UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
☒ 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.
EXPLANATORY NOTE
This Amendment No. 1 (this “Amendment No. 1”) to our Quarterly Report on Form 10-Q for the period ended March 31, 2022, which was initially filed with the Securities and Exchange Commission on May 16, 2022 (the “Original Filing”), is being filed to amend the following: (i) statements regarding the status of our loan with Drawbridge Investments, LLC, which inadvertently stated was in default but it is not in default, (ii) the dollar amount of preferred shares issued in exchange for convertible debt for the six months ended March 31, 2022 in the Condensed Consolidated Statements of Cash Flows, (iii) in Note 17 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements and Part II, Item 2. (Unregistered Sales of Equity Securities and Use of Proceeds), the description of the arrangement with, and issuance of shares to, Preferred Management Partners, Inc., (iv) in Note 19 - Subsequent Events of the Notes to Condensed Consolidated Financial Statements, the number of shares issued to CEOcast, Inc. on 4/18/2022 and the total shares in the preceding paragraph, and (v) the reference to the period ended of this Form 10-Q in exhibit 32.1.
Except as described above, no other information included in the Original Filing is being amended or updated by this Amendment No. 1. This Amendment No. 1 continues to describe the conditions as of the date of the Original Filing. Except as expressly contained herein, we have not updated, modified or supplemented the disclosures contained in the Original Filing and this Amendment No. 1 does not purport to reflect any information or events subsequent to the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.
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 | $ | 23,192,500 | $ | — | ||
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.
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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
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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.
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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. 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. 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.
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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.
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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
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
17
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.
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.
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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.
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
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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.
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
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| 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.
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
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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 | ||
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:
Research and development costs are expensed as incurred. Research and development expenses primarily consist of Mullen Five EV development and are primarily comprised of personnel-related costs for employees and consultants.
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NOTE 16 – LEASES
MTI (now assumed by MAI due to the merger) 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 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 costs: | For the three months ended March 31, | For the six months ended March 31, |
| ||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Fixed lease cost | $ | 452,789 | $ | 140,171 | $ | 739,271 | $ | 485,241 | |||||
Variable lease cost |
| 130,752 |
| 232,283 |
| 260,357 |
| 236,599 | |||||
Short-term lease cost |
| 29,185 |
| 27,795 |
| 125,777 |
| 55,591 | |||||
Sublease income |
| (53,144) |
| (21,013) |
| (106,287) |
| (42,026) | |||||
Total operating lease costs | $ | 559,582 | $ | 379,236 | $ | 1,019,118 | $ | 735,405 | |||||
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.
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The following table reflects maturities of operating lease liabilities at March 31, 2022:
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., an entity owned by Preston Smart ("PMP"), to resume negotiations between MAI and Qiantu Motor Cars to enable the Company to obtain the intellectual property ownership rights related to the K-50 automobile. The agreement calls for the issuance of 750,000 shares of common stock, with a conditional success fee of an additional 750,000 shares of common stock.
On January 25, 2022, MAI Board of Directors approved the issuance of a 1,000,000 share supplement to the consulting arrangement. The shares were issued in February 2022.
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.
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Federal and State Tax Liabilities
We have recorded a $2.8 million liability at March 31, 2022 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 14, 2022, the Company entered into an instalment with the IRS to pay $45,000 per month related to unpaid federal payroll liabilities plus accrued interest and penalties.
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 $346,575 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 Guochang Holding Group Co. (a/k/a “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. We 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 March 31, 2022.
Our management 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 (Refer to Note 19, Subsequent Events, for updated details).
ASC GEM Equity Line Financing
This claim arises out an alleged breached Securities Purchase Agreement dated November 13, 2020. On November 9, 2021, the parties appointed an arbitrator. On January 7, 2022, GEM filed a letter brief with the arbitrator requesting leave to file a dispositive motion addressing a threshold legal issue regarding a defined term within a contract executed by the parties. Mullen filed a response to the letter brief on January 12, 2022.
On January 21, 2022, the arbitrator issued a procedural order granting GEM’s request to file a dispositive motion. GEM filed its dispositive motion is on February 14, 2022. Mullen’s filed its opposition to the dispositive motion on March 3, 2022. On April 4, 2022, the court denied GEM’s dispositive motion. The parties exchanged discovery requests on May 10, 2022. Responses are due served on or before June 8, 2022.
