated to pay a financing fee of equal to the greater of a) 6.0% of aggregate gross proceeds and b) $3,000,000.
Linghang Boao Group, LTD
In November 2019, we entered into a three-year Strategic Cooperation Agreement (“SCA”) with Linghang Boao Group LTD to co-develop a Solid- State Battery Management system with a 480 - 720-mile Driving Range. The Company’s total financial commitment under the SCA is $2,196,000. On December 3, 2019, we paid the first installment of $390,000. The remaining installments are payable upon the earlier of certain dates or the achievement of defined milestones.
The contractual target dates and milestones have been severely disrupted due to the occurrence COVID-19. As a result, our management believes the COVID-19 pandemic represents a Force Majeure event (that is, the pandemic has impacted our and Linghang Boao Group LTD’s ability to meet their respective contractual obligations due to restriction in movement, stoppage of production, increase in costs due to scarcity of raw materials components, labor shortages, shortage of funds, disruption in the supply chains, U.S. governmental closures of ports/borders and travel restrictions). Based on the foregoing, we believe there is no breach of contract due to our failure of performance. Unfortunately, we have sustained a loss of $390,000 at September 30, 2020 due to contract nonperformance and force majeure. There are no accrued liabilities recorded for any remaining milestone payments at September 30, 2021.
Our management has notified Linghang Boao Group of the decision to invoke the force majeure provision of the Strategic Cooperation Agreement due to the inability of the parties to perform caused by the global Pandemic.
F-32
ASC GEM Equity Line Financing
On January 4, 2021, MTI entered into a $350,000,000 equity line financing agreement with GEM Global Yield LLC (“Purchaser”) and GEM Yield Bahamas Limited (“GEM”). MAI plans to issue and sell common shares to GEM up to the number of common shares having an aggregate value of $350,000,000. The Purchaser will buy MAI shares based on the operational needs and/or drawdowns of the Company. If the aggregate limit has been reached, the Purchaser will increase the aggregate limit in an amount up to $150,000,000. The commitment fee, equal to 2% of the Aggregate Limit, will be charged for each draw-down. The fee may be paid in cash or freely tradeable common shares of the Company. The commitment begins when we effect the public listing of MAI common stock for trading on a U.S. national securities exchange. The agreement matures in 36 months after the public listing of MAI common shares.
Pursuant to the GEM Agreement, the commitment began on the “Public Listing Date”, defined as the date that we effected (i) a “Reverse Merger Transaction” (defined in the GEM Agreement as a reverse merger of a similar transaction between MAI and a special purpose acquisition company whose securities are publicly traded) or (ii) the direct listing of the Company’s common stock on a public market. Further to the GEM Agreement, we are obligated to issue warrants providing GEM the right to purchase up to 6.6% of our common shares outstanding on the Public Listing Date. As the Company is not effecting a Reverse Merger Transaction (that is, Net Element is not a special purpose acquisition company) nor is the Company effecting a direct listing of its common shares, the Company does not believe it is obligated under the GEM Agreement to pay fees nor issue warrants to GEM. In addition, the Company has agreed with a lender of its convertible promissory notes that the Company would not initiate utilization of the GEM Agreement.
As the Company did not effect a Reverse Merger Transaction as defined in the GEM agreement (that is, Net Element was not a special purpose acquisition company) nor did the Company effect a direct listing of its common shares, the Company does not believe it is obligated to pay fees nor issue warrants to GEM under the GEM Agreement. In addition, the Company has agreed with a lender of its convertible promissory notes that the Company would not initiate utilization of the GEM Agreement. Based upon information presently known to management, the Company believes that the potential liability will not have a material adverse effect on its financial condition, cash flows or results of operations. Therefore, no liability has been reflected on the financial statements.
Odyssey Group Settlement
On August 13, 2021, MTI and Odyssey Group reached a settlement concerning disputes and differences that arose from collections on invoices and liens pending pursuant to Odyssey’s Client Account and the Odyssey Group Consulting Agreement. Odyssey alleged that the MTI owed $503,637 at March 31, 2021. The parties agreed that Odyssey would receive $50,000 and 500,000 shares of MTI common stock (pre-merger). Additionally, Odyssey will receive an equivalent of $10,000 in cash or common stock from Mullen. The obligation to pay Odyssey may be terminated by either party upon 30-days’ notice by either party. A release of liability for the amounts owed on the Consulting arrangement was signed and executed on the settlement date. The Company has issued Odyssey the 500,000 common shares worth $1.25 million and paid $50,000 in cash and common stock. The $10,000 in cash or common stock provision has not been terminated by either party.
