UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ____ to ___
Commission file number:
MULLEN AUTOMOTIVE INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
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| (Address of principal executive offices) |
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 |
| | | The |
| None | The |
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. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
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 ☐ |
| | 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).
As of May 9, 2024, a total of
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(unaudited)
| March 31, 2024 | September 30, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and prepaid inventories | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant, and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Related party receivable | ||||||||
| Right-of-use assets | ||||||||
| Goodwill, net | ||||||||
| Other noncurrent assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Dividends payable | ||||||||
| Derivative liabilities | ||||||||
| Liability to issue shares | ||||||||
| Lease liabilities, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Refundable deposits | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Liability to issue shares, net of current portion | ||||||||
| Lease liabilities, net of current portion | ||||||||
| Deferred tax liability | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Contingencies and claims (Note 19) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock; $ par value; preferred shares authorized; | ||||||||
| Preferred Series D; shares authorized; and shares issued and outstanding at March 31, 2024 and September 30, 2023, respectively (preference in liquidation of $ and $ at March 31, 2024 and September 30, 2023, respectively) | ||||||||
| Preferred Series C; shares authorized; and shares issued and outstanding at March 31, 2024 and September 30, 2023, respectively (preference in liquidation of $ and $ at March 31, 2024 and September 30, 2023, respectively) | ||||||||
| Preferred Series A; shares authorized; and shares issued and outstanding at March 31, 2024 and September 30, 2023, respectively (preference in liquidation of $ and $ at March 31, 2024 and September 30, 2023, respectively) | ||||||||
| Common stock; $ par value; and shares authorized at March 31, 2024 and September 30, 2023, respectively; and shares issued and outstanding at March 31, 2024 and September 30, 2023 respectively (*) | ||||||||
| Additional paid-in capital (*) | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY ATTRIBUTABLE TO THE COMPANY'S STOCKHOLDERS | ||||||||
| Noncontrolling interest | ||||||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
(*) Adjusted retroactively for reverse stock splits, see Note 1 - Description of Business and Basis of Presentation
See accompanying notes to these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended March 31, |
Six months ended March 31, |
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| 2024 |
2023 |
2024 |
2023 |
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| Revenue |
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| Vehicle sales |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues |
( |
) | ( |
) | ||||||||||||
| Gross profit / (loss) |
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| Operating expenses: |
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| General and administrative |
$ | $ | $ | $ | ||||||||||||
| Research and development |
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| Impairment of goodwill |
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| Impairment of right-of-use assets |
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| Impairment of intangible assets |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense): |
||||||||||||||||
| Other financing costs - initial recognition of derivative liabilities |
( |
) | ||||||||||||||
| Gain/(loss) on derivative liability revaluation |
( |
) | ( |
) | ( |
) | ||||||||||
| Gain/(loss) on extinguishment of debt |
( |
) | ( |
) | ||||||||||||
| Gain/(loss) on disposal of fixed assets |
( |
) | ( |
) | ||||||||||||
| Gain on lease termination |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income, net |
||||||||||||||||
| Net loss before income tax benefit |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Income tax benefit |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss attributable to noncontrolling interest |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to stockholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Waived/(accrued) accumulated preferred dividends |
( |
) | ( |
) | ||||||||||||
| Net loss attributable to common stockholders after preferred dividends |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net Loss per Share (*) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average shares outstanding, basic and diluted (*) |
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(*) Adjusted retroactively for reverse stock splits, see Note 1 - Description of Business and Basis of Presentation
See accompanying notes to these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
for the three and six months ended March 31, 2024
(unaudited)
| Preferred Stock, total | Total | |||||||||||||||||||||||||||||||
| (see Note 9 for details) |
Common Stock |
Paid-in |
Accumulated |
Noncontrolling |
Stockholders' |
|||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Interest |
Equity |
|||||||||||||||||||||||||
| Balance, October 1, 2023 (*) |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Cashless warrant exercise |
||||||||||||||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||||||||||
| Dividends accumulated on preferred stock |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Shares issued to avoid fractional shares on reverse stock split |
( |
) | ||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss attributable to stockholders |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Balance, January 1, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Cashless warrant exercise |
||||||||||||||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||||||||||
| Dividends accumulated on preferred stock |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Shares issued to avoid fractional shares on reverse stock split |
||||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss attributable to stockholders |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
(*) Adjusted retroactively for reverse stock splits, see Note 1 - Description of Business and Basis of Presentation
See accompanying notes to these unaudited consolidated financial statements.
MULLEN AUTOMOTIVE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
for the three and six months ended March 31, 2023
(unaudited)
| Preferred Stock, total |
Common Stock Owed but not Issued |
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| (see Note 9 for details) |
Common Stock |
Paid-in |
Accumulated |
Noncontrolling |
Stockholders' |
|||||||||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Shares |
Amount |
Deficit |
Interest |
Equity |
|||||||||||||||||||||||||||||||
| Balance, September 30, 2022 (*) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
| Cashless warrant exercise |
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| Surplus common stock issued on cashless warrant exercise |
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| Issuance of common stock for conversion of convertible notes and interest |
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| Issuance of common stock for conversion of preferred stock and dividends |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Reclassification of derivatives to equity upon authorization of sufficient number of shares |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued to settle note payable |
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| Shares issued to extinguish penalty |
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| Preferred shares series AA issued to officers |
1 | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred shares series AA refund |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends waiver (accrual) |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Noncontrolling interest |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Net Loss |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 (*) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
| Balance, January 1, 2023 (*) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
| Cashless warrant exercise |
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| Issuance of common stock for conversion of convertible notes and interest |
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| Issuance of common stock for conversion of preferred stock and dividends |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Reclassification of derivatives to equity upon authorization of sufficient number of shares |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Preferred shares series AA refund |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||||||||||||||||||
| Dividends accumulated on preferred stock |
— | — | ||||||||||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Net loss attributable to stockholders |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 (*) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
(*) Adjusted retroactively for reverse stock splits, see Note 1 - Description of Business and Basis of Presentation
See accompanying notes to these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Revaluation of derivative liabilities | ||||||||
| Depreciation and amortization | ||||||||
| Issuance of warrants to suppliers | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Other financing costs - initial recognition of derivative liabilities | ||||||||
| Impairment of intangible assets | ||||||||
| Impairment of goodwill | ||||||||
| Impairment of right-of-use assets | ||||||||
| Non-cash interest and other operating activities | ( | ) | ||||||
| Loss/(gain) on assets disposal | ||||||||
| Loss/(gain) on extinguishment of debt | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaids and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Right-of-use assets and lease liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ||||||
| ELMS assets purchase | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from issuance of convertible notes payable | ||||||||
| Payment of notes payable | ( | ) | ( | ) | ||||
| Reimbursement for over issuance of shares | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Change in cash | ( | ) | ||||||
| Cash and restricted cash (in amount of $), beginning of period | ||||||||
| Cash and restricted cash (in amount of $), ending of period | $ | $ | ||||||
| Supplemental disclosure of Cash Flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Supplemental Disclosure for Non-Cash Activities: | ||||||||
| Exercise of warrants recognized earlier as liabilities | $ | $ | ||||||
| Right-of-use assets obtained in exchange of operating lease liabilities | ||||||||
| Convertible notes and interest - conversion to common stock | ||||||||
| Reclassification of derivatives to equity upon authorization of sufficient number of shares | ||||||||
| Common stock issued to extinguish other liabilities | ||||||||
| Waiver of dividends by stockholders | ||||||||
| Warrants issued to suppliers | ||||||||
| Debt conversion to common stock | ||||||||
| Extinguishment of operational liabilities by sale of property | ||||||||
| Extinguishment of financial liabilities by sale of property | ||||||||
See accompanying notes to these unaudited consolidated financial statements.
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Mullen Automotive Inc., a Delaware corporation (“Mullen”, “we” or the “Company”), is a Southern California-based development-stage electric vehicle company that operates in various verticals of businesses focused within the automotive industry.
Mullen Automotive Inc., a California corporation (“Previous Mullen”), was originally formed on April 20, 2010, as a developer and manufacturer of electric vehicle technology and operated as the Electric Vehicle (“EV”) division of Mullen Technologies, Inc. (“MTI”) until November 5, 2021, at which time Previous Mullen underwent a capitalization and corporate reorganization by way of a spin-off to its shareholders, followed by a reverse merger with and into Net Element, Inc., which was accounted for as a reverse merger transaction, in which Previous Mullen was treated as the acquirer for financial accounting purposes. (the “Merger”). The Company changed its name from “Net Element, Inc.” to “Mullen Automotive Inc.” and the Nasdaq ticker symbol for the Company’s common stock changed from “NETE” to “MULN” on the Nasdaq Capital Market at the opening of trading on November 5, 2021.
Mullen is building and delivering the newest generation of commercial trucks through the Bollinger Motors and ELMS acquisitions.
Since acquiring a controlling interest in Bollinger Motors, Inc. in September 2022, Mullen has strategically expanded into the medium-duty truck segments (Classes 4-6) and the electric Sport Utility and Pickup Truck markets. In October 2022, Mullen successfully completed a significant acquisition of assets from Electric Last Mile Solutions (ELMS), which included a manufacturing facility in Mishawaka, Indiana, and all necessary intellectual property for the design and production of Class 1 and Class 3 electric vehicles. The first electric vehicles, produced at our Tunica, Mississippi plant, were successfully delivered to customers in August 2023.
Since starting production, we have invoiced
Basis of Presentation and Principles of Consolidation
The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Mullen Investment Properties LLC, a Mississippi corporation, Ottava Automotive, Inc., a California corporation, Mullen Real Estate, LLC, a Delaware corporation, Mullen Advanced Energy Operations, LLC, a California corporation, as well as a
These unaudited interim consolidated financial statements and the accompanying notes have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The condensed consolidated financial statements for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future years or interim periods. Comprehensive loss is not separately presented as the amounts are equal to net loss for the three and six months ended March 31, 2024 and 2023. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2023 filed with the SEC on January 16, 2024.
Reverse Stock Splits
During the calendar year ended December 31, 2023 we have completed 3 reverse stock splits in order to regain compliance with NASDAQ Listing Rule 5550(a)(2). In May 2023, we completed a 1-for-25 reverse split of our outstanding shares of common stock. In August 2023, we completed a 1-for-
On January 24, 2024, the Company received formal notice from The Nasdaq Stock Market LLC confirming the Company has regained compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2). On March 6, 2024, the Company received formal notice from Nasdaq confirming that it has regained compliance with the annual shareholder meeting requirement set forth in Nasdaq Listing Rule 5620(a). The Company is now in full compliance with Nasdaq’s continued listing requirements and will continue to be listed and traded on the Nasdaq Capital Market.
As a result of the reverse stock splits, the number of shares of common stock that can be issued upon exercise of warrants, preferred stock, and other convertible securities, as well as any commitments to issue securities, that provide for adjustments in the event of a reverse stock split, was appropriately adjusted pursuant to their applicable terms for the reverse stock splits. If applicable, the conversion price for each outstanding share of preferred stock and the exercise price for each outstanding warrant was increased, pursuant to their terms, in inverse proportion to the split ratio such that upon conversion or exercise, the aggregate conversion price for conversion of preferred stock and the aggregate exercise price payable by the warrant holder to the Company for shares of common stock subject to such warrant will remain approximately the same as the aggregate conversion or exercise price, as applicable, prior to the reverse stock splits.
The reverse stock splits have not changed the authorized number of shares or the par value of the common stock nor modified any voting rights of the common stock.
No proportionate adjustment was made to the number of shares reserved for issuance pursuant to the Company’s 2022 Equity Incentive Plan (the “2022 Plan”) pursuant to an amendment to the 2022 Plan approved by stockholders in August 2023, increasing the maximum aggregate number of shares of common stock and stock equivalents available for the grant of awards under the 2022 Plan by an additional
The number and par value of Series A Preferred Stock, Series C Preferred Stock and Series D Preferred Stock were not affected by the reverse stock splits, but their conversion ratios have been proportionally adjusted. There were no outstanding shares of Series B Preferred Stock as of the effective date of the reverse stock splits.
The Company retroactively adjusted its historical financial statements to reflect the reverse stock splits (See Note 10 - Loss per share for reverse stock splits effect on loss per share). All issued and outstanding common stock and per share amounts contained in the financial statements have been adjusted to reflect the reverse stock splits for all periods presented. The common stock and additional paid-in-capital line items of the financial statements were adjusted to account for the reverse stock splits for all periods presented (with $
NOTE 2 – LIQUIDITY, CAPITAL RESOURCES, AND GOING CONCERN
These consolidated financial statements have been prepared on the basis that assumes the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
During the six months ended March 31, 2024, the COVID-19 pandemic did not have a material impact on our operating results. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity.
The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern over the next twelve months from the date of filing this report. The Company's principal source of liquidity consists of existing cash and restricted cash of approximately $
If the Company does not secure adequate funding to fulfill its current liabilities, it anticipates seeking bankruptcy protection in various jurisdictions within 30 days of publishing these financial statements. The Company anticipates that its available funds will be insufficient to cover its obligations for at least the next twelve months from the date this Form 10-Q was filed. Consequently, there is significant uncertainty regarding the Company's ability to continue operating. The Company is actively pursuing additional funds (see Note 21 Subsequent Events - $
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.
Use of Estimates
The preparation of our 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 consolidated financial statements and the reported amounts of total expenses in the reporting periods. Estimates are used for, but not limited to, cash flow projections and discount rate for calculation of goodwill impairment, fair value and impairment of long-lived assets, including intangible assets, inventory reserves, accrued expenses, fair value of financial instruments, depreciable lives of property and equipment, income taxes, contingencies, valuation of preferred stock and warrants. Additionally, the rates of interest on several debt agreements have been imputed where there was no stated interest rate within the original agreement. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for 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 significant government regulation. 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. The Company is dependent on its suppliers, including single source suppliers, for the production of the Mullen vehicles and depends on ability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us. Any one or combination of these or other risks could have a substantial influence on our future operations and prospects for commercial success.