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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 MAI. 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. Odyssey/Adam Grill’s contract was terminated on March 31st and the last effective date of the Consulting Contract was April 30th, 2022.
Net Element Shareholder 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 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 March 31, 2022 and September 30, 2021, respectively, the Drawbridge Investments, LLC relationship comprised various loans and advances, common shares, and preferred shares. The Common and Preferred Shares presented are shares in MAI, since issued MTI shares were exchanged due to the merger.
Drawbridge Related Transactions | ||||||||||||||||
(Cumulative) | March 31, 2022 | September 30, 2021 | ||||||||||||||
Description |
| Loan Principal |
| # of Shares |
| FV of Shares |
| Loan Principal |
| # of Shares |
| FV of Shares | ||||
Various Notes | $ | 13,831,554 |
| — | $ | — | $ | 23,831,554 |
| — | $ | — | ||||
Common Shares |
| — |
| 11,147,443 |
| 91,604,926 |
| — |
| 8,130,384 |
| 66,994,364 | ||||
Preferred Shares - Series A |
| — |
| — |
| — |
| — |
| 2,335 |
| 3,012 | ||||
Preferred Shares - Series B |
| — |
| 2,783,660 |
| 49,215,100 |
| — |
| 5,567,319 |
| 49,215,100 | ||||
Total Related Party Transactions | $ | 13,831,554 |
| 13,931,103 | $ | 116,212,476 | $ | 23,831,554 |
| 13,700,038 | $ | 116,212,476 | ||||
* Shares are MAI common and preferred shares.
The interest rate on the Drawbridge loans is 28% per annum, and accrued interest is $13,353,836 at March 31, 2022.
Chief Executive Officer Loans to MAI
From time to time, the Company’s CEO provides loans to the Company. The outstanding balances for these loans were zero and $479,914 at March 31, 2022 and September 30, 2021. During the three and six months ended March 31, 2022, the Company repaid the outstanding loan balances in full.
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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 three and six months ended March 31, 2022, Mr. Miltner received $393,997 and $625,480, respectively, for legal services rendered to us. Mr. Miltner has been providing legal services to the Company since 2020.
Mary Winters
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 from October 1, 2021 to September 30, 2022, in the amount of $60,000 annually or $5,000 per month. As of March 31, 2022, Ms. Winter has received $15,000 in consulting payments.
Short-Term Financing
On January 14, 2022, MAI executed a Letter of Intent (“LOI”) with Mark Betor, MAI Director, for a 90-day $1,000,000 loan. The loan was be evidenced by a Promissory Note with a maturity date for full repayment of loan no later than April 11, 2022. Total agreed repayment amount was $1,150,000, which included an interest charge of $150,000. Collateral included a first lien position 1 Greentech Drive, Tunica, MS. MAI Board of Directors approved transaction on January 18, 2022. Mr. Betor abstained from voting. As of March 31, 2022 this loan was repaid in full.
NOTE 19 – SUBSEQUENT EVENTS
Company management has evaluated subsequent events through May 16, 2022, 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:
ATVM Loan Application of Mullen ONE EV Cargo Van Program
The ATVM Loan Program was authorized by the Energy Independence and Security Act of 2007 to support the manufacturing of eligible light-duty vehicles and qualifying components in the United States. On April 29, 2022, MAI filed its ATVM loan application for the Mullen ONE EV Cargo Van Program. Funds will be used to accelerate high volume EV Cargo Van production at Mullen’s manufacturing (AMEC) facility outside Tunica, Mississippi. The Department of Energy invited the Company to formally submit its loan application. The Mullen ONE EV is a Class 1 light commercial cargo van rated under 6,000 pounds GVRW and will be one of the first electric commercial vehicle offerings in this category.
Mullen ONE Van Test Program
The Mullen ONE Project represents Mullen Automotive’s (“Mullen Automotive”, the “Company” or the “Applicant”) entry into the Battery Electric Vehicle (BEV), Commercial Transit Market by leveraging existing technology with accredited partners to ensure speed to market, low-risk product development, and proven manufacturing capabilities. Mullen Automotive, together with its project partners, will execute engineering development for Mullen ONE and establish a scalable manufacturing facility in the United States to assemble up to 5,000 vehicles per year (the “Project”). As a result of the Project, Mullen Automotive anticipates that it will create 101 direct manufacturing jobs in the U. S. - which would enhance the local economy of the manufacturing site and offer a new generation of electric vehicles to further foster and promote the use of electric vehicles.