Litigation
On May 28, 2021, a Net Element shareholder filed a complaint against Net Element and Mullen Acquisition, Inc. and certain named individuals regarding the proposed merger transaction. The complaint alleges, among other things, a potential dilution of the value of Net Elements stock and a failure to act in with a fiduciary duty to its stakeholders.
On September 3, 2021, a Net Element shareholder filed a lawsuit against Net Element, Mullen Technologies, Inc. and Mullen Acquisition, Inc. and certain individuals regarding the proposed merger agreement. The lawsuit alleges material
F-33
omissions regarding the merger transaction and seeks to prevent the consummation of the merger agreement, as well as certain other equitable relief.
Based upon information presently known to management, the Company believes that the potential liability from the May 2021 complaint and September 2021 lawsuit, if any, will not have a material adverse effect on its financial condition, cash flows or results of operations. Therefore, no liability has been reflected on the financial statements.
NOTE 18 – RELATED PARTY TRANSACTIONS
At September 30, 2021 and September 30, 2020, respectively, the Drawbridge Investments, LLC relationship comprised various loans and advances, common shares, and preferred shares.
The Drawbridge loans are currently in default. The Common and Preferred Shares presented are shares in MTI that have been issued by MTI.
*Shares are MTI common and preferred shares.
The default interest rate on the Drawbridge loans is 28% per annum, and accrued interest is $9,465,094 at September 30, 2021.
Chief Executive Officer Loans to MTI
From time to time, the Company’s CEO provides loans to the Company. The outstanding balances for these loans at September 30, 2021, and September 30, 2020, are $479,914 and $236,565, respectively. Subsequent to September 30, 2021, the Company repaid their outstanding loan balance.
William Miltner
William Miltner is a litigation attorney who provides legal services to Mullen Technologies and its subsidiaries. Mr. Miltner also is an elected Director for MAI, beginning his term in August 2021. For the fiscal year ending September 30, 2021, Mr. Miltner received $901,398 for services rendered to us. Net billings were $890,484. Mr. Miltner has been providing legal services to us since 2020.
Equity Warrants (EXCHANGE AGREEMENT and EQUITY WARRANTS)
During 2020 and 2021, as part of the planned merger with Net Element, we entered into an Exchange Agreement and subsequent amendments with certain holders of convertible debt as an incentive to convert their convertible debt into shares of our series C preferred stock. In connection with this agreement, the Company issued warrants to these investors, which represents a share-based equity incentive (“Series Preferred C Investors”). Series C Preferred Investors also
F-34
purchased Series Preferred C Stock with detached warrants. The warrants have a fixed and determinable price of $8.84 per common share. The fair value of the MAI warrants is $13.7 million as of September 30, 2021.
NOTE 19 – SUBSEQUENT EVENTS
Company management has evaluated subsequent events through December 29, 2021, which is the date these financial statements were available to be issued. Except as discussed below, management has determined that there were no subsequent events which required recognition, adjustment to or disclosure in the carve-out financial statements:
Business Combination and Recapitalization
On November 5, 2021, the Company consummated the merger with Net Element. At the effective time of the Merger, the common and preferred equity interests held by our then investors were cancelled, and the investors received their respective shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in Net Element, Inc. (which was renamed Mullen Automotive, Inc.)
Prior to the Merger, Net Element, Inc. transferred its assets and liabilities to RBL Capital Group LLC (“RBL”) in full satisfaction of the outstanding loan balance owed to RBL by Net Element and its subsidiary or affiliated entities pursuant to a Divestiture Agreement, dated July 20, 2021, which was filed with the Registration Statement. Pursuant to ASC 805, for financial accounting and reporting purposes, Mullen Automotive, Inc. was deemed the accounting acquirer and Net Element was treated as the accounting acquiree, and the Business Combination was accounted for as a reverse merger transaction.
Debt and Equity Financing
Exchange Agreement (Convertible Debt to Equity Conversion)
On October 25, 2021, MTI amended the exchange agreement to include the $1,100,000 debt financing and detached warrants with JADR Consulting Group PTY Limited. The agreement represents Amendment No. 6 and Joinder to the Exchange Agreement that was originally signed on May 7, 2021 and amended on May 20, 2021. Upon consummation of the proposed merger with Net Element, 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.