Business Combination
Business acquisitions are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. FASB ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Adjustments to fair value assessments are recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity (generally, with original maturities of three months or less) that they present insignificant risk of changes in value because of changes in interest rates.
Restricted Cash
The main part of restricted cash in amount of $
Cash obtained from customer deposits is held by the Company and is restricted from use to fund operations. Refundable deposits were $
Prepaid Expenses and Other Current Assets
Prepaid expenses consist of various advance payments made for goods or services to be received in the future.
Inventory
Inventories are stated at the lower of cost or net realizable value and consist of raw materials, work in progress and finished goods. Cost of inventories is determined using the standard cost method, which approximates actual cost on a first-in first-out basis. This method includes direct materials, direct labor, and a proportionate share of manufacturing overhead costs based on normal capacity. Regular reviews are performed to identify and account for variances between the standard costs and actual costs. Any variances identified are recognized in the cost of revenues during the period in which they occur.
The Company regularly reviews its inventories for excess and obsolete items by assessing their net realizable value (NRV). The NRV is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This analysis considers factors such as demand forecasts, product life cycles, product development plans, and current market conditions. Provisions are made to reduce the carrying value of the inventories to their net realizable value. Once inventory is written down, a new, lower-cost basis is established, and the inventory is not subsequently written up if market conditions improve. All such inventory write-downs are included as a component of cost of revenues in the period in which the write-down occurs. Adjustments to these estimates and assumptions could impact our financial position and results of operations.
Property, Plant, and Equipment, net
Property, plant, and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred.
Estimated Useful Lives
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| Leasehold improvements | Shorter of the estimated useful life or the underlying lease term |
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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, plant, and equipment 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
Income taxes are recorded in accordance with ASC 740, "Income Taxes". 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.
Uncertain tax positions taken or expected to be taken in a tax return are accounted for using the “more likely than not” threshold for financial statement recognition and measurement. These are transactions that occur during the ordinary course of business for which the ultimate tax determination may be uncertain. At March 31, 2024 and 2023, there were no material 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. The Company maintains a valuation allowance against the full value of its U.S. and state net deferred tax assets because the Company believes the recoverability of the tax assets is not more likely than not as of March 31, 2024.
Intangible Assets, net
Intangible assets consist of acquired and developed intellectual property. In accordance with ASC 350, “Intangibles—Goodwill and Others,” goodwill and other intangible assets with indefinite lives (including in-process research and development assets acquired in a business combination) are not 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 120 months. The costs to periodically renew our intangible assets are expensed as incurred.
Impairment of Long-Lived Assets
The Company periodically evaluates long-lived assets (both intangible assets and property, plant, and equipment) for impairment whenever events or changes in circumstances indicate that a potential impairment may have occurred. If such events or changes in circumstances arise, the Company compares the carrying amount of the long-lived assets to the estimated future undiscounted cash flows expected to be generated by the long-lived assets. If the estimated aggregate undiscounted cash flows are less than the carrying amount of the long-lived assets, an impairment charge, calculated as the amount by which the carrying amount of the assets exceeds the fair value of the assets, is recorded. The fair value of the long-lived assets is determined based on the estimated discounted cash flows expected to be generated from the long-lived asset unless another method provides a more reliable estimate. If an impairment loss is recognized, the adjusted carrying amount of a long-lived asset is recognized as a new cost basis of the impaired asset. Impairment loss is not reversed even if fair value exceeds carrying amount in subsequent periods.
Extinguishment of Liabilities
The Company derecognizes financial liabilities when the Company’s obligations are discharged, cancelled, or expired.
Leases
The Company follows the provisions of ASC 842, “Leases”, which requires a lessee to 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. We categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that allow us to substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases. Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified upon lease commencement. When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider the option in determining the classification and measurement of the lease. Our leases may include variable payments which are expensed as incurred. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
Contingencies and Commitments
The Company follows ASC 440 and ASC 450 to account for contingencies and commitments. Certain conditions, as a result of past events, may exist as of the balance sheet date, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be reasonably estimated, then the estimated liability is accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be reasonably estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Legal costs associated with such loss contingencies are expensed as incurred. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
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.
Revenue Recognition
The Company’s revenue includes revenue from the sale of electric vehicles and is accounted for in accordance with ASC 606, “Revenue from Contracts with Customers”. The Company applies a five-step analysis to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation. Payments for electric vehicles sales are generally received at or shortly after delivery. Sales tax is excluded from the measurement of the transaction price. The revenue from the sale of electric vehicles is recognized when control of the vehicle is transferred to the customer. In general, the control is transferred at the point of delivery to the customer, signifying the fulfillment of our primary performance obligation under ASC 606. Certain contracts with our dealers contain a return provision, stating that they may return unsold vehicles after 1 year. Since the Company does not have sufficient relevant statistics of returns yet, we defer revenue recognition until the vehicles have been sold by such dealer or until there is sufficient evidence to justify a reasonable estimate for consideration to which the Company expects to be entitled. For any amounts received (or receivable) for which the Company does not recognize revenue when it transfers products to customers, a refund liability is recognized. Relevant vehicles transferred to the dealer are presented as “Finished goods delivered to dealer for distribution” in the consolidated balance sheets at initial cost, less any expected costs to recover those products (including potential decreases in the value to the entity of returned products). At the end of each reporting period, the Company updates the measurement of these assets and refund liabilities. The Company did not generate any significant revenue from its core business operations during the three and six months ended March 31, 2024.
Cost of Revenues
The Company’s cost of goods sold includes mainly production costs of vehicles sold in the relevant period as well as a provision for expected warranty expenses.
General and Administrative Expenses
General and administrative expenses include expenses not related to production, such as salaries and employee benefits, professional fees, rent, repairs and maintenance, utilities and office expense, depreciation and amortization, advertising and marketing, settlements and penalties, taxes, and licenses. Advertising costs are expensed as incurred and are included in general and administrative expenses. Trade show expenses are deferred until occurrence of the future event in accordance with ASC 720‑35, “Other Expenses – Advertising Cost.” Advertising costs for the three and six months ended March 31, 2024 were approximately $
Research and Development Costs
Per ASC 730, "Research and Development," the Company recognizes all research and developments costs in the statement of operations as they occur. These include expenses related to the design, development, testing, and improvement of our electric vehicles and corresponding technologies. Assets with alternative future uses are capitalized and depreciated over their useful lives, with the depreciation expense reported under research and development costs.
Share-Based Compensation
The share-based awards issued by the Company are accounted for 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 shares of common stock of the Company issued to employees, non-employees and directors. Generally, the fair value of awards is estimated based on the market price of the shares of common stock of the Company the day immediately preceding the grant date. The fair value of non-marketable share-based awards (granted to employees before the Company became public) has been estimated based on an independent valuation. The Company recognizes forfeitures of award in the periods they occur.
The overwhelming part of share-based awards to employees per employment contracts, and a certain part of contracts with non-employees (consultants), are classified as equity with costs and additional paid-in capital recognized ratably over the service period. A significant part of the Company’s share-based awards to consultants is liability-classified: mainly if the number of shares a consultant is entitled to depends on a certain monetary value fixed in the contract. An accrued part of liability in this case is revaluated each period based on earned portion of the grant and changes in market price of the shares of common stock of the Company, until sufficient number of shares is issued.
The Company has also adopted incentive plans that entitle the Chief Executive Officer to share-based awards generally calculated as
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 hierarchy as per requirements of ASC 820, “Fair value measurements”, i.e.:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
Expected credit losses
The estimation of expected credit losses that may be incurred as we work through the invoice collection process with our customers and other counterparties requires us to make judgments and estimates regarding probability the amounts due to us are going to be paid. We monitor our customers' payment history and current credit worthiness to determine that collectability is reasonably assured. We also consider the overall business climate in which our customers and other counterparties operate. On March 31, 2024 and September 30, 2023, no material allowance for credit losses needed to be recognized to cover anticipated credit losses under current conditions. However, uncertainties regarding changes in the financial condition of our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be recognized.
Concentrations of Credit Risk
The Company maintains cash balances in several financial institutions that are insured by either the Federal Deposit Insurance Corporation or the National Credit Union Association up to certain federal limitations, generally $250,000. At times, our cash balance may exceed these federal limitations. 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 due to high credit rating of relevant financial institutions. The amounts in excess of insured limits as of March 31, 2024 and September 30, 2023 are $
Accounting Pronouncements
The Company has implemented all applicable accounting pronouncements that are in effect. The following pronouncements have been recently adopted by the Company:
ASU 2022-04 - Supplier Finance Program (SFP). This ASU requires that a buyer in a SFP disclose qualitative and quantitative information about its program, including the nature of the SFP and key terms, outstanding amounts as of the end the reporting period, and presentation in its financial statements. This pronouncement has not had an impact on the Company’s consolidated financial statements.
ASU 2016-13 - Measurement of Credit Losses on Financial Instruments (CECL). This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables. The Company evaluated and determined the amendment did not have a material effect on the consolidated financial statements.
The following are accounting pronouncements that have been issued but are not yet effective for the Company’s consolidated financial statements:
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 an Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in ASU No. 2020-06 simplify the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity. For smaller reporting companies ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect its application to have a material impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued Accounting Standards Update 2023-07—Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. It requires all annual disclosures currently required by ASC 280 to be included in interim periods and requires disclosure of significant segment expenses regularly provided to the chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and applicable additional measures of segment profit or loss used by the CODM when allocating resources and assessing business performance. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The Company expects to enhance segment reporting disclosures based on new requirements.
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU No. 2023-09, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for public business entities for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company expects to enhance income tax disclosures based on new requirements.
Other accounting pronouncements issued but not yet effective are not believed by management to be relevant or to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 4 – SEGMENT INFORMATION
Our CEO and Chairman of the Board, as the chief operating decision maker, makes decisions about resources to be acquired, allocated and utilized to each operating segment. The Company is currently comprised of
| ● | Bollinger. The Company acquired the controlling interest of Bollinger Motors Inc. ( |
| ● | Mullen/ELMS. By November 30, 2022, Mullen acquired ELMS’ manufacturing plant in Mishawaka Indiana and all the intellectual property needed to engineer and build Class 1 and Class 3 electric vehicles. |
All long-lived assets of the Company are in the United States of America.
The table below represents main financial information pertaining to the segments (there were no material differences from the last annual report in the basis of segmentation or in the basis of measurement of segment profit or loss).
| Segment reporting for the three and six months ended March 31, 2024 | ||||||||||||
| Bollinger | Mullen/ELMS | Total | ||||||||||
| Revenue for the three months ended March 31, 2024 | $ | $ | $ | |||||||||
| Revenue for the six months ended March 31, 2024 | ||||||||||||
| Segment's net loss before impairment and income taxes for the three months ended March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before impairment and income taxes for the six months ended March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before income taxes for the three months ended March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before income taxes for the six months ended March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Total segment assets | ||||||||||||
| Segment reporting for the three and six months ended March 31, 2023 | ||||||||||||
| Bollinger | Mullen/ELMS | Total | ||||||||||
| Revenue for the three and six months ended March 31, 2023 | $ | $ | $ | |||||||||
| Segment's net loss before income taxes for the three months ended March 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before income taxes for the six months ended March 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||
| Total segment assets | ||||||||||||
NOTE 5 – INVENTORY
The Company's inventories are stated at the lower of cost or net realizable value and consist of the following:
| March 31, 2024 | September 30, 2023 | |||||||
| Inventory | ||||||||
| Work in process | $ | $ | ||||||
| Raw materials | ||||||||
| Finished goods | ||||||||
| Finished goods delivered to dealer for distribution | ||||||||
| Less: write-down to net realizable value | ( | ) | ||||||
| Total Inventory | $ | $ | ||||||
During the six months ended March 31, 2024, approximately $
NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The goodwill in net carrying amount of $
Upon the quantitative goodwill impairment test, impairment may arise to the extent carrying amount of a reporting unit that includes goodwill (i.e. Bollinger production unit, see Note 4 – Segment information) exceeds its fair value. As a result of impairment test performed on March 31, 2024 by management, impairment in amount of $
Other intangible assets
Intangible assets with indefinite useful lives are not amortized but instead tested for impairment. Due to unfavorable market conditions and decline of the market prices of the Company’s common stock, we have tested indefinite-lived in-process research and development assets, acquired in September 2022 as part of the Bollinger segment (see Note 4 - Segment information), for recoverability on March 31, 2024 and recognized impairment loss in amount of $
Intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method. The weighted average useful life of intangible assets is
| March 31, 2024 | September 30, 2023 | |||||||||||||||||||||||
| Net | Net | |||||||||||||||||||||||
| Cost | Accumulated | Carrying | Cost | Accumulated | Carrying | |||||||||||||||||||
| Basis | Amortization | Amount | Basis | Amortization | Amount | |||||||||||||||||||
| Finite-Lived Intangible Assets | ||||||||||||||||||||||||
| Patents | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Engineering designs | ( | ) | ||||||||||||||||||||||
| Other | ( | ) | ( | ) | ||||||||||||||||||||
| Trademarks | ( | ) | ( | ) | ||||||||||||||||||||
| Total finite-lived intangible assets | ( | ) | ( | ) | ||||||||||||||||||||
| Indefinite-Lived Intangible Assets | ||||||||||||||||||||||||
| In-process research and development assets | $ | $ | — | $ | $ | $ | — | $ | ||||||||||||||||
| Total indefinite-lived intangible assets | — | — | ||||||||||||||||||||||
| Total Intangible Assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Total future amortization expense for finite-lived intangible assets is as follows:
| Years Ended September 30, | Future Amortization | |||
| 2024 (6 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total Future Amortization | $ | |||
For the three and six months ended March 31, 2024, amortization of the intangible assets was $
NOTE 7 – DEBT
Short and Long-Term Debt
Short-term debt is defined as debt with principal maturities of one year or less, long-term debt has maturities greater than one year.