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Gardner Consulting Contract
As of April 27, 2022, the MAI Compensation Committee entered into a consulting agreement with Kathryn Gardner, a Series A Preferred shareholder, regarding investor relations services to the Company. The services required are as follows:
| ● | Monitor, aggregate, and record the general sentiment on popular message boards; |
| ● | Identify other mediums in which the retail investment community consumes content related to equity trading. |
| ● | Package and format the general sentiment of the retail community and various other mediums into an executive summary. |
The terms of the agreement will remain in effect for 60 days. The stock-based compensation is 600,000 unrestricted common shares registered on Form S-8.
Shareholder Lawsuit
On May 5, 2022 a purported class action lawsuit was filed by Margaret Schaub, individually and on behalf of all others similarly situation, in the U.S. District Court of Central California. As of the date of this filing, we have not been served with any such complaint. It is our understanding that the lawsuit alleges that during the period between June 15, 2020 and April 6, 2022 the Company made materially false and misleading statements regarding the Company's business, operations, and compliance policies in violation of federal securities laws. If we are served with any such complaint, we will assess it at that time. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Performance Stock Award Agreement
On May 5, 2022, the MAI Compensation Committee and Board of Directors has granted to David Michery (the “Participant”) a Performance Stock Award for shares of Common Stock on the terms and subject to the conditions of this Performance Stock Award Agreement (the “Agreement”). The performance criteria is based on a series and/or categories of milestones (each, a “Milestone”) and within each Milestone are, multiple performance tranches (each a “Tranche”), with each Tranche representing a portion of shares of Common Stock that may be issued to Participant upon achievement of a Tranche.
Upon the achievement of each Tranche of one of the Milestones and subject to Participant continuing as the Chief Executive Officer as of the date of satisfaction of such Tranche and through the date the Administrator determines, approves and certifies that the requisite conditions for the applicable Tranche have been satisfied (a “Certification”), the Company shall issue shares of Common Stock as specified in the Tranche. The Performance Stock Award Agreement does not become effective until approval by MAI shareholders at the 2022 Annual General Meeting later this year.
Mullen FIVE RS Vehicle Development
In May 2022, MAI signed a proposal with Thurner Design of the vehicle development of the Mullen FIVE RS, a high-performance EV sport crossover vehicle featuring close to 1,100 HP, 0-60 mph in just 1.95 seconds, and close to 200 mph top speed. The proposal includes two phases: 1) design, surfacing and design support and 2) visualization and high imaging. Payments will be made based upon project milestones. The Thurner Design team is responsible for shaping and directing designs and brands like Rolls-Royce Motorcars, Bentley Motors, Bugatti, Porsche, Lamborghini, Aston Martin and Mullen Automotive.
Linghang Guochang Holding Group Co. (a/k/a “Linghang Boao Group LTD”)
On May 12, 2022, the Company received official notification that the 2019 contractual arrangement will officially resume under the original contractual terms. They acknowledge that the COVID-19 pandemic had delayed the original plan, and Linghang Boao Group LTD looks forward to resuming the battery partnership with Mullen Automotive.
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Farley vs. Net Element, Inc., et al.
On May 10, 2022, in connection with the previous voluntary dismissal of a shareholder lawsuit filed before the reverse merger against Net Element and its then CEO and directors, MAI agreed to pay to the plaintiff a mootness fee of $38,500. A formal release covering all named defendants will be executed between plaintiff and the defendant’s successor, Mullen Automotive Inc.
Warrant Exercises and Preferred C Share Conversions to Common Stock
Below are the warrant exercise activity since March 31, 2022.
