UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
☐ 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 |
| 90-1025599 |
(State or other jurisdiction of | (I.R.S. Employer |
1405 Pioneer Street |
(Address of principal executive offices) |
(714) 613-1900 |
(Registrant’s Telephone Number, Including Area Code) |
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 per share | MULN | The Nasdaq Stock Market, LLC (Nasdaq Capital Market) |
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 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 13, 2022 a total of 332,443,385 shares of the Registrant’s common stock, par value $0.001, (“Common Stock”) were issued and outstanding.
MULLEN AUTOMOTIVE INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MULLEN AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
See accompanying notes to condensed consolidated interim financial statements.
2
MULLEN AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended March 31, |
| Six months ended March 31, | |||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | |||||||
OPERATING EXPENSES |
|
|
|
|
|
| |||||||
General and administrative | $ | 29,269,433 | $ | 4,676,740 | $ | 42,170,516 | $ | 7,629,418 | |||||
Research and development |
| 1,183,437 |
| 538,271 |
| 2,340,761 |
| 1,056,294 | |||||
Total Operating Expense |
| 30,452,870 |
| 5,215,011 |
| 44,511,277 |
| 8,685,712 | |||||
Loss from Operations |
| (30,452,870) |
| (5,215,011) |
| (44,511,277) |
| (8,685,712) | |||||
Interest expense |
| (2,120,515) |
| (4,092,759) |
| (24,559,459) |
| (6,499,089) | |||||
Loss on debt settlement |
| — |
| — |
| (41,096) |
| — | |||||
Gain on extinguishment of indebtedness, net |
| — |
| 10,000 |
| 74,509 |
| 890,581 | |||||
Net Loss | $ | (32,573,385) | $ | (9,297,770) | $ | (69,037,323) | $ | (14,294,220) | |||||
Net Loss per Share | (0.63) | (1.81) | (1.99) | (2.85) | |||||||||
Weighted average shares outstanding, basic and diluted |
| 51,392,988 |
| 5,135,797 |
| 34,639,857 |
| 5,020,144 |
See accompanying notes to condensed consolidated interim financial statements.
3
MULLEN AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited)
| Preferred Stock |
|
|
|
|
|
|
|
| Deficiency in | |||||||||||||||||||
Series A | Series B | Series C | Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||||||||
Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||||||
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) | ||||||||||
Warrant issuances |
| — | — | — | — | — | — | — | — | 2,092,337 | — | 2,092,337 | |||||||||||||||||
Beneficial Conversion Feature -Debt |
| — | — | — | — | — | — | — | — | 172,663 | — | 172,663 | |||||||||||||||||
Stock-based compensation |
| — | — | — | — | — | — | 38,561 | 39 | 1,241,366 | — | 1,241,405 | |||||||||||||||||
Net loss |
| — | — | — | — | — | — | — | — | — | (4,996,450) | (4,996,450) | |||||||||||||||||
Balance, December 31, 2020 |
| 116,789 | 116 | 5,567,319 | 5,568 | — | — | 5,124,786 | 5,125 | 67,125,646 | (111,130,519) | (43,994,064) | |||||||||||||||||
Shares issued for cash |
| — | — | — | — | — | — | 23,126 | 23 | 1,104,779 | — | 1,104,802 | |||||||||||||||||
Warrant issuances |
| — | — | — | — | — | — | — | — | 870,428 | — | 870,428 | |||||||||||||||||
Stock-based compensation |
| — | — | — | — | — | — | — | — | 1,631,660 | — | 1,631,660 | |||||||||||||||||
Beneficial conversion feature of convertible debt |
| — | — | — | — | — | — | — | — | 98,335 | — | 98,335 | |||||||||||||||||
Net loss |
| — | — | — | — | — | — | — | — | — | (9,297,770) | (9,297,770) | |||||||||||||||||
Balance, March 31, 2021 |
| 116,789 | $ | 116 | 5,567,319 | $ | 5,568 | — | $ | — | 5,147,912 | $ | 5,148 | $ | 70,830,848 | $ | (120,428,289) | $ | (49,586,609) |
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See accompanying notes to condensed consolidated interim financial statements.