The following is a summary of our indebtedness as of March 31, 2024:
| Net Carrying Value | ||||||||||||||||||||
| Unpaid Principal | Contractual | Contractual | ||||||||||||||||||
| Type of Debt | Balance | Current | Long-Term | Interest Rate | Maturity | |||||||||||||||
| Matured notes | $ | $ | $ | % | 2019 - 2021 | |||||||||||||||
| Loan advances | % | 2016 - 2018 | ||||||||||||||||||
| Total Debt | $ | $ | $ | |||||||||||||||||
The following is a summary of our indebtedness as of September 30, 2023:
| Net Carrying Value | ||||||||||||||||||||
| Unpaid Principal | Contractual | Contractual | ||||||||||||||||||
| Type of Debt | Balance | Current | Long-Term | Interest Rate | Maturity | |||||||||||||||
| Matured notes | $ | $ | $ | % | 2019 - 2021 | |||||||||||||||
| Real estate note | % | 2024 | ||||||||||||||||||
| Loan advances | % | 2016 – 2018 | ||||||||||||||||||
| Less: debt discount | ( | ) | ( | ) | ||||||||||||||||
| Total Debt | $ | $ | $ | |||||||||||||||||
Scheduled Debt Maturities
The following are scheduled debt maturities as of March 31, 2024:
| Year Ended September 30, | ||||||||||||||||||||||||
| 2024 (6 months) | 2025 | 2026 | 2027 | 2028 | Total | |||||||||||||||||||
| Total Debt | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Accrued interest
As of March 31, 2024 and September 30, 2023, accrued interest on outstanding notes payable was $
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 $
Drawbridge and Amended A&R Note with Esousa
On October 14, 2022, the Company entered into an Amended and Restated Secured Convertible Note and Security Agreement (the “A&R Note”) with Esousa Holdings LLC (“Esousa”), including principal of $
Non-convertible secured promissory note
On December 18, 2023, Mullen entered into a Debt Agreement to issue a non-convertible secured promissory note (the “Note”) with a principal amount of $
Convertible Notes
On November 14, 2022, the Company entered into Amendment No. 3 (“Amendment No. 3”) to the June 7, 2022, Securities Purchase Agreement (as amended, the “Series D SPA”). The investors paid $
Amendment No. 3 further provided that the remaining $
On November 15, 2022, the Company issued the unsecured convertible Notes aggregating $
As a result, and since the Company had an insufficient number of authorized shares available to settle potential future warrant exercises, the Company recognized a derivative liability of $
On December 23, 2022, the Company defaulted on the Notes by not having sufficient authorized shares to allow for both the Notes to be fully converted and the warrants to be exercised. On January 13, 2023, the Company entered into a Settlement Agreement and Release in which investors waived the default prior to February 1, 2023. In exchange, the Company granted the investors the right to purchase additional shares of Series D Preferred Stock and warrants in an amount equal to such investor’s pro rata portion of $
During February 2023, the remaining balance of the Notes (with the principal of $
NOTE 8 – WARRANTS AND OTHER DERIVATIVE LIABILITIES AND FAIR VALUE MEASUREMENTS
ASC 825-10 defines fair value 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.
Financial Instruments at Carrying Value That Approximated Fair Value
Certain financial instruments that are not carried at fair value on the consolidated balance sheets are carried at amounts that approximate fair value, due to their short-term nature and credit risk. These instruments include cash and cash equivalents, accounts payable, and debt. Accounts payable are short-term in nature and generally are due upon receipt or within 30 to 90 days.
Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
Non-financial assets are only required to be measured at fair value when acquired as a part of business combination or when an impairment loss is recognized. See Note 14 – Property, Plant, and Equipment and Note 6 –Goodwill and Other Intangible Assets for further information. All these valuations are based on Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of these assets or liabilities.
Financial Liabilities Measured at Fair Value on a Recurring Basis
During six months ended March 31, 2024 and 2023, the Company had the following financial liabilities measured at fair value on a recurring basis:
Preferred C Warrants
The warrants, which were exercisable for common stock, issued in connection with the sale of Series C Preferred Stock (the “Preferred C Warrants”) in accordance with the November 2021 Merger Agreement and further amendments, had an exercise price per share of $
These warrant liabilities were recognized as liabilities due to requirements of ASC 480 because the variable number of shares to be issued upon cashless exercise (which was deemed to be the predominant exercise option) was based predominantly on a fixed monetary value. At each warrant exercise date and each accounting period end the warrant liability for the remaining unexercised warrants was marked-to-market value and the resulting gain or loss was recorded.
During the quarter ended December 31, 2022, remaining
Preferred D Warrants
In accordance with Series D SPA (see Note 7 - Debt) for every share of Series D Preferred Stock purchased, the investors received
In September 2022, the Company received an initial investment amount of $
By September 30, 2022,
During the quarter ended December 31, 2022, all initial Preferred D Warrants were exercised on a cashless basis for
In November 2022, the Company received $
During April 2023, we exercised our investment rights under the Series D SPA and requested an additional $
In June 2023, we exercised the second half of our investment right for $
In June 2023, one of the investors exercised their investment rights and invested $
Final voluntary investment rights under the Series D SPA were exercised by the pool of investors in June 2023 and the Company received $
The warrant liability recognized in June 2023 upon initial accounting of these investments amounted to $
As of September 30, 2023,
During the three months ended December 31, 2023, a part of remaining Preferred D Warrants were exercised on a cashless basis for
As of March 31, 2023,
After the balance sheet date and by the date these financial statements were available to be issued, all remaining Preferred D Warrants were exercised on a cashless basis and there are no more Preferred D Warrants outstanding.
The fair value of warrant obligations is calculated based on the number and market value of shares that can be issued upon exercise of the warrants. The number of shares to be issued in accordance with relevant agreements is variable and depends on (i) lowest closing market price of shares for 2 days before the exercise, and (ii) multiplicator calculated based on Black Scholes formula where all elements, except for risk-free rate, are fixed on the investment date. Accordingly, the fair value of warrants on recognition date and on subsequent dates was estimated as a maximum of (i) Black Scholes value for cash exercise of relevant warrants and (ii) current market value of the number of shares the Company would be required to issue upon cashless warrant exercise on a relevant date in accordance with warrant contract requirements. The latter valuation, based on observable inputs (level 2), has been higher and reflects the pattern of the warrants exercise since the inception of the Series D SPA.
At each warrant exercise date and each accounting period end the warrant liability for the remaining unexercised warrants is marked-to-market value and the resulting gain or loss is recorded in consolidated statement of operations as a “Gain / (loss) on derivative liability revaluation”.
All the warrants mentioned in this section provide that if the Company issues or sells, enters into a definitive, binding agreement pursuant to which the 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, 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.
Other derivative liabilities
Other derivative liabilities recognized and remeasured subsequently at fair value include: embedded derivatives issued with convertible notes (primarily, conversion option), and preferred stock that failed equity presentation when the Company had insufficient number of authorized shares available to settle all potential future conversion transactions, automatic increase in interest rate upon an event of default, and optional conversion feature that were not clearly and closely related to the economic characteristics and risks of a debt host. These derivative liabilities were initially recognized on November 15, 2022, when the Company entered into Amendment No. 3 to the Series D SPA (see Note 7 - Debt) having an insufficient number of authorized shares of common stock available for issuance upon conversion of preferred stock and convertible notes payable and the exercise of outstanding warrants. They were carried at fair value and have been reclassified to equity respectively upon final conversion of the Notes, and upon authorization of increase of common stock available for issuance by stockholders of the Company during the three months ending March 2023.
Qiantu Warrants
On March 14, 2023, the Company entered into an Intellectual Property and Distribution Agreement (the “IP Agreement”) with Qiantu Motor (Suzhou) Ltd., and two of Qiantu Suzhou’s affiliates (herein “Qiantu”). Pursuant to the IP Agreement, Qiantu granted the Company the exclusive license to use certain of Qiantu’s trademarks and the exclusive right to assemble, manufacture, and sell the homologated vehicles based on the Qiantu K-50 model throughout North America and South America for a period of five years (see Note 19 for more details). These rights will be obtained and the commitment will only be effective upon the Company’s assessment of feasibility and profitability of the project.
As a part of consideration for the Company’s entry into the IP Agreement, the Company issued to Qiantu USA warrants to purchase up to
The Qiantu warrants, per contract, are exercisable at Qiantu USA’s discretion at any time from September 30, 2023 up to and including September 30, 2024 at
As it was expected that the Company may not have a sufficient number of authorized shares of common stock available for issuance during the term of the contract (up to September 2024), and the shares to be issued upon possible exercise of warrants have not been registered, the Qiantu Warrants were recognized at fair value on inception ($
Upon issuance and upon revaluation of the instruments, the Company estimated the fair value of these derivatives using the Black-Scholes Pricing Model and binomial option valuation techniques based on the following assumptions: (1) dividend yield of
Breakdown of items recorded at fair value on a recurring basis in consolidated balance sheets by levels of observable and unobservable inputs as of March 31, 2024 and on September 30, 2023 is presented below:
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| March 31, | Identical Assets | Inputs | Inputs | |||||||||||||
| 2024 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| September 30, | Identical Assets | Inputs | Inputs | |||||||||||||
| 2023 | (Level 1 ) | (Level 2) | (Level 3) | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
A summary of all changes in warrants and other derivative liabilities is presented below:
| Balance, September 30, 2023 | $ | |||
| Loss / (gain) on derivative liability revaluation | ||||
| Reclassification to liability to issue shares upon unfinished warrant exercise on period end | ( | ) | ||
| Conversions of warrants into common shares | ( | ) | ||
| Balance, March 31, 2024 | $ | |||
| Balance, September 30, 2022 | $ | |||
| Derivative liabilities recognized upon issuance of convertible instruments | ||||
| Derivative liability upon authorized shares shortfall | ||||
| Loss / (gain) on derivative liability revaluation | ||||
| Reclassification of derivative liabilities to equity upon authorization of sufficient common shares | ( | ) | ||
| Financing loss upon over-issuance of shares from warrants | ||||
| Receivables upon over-issuance of shares from warrants | ||||
| Reclassification to liability to issue shares upon unfinished warrant exercise on period end | ( | ) | ||
| Conversions of warrants into common shares | ( | ) | ||
| Balance, March 31, 2023 | $ |
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Stock
At a special meeting on January 25, 2023, stockholders approved the proposal to increase the Company’s authorized common stock capital from
As described in detail in the Note 1 - Description of Business and Basis of Presentation above, by December 31, 2023, the Company has effectuated a series of reverse stock splits. All stock splits resulted in reduction of shares of common stock issued and outstanding and did not affect authorized common stock or preferred stock. The Company had
The holders of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders. In the event of a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the common stockholders 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. To date, no dividends have been declared or paid to the holders of common stock.
When the Company receives a warrant exercise notice or preferred stock conversion notice close to the balance sheet date, and issues relevant order to a transfer agent, which is effectively exercised only after the balance sheet date, relevant shares of common stock are presented in the balance sheet as common stock owed but not issued.
Change in Control Agreements
On August 11, 2023, the Board of Directors approved, and the Company entered, Change in Control Agreements with each non-employee director and Chief Executive Officer. Pursuant to the Change in Control Agreements with each non-employee director, upon a change in control of the Company, any unvested equity compensation will immediately vest in full and such non-employee director will receive $
Preferred Stock
Under the terms of our Certificate of Incorporation, the Board may determine the rights, preferences, and terms of our authorized but unissued shares of Preferred Stock. Pursuant to the terms of its Second Amended and Restated Certificate of Incorporation, as amended, upon conversion of shares of Preferred Stock, such shares so converted are cancelled and not issuable. As of July 26, 2022, as a result of an amendment to its Certificate of Incorporation increasing its authorized Preferred Stock, the Company had
The Company has designated Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, and Series AA Preferred Stock, which has been cancelled.
On May 1, 2024, in connection with the adoption of a Rights Agreement, the Company filed a Certificate of Designation setting forth the rights, powers and preferences of Series A-1 Junior Participating Preferred Stock par value $0.001 per share, see Note 21 - Subsequent Events for further details.
There were no transactions with Preferred Stock during the six months ended March 31, 2024.
Transactions with Preferred Stock during the three and six months ended March 31, 2023 are presented below:
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | ||||||||||||||||||||||||||||||||||||
| Total | Series A | Series C | Series D | Series AA | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of preferred stock and dividends | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred shares series AA issued to officers | ||||||||||||||||||||||||||||||||||||||||
| Preferred shares series AA refund | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of preferred stock and dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Preferred shares series AA refund | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Redemption Rights
The shares of Preferred Stock are not subject to mandatory redemption.
The Series C Preferred Stock and Series D Preferred Stock are voluntarily redeemable by the Company in accordance with the following schedule, provided that the issuance of shares of common stock issuable upon conversion has been registered and the registration statement remains effective:
Year 1:
Year 2: Redemption at
Year 3: Redemption at
Year 4: Redemption at
Year 5: Redemption at
Year 6 and thereafter: Redemption at
The Series C Preferred Stock and Series D Preferred Stock are redeemable by the Company for a Redemption price per share equal to the Issue Price ($
Dividends
The holders of Series A and Series B Preferred Stock are entitled to non-cumulative dividends if declared by the Board of Directors. The holders of the Series A Preferred Stock and Series B Preferred Stock participate on a pro rata basis (on an “as converted” basis to common stock) in any cash dividend paid on common stock.
