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Table of Contents

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
incorporation or organization)

(I.R.S. Employer
Identification Number)

1405 Pioneer Street
Brea, California 92821

(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.

Table of Contents

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.

Table of Contents

MULLEN AUTOMOTIVE INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

    

    

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements:

2

Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and September 30, 2021

2

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended March 31, 2022 and 2021 (unaudited)

3

Condensed Consolidated Statements of Stockholders Equity (Deficit) for the three and six months ended March 31, 2022 and 2021 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2022 and 2021 (unaudited)

6

Notes to Unaudited Condensed Consolidated Interim Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3.

Defaults Upon Senior Securities

40

Item 4.

Mine Safety Disclosures

40

Item 5.

Other Information

40

Item 6.

Exhibits

41

SIGNATURES

42

1

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MULLEN AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

    

March 31, 2022

    

September 30, 2021

ASSETS

 

  

 

  

CURRENT ASSETS

 

  

 

  

Cash and cash equivalents

$

65,150,095

$

42,174

Restricted Cash

131,793

Materials and supplies

 

55,753

 

55,753

Deferred advertising

 

48,855

 

261,550

Prepaid Expenses

 

3,282,245

 

6,201,247

Other current assets

 

51,553

 

250,331

Notes Receivable

 

15,090,552

 

90,552

TOTAL CURRENT ASSETS

 

83,810,846

 

6,901,607

Property, equipment and leasehold improvements, net

 

13,053,935

 

1,181,477

Intangibles assets, net

 

2,296,016

 

2,495,259

Right-of-use assets

 

2,066,049

 

2,350,929

Other assets

 

3,979,334

 

4,243,222

TOTAL ASSETS

$

105,206,180

$

17,172,494

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

  

 

  

CURRENT LIABILITIES

 

  

 

  

Accounts payable

$

4,173,500

$

5,206,310

Accrued expenses and other current liabilities

 

21,596,300

 

19,126,765

Liability to issue shares

 

 

7,027,500

Lease liabilities, current portion

 

651,494

 

599,898

Notes payable, current portion

 

16,859,080

 

39,200,970

TOTAL CURRENT LIABILITIES

 

43,280,374

 

71,161,443

Notes payable, net of current portion

 

5,228,788

 

247,612

Lease liabilities, net of current portion

 

1,523,158

 

1,857,894

Other liabilities

 

5,617,192

 

5,617,192

TOTAL LIABILITIES

 

55,649,512

 

78,884,141

Commitments and Contingencies (Note 17)

 

  

 

  

STOCKHOLDERS' EQUITY (DEFICIT)

 

  

 

  

Preferred Stock; $0.001 par value; 58,000,000 shares authorized; 11,088,916 and 5,667,682 shares issued and outstanding at March 31, 2022 and September 30, 2021 respectively.

 

11,089

 

5,668

Common Stock; $0.001 par value; 500,000,000 shares authorized; 289,784,112 and 7,048,387 issued and outstanding at March 31, 2022 and September 30, 2021 respectively.

 

289,782

 

7,048

Additional Paid-in Capital

 

268,667,769

 

88,650,286

Accumulated Deficit

 

(219,411,972)

 

(150,374,649)

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

 

49,556,668

 

(61,711,647)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$

105,206,180

$

17,172,494

See accompanying notes to condensed consolidated interim financial statements.

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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.

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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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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, 2021

 

100,363

 

$

100

 

5,567,319

$

5,568

 

 

$

7,048,387

 

$

7,048

 

$

88,650,286

 

$

(150,374,649)

 

$

(61,711,647)

Common shares issued for cash

 

 

 

7,704,082

7,704

10,886,955

10,894,659

Common shares issued for asset

 

 

 

109,412

109

140,891

141,000

Preferred shares issued for cash

 

 

 

2,263,970

2,264

19,997,736

20,000,000

Preferred shares issued to settle liability to issue

 

 

 

84,900

85

704,915

705,000

Warrant issuances

 

 

 

10,491,621

10,491,621

Preferred shares issued in exchange for conversion of debt

 

 

 

2,829,029

2,829

24,988,926

24,991,755

Stock-based compensation

 

 

 

443,124

443

4,424,825

4,425,268

Common shares issued to settle liability to issue

 

 

 

131,477

131

1,034,681

1,034,812

Prefunded warrant issuance

 

 

 

15,000,000

15,000,000

Issuance of common stock for conversion of preferred stock

 