Exercised | Common Share | |||
Date of Exercise |
| Warrants (#) |
| Issuance |
Various (Apr-May) |
| 3,961,160 | 40,020,024 | |
Various (Apr-May) |
| 750,000 | 10,050,000 | |
Various (Apr-May) |
| 750,000 | 10,050,000 | |
Various (Apr-May) |
| 37,356 | 234,038 | |
Various (Apr-May) |
| 136,914 | 1,848,509 | |
Various (Apr-May) |
| 141,333 | 1,908,166 | |
Various (Apr-May) |
| 167,568 | 2,262,379 | |
Various (Apr-May) |
| 124,801 | 1,048,945 | |
Various (Apr-May) |
| 33,959 | 258,422 | |
Various (Apr-May) |
| 16,979 | 142,708 | |
Various (Apr-May) |
| 71,315 | 599,396 | |
Various (Apr-May) |
| 124,801 | 1,048,945 | |
Various (Apr-May) |
| 25,469 | 214,065 | |
Various (Apr-May) |
| 28,016 | 235,473 | |
Various (Apr-May) |
| 25,469 | 214,065 | |
Total |
| 6,395,140 |
| 70,135,135 |
Below are the Preferred C Share conversion activity since March 31, 2022.
CEOcast, Inc. Drawdowns and Stock Issuance
In late April and early May 2022, MAI received $15M in three, $5M cash increments from CEOcast, Inc. In return, CEOcast, Inc. received warrants to acquire shares of common stock. As of this writing, CEOcast, Inc. has exercised its
29
warrants for 14,343,550 MAI common shares. The transaction is reflected within the balance sheet as a $15M note receivable as of March 31, 2022.
As of this writing, below are the common share issuances to CEOcast, Inc.(balance is subject to change).
| Drawdown |
| Common Share | ||
Date of Exercise |
| Amount |
| Issuance | |
4/18/2022 | $ | 5,000,000 |
| 4,533,528 | |
4/20/2022 | $ | 5,000,000 |
| 5,075,174 | |
5/2/2022 | $ | 5,000,000 |
| 4,734,848 | |
Total | $ | 15,000,000 |
| 14,343,550 | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with the financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and with our audited financial statements and other information presented in our Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2021.This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward- looking statements as a result of many factors, including but not limited to those under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2021.
In connection with the Merger Agreement (as defined below), and as disclosed in our Current Report on Form 8-K filed with the SEC on November 12, 2021, our fiscal year end has changed from March 31 to September 30, effective for our fiscal year ended September 30, 2021. As a result, and unless otherwise indicated, references to our fiscal year 2021 and prior years mean the fiscal year ended on September 30 of such year.
Basis of Presentation
As a pre-revenue company with no commercial operations, our activities to date have been limited and were conducted primarily in the United States and our historical results are reported under accounting principles generally accepted in the United States ("GAAP" or "U.S. GAAP") and in United States ("U.S.") dollars. Upon commencement of commercial operations, we expect to expand our operations substantially into the European Union ("E.U.") and, as a result, we expect our future results to be sensitive to foreign currency transaction and translation risks and other financial risks that are not reflected in our historical financial statements. As a result, we expect that the financial results our reports for periods after we begin commercial operations will not be comparable to the financial results included in this Quarterly Report.
Components of Results of Operations
We are an early-stage company, and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or projected results of operations.
Revenues
We have not begun commercial operations and do not currently generate any revenue. Once we commence production and commercialization of our vehicles, we expect that the significant majority of our revenue will be initially derived from direct sales of Sport Utility Vehicles ("SUVs") and, subsequently, from flexible leases of our electric vehicles ("EVs").
Cost of Goods Sold
To date, we have not recorded cost of goods sold, as we have not recorded commercial revenue. Once we commence the commercial production and sale of our EVs, we expect cost of goods sold to include mainly vehicle components and parts, including batteries, direct labor costs, amortized tooling costs, and reserves for estimated warranty expenses.
General and Administrative Expense
General and administrative (“G&A”) expenses include all non-production 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, licenses, and other expenses. Advertising costs are expensed as incurred and are included in G&A expenses. We expense advertising costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.”
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Research and Development Expense
To date, our research and development expenses have consisted primarily of external engineering services in connection with the design of our initial EV and development of the first prototype. As we ramp up for commercial operations, we anticipate that research and development expenses will increase for the foreseeable future as we expand our hiring of engineers and designers and continues to invest in new vehicle model design and development of technology.