The Series C Preferred Stock originally provided for a cumulative
The Series D Preferred Stock bears a
The Company may elect to pay dividends for any month with a payment-in-kind (“PIK”) election 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 $
Liquidation, Dissolution, and Winding Up
In the event of any Liquidation Event, the holders of the Series D Preferred Stock 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 D Original Issue Price ($
In the event of any Liquidation Event, the holders of the Series B Preferred Stock will be entitled to receive, after full execution of rights of the Series D Preferred Stock holders, and 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 (
Upon the completion of a distribution pursuant to a Liquidation Event to the Series D Preferred Stock and Series B Preferred Stock, the holders of the Series C Preferred Stock will be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of the Series A Preferred Stock or the common stock by reason of their ownership thereof, an amount per share equal to the Series C Original Issue Price ($
Upon the completion of a distribution pursuant to a Liquidation Event to the Series D Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the holders of Series A Preferred Stock are entitled to receive, prior and in preference to any distribution of any proceeds to the holders of the common stock, by reason of their ownership thereof, $
Conversion
Each share of Series A Preferred Stock is convertible at any time at the option of the holder into
Each share of Series B Preferred Stock and each share of Series C Preferred Stock are convertible at the option of the holder at any time into such number of shares of common stock as is determined by dividing the Issue Price by the relevant Conversion Price (in each case, subject to adjustment). As of March 31, 2024, there were
Each share of Series C Preferred Stock will automatically be converted into shares of common stock at the applicable conversion rate at the time in effect immediately upon (A) the issuance of shares of common stock underlying the Series C Preferred Stock being registered pursuant to the Securities Act of 1933 and such registration remaining effective, (B) the trading price for the Company’s common stock being more than two times the Series C Conversion Price for 20 trading days in any period of 30 consecutive trading days on the Nasdaq Capital Market, and (C) the average daily trading dollar volume of the Company’s common stock during such 20 trading days is equal to or greater than $
The Series D Preferred Stock is convertible at the option of each holder at any time into the number of shares of common stock determined by dividing the Series D Original Issue Price (plus all unpaid accrued and accumulated dividends thereon, as applicable, whether or not declared), by the Series D Conversion Price, subject to adjustment as set in the Certificate of Designation. As of March 31, 2024, each share of Series D is convertible into
Each share of Series D Preferred Stock will automatically be converted into shares of common stock at the applicable Conversion Rate at the time in effect immediately upon (A) the issuance of shares of common stock underlying the Series D Preferred Stock being registered pursuant to the Securities Act and such registration remaining effective, (B) the trading price for the Company’s common stock being more than two times the Series D Conversion Price for 20 trading days in any period of 30 consecutive trading days on the Nasdaq Capital Market, and (C) the average daily trading dollar volume of the Company’s common stock during such 20 trading days is equal to or greater than $
Voting Rights
The holders of shares of common stock and Series A, Series B and Series C Preferred Stock 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 Stock, Series B Preferred Stock, or Series C Preferred Stock, 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 Stock and Series C Preferred Stock has right to one vote for each share of common stock into which such Series B Preferred Stock and/or Series C Preferred Stock, as applicable, could be converted. Each holder of Series A Preferred has the right to
The holders of Series D Preferred Stock have no voting rights except for protective voting rights (one vote for each share) in such cases as approval of a liquidation event, authorization of issue of securities having a preference over or parity with the Series D Preferred Stock with respect to dividends, liquidation, redemption or voting, entering a merger or consolidation, etc.
Series AA Preferred Stock
The Series AA Certificate of Designation, filed in November 2022, provided that the Series AA Preferred Stock would have
The Series AA Preferred Stock was not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series AA Preferred Stock had no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Series AA Preferred Stock was not entitled to receive dividends of any kind. On November 14, 2022, the Company entered into a Subscription and Investment Representation Agreement with David Michery, its Chief Executive Officer, pursuant to which the Company issued and sold one share of the Company’s Series AA Preferred Stock for $
NOTE 10 – LOSS PER SHARE
Earnings per common share (“EPS”) is computed by dividing net income allocated to common stockholders by the weighted-average shares of common stock outstanding. Diluted EPS is computed by dividing income allocated to common stockholders plus dividends on dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average shares of common stock 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, 2024 and 2023, outstanding warrants, convertible debt and shares of Preferred Stock were excluded from the diluted share count because the result would have been antidilutive under the “if-converted method.”
The following table presents the reconciliation of net loss attributable to common stockholders to net loss used in computing basic and diluted net income per share of common stock (giving effect to the reverse stock splits – see Note 1 - Description of Business and Basis of Presentation):
| Three months ended March 31, | Six months ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: preferred stock dividends waived/(accrued) | ( | ) | ( | ) | ||||||||||||
| Net loss used in computing basic net loss per share of common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding, basic and diluted | ||||||||||||||||
NOTE 11 – SHARE-BASED COMPENSATION
The Company has incentive plans that are a part of annual discretionary share-based compensation program. The plans include consultants and employees, directors and officers. The Company has been issuing new shares of common stock under the share-based compensation programs, and cash has not been used to settle equity instruments granted under share-based payment arrangements.
| For the three months ended March 31, | For the six months ended March 31, | |||||||||||||||
| Composition of Stock-Based Compensation Expense | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| CEO share based performance award liability revaluation | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Share-based compensation to employees and directors | ||||||||||||||||
| Share-based compensation to consultants (equity-classified) | ||||||||||||||||
| Share-based compensation to consultants (liability-classified) | ||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | ||||||||||||
Employees of the Company
Employees of the Company, including officers, are entitled to a number of shares of common stock specified in relevant offer letters and employment contracts and subject to the approval of our Board of Directors Compensation Committee. The total expense of share awards to employees represents the grant date fair value of relevant number of shares to be issued and is recognized, in correspondence with additional paid-in capital, ratably over the service period. The majority of awards to employees are equity-classified. The liability that relates to liability classified stock-based compensation contracts with employees amounts to $
Consultants
From time to time the Company also issues share-based compensation to external consultants providing consulting, marketing, R&D, legal and other services. The number of shares specified within individual agreements, or a monetary value of those shares, if applicable, is negotiated by our Chief Executive Officer and approved by Compensation Committee of the Board of Directors. These costs are generally presented as professional fees within general and administrative, and certain qualifying costs may be presented as part of research and development expenses ($
A part of these share-based awards is classified as equity and accounted for similar to stock-based compensation to employees. Another part of the Company’s share-based awards to consultants is classified as liabilities: mainly if a number of shares a consultant is entitled to is predominantly based on monetary value fixed in the contract. An accrued part of liability in this case is revaluated each period based on the part of the services performed and market price of the shares of common stock of the Company, until sufficient number of shares is issued. The liability to consultants as of March 31, 2024 amounted to $
CEO Award Incentive Plans
The Company entered into a CEO Performance Stock Award Agreement, approved by the Board and by stockholders in 2022 (“2022 PSA Agreement”) and a CEO Performance Stock Award Agreement, approved by the Board and by stockholders in 2023 (“2023 PSA Agreement”). Under these plans, the Chief Executive Officer is entitled to share-based awards generally calculated as
The costs (income) recognized within the line item "CEO share based performance award liability revaluation" in the table above represent both actual issuances of common stock under PSA Agreements and revaluation of these provisions for future probable awards. This share-based compensation is accrued over the service term when it is probable that the milestone will be achieved. The liability to issue stock (presented within non-current liabilities if the achievement is expected later than 12 months after the balance sheet date) is revalued on every balance sheet date based on the length of the service period, current market price of the common stock, and on the number of shares of common stock outstanding – until the shares have been issued, or until fulfilling of the milestone requirements is no longer probable.
As of March 31, 2024, the accrual for future awards under 2022 PSA Agreement amounted to approximately $
As of March 31, 2024, the accrual for future awards under 2023 PSA Agreement amounted to approximately $
NOTE 12 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| March 31, 2024 |
September 30, 2023 |
|||||||
| Provision for settlement expenses and legal fees |
$ | $ | ||||||
| Tax payables |
||||||||
| Accrued payroll |
||||||||
| Accrued interest |
||||||||
| Refund liability |
||||||||
| Accrued expense - other |
||||||||
| Total |
$ | $ | ||||||
NOTE 13 - LIABILITY TO ISSUE STOCK
The liability to issue stock on March 31, 2024 (current liability in amount of $
NOTE 14 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment consists of the following:
| March 31, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Construction-in-progress | ||||||||
| Land | ||||||||
| Other fixed assets | ||||||||
| Total cost of assets excluding accumulated impairment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, Plant, and Equipment, net | $ | $ | ||||||
During the last quarter of fiscal year ended September 1, 2023, due to unfavorable market conditions, decline of the market prices of the Company’s common stock, and budgeted performance misses compared to the budgets prepared previously, we have tested long-lived asset for recoverability. The test was performed on September 1, 2023 by management with the assistance of independent third-party valuation professionals, using both discounted cash flow method and guideline public company method. The fair value of the property, plant, and equipment of the ELMS/Legacy Mullen segment (classified in Level 3 of the fair value hierarchy) was determined on a standalone basis utilizing the cost and market approaches to value. The assets of the Bollinger's segment (see Note 4 - Segment information) were not impaired, except for impairment of goodwill (see Note 6 - Goodwill and Other Intangible Assets). An impairment loss in amount of $
Depreciation expense related to property, plant, and equipment for the three and six months ended March 31, 2024 was $
NOTE 15 – PREPAID EXPENSES AND PREPAID INVENTORY
| March 31, 2024 |
September 30, 2023 |
|||||||
| Prepaid expenses and prepaid inventory |
||||||||
| Prepaid expense |
$ | $ | ||||||
| Prepaid services |
||||||||
| Prepaid inventory |
||||||||
| Customs surety bond paid |
||||||||
| Prepaid trade shows |
||||||||
| Other prepayments |
||||||||
| Total prepaid expenses and prepaid inventory |
$ | $ | ||||||
NOTE 16 – OPERATING EXPENSES
General and administrative expenses consist of the following:
| Three months ended March 31, | Six months ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Professional fees | $ | $ | $ | $ | ||||||||||||
| Advertising and promotions | ||||||||||||||||
| Settlements and penalties | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Amortization | ||||||||||||||||
| Compensation to employees | ||||||||||||||||
| Utilities and office expense | ||||||||||||||||
| Employee benefits | ||||||||||||||||
| Listing and regulatory fees | ||||||||||||||||
| Repairs and maintenance | ||||||||||||||||
| Lease | ||||||||||||||||
| Executive expenses and directors' fees | ||||||||||||||||
| Other | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The main portion of the Professional fees relate to stock-based compensation, see Note 11 - Share Based Compensation for additional information.
Research and Development
Research and development expenses for the six months ended March 31, 2024 and 2023 were $
NOTE 17 – LEASES
We have entered into various operating lease agreements for certain offices, manufacturing and warehouse facilities, and land. Operating leases led to recognition of right-of-use assets, and current and noncurrent portion of lease liabilities. These right-of-use assets also include any lease payments made and initial direct costs incurred at lease commencement and exclude 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 have 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.
On November 1, 2023, the Company entered a
The table below presents information regarding our lease assets and liabilities.
| March 31, 2024 | September 30, 2023 | |||||||
| Assets: | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Operating lease liabilities, current | ( | ) | ( | ) | ||||
| Operating lease liabilities, noncurrent | ( | ) | ( | ) | ||||
| Total lease liabilities | $ | ( | ) | $ | ( | ) | ||
| Weighted average remaining lease terms: | ||||||||
| Operating leases (in years) | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
For the three and six months ended March 31, 2024, we recognized impairment of right-of-use assets in amount of $
| Operating lease costs: | For the three months ended March 31, | For the six months ended March 31, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Fixed lease cost | $ | $ | $ | $ | ||||||||||||
| Variable and short-term lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating lease costs | $ | $ | $ | $ | ||||||||||||
The following table reflects maturities of operating lease liabilities at March 31, 2024:
| Years ending September 30, | ||||
| 2024 (6 months) | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
NOTE 18 – INCOME TAXES
The Company and its less than 100% owned subsidiaries are filing separate tax returns and we calculate the provision for income taxes by using a “separate return” method. Section 174 deduction and R&D credits are calculated using consolidated tax return rules and are allocated among its members. Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
We maintain a full valuation allowance against the value of our U.S. and state net deferred tax assets because recoverability of the tax assets does not meet the “more likely than not” requirement as of March 31, 2024 and September 30, 2023.
NOTE 19 – CONTINGENCIES AND CLAIMS
ASC 450.20 governs the disclosure and recognition of loss contingencies, including potential losses from litigation, regulation, 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. Under this standard an event is probable when it is likely to occur.
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 recognize accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and disclose 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. As required by ASC 450 we do not record liabilities when the likelihood is not probable, or when the likelihood is probable, but the amount cannot be reasonably estimated. 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.
The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. We evaluate, at least quarterly, developments in our legal proceedings and other contingencies that could affect the amount of liability, including amounts in excess of any previous accruals and reasonably possible losses disclosed, and make adjustments and changes to our accruals and disclosures as appropriate. For the matters we disclose that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. Until the final resolution of such matters, if any of our estimates and assumptions change or prove to have been incorrect, we may experience losses in excess of the amounts recorded, which could have a material effect on our business, consolidated financial position, results of operations, or cash flows.
Information with respect to our legal proceedings is contained in Note 19 – Contingencies and Claims of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended September 30, 2023. Other than as set forth herein, there are no additional updates to the legal proceedings involving the Company and/or its subsidiaries.
Qiantu Motor (Suzhou) Ltd.
This matter arises out of a contract dispute between Mullen and Qiantu Motor (Suzhou) Ltd. (“Qiantu”) related to the engineering, design, support, and homologation of Qiantu’s K50 vehicle by Mullen. On July 1, 2020, the court ordered this matter to arbitration. It was submitted to the American Arbitration Association on February 9, 2021, for arbitration in Denver, Colorado. On March 14, 2023, the parties entered into a Settlement Agreement providing for full settlement of all pending litigation between Mullen and Qiantu. Mullen continues its analysis of the homologation costs and the parties continue to negotiate licensing rights to the European territories.
International Business Machines (“IBM”)
On May 7, 2019, International Business Machines (‘IBM”) filed a claim against Mullen Technologies, Inc., in the Supreme Court of the State of New York. This matter arises out of a contract dispute between Mullen and IBM related to a joint development and technology license agreement, patent license agreement, and a logo trademark agreement.
The Company has recognized the amounts paid ($
TOA Trading LLC Litigation
On April 8, 2022, TOA Trading LLC and Munshibari LLC (“Plaintiffs”), filed a complaint against the Company and Mullen Technologies, Inc. in the United States District Court for the Southern District of Florida. Plaintiffs bring claims for breach of contract, or alternatively, unjust enrichment, related to an unpaid alleged finder’s fee in connection with a merger, and seek damages, pre- and post-judgment interest, as well as an award of reasonable fees and expenses.
The Company has accrued expected settlement expense as of March 31, 2024.