(84,996)

(85)

 

 

8,499,680

8,500

(8,415)

Net loss

 

 

 

(36,463,938)

(36,463,938)

Balance, December 31, 2021

 

15,367

15

 

5,567,319

5,568

 

5,177,899

5,178

23,936,162

23,935

176,312,421

(186,838,587)

(10,491,470)

Shares issued for cash

4,974,266

4,974

57,998,313

57,998

73,536,483

73,599,455

Share-based compensation

5,868,482

5,868

21,536,148

21,542,016

Cashless Warrant exercise

196,005,353

196,005

(196,005)

Issuance of common stock for conversion of preferred stock

(13,433)

(13)

(2,783,660)

(4,633)

(1,848,842)

5,975,802

5,976

(1,330)

Dividends accumulated on preferred stock

(2,519,948)

(2,519,948)

Net Loss

(32,573,385)

(32,573,385)

Balance, March 31, 2022

 

1,934

 

$

2

 

2,783,659

$

935

 

8,303,323

 

$

10,152

289,784,112

 

$

289,782

 

$

268,667,769

 

$

(219,411,972)

 

$

49,556,668

See accompanying notes to condensed consolidated interim financial statements.

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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.

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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.

    

March 31, 2022

    

September 30, 2021

 

Gross

 

 

Net

 

Gross

 

 

Net

 

Carrying

    

Accumulated

    

Carrying

Carrying

    

Accumulated

    

Carrying

Finite-Lived Intangible Assets

 

Amount

Amortization

 

Amount

 

Amount

Amortization

 

Amount

Website design and development

$

2,660,391

$

(665,097)

$

1,995,294

$

2,660,391

$

(221,699)

$

2,438,692

Intellectual property

 

71,182

 

(71,182)

 

 

71,182

 

(69,205)

 

1,977

Trademark

 

300,722

 

 

300,722

 

54,590

 

 

54,590

Total Finite-Lived Intangible Assets

$

3,032,295

$

(736,279)

$

2,296,016

$

2,786,163

$

(290,904)

$

2,495,259

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:

Net Carrying Value

Unpaid Principal 

Contractual

Contractual 

Type of Debt

    

Balance

    

Current

    

Long-Term

    

 Interest Rate

    

Maturity

Matured Notes

$

5,838,591

$

5,838,591

$

 

0.00% - 15.00

%  

2016 - 2021

Promissory Notes

 

23,831,912

 

23,831,912

 

 

28.00

%  

2021 – 2022

Demand Note

 

500,000

 

500,000

 

 

27.00

%  

2020

Convertible Unsecured Notes

 

15,932,500

 

15,932,500

 

 

15.00%-20.00

%  

2021 - 2022

Real Estate Note

 

283,881

 

36,269

 

247,612

 

5.00

%  

2023

Loan Advances

 

1,122,253

 

1,122,253

 

 

0.00% - 10.00

%  

2019 – 2020

Less: Debt Discount

 

(8,060,555)

 

(8,060,555)

 

 

NA

 

NA

Total Debt

$

39,448,582

$

39,200,970

$

247,612

 

NA

 

NA

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

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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 one for one hundred basis with common shares of at any time after the date of issuance of such shares into such number of fully paid and non-accessible shares of Common Stock. Preferred Stock Series B 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 issued and outstanding 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:

    

    

Weighted Average 

MAI shares

Exercise Price

Warrants outstanding at September 30, 2021

 

4,924,447

$

8.84

Warrants exercised

 

(14,119,525)

$

8.84

Warrants granted

 

25,073,927

$

8.84

Warrants expired

 

$

Warrants outstanding at March 31, 2022

 

15,878,849

$

8.84

2020-2021 Warrants

The warrants are exercisable for a five-year period commencing upon issuance. The estimated fair value of the MAI warrants 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.

For the three months ended March 31, 

For the six months ended March 31, 

Composition of Stock-Based Compensation Expense

    

2022

    

2021

    

2022

    

2021

Employee MAI share issuance

$

1,688,694

$

366,693

$

3,292,987

$

932,872

MAI shares for services

 

21,546,573

 

1,264,967

 

24,042,060

 

1,291,129

MAI Share-Based compensation expense

$

23,235,267

$

1,631,660

$

27,335,047

$

2,224,001

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:

Three months ended March 31, 

Six months ended March 31, 

 

    

2022

    

2021

    

2022

    

2021

 

Research & Development