5
MULLEN AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Cash Flows from Operating Activities |
|
|
|
| ||
Net Loss | $ | (69,037,323) | $ | (14,294,220) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
| ||
Depreciation and amortization |
| 608,496 |
| 223,331 | ||
Employee stock compensation |
| 3,292,987 |
| 932,872 | ||
Issuance of shares for services |
| 24,042,060 |
| 1,291,129 | ||
Non-cash interest and other operating activities |
| 1,713,103 |
| — | ||
Non-cash lease expense |
| 284,879 |
| 272,067 | ||
Amortization of debt discount |
| 19,400,483 |
| 1,405,450 | ||
Loss on asset disposal |
| 1,298 |
| — | ||
(Gain) on extinguishment of debt |
| (74,509) |
| (890,581) | ||
Loss on debt settlement |
| 41,096 |
| — | ||
Changes in operating assets and liabilities: |
|
|
|
| ||
Other current assets |
| 3,330,474 |
| 123,691 | ||
Other assets |
| (858,692) |
| (158,601) | ||
Accounts payable |
| (1,032,810) |
| 664,093 | ||
Accrued expenses and other liabilities |
| (6,300,181) |
| 5,070,319 | ||
Lease liabilities |
| (283,141) |
| (259,267) | ||
Net cash (used) provided by operating activities |
| (24,871,780) |
| (5,619,717) | ||
Cash Flows from Investing Activities |
|
|
|
| ||
Purchase of equipment |
| (10,491,547) |
| (60,818) | ||
Purchase of intangible assets |
| (246,132) |
| (41,250) | ||
Net cash (used) in investing activities |
| (10,737,679) |
| (102,068) | ||
Cash Flows from Financing Activities |
|
|
|
| ||
Changes in net parent investment |
| (223,067) |
| 2,636,711 | ||
Proceeds from issuance of notes payable |
| 12,142,791 |
| 4,068,500 | ||
Proceeds from issuance of common stock |
| 40,151,308 |
| — | ||
Proceeds from liability to issue preferred C shares |
| 63,925,000 |
| — | ||
Payment of notes payable |
| (15,146,860) |
| (164,486) | ||
Net cash provided by financing activities |
| 100,849,172 |
| 6,540,725 | ||
Increase (decrease) in cash |
| 65,239,713 |
| 818,940 | ||
Cash, beginning of period |
| 42,174 |
| 33,368 | ||
Cash, ending of period | $ | 65,281,887 | $ | 852,308 | ||
Supplemental disclosure of Cash Flow information: |
|
|
|
| ||
Cash paid for interest | $ | 1,489,908 | $ | 7,783 | ||
Supplemental disclosure for non-cash activities: |
|
|
|
| ||
Preferred shares issued in exchange for convertible debt | $ | 24,991,755 | $ | — |
See accompanying notes to condensed consolidated interim financial statements.
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MULLEN AUTOMOTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the Commission for the year ended September 30, 2021. The results of operations for the periods presented are not necessarily indicative of results to be expected for the full fiscal year or any other periods.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Mullen Investment Properties, LLC, which was established in August 2021 to hold our real estate. Intercompany accounts and transactions have been eliminated, if any. As of March 31, 2022, Mullen Investment Properties, LLC holds the Advanced Manufacturing and Engineering Center or “AMEC” in Tunica County, MS.
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 condensed consolidated balance sheets include all of the MAI Assets. The condensed consolidated Statements of operations for each of the three and six months ended March 31, 2022 and 2021, 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.
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NOTE 2 – LIQUIDITY, CAPITAL RESOURCES, AND GOING CONCERN CONSIDERATION
The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern. Our principal source of liquidity consists of existing cash and restricted cash of approximately $65.3 million at March 31, 2022. During the six months ended March 31, 2022, the Company used $27.9 million of cash for operating activities and had net working capital of approximately $40.5 million at March 31, 2022.