DBI Lease Buyback Servicing LLC, Drawbridge Investments LLC
On March 2, 2023, DBI and Drawbridge Investments LLC (collectively, “Drawbridge”) filed a complaint in the Commercial Division of the Supreme Court of the State of New York, County of New York against Mullen. The complaint arises out of a letter agreement providing DBI with a right to purchase up to $
On December 5, 2023, as part of the settlement, Drawbridge withdrew its appeal to Mullen’s Motion to Dismiss, which was granted by the court on August 25, 2023, with prejudice. Based on the contract signed by the parties, the Company paid $
The GEM Group
On September 21, 2021, the GEM Group filed an arbitration demand and statement of claim with the American Arbitration Association against Mullen seeking declaratory relief and damages. This matter arises out of an alleged breach of a securities purchase agreement dated November 13, 2020. On November 17, 2023, the arbitrator issued the Partial Final Award on Liability finding that Mullen and Mullen Technologies, Inc. (“MTI”) had repudiated and breached the securities purchase agreement and a related agreement (the “GEM Agreements”). On January 29, 2024, the parties completed the briefing on the issues of damages and allocation. To date, no award on damages has been issued.
On August 3, 2023, the Arbitrator ordered Mullen to deposit $
On or about On December 28, 2023, Mullen and MTI filed a complaint against the GEM Group and Christopher F. Brown in the United States District Court for the Southern District of New York alleging, among other things, that the GEM Group and Mr. Brown engaged in an unlawful securities transaction under the federal securities laws by entering into the GEM Agreements while the GEM Group was operating as an unregistered dealer. The complaint seeks an order declaring, among other things, that the GEM Agreements are void ab initio. On April 8, 2024, the District Court stayed that action.
The Company has accrued $
Mullen Stockholder Litigation
Margaret Schaub v. Mullen Automotive Inc.
On May 5, 2022, Plaintiff Margaret Schaub, a purported stockholder, filed a putative class action complaint in the United States District Court Central District of California against the Company, as well as its Chief Executive Officer, David Michery, and the Chief Executive Officer of a predecessor entity, Oleg Firer (the “Schaub Lawsuit”). This lawsuit was brought by Schaub both individually and on behalf of a putative class of the Company’s shareholders, claiming false or misleading statements regarding the Company’s business partnerships, technology, and manufacturing capabilities, and alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder. An amended complaint was filed on September 23, 2022, asserting claims against the Company, Mullen Technologies, Inc., and Mr. Michery. The Schaub Lawsuit seeks to certify a putative class of shareholders, and seeks monetary damages, as well as an award of reasonable fees and expenses.
The Company has accrued expected settlement expense as of March 31, 2024.
Trinon Coleman v. David Michery et al.
On December 8, 2023, Trinon Coleman, a purported stockholder, filed a shareholder derivative action in the Court of Chancery for the State of Delaware, purportedly in the right and for the benefit of the Company as a nominal defendant, against Mr. Michery, and Company directors Mr. Puckett, Ms. Winter, Mr. Betor, Mr. Miltner, and Mr. New (the “Coleman Lawsuit”). This lawsuit asserts claims for breach of fiduciary duty, insider trading, and unjust enrichment primarily in connection with the issues and claims asserted in the Schaub Lawsuit. The Coleman Lawsuit seeks to direct the Company to improve its corporate governance and internal procedures, and seeks monetary damages and an award of reasonable fees and expenses.
David Gru v. Mullen Automotive Inc.
On May 12, 2022, David Gru, a purported stockholder, filed a putative class action lawsuit in the United States District Court for the Central District of California against the Company, Mr. Michery, and Mr. Firer (the “Gru Lawsuit”). This lawsuit was brought by Gru both individually and on behalf of a putative class of Mullen’s shareholders, claiming false or misleading statements regarding Mullen’s business partnerships, technology, and manufacturing capabilities, and alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5. The Gru Lawsuit sought to declare the action to be a class action, and sought monetary damages, pre-judgment and post-judgment interest, as well as an award of reasonable fees and expenses. On August 4, 2022, the Court consolidated this action into the Schaub Lawsuit, and ordered this action administratively closed.
Jeff Witt v. Mullen Automotive Inc.
On August 1, 2022, Jeff Witt and Joseph Birbigalia, purported stockholders, filed a shareholder derivative action in the United States District Court for the Central District of California, purportedly in the right and for the benefit of the Company as a nominal defendant, and Mr. Michery, Mr. Firer, and current or former Company directors Ignacio Novoa, Mary Winter, Kent Puckett, Mark Betor, William Miltner and Jonathan New (the “Witt Lawsuit”). The Witt Lawsuit asserts claims for breach of fiduciary duty, unjust enrichment, abuse of control, waste of corporate assets, and violation of Section 14 of the Exchange Act primarily in connection with the issues and claims asserted in the Schaub Lawsuit. The Witt Lawsuit seeks monetary damages, as well as an award of reasonable fees and expenses.
Hany Morsy v. David Michery, et al.
On September 30, 2022, Hany Morsy, a purported stockholder, filed a shareholder derivative action in the United States District Court for the Central District of California, purportedly in the right and for the benefit of the Company as a nominal defendant, against Mr. Michery, Mr. Firer, former Company officer and director, Jerry Alban, and Company directors Mr. Novoa, Ms. Winter, Mr. Puckett, Mr. Betor, Mr. Miltner, and Mr. New (the “Morsy Lawsuit”). This lawsuit asserts claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and violation of Section 14 of the Exchange Act primarily in connection with the issues and claims asserted in the Schaub Lawsuit. The Morsy Lawsuit seeks to direct the Company to improve its corporate governance and internal procedures, and also seeks monetary damages, pre-judgment and post-judgment interest, restitution, and an award of reasonable fees and expenses. On November 8, 2022, the Court consolidated this matter and the Witt Lawsuit (see above).
Chosten Caris v. David Michery
On April 27, 2023, Chosten Caris, a purported stockholder, filed a complaint against Mr. Michery in the Eighth Judicial Circuit in and for Alachua County, Florida (the “Caris Lawsuit”). This lawsuit purports to seek damages for claims arising under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. The Caris Lawsuit also seeks punitive damages. On May 17, 2023, Mr. Michery removed the Caris Lawsuit to the United States District Court for the Northern District of Florida.
Martis v. Michery et al.
On March 14, 2024, Marius Martis, a purported stockholder, filed a shareholder derivative action in the United States District Court for the District of New Jersey, purportedly in the right and for the benefit of the Company as a nominal defendant, against Mr. Michery, Company directors Ms. Winter, Mr. Betor, and Mr. Puckett, as well as third-parties Oleg Firer, Jon Najarian, John Roland, Todd Raarup, Argus Merchant Services, LLC and RBL Capital Group LLC (the “Martis Lawsuit”). This lawsuit purports to seek damages for claims relating to the Net Element, Inc. (“Net Element”) merger and Net Element’s divestiture of a payment processing business, arising under Sections 10(b), 14(a), 20, 21D and 29(b) of the Exchange Act, as well as claims for breach of fiduciary duty. The Martis Lawsuit seeks rescission, as well as monetary damages and an award of reasonable fees and expenses.
Other contingencies
Accrued debt settlement
As discussed in the Note 7 - Debt, on December 18, 2023, Mullen entered into a Debt Agreement to issue a non-convertible secured promissory note with a principal amount of $
NOTE 20 – RELATED PARTY TRANSACTIONS
Related Party Receivable
Prior to its spinoff as a separate entity and the closing of the Merger on November 5, 2021, the Company operated as a division of MTI, an entity in which the Company’s CEO had a controlling financial interest and of which he was CEO and Chairman. After the spinoff transaction and Merger on November 5, 2021, the Company processed and disbursed payroll and related compensation benefits for 11 employees that provided services only to MTI and rent costs for facilities utilized by MTI pursuant to a Transition Services Agreement (“TSA”). The terms of the TSA required MTI to repay monthly the amounts advanced by the Company, with penalties calculated at the lower of the plus
On March 31, 2023, the Company converted approximately $
On January 16, 2024, the Company terminated the Transition Services Agreement between the Company and Mullen Technologies, Inc., and received cash payment in full settlement of all amounts outstanding (including outstanding notes receivable, advances and related interest and penalties) of approximately $
Director Provided Services
For the six months ended March 31, 2024, our non-employee directors have earned compensation for service on our Board of Directors and Committees of our Board of Directors in amount of $
William Miltner
William Miltner is a litigation attorney who provides legal services to Mullen Automotive and its subsidiaries. Mr. Miltner also is an elected Director for the Company. For the six months ended March 31, 2024, Mr. Miltner was entitled to $
Mary Winter
Mary Winter, Corporate Secretary and Director, is compensated for Corporate Secretary responsibilities, in the amount of $
NOTE 21 – SUBSEQUENT EVENTS
Company management has evaluated subsequent events through May 14, 2024, 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 financial statements.
HVIP program approval
In April 2024, California Air Resources Board has approved the Company’s all-electric Class 3 low cab forward, the 2024 Mullen THREE, for the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (“HVIP”). The HVIP program plays a crucial role in the deployment of zero-emission technologies and accelerates commercialization by providing point-of-sale vouchers to make advanced vehicles more affordable. Under HVIP, the 2024 Mullen THREE EV truck, with a suggested MSRP of $
Debt Agreement termination
On December 18, 2023, Mullen entered into a Debt Agreement to issue a non-convertible secured promissory note (the “Note”) with a principal amount of $
Liabilities settlement agreement
The Company entered into a Settlement Agreement with Silverback Capital Corporation ("SCC") on May 9, 2024, to resolve outstanding overdue liabilities with different vendors totaling $
Stock issuances after the balance sheet date and exercise of remaining warrants
After the balance sheet date and by May 13, 2024, the Company issued
Stockholder Rights Agreement
On May 1, 2024, the Company entered into a Rights Agreement with Continental Stock Transfer & Trust Company, as rights agent, and the Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each share of Common Stock and each outstanding share of Preferred Stock Company payable to holders of record as of the close of business on May 13, 2024. Each Right entitles the registered holder to purchase one ten-thousandth of a share of Series A- Junior Participating Preferred Stock (“A-1 Preferred Stock”) of the Company at a price of $30.00 per one ten thousandth of a share of A-1 Preferred Stock, subject to adjustment (the “Exercise Price”). The Rights are not exercisable until the Distribution Date (as defined below). The description and terms of the Rights are set forth in the Rights Agreement.
The Rights will not be exercisable until the earlier of ten days after a public announcement by us that a person or group has acquired 10% of more of the shares of Common Stock (an "Acquiring Person") and ten business days (or a later date determined by our board of directors) after a person or group begins a tender or an exchange offer that, if completed, would result in that person or group becoming an Acquiring Person (the earlier of such dates being herein referred to as the “Distribution Date”). At any time after a person becomes an Acquiring Person, the Board of Directors may, at its option, exchange all or any part of the then outstanding and exercisable Rights for shares of Common Stock at an exchange ratio of one share of Common Stock for each Right, subject to adjustment as specified in the Rights Agreement. Notwithstanding the foregoing, the Board of Directors generally will not be empowered to effect such exchange at any time after any person becomes the beneficial owner of 50% or more of the Common Stock of the Company. The Rights will expire on May 1, 2025, unless previously redeemed or exchanged by the Company. The Rights Agreement is designed to enable all Company stockholders to realize the long-term value of their investment and is intended to protect Mullen and its stockholders from efforts by a single stockholder or group to obtain control of the Company without paying a control premium, see below for further details. The Rights have certain anti-takeover effects, including potentially discouraging a takeover that stockholders may consider favorable. Certain exemptions may apply to an Acquiring person. The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the Board of Directors.
Foreign Trade Zone status for Tunica Manufacturing Plant
The Company has been granted Foreign Trade Zone (FTZ) status for its commercial vehicle manufacturing and assembly facility in Tunica, MS, by the U.S. Department of Commerce. An FTZ is a secure area in the U.S. where foreign and domestic goods are treated as being outside U.S. Customs territory for duty and tariff purposes. This designation allows the Company to defer significant amount of import duty payments over FY2024 and FY2025. For vehicles intended for export, the Company will be fully exempt from duties, offering potential savings of up to 20% across both EV cargo vans and trucks. The FTZ approval is expected to provide benefits such as improved cash flow, enhances global competitiveness, reduces taxes, and provides logistical flexibility.
$50 Million Note and Warrant Financing
On May 14, 2024, the Company entered into a Securities Purchase Agreement with certain accredited investors for the sale of Senior Secured Convertible Notes and Warrants. The initial aggregate principal amount payable upon execution of the Securities Purchase Agreement is $
The Convertible Notes accrue interest at
In connection with the issuance of the Notes, the holder also received 5-year warrants exercisable for
The Company has agreed to file a registration statement and will seek, pursuant to Nasdaq rules, shareholder approval of the issuance of the shares of common stock issuable upon conversion of the Convertible Notes and exercise of the Warrants via a proxy statement. In the event that the Company fails to file a registration statement by the filing deadline, a registration statement is not declared effective on or prior to a deadline, and in other cases, precluding investors from selling their shares, the Company has agreed (unless the shares of Common Stock are freely tradable pursuant to Rule 144) to make payments to each investor as liquidated damages in an amount equal to
The Company is also be restricted from issuing additional securities to other parties for a certain period of time. The Notes and Warrants are not convertible by a holder to the extent that (i) the holder or any of its affiliates would beneficially own in excess of 9.9% of the Common Stock or (ii) the aggregate number of shares of Common Stock issued in connection with the conversion of all Notes and Warrants, at any time exceeds 19.9% of the total number of shares of Common Stock outstanding or of the voting power of the Common Stock outstanding as of the date of execution of the Securities Purchase Agreement, unless the Company obtains stockholder approval in compliance with Nasdaq Listing Rule 5635(d) (the “Exchange Cap”).
Pursuant to the Securities Purchase Agreement, the investors may exercise within one year an additional investment right under identical terms.
First Tranche of $
On May 14, 2024, investors executed the Financing agreement (see above) and agreed to fund the Company $
$100 Million Financing Arrangement through Senior Secured Notes and Warrants
The Company also signed a commitment letter agreement with an investor for a total investment of $
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended to help the reader understand Mullen’s results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes included elsewhere in this Report.