Income Tax Expense / Benefit
Our 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 valuation allowance against the full value of our U.S. and state net deferred tax assets because we believe the recoverability of the tax assets is not more likely than not.
Results of Operations
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
The following table sets forth our historical operating results for the periods indicated:
Three Months Ended |
| |||||||||||||||||
March 31, | ||||||||||||||||||
| 2022 | 2021 |
|
| $ Change |
| % Change |
| ||||||||||
| (dollar amounts, except percentages) |
| ||||||||||||||||
Operating costs and expenses: |
|
|
|
|
| |||||||||||||
General and administrative | $ | 29,269,433 | $ | 4,676,740 | $ | 24,592,693 |
| 526 | % | |||||||||
Research & development |
| 1,183,437 |
| 538,271 |
| 645,166 |
| 120 | % | |||||||||
Total operating costs and expenses |
| 30,452,870 |
| 5,215,011 |
| 25,237,859 |
| 484 | % | |||||||||
Loss from operations | $ | (30,452,870) |
| (5,215,011) |
| (25,237,859) |
| 484 | % | |||||||||
Other income (expense): |
|
|
|
|
|
|
|
| ||||||||||
Interest expense |
| (2,120,515) |
| (4,092,759) |
| 1,972,244 |
| (48) | % | |||||||||
Loss on debt settlement | — | — | — | 0 | % | |||||||||||||
Gain on extinguishment of indebtedness, net |
| — |
| 10,000 |
| (10,000) |
| (100) | % | |||||||||
Total other income (expense) |
| (2,120,515) |
| (4,082,759) |
| 1,962,244 |
| (48) | % | |||||||||
Net loss | $ | (32,573,385) | $ | (9,297,770) | $ | (23,275,615) |
| 250 | % | |||||||||
General and Administrative
General and administrative expenses increased by $24.6 million or 526% to $29.3 million in the three months ended March 31, 2022 from $4.7 million in the three months ended March 31, 2021, primarily due to increases in professional services, marketing, and compensation related expenses associated with the growth of personnel and resources.
Research and Development
Research and development expenses increased by $0.6 million or 120% to $1.2 million in the three months ended March 31, 2022 from $0.5 million in the three months ended March 31, 2021. During the quarter ended March 31, 2022, the Engineering Team has been working on battery development and initial stages of program car development.
Research and development costs are expensed as incurred. Research and development expenses primarily consist of the Mullen FIVE EV car development and are primarily comprised of personnel-related costs for employees and consultants. These costs are expected to rise in the future with continuing development of the Mullen FIVE car program.
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Interest Expense
Interest expense decreased by $1.97 million or -48% to $2.1 million in the three months ended March 31, 2022 from $4.1 million in the three months ended March 31, 2021, primarily due to the decrease in the convertible debt portfolio, as well as the paydown of debt principal during the current fiscal year.
Net Loss
Net loss was $32.6 million for the three months ended March 31, 2022, an increase of $23.3 million or 250% from $9.3 million in the three months ended March 31, 2021, mainly for the reasons discussed above.
Comparison of the Six Months Ended March 31, 2022 to the Six Months Ended March 31, 2021
The following table sets forth our historical operating results for the periods indicated:
General and Administrative
General and administrative expenses increased by $34.5 million or 453% from $7.6 million in the six months ended March 31, 2021 to $42.2 million in the six months ended March 31, 2022, primarily due to increases in professional services, marketing, and compensation related expenses associated with the growth of personnel and resources.
Research and Development
Research and development expenses increased by $1.3 million or 122% from $1.1 million through the six months ended March 31, 2021 to $2.3 million through the six months ended March 31, 2022. During the six month period ended March 31, 2022, the development of the Mullen FIVE show cars was completed in November 2021, and the Engineering Team has been working on battery development and initial stages of program car development.
Research and development costs are expensed as incurred. Research and development expenses primarily consist of the Mullen FIVE EV show car development and are primarily comprised of personnel-related costs for employees and consultants. These costs are expected to rise in the future with continuing development of the Mullen FIVE car program.
Interest Expense
Interest expense increased by $18.1 million or 278% from $6.5 million through the six months ended March 31, 2021 to $24.6 million through the six months ended March 31, 2022, primarily due to the significant increase in the convertible
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debt portfolio, coupled with the conversion of these financial instruments to equity due to merger with Net Element. The conversion to preferred C stock increased the amortization expense.