Assignment and Assumption of Rights
On October 25, 2021, JADR Consulting Group PTY Limited and TDR Capital entered into agreement of Assignment and Assumption of Rights. On September 3, 2021, the Assignor (“TDR Capital”) agreed to purchase $6,600,000 in convertible debt and warrants to acquire 2,037,164 shares of MAI common stock. The Assignor has agreed with the Assignee (“JADR Consulting Group PTY Limited”) to assign al rights, title and interest in the aggregate original amount of $3,300,000 and warrants to acquire 1,201,521 shares of MTI common stock for the aggregate purchase price of $3,000,000. The funding would occur between October 27, 2021 and November 4, 2021.
On October 27, 2021, Amendment No. 6 and Joinder to the Exchange Agreement was modified to reflect the changes of the Assignment and Assumption of Rights document.
F-35
Convertible Debt Issuances and Warrants
On November 4, 2021, we received debt financing through MTI entering into an unsecured $1.1 million convertible note agreement with JADR Consulting Group PTY Limited. The convertible note is issued at OID of 10% ($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 417,375 shares of MAI common stock. The warrant exercise price is $8.84 per common share and expires five years from the date of issuance. The number of shares issuable upon conversion of the conversion amount is determined according to the formula: Conversion Amount/Conversion Price, subject to certain adjustments. However, upon conversion, JADR Consulting Group PTY Limited (together with its 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 November 4, 2021, the Company received debt financing through MTI entering into an unsecured $110K convertible note agreement with Michael Friedlander. The convertible note is issued with OID of 10% or $10K; 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 30,872 shares of MAI common stock. The warrant exercise price is $8.84 per common share and expires five years from the date of issuance. The number of conversions 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, Michael Friedlander (together with his 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.
*Assumption and assignment of $3,300,000 in convertible debt and warrants, which included 144,016 in additional warrants.
$30M common stock purchase
On September 1, 2021, MAI (through MTI) and Esousa Holdings, LLC entered into a Securities Purchase Agreement, whereby the Esousa Holdings, LLC committed to purchase up to an aggregate of $30,000,000 common shares over a twelve-month period. The number of shares purchased is based on a set of conditions. The number of common shares is calculated by multiplying 125% by $2,500,000 and then dividing by the closing sale price for the trading day immediately after the last closing trade price for MAI securities reported on the principal securities exchange or trading market is listed or trading. The initial closing date is based on the close of the reverse merger transaction with Net Element, which occurred on November 5, 2021. The Company must file a SEC registration statement covering the sale of the Registrable securities by MAI and be declared effective before the purchases of common stock commences. Lastly, the agreement contains a provisions that the purchase of common stock can vary based on an adjustment of upward or downward based on closing price calculation that must be calculated each month.
F-36
$15M Note Receivable Transaction
Securities Purchase Agreement
On October 8, 2021, MAI (through MTI) and CEOcast, Inc. entered into an agreement, whereby CEOCast, Inc. irrevocably committed to purchase, and MAI irrevocably committed to sell $15 million in warrants to acquire shares of common stock. The aggregate purchase price will be paid to MTI at closing by means of a full recourse promissory note. MAI will issue warrants that are registered in the name of CEOcast, Inc.
Promissory Note
On October 8, 2021, CEOcast, Inc. committed to pay to MAI (through MTI) in the principal amount of $15 million. The note receivable bears no interest, and the payment of principal will be made in 6 equal monthly installments beginning on the first business day of the calendar month after warrants.
Pre-Funded Common Stock Warrants (Penny Warrants)
On October 8, 2021, CEOcast, Inc. is entitled to receive warrants (this “Warrant”) issued by the Company in connection with the note receivable transaction contemplated within the Securities Purchase Agreement. The warrant structure is pre-funded, meaning that it allows MTI to receive the exercise price of a not pre-funded warrant, except for the nominal exercise price, at the time of warrant issuance rather than the time of exercise. The aggregate exercise price of the warrant is $0.001 per warrant share. The number of common shares is calculated by multiplying 125% by $2,500,000 and then dividing by the closing sale price for the trading day immediately after the sale price for the trading day immediately after the last closing trade price for MAI securities reported on the principal securities exchange or trading market is listed or trading. The initial closing date is based on the close of the reverse merger transaction with Net Element, which occurred on November 5, 2021. We are obligated to file a registration statement with the SEC covering the sale of the Registrable securities by MAI, which would be declared effective before commencement of the purchases of common stock.