Cautionary Note Regarding Forward-Looking Statements
This Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section titled “Risk Factors” in Item 1A. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under the section titled “Risk Factors” in Item 1A above may not be exhaustive. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Mullen Investment Properties LLC, a Mississippi corporation, Ottava Automotive, Inc., a California corporation, Mullen Real Estate, LLC, a Delaware corporation, as well as a majority-owned subsidiary Bollinger Motors Inc., a Delaware corporation. Intercompany accounts and transactions have been eliminated. The financial statements reflect the consolidated financial position and results of operations, which have been prepared in accordance with Generally Accepted Accounting Principles in the United States. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
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.
Comparison of the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023
The following table sets forth our historical operating results for the periods indicated:
| Three Months Ended |
||||||||||||||||
| March 31, |
||||||||||||||||
| 2024 |
2023 |
$ Change |
% Change |
|||||||||||||
| (dollar amounts, except percentages) |
||||||||||||||||
| Revenue |
||||||||||||||||
| Vehicle sales |
$ | 33,335 | $ | — | $ | 33,335 | — | % | ||||||||
| Cost of revenues |
(13,440 | ) | — | (13,440 | ) | — | % | |||||||||
| Gross profit / (loss) |
19,895 | — | 19,895 | — | % | |||||||||||
| Operating expenses: |
||||||||||||||||
| General and administrative |
47,903,692 | 47,412,338 | 491,354 | (1 | )% | |||||||||||
| Research and development |
24,023,526 | 20,478,971 | 3,544,555 | (17 | )% | |||||||||||
| Impairment of goodwill |
28,846,832 | — | 28,846,832 | — | % | |||||||||||
| Impairment of right-of-use assets |
3,167,608 | — | 3,167,608 | — | % | |||||||||||
| Impairment of intangible assets |
73,447,067 | — | 73,447,067 | — | % | |||||||||||
| Loss from operations |
$ | (177,368,830 | ) | $ | (67,891,309 | ) | $ | (109,477,521 | ) | (161 | )% | |||||
| Other income (expense): |
||||||||||||||||
| Gain/(loss) on sale of fixed assets |
(449,855 | ) | 385,031 | (834,886 | ) | (217 | )% | |||||||||
| Gain (loss) on extinguishment of indebtedness |
34,625 | (40,000 | ) | 74,625 | (187 | )% | ||||||||||
| Gain/(loss) on derivative liability revaluation |
3,622,758 | (48,439,415 | ) | 52,062,173 | (107 | )% | ||||||||||
| Other income, net |
893,692 | 482,405 | 411,287 | 85 | % | |||||||||||
| Interest expense |
(259,700 | ) | (1,888,169 | ) | 1,628,469 | (86 | )% | |||||||||
| Total other income (expense) |
3,841,520 | (49,500,148 | ) | 53,341,668 | (108 | )% | ||||||||||
| Net loss before income tax benefit |
$ | (173,527,310 | ) | $ | (117,391,457 | ) | $ | (56,135,853 | ) | (48 | )% | |||||
| Income tax benefit |
2,165,062 | 482,922 | 1,682,140 | 348 | % | |||||||||||
| Net loss |
$ | (171,362,248 | ) | $ | (116,908,535 | ) | $ | (54,453,713 | ) | (47 | )% | |||||
| Net loss attributable to noncontrolling interest |
(38,930,288 | ) | (1,995,217 | ) | (36,935,071 | ) | (1,851 | )% | ||||||||
| Net loss attributable to stockholders |
$ | (132,431,960 | ) | $ | (114,913,318 | ) | $ | (17,518,642 | ) | (15 | )% | |||||
| Accrued accumulated preferred dividends |
(22,043 | ) | 8,039,612 | (8,061,655 | ) | (100 | )% | |||||||||
| Net loss attributable to common stockholders after preferred dividends |
$ | (132,454,003 | ) | $ | (106,873,706 | ) | $ | (25,580,297 | ) | (24 | )% | |||||
| Net Loss per Share |
(19.39 | ) | (1,167.18 | ) | ||||||||||||
| Weighted average shares outstanding, basic and diluted |
6,829,415 | 91,566 | ||||||||||||||
Revenues
We are a development stage company and have only recently started to generate notable revenues. As we expand production and commercialization of vehicles, we expect the majority of our revenue to be derived from sales of commercial vehicles.
We are planning to ramp up production and reach sufficient revenue levels in subsequent periods – primarily from sales of Commercial Delivery Vehicles (Class 1 – 6). As we continue to develop our product line, we expect additional revenue streams in the future, also from the sales of Sport Utility Vehicles ("SUVs") and the flexible leasing of our electric vehicles ("EVs").
In accordance with accounting standards, we recognize revenue from the sale of electric vehicles upon transfer of control to a customer. In general, the control is transferred at the point of delivery to the customer but certain contracts with our dealers contain a return provision, stating that they may return unsold vehicles after 1 year. Since the Company does not have sufficient relevant statistics of returns yet, we defer revenue recognition until the vehicles have been sold by such dealer or until there is sufficient evidence to justify a reasonable estimate for consideration to which the Company expects to be entitled.
The tables below disclose information on deliveries of vehicles, revenue recognized, and payments received from our customers over the recent periods.
| Invoiced during the 3 months ended March 31, 2024 (in thousand dollars) |
|||||||
| Type |
Units invoiced |
Amount invoiced |
Cash received |
Revenue recognized |
|||
| Urban Delivery (UD1) |
131 |
4,405.9 |
33.3 |
33.3 |
|||
| Total |
131 |
$ |
4,405.9 |
$ |
33.3 |
$ |
33.3 |
Cost of Revenues
Costs of revenues primarily includes vehicle components and parts, labor costs, amortized tooling costs, provisions for estimated warranty expenses, and other relevant costs associated with the production of our vehicles.
Research and Development
Research and development expenses increased by approximately $3.5 million or 17% from approximately $20.5 million through the three months ended March 31, 2023, to approximately $24.0 million through the three months ended March 31, 2024. Research and development expenses are primarily comprised of external fees and internal costs for engineering, homologation, prototyping costs and other expenses related to preparation to mass-production of electric vehicles such as Mullen Five EV, Mullen One EV cargo van, etc.
General and Administrative
General and administrative 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. We expense advertising costs as incurred. General and administrative expenses increased by approximately $0.5 million or 1% from approximately $47.4 million in the three months ended March 31, 2023, to approximately $47.9 million in the three months ended March 31, 2024, primarily due to decreases in compensation to employees and listing and regulatory fees, partially offset by increases in professional fees, utilities, depreciation expense, amortization expense, and advertising and promotions expenses.
Impairment
The net loss for the three months ended March 31, 2024 included impairment charges totaling $105.5 million, mainly due to present uncertainty of availability of future funding required to support the business and decrease of Company's market capitalization. These write-downs include Bollinger's goodwill of $28.8 million, intangible assets of Bollinger ($58.3 million) and ELMS ($15.1 million), and the write-down of right-of-use assets of $3.2 million.
Other losses
The derivative liability mark-to-market revaluation during the three months ended March 31, 2024 resulted in $3.6 million income versus loss of $48.4 million during the three months ended March 31, 2023. These changes are due to the fact that no additional warrants were issued during the three months ended March 31, 2024 and the monetary value of relevant obligations has significantly decreased in comparison to the three months ended March 31, 2023 (see Notes 7 - Debt and 8- Warrants and Other Derivative Liabilities and Fair Value Measurements to the financial statements).
Interest Expense
Interest expense decreased by approximately $1.6 million, or 86%, from approximately $1.9 million through the three months ended March 31, 2023, to approximately $0.3 million through the three months ended March 31, 2024, primarily due to a decrease in convertible debt that has was fully converted by March 31, 2023 and repayment of a $5 million note in January 2024.
Net Loss
The net loss attributable to common stockholders (after preferred dividends) was approximately $132.5 million, or $19.39 net loss per share, for the three months ended March 31, 2024, as compared to a net loss attributable to common stockholders after preferred dividends of approximately $106.9 million, or $1,167.18 loss per share, for the three months ended March 31, 2023 (giving effect to reverse stock splits, see below).
Comparison of the six months ended March 31, 2024 to the six months ended March 31, 2023
The following table sets forth our historical operating results for the periods indicated:
| Six Months Ended |
||||||||||||||||
| March 31, |
||||||||||||||||
| 2024 |
2023 |
$ Change |
% Change |
|||||||||||||
| (dollar amounts, except percentages) |
||||||||||||||||
| Revenue |
||||||||||||||||
| Vehicle sales |
$ | 33,335 | $ | — | $ | 33,335 | — | % | ||||||||
| Cost of revenues |
(13,440 | ) | — | (13,440 | ) | — | % | |||||||||
| Gross profit / (loss) |
19,895 | — | 19,895 | — | % | |||||||||||
| Operating expenses: |
||||||||||||||||
| General and administrative |
91,137,744 | 112,408,349 | (21,270,605 | ) | 19 | % | ||||||||||
| Research and development |
40,193,493 | 29,100,980 | 11,092,513 | (38 | )% | |||||||||||
| Impairment of goodwill |
28,846,832 | — | 28,846,832 | — | % | |||||||||||
| Impairment of right-of-use assets |
3,167,608 | — | 3,167,608 | — | % | |||||||||||
| Impairment of intangible assets |
73,447,067 | — | 73,447,067 | — | % | |||||||||||
| Loss from operations |
$ | (236,772,849 | ) | $ | (141,509,329 | ) | $ | (95,263,520 | ) | (67 | )% | |||||
| Other income (expense): |
||||||||||||||||
| Other financing costs - initial recognition of derivative liabilities |
— | (255,960,025 | ) | 255,960,025 | — | % | ||||||||||
| Loss on derivative liability revaluation |
(3,106,223 | ) | (89,221,391 | ) | 86,115,168 | 97 | % | |||||||||
| Gain/(loss) on extinguishment of debt |
34,625 | (6,452,170 | ) | 6,486,795 | 101 | % | ||||||||||
| Gain/(loss) on sale of fixed assets |
(373,865 | ) | 385,031 | (758,896 | ) | 197 | % | |||||||||
| Gain on lease termination |
50,000 | — | 50,000 | — | % | |||||||||||
| Interest expense |
(517,723 | ) | (4,716,258 | ) | 4,198,535 | 89 | % | |||||||||
| Other income, net |
1,439,108 | 1,128,286 | 310,822 | (28 | )% | |||||||||||
| Net loss before income tax benefit |
$ | (239,246,927 | ) | $ | (496,345,856 | ) | $ | 257,098,929 | 52 | % | ||||||
| Income tax benefit |
3,891,300 | 976,576 | 2,914,724 | 298 | % | |||||||||||
| Net loss |
$ | (235,355,627 | ) | $ | (495,369,280 | ) | $ | 260,013,653 | 52 | % | ||||||
| Net loss attributable to noncontrolling interest |
(41,528,769 | ) | (4,180,176 | ) | (37,348,593 | ) | (893 | )% | ||||||||
| Net loss attributable to stockholders |
$ | (193,826,858 | ) | $ | (491,189,104 | ) | $ | 297,362,246 | 61 | % | ||||||
| Accrued accumulated preferred dividends |
(43,346 | ) | 7,400,935 | (7,444,281 | ) | (101 | )% | |||||||||
| Net loss attributable to common stockholders after preferred dividends |
$ | (193,870,204 | ) | $ | (483,788,169 | ) | $ | 289,917,965 | 60 | % | ||||||
Revenues
| Invoiced during the 6 months ended March 31, 2024 (in thousand dollars) |
||||||||||||||||
| Type |
Units invoiced |
Amount invoiced |
Cash received |
Revenue recognized |
||||||||||||
| Mullen 3 (UU) |
131 | 8,543.8 | 652.2 | — | ||||||||||||
| Urban Delivery (UD1) |
231 | 7,769.4 | 33.3 | 33.3 | ||||||||||||
| Total |
362 | $ | 16,313.2 | $ | 685.5 | $ | 33.3 | |||||||||
Cost of Revenues
Costs of revenues primarily includes vehicle components and parts, labor costs, amortized tooling costs, provisions for estimated warranty expenses, and other relevant costs associated with the production of our vehicles.
Research and Development
Research and development expenses increased by $11.1 million, or 38% from approximately $29.1 million through the six months ended March 31, 2023, to approximately $40.2 million through the six months ended March 31, 2024. Research and development expenses are primarily comprised of external fees and internal costs for engineering, homologation, prototyping costs and other expenses related to preparation to mass-production of electric vehicles such as Mullen Five EV, Mullen One EV cargo van, etc.
General and Administrative
General and administrative 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. We expense advertising costs as incurred. General and administrative expenses decreased by approximately $21.3 million, or 19%, from approximately $112.4 million in the six months ended March 31, 2023, to approximately $91.1 million in the six months ended March 31, 2024, primarily due to decreases in professional fees and compensation to employees, partially offset by increases in advertising and promotions expenses, and depreciation expense.
Impairment
The net loss for the six months ended March 31, 2024 included impairment charges totaling $105.5 million, mainly due to present uncertainty of availability of future funding required to support the business and decrease of Company's market capitalization. These write-downs include Bollinger's goodwill of $28.8 million, intangible assets of Bollinger ($58.3 million) and ELMS ($15.1 million), and the write-down of right-of-use assets of $3.2 million.
Other losses
The line item “Other financing costs - initial recognition of derivative liabilities” in the six months ended March 31, 2024 is zero versus the six months ended March 31, 2023 when it amounted to approximately $256.0 million. Similarly, the derivative liability revaluation loss has decreased by $86.1 million from $89.2 million to $3.1 million. These changes are due to the fact that no additional warrants were issued during the six months ended March 31, 2024 and the monetary value of relevant obligations has significantly decreased in comparison to the six months ended March 31, 2023 (see Notes 7- Debt and 8 - Warrants and Other Derivative Liabilities and Fair Value Measurements to the financial statements).