Gain on extinguishment of debt
During November 2020, the U.S. Small Business Administration (“SBA”) approved the CARES Act loan forgiveness amount of $875,426 in principal and accrued interest on November 20, 2020.
Net Loss
Net loss was $69.0 million for the six months ended March 31, 2022, an increase of $54.7 million or 383% from $14.3 million in the six months ended March 31, 2021, mainly for the reasons discussed above.
Liquidity and Capital Resources
As of the date of this Quarterly Report, we have yet to generate any revenue from our business operations. To date, we have funded our capital expenditure and working capital requirements through equity and debt capital, as further discussed below. Our ability to successfully commence commercial operations and expand our business will depend on many factors, including our working capital needs, the availability of equity or debt financing and, over time, our ability to generate cash flows from operations.
As of March 31, 2022, our cash and cash equivalents amounted to $65.2 million primarily due to $43.9 million from the issuance of 4,974,214 Series C Preferred Stock and 14,922,667 in associated warrants to the selling stockholders that were listed within the S-3 Registration Statement, deemed effective on April 15, 2022. Additionally, the Company received $29.6 million in net proceeds under the $30 million Esousa Equity Line, dated September 1, 2021.
Total debt of $22.1 million continues its downward trend. Debt has decreased significantly from September 30, 2021 due to principal paydowns, debt payoffs, and conversion of convertible debt to equity. Tax liabilities slightly decreased to $2.8 million from $4.2 million, which is comprised of IRS and other tax jurisdictions related to payroll taxes and sales and use taxes. On April 14, 2022, the Company signed an IRS installment agreement to pay the remaining balance for federal payroll related liabilities via monthly payments of $45,000.
We expect our capital expenditures and working capital requirements to increase substantially in the near term, as we seek to produce our initial EVs, develop our customer support and marketing infrastructure and expand our research and development efforts. We may need additional cash resources due to changed business conditions or other developments, including unanticipated delays in negotiations with OEMs and tier-one automotive suppliers or other suppliers, supply chain challenges, disruptions due to COVID-19, competitive pressures, and regulatory developments, among other developments. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in product development or scale back our operations, which could have an adverse impact on our business and financial prospects. See Note 1 to the consolidated financial statements included elsewhere in this Quarterly Report.
Debt
To date, our current working capital and development needs have been primarily funded through the issuance of convertible indebtedness and Common Stock. Short-term debt comprises a significant component of our 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 of more.
Short and Long-Term Debt
The short-term debt classification primarily is based upon loans due within twelve-months from the balance sheet date, in addition to loans that have matured and remain unpaid. Management plans to renegotiate matured loans with creditors for
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favorable terms, such as reduce interest rate, extend maturities, or both; however, there is no guarantee favorable terms will be reached. Until negotiations with creditors are resolved, these matured loans remain outstanding and will be classified within short-term debt on the balance sheet. Interest and fees on loans are being accounted for within accrued interest. The loans are secured by substantially all the Company’s assets. Several principal shareholders have provided loans to and hold convertible debt of the Company and are related parties.
The following is a summary of our debt as of March 31, 2022:
The following is a summary of our debt as of September 30, 2021:
Cash Flows
The following table provides a summary of Mullen’s cash flow data for the six months ended March 31, 2022 and 2021:
Six Months Ended March 31, | |||||||
| 2022 |
| 2021 | ||||
Net cash used in operating activities | $ | 24,871,780 | $ | 5,619,717 | |||
Net cash used in investing activities |
| 10,737,679 |
| 102,068 | |||
Net cash provided by financing activities |
| 100,849,172 |
| 6,540,725 | |||
Cash Flows used in Operating Activities
Our cash flow used in operating activities to date has been primarily comprised of costs related to research and development, payroll, and other general and administrative activities. As we continue to ramp up hiring ahead of starting commercial operations, we expect our cash used in operating activities to increase significantly before we start to generate any material cash flow from our business.
Net cash used in operating activities was $24.9 million in the six months ended March 31, 2022, an increase from $5.6 million net cash used in activities in the six months ended March 31, 2021.