During the three months ended March 31, 2022, the Company obtained additional financing in the amount of $5.0 million in notes payable; and $73.6 million in equity issuances. During the six months ended March 31, 2022, the Company obtained additional financing in the amount of $12.2 million in notes payable; $10 million in equity from Net Element merger; and $93.6 million in equity issuances.
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.
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 $219.4 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. 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 for the periods presented prior to March 5, 2021 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.
8
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 consolidated 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.
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. There were no cash equivalents at March 31, 2022 or September 30, 2021.
Restricted Cash
Funds that are not available for immediate use and must use for a specific purpose. These funds are refundable deposits for individuals and businesses who have made $100 reservations for the Mullen FIVE SUV, which debuted at the Los Angeles Auto Show in November 2021. At March 31, 2022, the restricted cash balance was $131,793. Customer deposits are accounted for within other liabilities
Deferred Advertising
At March 31, 2022 and September 30, 2021, deferred advertising was $48,855 and $261,550, respectively. The cost were primarily upfront costs paid related to the Los Angeles auto show during November 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.
9
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 |
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 assess 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 March 31, 2022 and September 30, 2021, 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 March 31, 2022 and September 30, 2021.
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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.
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. 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 MAI 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 MAI 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 MAI common and preferred share valuations have been appraised by an independent financial valuation advisor, based on assumptions management believes to be
11
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, MAI Share-Based Compensation, for the amount of share-based compensation expense that is included within General and Administrative expenses for the three and six months ended March 31, 2022 and 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 maintain 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.
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 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.”
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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.
NOTE 4 – INTANGIBLE ASSETS
For the six months ended March 31, 2022 and 2021, we incurred website development and trademark costs of $246,132 and $41,250, 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 March 31, 2022. 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 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.
Total future amortization expense for finite-lived intellectual property is as follows:
Years Ended March 31, |
| Future Amortization | |
2022 (six months) | $ | 443,398 | |
2023 |
| 886,797 | |
2024 |
| 665,099 | |
Thereafter | 300,722 | ||
Total Future Amortization Expense | $ | 2,296,016 |
For the three and six months ended March 31, 2022, amortization expense for the intangible assets was $221,699 and $445,376, and $5,932 and $11,864 for the three and six months ended March 31, 2021, respectively.
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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 March 31, 2022:
Net Carrying Value | |||||||||||||
Unpaid Principal | Contractual | Contractual | |||||||||||
Type of Debt |
| Balance |
| Current |
| Long-Term |
| Interest Rate |
| Maturity | |||
Matured Notes | $ | 3,051,085 | $ | 3,051,085 | $ | — |
| 0.00% - 15.00 | % | 2016 - 2021 | |||
Promissory Notes |
| 19,331,912 |
| 14,331,912 |
| 5,000,000 |
| 8.99% - 28.00 | % | 2021 – 2024 | |||
Real Estate Note |
| 265,973 |
| 37,185 |
| 228,788 |
| 5.00 | % | 2023 | |||
Loan Advances |
| 557,800 |
| 557,800 |
| — |
| 0.00% - 10.00 | % | 2019 – 2020 | |||
Less: Debt Discount |
| (1,118,902) |
| (1,118,902) |
| — |
| NA |
| NA | |||
Total Debt | $ | 22,087,868 | $ | 16,859,080 | $ | 5,228,788 |
| NA |
| NA |
The following is a summary of our indebtedness at September 30, 2021:
Scheduled Debt Maturities
The following scheduled debt maturities at March 31, 2022:
| Years Ended March 31, | |||||||||||
| 2022 (6 months) |
| 2023 |
| 2024 |
| Total | |||||
Total Debt | $ | 16,859,080 | $ | 228,788 | $ | 5,000,000 | $ | 22,087,868 |
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%. Company management is working with the creditors to remediate the $3,051,085 in promissory notes and $557,800 in 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 three and six months ended March 31, 2022, we recorded interest expense of $2,120,515 and $24,559,459, and $4,092,759 and $6,499,089 for the three and six months ended March 31, 2021, respectively.