Interest Expense
Interest expense decreased by approximately $4.2 million, or 89%, from approximately $4.7 million through the six months ended March 31, 2023, to approximately $0.5 million through the six months ended March 31, 2024, primarily due to a decrease in convertible debt that has was fully converted by March 31, 2023 and repayment of a $5 million note in January 2024.
Net Loss
The net loss attributable to common stockholders (after preferred dividends) was approximately $193.9 million, or $35.83 net loss per share, for the six months ended March 31, 2024, as compared to a net loss attributable to common stockholders after preferred dividends of approximately $483.8 million, or $6,378.47 loss per share, for the six months ended March 31, 2023 (giving effect to reverse stock splits, see below).
Operating segments
The Company is currently comprised of two major operating segments:
| ● |
Bollinger Motors. The Company acquired the controlling interest of Bollinger Motors Inc. (60% on a fully diluted basis) in September 2022. This acquisition positions Mullen into the medium duty truck classes 4-6, along with the Sport Utility and Pick Up Trucks EV segments. |
| ● |
Mullen/ELMS. By November 30, 2022, Mullen acquired ELMS’ manufacturing plant in Mishawaka Indiana and all the intellectual property needed to engineer and build Class 1 and Class 3 electric vehicles. |
Reverse Stock Splits and NASDAQ listing rules compliance
During the calendar year ended December 31, 2023, we have completed three reverse stock splits in order to regain compliance with NASDAQ Listing Rule 5550(a)(2). In May 2023, we completed a 1-for-25 reverse split of our outstanding shares of common stock. In August 2023, we completed a 1-for-9 reverse split of our outstanding shares of common stock. In December 2023, we completed the last 1-for-100 reverse stock split of our outstanding shares of common stock.
On January 24, 2024, the Company received formal notice from The Nasdaq Stock Market LLC confirming the Company has regained compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2). On March 6, 2024, the Company received formal notice from Nasdaq confirming that it has regained compliance with the annual shareholder meeting requirement set forth in Nasdaq Listing Rule 5620(a). The Company is now in compliance with Nasdaq’s continued listing requirements and will continue to be listed and traded on the Nasdaq Capital Market.
Liquidity and Capital Resources
To date, we have yet to generate any significant revenue from our business operations. We have funded our capital expenditure and working capital requirements through the sale of equity securities, as further discussed below. Our ability to successfully 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.
The Company's principal source of liquidity consists of existing cash and restricted cash of approximately $29.8 million as of March 31, 2024. During the six months ended March 31, 2024, the Company used approximately $108.5 million of cash for operating activities. The net working capital on March 31, 2024 amounted to approximately $5.3 million, or approximately $18.3 million after excluding derivative liabilities and liabilities to issue stock that are supposed to be settled by issuing common stock without using cash. For the six months ended March 31, 2024, the Company has incurred a net loss of $235.4 million and, as of March 31, 2024, our accumulated deficit was $2,056.0 million.
If the Company does not secure adequate funding to fulfill its current liabilities, it anticipates seeking bankruptcy protection in various jurisdictions within 30 days of publishing these financial statements. The Company anticipates that its available funds will be insufficient to cover its obligations for at least the next twelve months from the date this Form 10-Q was filed. Consequently, there is significant uncertainty regarding the Company's ability to continue operating. The Company is actively pursuing additional funds (see Note 21 Subsequent Events - $50 Million Note and Warrant Financing, $100 Million Financing Arrangement, and First Tranche of $50 Million Financing Payable on Execution). As part of its cost-cutting measures, the Company plans to further reduce its workforce and streamline operations, including downsizing its physical locations. However, there is no guarantee that the Company will be able to restructure its debts and/or secure the necessary financing on favorable terms.
Debt
To date, our current working capital and development needs have been primarily funded through the issuance of convertible indebtedness, convertible preferred stock and common stock. Debt comprises an insignificant component of our funding needs.
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 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 following is a summary of our debt as of March 31, 2024:
| Net Carrying Value |
||||||||||||||||||||
| Unpaid Principal |
Contractual |
Contractual |
||||||||||||||||||
| Type of Debt |
Balance |
Current |
Long-Term |
Interest Rate |
Maturity |
|||||||||||||||
| Matured notes |
$ | 2,385,004 | $ | 2,385,004 | $ | — | 0.00 - 10.00 | % | 2019 - 2021 | |||||||||||
| Loan advances |
332,800 | 332,800 | — | 0.00 - 10.00 | % | 2016 - 2018 | ||||||||||||||
| Total Debt |
$ | 2,717,804 | $ | 2,717,804 | $ | — | ||||||||||||||
The Promissory Note issued to NuBridge Commercial Lending LLC for a principal amount of $5 million (with carrying amount, net of debt discount, of approximately $4.9 million as of December 31, 2023) was repaid by the Company on January 31, 2024, further reducing the overall debt of the Company to approximately $2.7 million.
Scheduled Debt Maturities
The following are scheduled debt maturities as of March 31, 2024:
| Year Ended September 30, |
||||||||||||||||||||||||||||
| 2024 (6 months) |
2025 |
2026 |
2027 |
2028 |
Thereafter |
Total |
||||||||||||||||||||||
| Total Debt |
$ | 2,717,804 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 2,717,804 | ||||||||||||||
Cash Flows
The following table provides a summary of our cash flow data for the six months ended March 31, 2024 and 2023:
| Six Months Ended March 31, |
||||||||
| Net cash provided by (used in): |
2024 |
2023 |
||||||
| Operating activities |
$ | (108,472,976 | ) | $ | (67,567,385 | ) | ||
| Investing activities |
(12,470,001 | ) | (97,420,097 | ) | ||||
| Financing activities |
(4,945,832 | ) | 167,359,660 | |||||
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. Net cash used in operating activities was $108.5 million in the six months ended March 31, 2024, a 61% increase from $67.6 million net cash used during the six months ended March 31, 2023.
Cash Flows used in Investing Activities
Our cash flows used in investing activities, to date, have been comprised mainly of purchases of equipment.
Net cash used in investing activities was $12.5 million in the six months ended March 31, 2024, an 87% decrease from $97.4 million used in investing activities during the six months ended March 31, 2023. The primary factor of the change was the ELMS assets acquisition during the three months ended December 31, 2022.
Cash Flows provided by Financing Activities
Through March 31, 2024, we have financed our operations primarily through the issuance of convertible notes and equity securities.
Net cash used in financing activities was $4.9 million for the six months ended March 31, 2024, as compared to $167.4 million net cash obtained from financing activities for the six months ended March 31, 2023, when we issued convertible notes in lieu of preferred shares.
Contractual Obligations and Commitments
The following tables summarizes our contractual obligations and other commitments for cash expenditures as of March 31, 2024, and the years in which these obligations are due:
Operating Lease Commitments
| Scheduled |
||||
| Years Ended September 30, |
Payments |
|||
| 2024 (6 months) |
$ | 1,609,937 | ||
| 2025 |
6,255,302 | |||
| 2026 |
4,823,283 | |||
| 2027 |
4,765,083 | |||
| 2028 |
4,555,178 | |||
| Thereafter |
7,212,541 | |||
| Total Future Minimum Lease Payments |
$ | 29,221,324 | ||
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, as defined under SEC rules.
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 consolidated financial statements.
In preparation of these financial statements, management applied critical estimates and assumptions while performing impairment test for goodwill and other noncurrent assets. We identified Bollinger and ELMS/Legacy Mullen (refer to Note 4 - Segment information) as our reporting units for the purposes of assessing impairments.
We review our noncurrent asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of such asset groups may not be recoverable. Such conditions could include significant adverse changes in the business climate, current period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. Recoverability of noncurrent asset groups to be held and used is measured by a comparison of the carrying amount of the asset group to future undiscounted net cash flows expected to be generated by the asset group. If the asset group is considered to be impaired, the impairment recognized is the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Due to a prolonged decrease in our market capitalization, including a significant decline in stock price and budgeted performance targets not achieved as compared to acquisition date budgets, we assessed noncurrent assets for impairment.
Critical accounting estimates for impairment of assets of the Bollinger segment
Our goodwill and indefinite-lived in-process research and development assets, as well as patents, pertain to the Bollinger acquisition on September 7, 2022. As a result of impairment test performed on March 31, 2024 by management, impairment was recognized in the financial statements for the three and six months ended March 31, 2024: including $28,846,832 for goodwill, $58,304,612 for indefinite-lived in-process research and development assets, as well as $1,354,413 for right-of-use assets.
The impairment has been recognized primarily due to present uncertainty of availability of future funding required to support this segment and decrease of Company's market capitalization.
Critical accounting estimates for impairment of assets of the ELMS/Mullen segment
As a result of impairment test performed on March 31, 2024 by management, impairment was also recognized in respect of part of right-of-use assets in amount of $1,813,195, as well as engineering design intangible assets with carrying amount of $15,142,455, which belong to the ELMS/Mullen segment.
The primary reasons for the impairment of these assets were sales slower than expected and decrease of Company's market capitalization.
Estimating the fair value of the reporting units and certain assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, long-term growth rates, contributory asset charges, and other market factors. Assumptions used in impairment assessments are made at a point in time and therefore, they are subject to change based on the facts and circumstances present at each annual and interim impairment assessment date. Fair value determinations require significant judgment and are sensitive to changes in underlying assumptions, estimates, and market factors.
Recent Accounting Pronouncements
Accounting standard updates issued but not yet effective were assessed and determined to be either not applicable or not expected to have a material impact on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We are responsible for establishing and maintaining disclosure controls and procedures (“DCP”) that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (b) accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosures.
We conducted an evaluation pursuant to Rule 13a‑15 of the Exchange Act of the effectiveness of the design and operation of our DCP as of March 31, 2024, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our DCP were not effective at the reasonable assurance level as of March 31, 2024 because of material weaknesses in the Company’s internal control over financial reporting described below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
While preparing the Company’s unaudited interim consolidated financial statements, our management concluded that the following material weaknesses in internal control over financial reporting disclosed in our Annual Report filed on Form 10-K for the year ended September 30, 2023 are not fully remediated:
| ● |
Based on management’s review of key accounting and information technology policies and procedures, we have determined that although such policies and procedures exist, they are not all formalized in a written procedure format that is up to date. |
| ● |
As a result of absence of formalized review of key controls across several business processes and/or insufficiently formalized documentation evidencing such review, management’s ability to evaluate the design and monitor the effective operation of these preventative and detective internal controls is limited. Accordingly, management’s ability to timely detect, prevent and remediate deficiencies and potential risks has been assessed as inadequate. |
| ● |
The Company identified certain design deficiencies in its controls associated with the financial close process. These deficiencies, individually or in the aggregate, combined with inadequate compensating controls, created a reasonable possibility that a material misstatement to the consolidated financial statements might not be prevented or detected on a timely basis. |
| ● |
The Company lacks in-house accounting expertise to identify rights and obligations reflected in non-standard agreements, requiring specialized accounting for complex transactions. |
| ● |
The Company’s internal control system as well as disclosure controls and procedures failed to ensure the Company properly presents certain related party disclosures in the financial statements for the year ended September 30, 2022, as discussed in the Note 20 - Related Party Transactions to the financial statements for the year ended September 30, 2023. |
During the six months ended March 31, 2024, these control deficiencies did not result in identified material misstatements in our consolidated financial statements; however, the control deficiencies described above created a more than remote possibility that a material misstatement in the consolidated financial statements would not be prevented or detected on a timely basis. Therefore, our management concluded that the deficiencies represent material weaknesses.
Based on the performance of additional procedures by management designed to ensure reliability of financial reporting, the Company’s management has concluded that, notwithstanding the material weaknesses described above, the consolidated financial statements, included in this Form 10-Q, fairly present, in all material respects, the Company’s financial position, results of operations, and cash flows as of the dates, and for the periods presented, in conformity with U.S. GAAP.
Remediation Efforts to Address the Material Weaknesses
While the Company has significantly improved its internal control over financial reporting, the material weaknesses remain un-remediated as of March 31, 2024, and the Company’s remediation efforts will continue to take place in 2024.
During the six months ended March 31, 2024, the management continued implementing actions in accordance with the remediation plan, including:
| ● |
Improvement of accounting policies and procedures. |
| ● |
Development of systems and IT tools to enable the effectiveness and consistent execution of controls over timely and accurate accounting for certain transactions. |
| ● |
Consulting with independent accounting firm on accounting and valuation matters. |
Changes in Internal Control Over Financial Reporting
During the three months ended March 31, 2024, the Company has been implementing internal control improvements in accordance with remediation plan which currently includes:
| ● |
Revising and enhancing effectiveness of the controls put in place during previous periods, including those mentioned above. |
| ● |
Continuing to implement processes and controls to better manage and monitor our financial reporting risks, including enhancing the usage of technology and tools. |
| ● |
Continuing professional training and education on accounting subjects for accounting staff. |
| ● |
Enhancing management review controls related to our financial statement close and financial reporting involving estimates, judgments, and assumptions. |
| ● |
Augmenting the design of the financial statement closing and financial reporting process including documentation of accounting treatment of significant and unusual transactions. |
The actions that we are taking are subject to ongoing management review and audit committee oversight. We believe these measures will aid to remediate the control deficiencies that gave rise to the material weaknesses, but the material weaknesses will not be considered fully remediated until controls have been designed and implemented for a sufficient period of time, and properly tested for our management to conclude that the control environment is operating effectively.
We are committed to continuing to improve our internal control processes, and, as we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of the remediation measures described above.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and processes as well as internal control over financial reporting, we recognize that any controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Because of its inherent limitations, any internal control system, no matter how well designed and operated, is based upon certain judgments and assumptions, and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject, are described in the “Note 19 - Contingencies and Claims” of the notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and incorporated herein by reference.
As a smaller reporting company, we are not required to provide this information in this Report; however, set forth below are certain material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended September 30, 2023 (the "2023 Form 10-K"). You should also read and consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our 2023 Form 10-K, which could materially affect our business, financial condition, or future results of operation. The risks described herein and in our 2023 Form 10-K 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.
We may not be able to raise additional funding nor generate or obtain sufficient cash flows to service all of our existing and future liabilities when they become due, and we may be forced to take other actions to satisfy our obligations, which may not be successful.