Equity Swap Agreement
On October 8, 2021, the agreement was entered into between CEOcast, Inc. and MAI (through MTI) for the purposes of adjusting the number of warrant shares initially issued to CEOcast, Inc. The readjustment of shares will coincide with the schedule outlined within the Equity Swap Agreement. The schedule is to perform the warrant share calculation on the first business day of each month for the next six months beginning after the effective date of the reverse merger and the registration of common shares.
Drawbridge Acknowledgement, Waiver and Consent
On July 16, 2021, the Company and Drawbridge entered into an agreement whereby Drawbridge acknowledged, waived, and consented to the contribution and spin-off of Mullen’s EV assets into a new entity. As indicated in Note 1 to the financial statements, the spin-off occurred immediately prior to the consummation of the merger with Net Element. As part of the agreement, Drawbridge was paid $10,000,000, to be applied towards the outstanding principal balance and includes a waiver of default. The principal pay down to Drawbridge occurred on November 15, 2021.
Release of Liability, Debt Paydowns and Payoffs
On December 27, 2021, the Par Funding/CBSG debt of $78,904 has been satisfied and is longer a viable debt and should be removed from the books as a liability. The determination was made by Daniel Stermer, authorized agent for the United States Trustee.
F-37
On November 29, 2021, MAI (through MTI) repaid the $140,000 loan from the NY Group, which had matured on January 24, 2021.
On November 29, 2021, MAI (through MTI) repaid the $25,000 loan from MABM Holdings loan, which matured on January 13, 2021.
On November 11, 2021, the Company executed a release of liability for the EXIM relationship. MAI (through MTI) paid $1,750,000 to EXIM USA to dismiss or release any and all claims, causes of action, lawsuits or other demands upon MTI. The loan matured on October 31, 2019, and the then current balance on the loan was $700,000 plus interest.
On November 9, 2021, the Company executed a release of liability for the Elegant Funding relationship. The lending relationship covered two transactions:
| 1. | $458,000 loan dated May 23, 2018, which had matured on November 23, 2018. The current principal balance was $438,000, and the payoff amount was $604,770. |
| 2. | $185,000 dated September 29, 2018, which had matured on March 29, 2019. The current principal balance is $185,000, and the payoff amount is $222,426. |
On November 9, 2021, MAI (through MTI) repaid a loan from John Gordon, which had matured on May 7, 2019. In consideration for the payoff, MAI (through MTI) received the title to one (1) Qiantu Dragonfly K50 EV car.
Tunica, MS Production Facility – Purchase
On November 12, 2021, Mullen completed the $12,000,000 purchase of the Tunica County, MS property (“Advanced Manufacturing and Engineering Center” or “AMEC”). The property is approximately 127,400sf EV manufacturing facility and a small shed for storage. The property is located at 1 Greentech Drive, in the City of Robinsonville, MS. AMEC will be used to class 1 and class 2 EV cargo vans and the Mullen FIVE Crossover. The facility currently occupies 124,000 square feet of manufacturing space. The total available land on the property is over 100 acres. On the expanded site, Mullen plans to build a body shop, fully automated paint shop and a general assembly shop.
Show Car Development
On November 17, 2021, MAI debuted the Mullen FIVE Crossover at the LA Auto Show and was awarded Top SUV Zero Emission Vehicle. Mullen had two variants of the FIVE model on display while also showcasing powertrain, battery and charging technology. The cost of the two cars was approximately $4.1 million.
Employment Agreements
On November 5, 2021, MAI assumed liabilities, including employment agreements, from MTI as part of the reverse merger transaction with Net Element.
On November 15, 2021, MTI entered into an employment agreement with Shawn Hughes as the President of OEM Franchising of MAI. According to the employment agreement, he will receive an annual salary of $240,000 and 100,000 shares per year.
On October 25, 2021, MTI entered into an employment agreement with Kerri Sadler as the Chief Financial Officer of MAI. According to the employment agreement, she will receive an annual salary of $350,000 and 300,000 shares per year.