14
In some instances, MTI issued 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 three and six months ended March 31, 2022 and 2021, was $188,307 and $19,400,483, and was $918,574 and $1,405,450 for the three and six months ended March 31, 2021, 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 six months ended March 31, 2022 and 2021, the carrying amount of indebtedness that was settled via issuance of MTI shares was $23,192,500 and zero, respectively.
NuBridge Commercial Lending LLC Promissory Note
On March 7, 2022, the Company’s wholly owned subsidiary, Mullen Investment Properties, LLC entered into a Promissory Note (the “Promissory Note”) with NuBridge Commercial Lending LLC for a principal amount of $5 million. The Promissory Note bears interest at a fixed rate of 8.99% per annum and the principal amount is due March 1, 2024. Collateral for the loan included the title to the Company’s property at 1 Greentech Drive, Tunica, MS Under the Promissory Note, prepaid interest and issuance costs were withheld from the principal and recorded as a discount on the note of $1.2 million, which will be amortized over the term of the note. As of March 31, 2022, the remaining unamortized discount was 1,118,902.
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 $27,185,390 and $33,296,648 as of March 31, 2022 and September 30, 2021, respectively, and are in default. The amounts owed to other DBI-affiliated entities is zero and $982,500, as of March 31, 2022 and September 30, 2021, respectively. The 2020 Drawbridge loan is currently recognized within the current portion of debt on the consolidated balance sheet.
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 March 7, 2022, the Company repaid the $100,000 loan from Chris Langley, which matured on April 27, 2016
On March 11, 2022, the Company repaid the $250,000 loan from Wittels Consulting LLC, which matured on January 19, 2021.
On February 28, 2022, the Company repaid the $200,000 loan from Lee Tran, which matured on January 28, 2022
On March 3, 2022, the Company repaid the $1,000,000 loan from Mark Betor, and $150,000 interest, with a maturity date of April 10, 2022.
On December 27, 2021, the Par Funding/CBSG debt of $74,509 has been deemed satisfied by the authorized agent for the trustee of the creditor. As result of the trustee’s actions, the Company recorded an extinguishment of $74,509.
15
On November 29, 2021, the Company repaid $140,000, and on March 11, 2022 repaid $110,000, on the loan from the NY Group, which had matured on January 24, 2021.
On November 29, 2021, the Company repaid the $25,000 loan from MABM Holdings loan, which matured on January 13, 2021.
On November 19, 2021, the Company repaid $250,000, and on February 1, 2022 repaid $207,500, on the loan from the Royal Business Group LLC, which had matured on July 17, 2020.
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 settlement, MAI (through MTI) received the title to one (1) Qiantu Dragonfly K50 EV car.
Convertible Notes
Between August 2020 and November 2021, MTI issued unsecured convertible notes totaling $23,192,500. The unsecured convertible notes bore interest at 15% and included warrants to acquire shares of common stock based on a specified formula. Interest was accrued in arrears until the last business day of each calendar year quarter. The default rate on the note would increase to 20% if quarterly interest payments are not timely made by MTI.
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 March 31, 2021, the discount was fully amortized.
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 condensed 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.
16
NOTE 7 – 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, Series B, and Series C. 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 three and six months ended March 31, 2022 and 2021.
The Series C Preferred Stock bears a cumulative 15.0% per annum fixed dividend payable no later than the 5th day after the end of each month on the Series C Original Issue Price plus unpaid accrued and accumulated dividends. Dividends on the Series C Preferred Stock are prior to any dividends on any other series of Preferred Stock or the Common Stock.
The Company may elect to pay dividends for any month with a paid-in-kind election (“PIK”) if (i) the shares issuable further to the PIK are subject to an effective registration statement, (ii) the Company is then in compliance with all listing requirements of NASDAQ and (iii) the average daily trading dollar volume of the Company’s Common Stock for 10 trading days in any period of 20 consecutive trading days on the NASDAQ is equal to or greater than $2.0 million. There is no mandatory redemption date, but, subject to the conditions set forth below, all, but not less than all, of the shares are redeemable by the Company at any time, provided that if the Company issues notice to redeem, holders of Series C Preferred shall have 15 days to convert such shares to Common Stock prior to the date of redemption.