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Cash Flows used in Investing Activities
Our cash flows used in investing activities increased due to the purchase of the Tunica, MS manufacturing plant in November 2021 by our wholly owned subsidiary, Mullen Investment Properties, LLC. We expect these costs to increase substantially in the near future as we ramp up activity ahead of commencing commercial operations and build out the manufacturing facility.
Net cash used in investing activities was $10.7 million in the six months ended March 31, 2022, an increase from $0.1 million used in investing activities in the six months ended March 31, 2021.
Cash Flows provided by Financing Activities
Through March 31, 2022, we have financed our operations primarily through the issuance of convertible notes equity securities, and warrants registered under the S-3 Registration Statements deemed effective February 3, 2022 and April 15, 2021, respectively.
Net cash provided by financing activities was $100.9 million for the six months ended March 31, 2022 primarily due to issuance of equity, as compared to $6.5 million net cash provided by financing activities for the six months ended March 31, 2021, which included (i) $12.1 million net proceeds from issuance of notes payable, which was partially offset by $15.1 million of payments of notes payable; (ii) $40.1 million in net proceeds from issuance of Common Stock; and (iii) $63.9 million in proceeds to issue preferred C shares.
Contractual Obligations and Commitments
The following tables summarizes our contractual obligations and other commitments for cash expenditures as of March 31, 2022, and the years in which these obligations are due:
Operating Lease Commitments
| Scheduled | ||
Years Ended March 31, | Payments | ||
2022 (6 months) | $ | 602,568 | |
2023 |
| 1,157,693 | |
2024 |
| 824,287 | |
2025 |
| 436,156 | |
2026 |
| 222,787 | |
2027 and Thereafter |
| — | |
Total Future Minimum Lease Payments | $ | 3,243,491 | |
We currently lease our headquarters space in the Los Angeles area under a single lease classified as an operating lease expiring in March 2026. We have not executed any binding agreement for leases beyond 2026.
Scheduled Debt Maturities
The following are scheduled debt maturities:
Years Ended March 31, | ||||||||||||||||||||||||
| 2022 (6 months) |
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| Thereafter |
| Total | |||||||||
Total Debt | $ | 16,859,080 | $ | 228,788 | $ | 5,000,000 | $ | — | $ | — | $ | — | $ | — | $ | 22,087,868 | ||||||||
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, as defined under SEC rules.
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Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with U.S. GAAP. In the preparation of these financial statements, our management is required to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Management considers an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the consolidated financial statements.
Our significant accounting policies are described in Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report. Because we are a pre-revenue company without commercial operations, management believes it does not currently have any critical accounting policies or estimates. Management believes that the accounting policies most likely to become critical in the near future are those described below.
Stock-Based Compensation
We recognize the cost of share-based awards granted to employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. Our management reverses previously recognized costs for unvested options in the period that forfeitures occur. Mullen determines the fair value of stock options using the Black-Scholes option pricing model, which is impacted by the following assumptions:
| ● | Expected Term—We use the simplified method when calculating the expected term due to insufficient historical exercise data. |
| ● | Expected Volatility—As our shares were not actively traded during the periods presented, the volatility is based on a benchmark of comparable companies within the automotive and energy storage industries. |
| ● | Expected Dividend Yield—The dividend rate used is zero as we have never paid any cash dividends on Common Stock and does not anticipate doing so in the foreseeable future. |
| ● | Risk-Free Interest Rate—The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. |
Recent Accounting Pronouncements
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. Management has designed disclosure controls and procedures that reasonably enable the management including the CEO and CFO to deliberate and take timely decisions regarding required disclosure.
As required by the SEC Rules 13a-15(b) and 15d-15(b), we are obligated to conduct an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three and six months ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Internal Control over Financial Reporting
Because of their inherent limitations, our disclosure controls and procedures and our internal control over financial reporting may not prevent material errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks, including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than as set forth below, there have been no material developments during the fiscal quarter covered by this Report for our legal proceedings that were disclosed in our Annual Report on Form 10-K for the year ended September 30, 2021.