F-38
On September 14, 2021, MTI entered into an employment agreement with Jillian Green as the Vice President of Business and Legal Affairs of MAI. According to the employment agreement, she will receive an annual salary of $300,000 and 30,000 shares per year.
On July 1, 2021, MTI entered into an employment agreement with Jerry Alban as the Chief Operating Officer of MAI. According to the employment agreement, he will receive an annual salary of $350,000 and 300,000 shares per year.
Consulting Agreements
On October 26, 2021, MAI entered into a consulting agreement with Mary Winters, Corporate Secretary and Director, to compensate for Corporate Secretary Services and director responsibilities for the period of October 1, 2021, for one fiscal year ending September 30, 2022, in the amount of $60,000 annually or $5,000 per month.
On January 1, 2021, MAI entered into a consulting agreement with Connection Management to perform services in the following areas: creation and implementation of a marketing plan to the independent auto dealer community, consult in the areas of auto finance, and aftermarket product development, target marketing promotions within the auto reseller community. The agreement was signed by the Company and Shawn Hughes, who is the principal for Connection Management. The consulting contract was terminated on November 15, 2021, when Mr. Hughes became an employee of MAI.
Director Fees
Our board of directors adopted a non-employee director compensation policy, which we expect will became effective in August 2021. Under the non-employee director compensation policy, our non-employee directors are expected to be eligible to receive compensation for service on our board of directors and committees of our board of directors as follows:
| ● | Each non-employee director is entitled to receive $25,000 annually as a cash retainer for their board service, with additional annual cash retainers of (i) $2,000 for each member of our compensation committee or nominating and governance committee; (ii) $5,000 for the chairman of our compensation committee or nominating and governance committee; (iii) $8,000 for each member of our audit committee; and (iv) $45,000 for the chairman of our audit committee. All cash retainers are paid quarterly in arrears. |
| ● | Additionally, each non-employee director shall receive an annual stock option award under the 2021 Plan to purchase such number of shares of our Class A common stock that will equal $75,000 divided by the closing trading price of our Class A common stock on the date of each such grant, which will vest one year from the date of grant. Upon the occurrence of certain corporate events, including a change of control of the Company, all such stock option awards will immediately vest. The initial annual stock option award will be awarded to each of our non-employee directors in connection with the S-8 registration statement which will be filed in December 2021. |
Our non-employee directors are entitled to reimbursement of ordinary, necessary and reasonable out-of-pocket travel expenses incurred in connection with attending in-person meetings of our board of directors or committees thereof. In the event our non-employee directors are required to attend greater than four in-person meetings or 12 telephonic meetings during any fiscal year, such non-employee directors shall be entitled to additional compensation in the amount of $500 for each additional telephonic meeting beyond the 12 telephonic meeting thresholds, and $1,000 for each additional in-person meeting beyond the four in-person meeting threshold.
F-39
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Mullen Automotive Inc.
Brea, California
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-195476, No. 333-208364, No. 333-212277, No. 333-221082, No. 333-228647, No. 333-236719, No. 333-252767 and No. 333-260793) of Mullen Automotive Inc. (formerly Net Element, Inc.), of our report dated December 29, 2021, relating to the consolidated financial statements of Mullen Automotive Inc. at and for the years ended September 30, 2021 and 2020, which appear in this Form 10-K/A.
/s/ Daszkal Bolton, LLP
Fort Lauderdale, Florida
January 10, 2022
Exhibit 31.1
CEO Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David Michery, certify that:
| 1. | I have reviewed this report on Form 10-K/A of Mullen Automotive Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a |
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
|
|
|
Date: |
January 10, 2022 |
By: |
/s/ David Michery |
|
|
|
|
David Michery |
|
|
|
|
Chief Executive Officer |
Exhibit 31.2
CFO Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kerri Sadler, certify that:
| 1. | I have reviewed this report on Form 10-K/A of Mullen Automotive Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a |
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
|
|
|
Date: |
January 10, 2022 |
By: |
/s/ Kerri Sadler |
|
|
|
|
Kerri Sadler |
|
|
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K/A for the period ended September 30, 2021 of Mullen Automotive Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report. |
|
By: |
/s/ David Michery |
|
|
David Michery |
|
|
Chief Executive Officer |
|
|
January 10, 2022 |
|
|
|
|
|
|
|
By: |
/s/ Kerri Sadler |
|
|
Kerri Sadler |
|
|
Chief Financial Officer |
|
|
January 10, 2022 |