In addition to the above, the shares are also redeemable by the Company in accordance with the following schedule provided the issuance of shares of Common Stock underlying the shares has been registered and the registration statement remains effective:
Year 1: No Redemption
Year 2: Redemption at 120% of the Series C Redemption Price
Year 3: Redemption at 115% of the Series C Redemption Price
Year 4: Redemption at 110% of the Series C Redemption Price
Year 5: Redemption at 105% of the Series C Redemption Price
Year 6 and thereafter: Redemption at 100% of the Series C Redemption Price
17
Liquidation
Based on a reverse ratio of one share of the Company for 12.9485 shares of Mullen Technologies (the “Reverse Ratio”):, (i) the liquidation preference for the Series A Preferred to $1.29 per share from $0.10 per share as set forth in Section 2(c) of Article III(B) of the Certificate, and (ii) the “Series B Original Issue Price” of the Series B Preferred and the “Series C Original Issue Price” of the Series C Preferred to $8.84 per share from $0.6877 per share as set forth in Section 2(a) and Section 2(b), respectively, of Article III(B) of the Certificate.
Subject to applicable law, in the event of any Liquidation Event, the holders of the Series B Preferred will be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of the other series of Preferred Stock or the Common Stock by reason of their ownership thereof, an amount per share equal to the Series B Original Issue Price plus declared but unpaid dividends. The holders of the Series C Preferred will then be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of the Series A Preferred or the Common Stock by reason of their ownership thereof, an amount per share equal to the Series C Original Issue Price plus declared but unpaid dividends. Thereafter, any remaining proceeds will be distributed to holders of the Series A Preferred and Common Stock ratably in proportion to the number of shares of the Series A Preferred and Common Stock held by them, on a fully converted basis.
Conversion
Preferred Stock Series A is convertible at any time at the option of the holder into Common Stock at a conversion rate of
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 and Preferred Stock Series C are 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
The holders of shares of Common Stock and Preferred Stock shall at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders; provided, however, that, any proposal which adversely affects the rights, preferences and privileges of the Series A Preferred, Series B Preferred, or Series C Preferred, as applicable, must be approved by a majority in interest of the affected Series of Preferred Stock, as the case may be. Each holder of Common Stock, Series B Preferred and Series C Preferred to have the right to one vote per share (on a fully converted basis) held of record by such holder and each holder of Series A Preferred have the right to 1,000 votes per share (on a fully converted basis) held of record by such holder.
Common Stock
We have 500,000,000 shares of common stock authorized with $0.001 par value per share. There were 289,784,112 and 7,048,387 shares of common stock
and at March 31, 2022 and September 30, 2021.18
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.
Warrants
The Warrants were issued at an initial exercise price of $0.6877 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The exercise price was adjusted as provided in the warrants and further in accordance with the Merger Agreement such that the exercise price is now $8.84 per share. The Warrants were exercisable for an aggregate of 196,005,353 shares of Common Stock as of March 31, 2022.
The Warrants provide that if the Company issues or sells, enters into a definitive, binding agreement pursuant to which he Company is required to issue or sell or is deemed, pursuant to the provisions of the Warrants, to have issued or sold, any shares of Common Stock for a price per share lower than the exercise price then in effect (a “Dilutive Issuance”), subject to certain limited exceptions, then the exercise price of the Warrants shall be reduced to such lower price per share. In addition, the exercise price and the number of shares of Common Stock issuable upon exercise of the Warrants are subject to adjustment in connection with stock splits, dividends or distributions or other similar transactions.