We are aware that on May 5, 2022 a purported class action lawsuit was filed by Margaret Schaub, individually and on behalf of all others similarly situation, in the U.S. District Court of Central California. As of the date of this filing, we have not been served with any such complaint. It is our understanding that the lawsuit alleges that during the period between June 15, 2020 and April 6, 2022 the Company made materially false and misleading statements regarding the Company's business, operations, and compliance policies in violation of federal securities laws. If we are served with any such complaint, we will assess it at that time. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
In connection with a dispute with ASC GEM regarding an alleged breached Securities Purchase Agreement dated November 13, 2020, on November 9, 2021, the parties appointed an arbitrator. On January 7, 2022, GEM filed a letter brief with the arbitrator requesting leave to file a dispositive motion addressing a threshold legal issue regarding a defined term within a contract executed by the parties. Mullen filed a response to the letter brief on January 12, 2022. On January 21, 2022, the arbitrator issued a procedural order granting GEM’s request to file a dispositive motion. GEM filed its dispositive motion is on February 14, 2022. Mullen’s filed its opposition to the dispositive motion on March 3, 2022. On April 4, 2022, the court denied GEM’s dispositive motion. The parties exchanged discovery requests on May 10, 2022. Responses are due served on or before June 8, 2022.
During September through November 2021, the following lawsuits that were filed against Net Element and former members of its board of directors in connection with the Business Combination with Mullen were voluntarily dismissed:
| ● | Raquel Ruby v. Net Element, Inc., Oleg Firer, Jon Najarian, John Roland, and Todd Raarup, filed on June 11, 2021 in the United States District Court for the Southern District of New York; |
| ● | Thomas Farley v. Net Element, Inc., Oleg Firer, Jon Najarian, John Roland, and Todd Raarup, filed on June 8, 2021 in the United States District Court for the Eastern District of New York; |
| ● | Michael Gatto v. Net Element, Inc., Oleg Firer, Jon Najarian, John Roland, Todd Raarup, Mullen Automotive, Inc., Mullen Technologies, Inc., and Mullen Acquisition, Inc., filed on June 3, 2021 in the United States District Court of Delaware; |
| ● | Atish Shinde v. Net Element, Inc., Oleg Firer, Howard Ash, Jon Najarian, Todd Raarup, Mullen Technologies, Inc. and Mullen Acquisition, Inc., filed on May 28, 2021 in the United States District Court for the Southern District of New York; |
| ● | Shawn Strickland v. Net Element, Inc., Oleg Firer, Jon Najarian, John Roland, and Todd Raarup, filed on August 10, 2021 in the United States District Court for Delaware; |
| ● | Matthew Whitfield v. Net Element, Inc., Oleg Firer, Jon Najarian, John Roland, Todd Raarup, filed on August 13, 2021 in the United States District Court for the Eastern District of Pennsylvania; and |
| ● | Robert Wilhelm v. Net Element, Inc., Oleg Firer, Jon Najarian, John Roland, Todd Raarup, filed on August 13, 2021 in the United States District Court for the Southern District of New York. |
Item 1A. Risk Factors
In addition to the information set forth in this Report, you should read and consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2021 filed with the SEC, which could materially affect our business, financial condition, or future results of operation. The risks described in such report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to have a material adverse effect on our business, financial condition and/or future operating results.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 24, 2022, the Company issued 428,382 shares of common stock to David Michery.
In February 2022, the Company issued 1,000,000 shares of common stock to Preferred Management Partners, Inc.
The issuance of the shares was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
On March 7, 2022, the Company granted to David Michery a bonus of $750,000.
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.
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Item 6. Exhibits
Exhibit |
| Description |
3.1 | ||
10.1# | ||
10.2# | Letter of Intent dated January 14, 2022 between the Company and Mark Betor | |
10.3 | ||
10.4 | ||
10.4(a)# | Guaranty dated March 7, 2022 between NuBridge Commercial Lending, LLC and David Michery | |
10.5 | ||
31.1* | ||
31.2* | ||
32.1* | ||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) |
* Filed herewith (furnished herewith with respect to Exhibit 32.1).
# Previously filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Mullen Automotive Inc. | ||
May 17, 2022 | By: | /s/ David Michery |
David Michery | ||
Chief Executive Officer, President and Chairman of the Board | ||
(Principal Executive Officer) | ||
/s/ Kerri Sadler | ||
Kerri Sadler | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
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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-Q/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. |
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-Q/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. |
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-Q/A for the period ended March 31, 2022 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. |