The following table summarizes warrant activity for the six months ended March 31, 2022:
2020-2021 Warrants
The warrants are exercisable for a five-year period commencing upon issuance. The estimated fair value of the MAI warrants was valued 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:
| March 31, 2022 |
| ||
Expected term (in years) |
| 5.0 | ||
Volatility |
| 135 | % | |
Dividend yield |
| 0.00 | % | |
Risk-free interest rate |
| 0.98 % - 1.17 | % | |
Common stock price |
| $ | 4.16 |
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. All unamortized debt discount was charged to interest at the time of merger on November 5, 2021.
Registration Rights and Registration Statement Form S-3
At the effective time of the Merger, various agreements that Mullen Technologies entered into were assumed by the Company, including the Exchange Agreement, the $20 Million SPA and the Registration Rights Agreement. These agreements caused the Company to be obligated to file one or more registration statements to register the resale of our Common Stock.
19
On April 15, 2022, the SEC deemed the Registration Statement Form S-3 (File No. 333-263880) effective. The Company registered the resale of Conversion Shares and the Warrant Shares as required by that certain Registration Rights Agreement, entered into among Mullen Technologies, Inc (“Mullen Technologies”) and certain of the Selling Stockholders (the “Registration Rights Agreement”) and that certain Exchange Agreement, entered into among Mullen Technologies and certain of the Selling Stockholders (the “Exchange Agreement”). The Offered Shares consisted solely of 51,622,489 shares of our Common Stock, 4,969,357 shares of our Common Stock (the “Conversion Shares”) issuable upon conversion of our preferred stock, and up to 196,517,186 shares of our Common Stock (the “Warrant Shares”) issuable upon exercise of outstanding warrants to purchase shares of our Common Stock (the “Warrants”).
Equity Transactions
$30 Million Esousa Equity Line of Credit
On September 1, 2021, Mullen Technologies and Esousa Holdings LLC (“Esousa”) entered into a Securities Purchase Agreement (the “Equity Line of Credit”) whereby the Esousa Holdings, LLC committed to purchase up to an aggregate of up to $30,000,000. At the effective time of the Merger, the obligations under the Equity Line of Credit were assumed by the Company.
As a condition to the obligation of the investor to fund the Equity Line of Credit, the Company must file an SEC registration statement covering the sale of the Common Stock issued under the Equity Line of Credit and such registration statement must be declared effective. The SEC Registration Statement was filed on February 1, 2022 and was declared effective on February 3, 2022.
As of March 31, 2022 MAI has received net proceeds of $29.6 million from the equity line of credit and Esousa has received 54,811,504 common shares.
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 the three and six months ended March 31, 2022 and 2021, the shares of 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.
NOTE 9 – MAI SHARE- BASED COMPENSATION
MAI 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 MAI’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 MAI Common Shares. Employees are vested in 100% of the MAI 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. Since we are public company, the employee shares are valued each month, using the MULN closing stock price on the NASDAQ CM.
20
Consulting agreements or MAI shares for services are determined by the number of MAI shares granted within the individual contracts, as well as the services provided by the consultant. The MAI shares specified within the individual agreements are negotiated and approved by our Chief Executive Officer. The consultant earns the MAI shares over the service period. The MAI 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
| March 31, 2022 |
| September 30, 2021 | |||
Accrued Expenses and Other Liabilities |
|
|
|
| ||
Accrued expense - other | $ | 3,281,186 | $ | 2,051,696 | ||
Accrued payroll |
| 4,004,893 |
| 4,586,057 | ||
Accrued interest |
| 14,310,221 |
| 12,489,012 | ||
Total | $ | 21,596,300 | $ | 19,126,765 |
Accrued payroll represents salaries and benefits that are owed to employees, including payroll tax liabilities. Delinquent IRS and state tax liabilities as of March 31, 2022 and September 30, 2021 are $2,865,292 and $3,904,720, 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. See Note 17, Contingencies and Claims.
Accrued interest relates to finance charges on debt financing and represents interest on loans, and convertible notes payable throughout 2021. See Note 5, Debt.
NOTE 11 – NOTE RECEIVABLE
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 pre-funded warrants that are registered in the name of CEOcast, Inc. The investor is committed to pay to MAI (through MTI) in the principal amount of $15 million. The note receivable bears no interest.
NOTE 12 – LIABILITY TO ISSUE STOCK
Liability represents stock payable that is accrued for and issuable at a future date for certain consultants and employees and was zero and $7,027,500 as of March 31, 2022 and September 30, 2021, respectively.
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NOTE 13 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment, and leasehold improvements, net consists of the following:
| March 31, |
| September 30, | |||
2022 | 2021 | |||||
Building | $ | 8,078,757 | $ | 804,654 | ||
Furniture and Equipment |
| 485,534 |
| 111,102 | ||
Vehicles |
| 45,887 |
| 45,887 | ||
Computer Hardware and Software |
| 201,834 |
| 139,742 | ||
Machinery and Equipment |
| 6,946,018 |
| 2,597,654 | ||
Leasehold Improvements |
| 40,368 |
| 66,379 | ||
Subtotal |
| 15,798,398 |
| 3,765,418 | ||
Less: Accumulated Depreciation |
| (2,744,463) |
| (2,583,941) | ||
Property, Equipment and Leasehold Improvements, Net | $ | 13,053,935 | $ | 1,181,477 |
Depreciation expense related to property, equipment and leasehold improvements for the three-and-six months ended March 31, 2022 was $81,160 and $165,182, and was $108,972 and $211,467 for the three and six months ended March 31, 2021, respectively.
On November 12, 2021, Mullen Investment Properties, LLC, MAI real estate wholly owned subsidiary, completed the $12,000,000 purchase of the Tunica County, MS property ("Advanced Manufacturing and Engineering Center" or "AMEC"). The property is approximately 127,400 square feet 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.
NOTE 14 – OTHER ASSETS
Other assets consist of the following:
| March 31, 2022 |
| September 30, 2021 | |||
Other Assets |
|
|
|
| ||
Coda Materials | $ | 76,588 | $ | 76,587 | ||
Show Room Cars |
| 3,716,106 |
| 2,739,995 | ||
Security Deposits |
| 186,640 |
| 186,640 | ||
Deposit on Property (See Note 16) |
| — |
| 1,240,000 | ||
Total Other Assets | $ | 3,979,334 | $ | 4,243,222 |
22
NOTE 15 – OPERATING EXPENSES
General and Administrative Expenses consists of the following:
Three months ended March 31, | Six months ended March 31, | ||||||||||||
2022 | 2021 |
| 2022 |
| 2021 | ||||||||
Professional fees |
| $ | 21,725,222 |
| $ | 2,457,846 | $ | 26,864,554 | $ | 3,399,575 | |||
Salaries |
| 4,217,073 |
| 1,082,480 |
| 7,378,993 |
| 2,234,148 | |||||
Depreciation and amortization |
| 302,859 |
| 114,903 |
| 610,558 |
| 223,331 | |||||
Lease |
| 559,583 |
| 379,234 |
| 1,019,118 |
| 735,404 | |||||
Settlements and penalties |
| 589,846 |
| 24,910 |
| 884,832 |
| 79,498 | |||||
Employee benefits |
| 545,108 |
| 88,516 |
| 913,160 |
| 171,546 | |||||
Utilities and office expense |
| 111,419 |
| 72,351 |
| 225,913 |
| 140,234 | |||||
Advertising and promotions |
| 472,803 |
| 223,675 |
| 2,925,593 |
| 253,216 | |||||
Taxes and licenses |
| 210,697 |
| 4,811 |
| 279,488 |
| 11,505 | |||||
Repairs and maintenance |
| 60,482 |
| 56,529 |
| 79,702 |
| 100,335 | |||||
Other |
| 474,341 |
| 171,485 |
| 988,605 |
| 280,626 | |||||
Total | $ | 29,269,433 | $ | 4,676,740 | $ | 42,170,516 | $ | 7,629,418 |
Research and development consist of the following:
Three months ended March 31, | Six months ended March 31, |
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| 2022 |
| 2021 |