We may be unable to obtain alternative sources of financing in an amount sufficient to fund our existing and future liquidity needs. To date, we have yet to generate any significant revenue from our business operations. Our current working capital and development needs have been primarily funded through the issuance of convertible indebtedness, convertible preferred stock and common stock. We will need significant capital to, among other things, conduct research and development, increase our production capacity, and expand our sales and service network. Our ability to successfully 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. During the six months ended March 31, 2024, the Company used approximately $108.3 million of cash for operating activities.
The Company's principal source of liquidity consists of existing cash and restricted cash of approximately $29.8 million as of March 31, 2024. If we are unable to obtain funding or a refinancing or some restructuring of our obligations or other improvement in liquidity, we may not be able to service all our liabilities when they become due. The Company is actively pursuing additional funds and remains in discussions with potential financiers. As part of its cost-cutting measures, the Company plans to further reduce its workforce and streamline operations, including downsizing its physical locations. However, there is no guarantee that the Company will be able to restructure its liabilities and/or secure the necessary financing on favorable terms. If any of our significant obligations are accelerated, we may not be able to repay the obligations that become immediately due and will have severe liquidity restraints.
We are currently evaluating strategic alternatives to address our liquidity issues, but we cannot assure you that any of our strategies will yield sufficient funds to meet our working capital or other liquidity needs, and any such alternative measures may be unsuccessful or may not permit us to meet scheduled obligations, which could cause us to default on our obligations. As a result, we may seek bankruptcy court protection to continue our efforts to restructure our business and capital structure and may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements.
Our liquidity issues that can force us to seek protection under the federal bankruptcy laws may impact our business and operations.
Due to the uncertainty about our ability to obtain sufficient cash to service current and future liabilities, there is risk that, among other things:
| ● |
third parties’ confidence in our ability to develop and manufacture explore and produce electric vehicles, which could impact our ability to execute on our business strategy; |
| ● |
it may become more difficult to retain, attract or replace key employees; |
| ● |
employees could be distracted from performance of their duties or more easily attracted to other career opportunities; and |
| ● |
our suppliers, vendors and service providers could renegotiate the terms of our arrangements, terminate their relationship with us or require financial assurances from us. |
Seeking bankruptcy court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. For as long as a bankruptcy proceeding continued, our senior management would be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing on our business operations. Bankruptcy court protection also could make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, during the period of time we are involved in a bankruptcy proceeding, our customers and suppliers might lose confidence in our ability to reorganize our business successfully and could seek to establish alternative commercial relationships. The occurrence of certain of these events has already negatively affected our business and may have a material adverse effect on our business, results of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Termination of Debt Agreement
On May 7, 2024, the Debt Agreement dated December 18, 2023 to issue a non-convertible secured promissory note with a principal amount of million and $18 million original issue discount was terminated (refer to Note 7 – Debt for further information).
Repayment of Related Party Receivables
On January 16, 2024, the Company terminated the Transition Services Agreement between the Company and Mullen Technologies, Inc., and received cash payment in full settlement of all amounts outstanding (including outstanding notes receivable, advances and related interest and penalties) of approximately $2.7 million (refer to Note 20 - Related Party Transactions for further information).
$50 Million Note and Warrant Financing
We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 1.01 (Entry Into a Material Definitive Agreement), Item 2.03 (Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant), and Item 3.02 (Unregistered Sales of Equity Securities).
On May 14, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”), with certain investors, pursuant to which upon the terms and subject to the conditions contained therein, the investors agreed to purchase an aggregate principal amount of $52.6 million of 5% Original Issue Discount Senior Secured Notes convertible into shares of Common Stock (the “Notes”) and five-year warrants exercisable for shares of Common Stock (the “Warrants”).
During the period commencing on the execution date and ending on the date immediately following the 90th day after the latest of: (i) the execution date (ii) the date on which a registration statement (or registration statements) registering for resale all Registrable Securities has been declared effective by the SEC and (iii) the date on which stockholder approval of the Exchange Cap (as defined below) is obtained, the Company agreed, with certain exceptions, not to directly or indirectly issue, offer, sell, or otherwise dispose of (or make any announcement) any equity security or any equity-linked or related security, any convertible securities, debt (with or related to equity), any preferred stock or any purchase rights. The Company also agreed not to enter into any fundamental, transaction, such as a merger, sale of more than 50% of the outstanding voting shares, sale of substantially all assets, or business combination, unless the successor entity assumes all of the obligations of the Company under the Notes and Warrants and the other transaction documents.
The Notes and Warrants are not convertible by a holder to the extent that (i) the holder or any of its affiliates would beneficially own in excess of 9.9% of the Common Stock or (ii) the aggregate number of shares of Common Stock issued in connection with the conversion of all Notes and Warrants, at any time exceeds 19.9% of the total number of shares of Common Stock outstanding or of the voting power of the Common Stock outstanding as of the date of execution of the Securities Purchase Agreement, unless the Company obtains stockholder approval in compliance with Nasdaq Listing Rule 5635(d) (the “Exchange Cap”).
Such Notes and Warrants have been issued, and upon conversion or exercise, as applicable, the shares of Common Stock will be issued, pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act.
Description of the Notes
The Notes accrue interest at a rate of 15% per annum, have an original issue discount of 5% and mature four months from the date of issuance. As security for payment of the amounts due and payable under the Notes, the Company granted a continuing security interest in all of its right, title and interest in, its assets, whether owned, existing, acquired or arising and wherever located. The outstanding principal and accrued but unpaid interest on the Notes may be converted by the holder into shares of Common Stock (the “Note Shares”) at the lower of (i) $5.49, (ii) 95% of the closing sale price of the Common Stock on the date that the Company’s registration statement on Form S-1 is declared effective, or (iii) 95% of the lowest daily volume weighted average price in the five (5) trading days prior to such conversion date, provided that the conversion price will not be less than $1.16 per share.
Upon any event of default, the interest rate automatically increases to 20% per annum. An event of default includes failure to obtain stockholder approval within 45 calendar days after the closing date for the initial closing; failure to maintain sufficient reserves of authorized and unissued Common Stock to redeem 250% of the maximum number of shares issuable upon conversion of all the Notes then outstanding; failure to timely deliver, or remove any restrictive legend from, the shares upon conversion of the Note for a period of five business days; failure to pay any amount due under the Note or any other related transaction document; the occurrence of any default under or acceleration prior to maturity of any indebtedness (with certain exclusions) in an aggregate amount in excess of $300,000, subject to any cure or grace period provided, or a payment default under any such indebtedness, if such default remains uncured for a period of 10 consecutive trading days; bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, a judgment, settlement or any other satisfaction of any claim pursuant to any litigation, with respect to the payment of cash, securities and/or other assets with an aggregate fair value in excess of $300,000; the Company breaches any representation or warranty; and failure to file annual or quarterly reports within the required periods.
Description of the Warrants
In connection with the issuance of the Notes, the holder also received 5-year warrants exercisable for 200% of the shares of Common Stock underlying such Notes at an exercise price equal to 105% of closing sale price of the Common Stock on execution date, subject to further adjustment (the “Warrant Shares”). The Warrants provide for cashless exercise pursuant to which the holder will receive upon exercise a “net number” of shares of Common Stock determined according to the following formula:
Net Number = (A x B) / C
For purposes of the foregoing formula:
A= The total number of shares with respect to which the Warrant is then being exercised.
B= The Black Scholes Value (as described below).
C= The lower of the two Closing Bid Prices of the Common Stock in the two days prior the time of such exercise (as such Closing Bid Price is defined therein), but in any event not less than $0.10.
For purposes of the cashless exercise, “Black Scholes Value” means the Black Scholes value of an option for one share of Common Stock at the date of the applicable cashless exercise, as such Black Scholes value is determined, calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the Exercise Price, as adjusted, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate, (iii) a strike price equal to the Exercise Price in effect at the time of the applicable Cashless Exercise, (iv) an expected volatility equal to 135%, and (v) a deemed remaining term of the Warrant of 5 years (regardless of the actual remaining term of the Warrant).
The Company will have the option to require the holders to exercise the Warrants for cash, if, at any time, the following conditions are met: (i) the registration statement covering the securities has been declared effective is effective and available for the resale of the securities and no stop-order has been issued nor has the SEC suspended or withdrawn the effectiveness of the registration statement; (ii) the Company is not in violation of any of the rules, regulations or requirements of, and has no knowledge of any facts or circumstances that could reasonably lead to suspension in the foreseeable future on, the principal market; and (ii) the VWAP for each trading day during the 10 trading day period immediately preceding the date on which the Company elects to exercise this option is 250% above the exercise price.
Conversion of the Notes; Exercise of the Warrants
The Company must reserve out of authorized and unissued shares a number of shares of Common Stock equal to 250% of the maximum number of shares of Common Stock that are issuable upon conversion of the Notes and exercise of the Warrants. If the Company fails to timely deliver shares upon conversion of Notes or exercise of Warrants, the Company will be required to either (A) pay the holder in cash for each trading day on which shares are not delivered 5% of the product of the number of shares not so issued multiplied by the closing sale price of the Common Stock on the trading day immediately preceding the required delivery date, or (B) if the holder purchases shares of Common Stock in anticipation of delivery of shares upon conversion of the Note or exercise of the Warrant, as applicable, cash in an amount equal to holder’s total purchase price of such shares.
The exercise price and number of shares issuable upon conversion of the Notes or exercise of the Warrants, as applicable, will further be adjusted upon the occurrence of certain events and holders will be allowed to participate in certain issuances and distributions (subject to certain limitations and restrictions), including certain stock dividends and splits, dilutive issuances of additional common stock, and dilutive issuances of, or changes in option price or rate of conversion of, options or convertible securities, as well as the issuance of purchase rights or distributions of assets.
If, during restricted period, the Company effects a subsequent financing, including the issuance of options and convertible securities, any Common Stock, issued or sold or deemed to have been issued or sold for a consideration per share less than a price equal to the current conversion price of the Notes or exercise price of the Warrants (a “Dilutive Issuance”), then immediately after such issuance, the conversion price or exercise price, as applicable, will be reduced (and in no event increased) to the price per share as determined in accordance with the following formula:
EP2 = EP1 x (A + B) / (A + C)
For purposes of the foregoing formula:
A= The total number of Note/Warrant Shares with respect to which the Note may be converted or the Warrant may be exercised.
B= The total number of shares of Common Stock that would be issued or issuable under the Dilutive Issuance if issued at a per share equal to EP1.
C= The total number of shares of Common Stock actually issued or issuable under the Dilutive Issuance.
EP1= The Conversion Price or Exercise Price, as applicable, in effect immediately prior to a Dilutive Issuance.
EP2= The Conversion Price or Exercise Price, as applicable, immediately after such Dilutive Issuance; provided, however, that such price shall in no event be less than $0.10 per share of Common Stock.
“Restricted period” means the period commencing on the purchase date and ending on the earlier of (i) the date immediately following the 90th day after a registration statement registering for the securities has been declared effective by the SEC and (ii) the 90th day after the securities purchased are saleable under Rule 144 without the requirement for current public information and without volume or manner of sale limitations.
The Notes and Warrants provide for certain purchase rights whereby if the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock, then the holder will be entitled to acquire such purchase rights which the holder could have acquired if the holder had held the number of shares of Common Stock acquirable upon complete exercise of the Warrant.
Registration Rights Agreement
In connection with the Securities Purchase Agreement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”), dated as of May 14, 2024, with the investors, pursuant to which the Company agreed to prepare and file one or more registration statements with the SEC covering the resale of the Note Shares and the Warrant Shares no later than 5 days following the closing date (the “Filing Deadline”), and to have the initial registration statement declared effective the earlier of 45 days after the closing date (or 15 days for any additional registration statement) and the second business day after the Company is notified by the SEC that such registration statement will not be “reviewed” or will not be subject to further review (the “Effectiveness Deadline”). The Company also agreed to provide certain piggyback registration rights to the investors.
In addition, pursuant to the Registration Rights Agreement, the Company is required to use its reasonable best efforts to keep the Registration Statement continuously effective from the date on which the SEC declares the Registration Statement to be effective until such date that all Registrable Securities (as such term is defined in the Registration Rights Agreement) covered by the Registration Statement have been sold pursuant to a registration statement under the Securities Act, under Rule 144 as promulgated by the SEC under the Securities Act (“Rule 144”), or otherwise shall have ceased to be “Registrable Securities” (as defined therein). The Company may not file another registration statement that does not relate to the Registrable Securities until the 30th day anniversary of the first date on which the resale by the investors is covered by one or more registration statement.
In the event that (i) the Company fails to file a registration statement by the Filing Deadline, (ii) a registration statement is not declared effective on or prior to the Effectiveness Deadline, (iii) sales cannot be made pursuant to the registration statement or the prospectus contained therein is not properly available for any reason for more than five (5) consecutive calendar days or more than an aggregate of ten (10) calendar days during any 12-month period, (iv) a registration statement is not effective for any reason or the prospectus contained therein is not properly available for use for any reason, and the Company fails to file with the SEC any required reports under
the Exchange Act, then the Company has agreed (unless the Registrable Securities are freely tradable pursuant to Rule 144) to make payments to each investor as liquidated damages in an amount equal to 1.5% of such investor’s total committed purchase price for the Registrable Securities affected by such failure and an additional 1.5% on every 30 day anniversary, with a maximum of 12 payments (except with respect to clause (iv). Such payments will bear interest at the rate of 10% per month (prorated for partial months) until paid in full and may be paid in shares of Common Stock at the option of the Company.
The Company has granted the investors customary indemnification rights in connection with the Registration Rights Agreement. The investors have also granted the Company customary indemnification rights in connection with the Registration Rights Agreement.
The foregoing descriptions of the Securities Purchase Agreement, Notes, Warrants and Registration Rights Agreement are qualified in their entirety by reference to the full text of such documents, copies of which are attached hereto as Exhibits 10.3, 10.3(a), 10.3(b), and 10.3(c), respectively, and each of which is incorporated herein in its entirety by reference. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
$100 Million Financing Arrangement through Senior Secured Notes and Warrants
The Company also signed a commitment letter agreement with an investor for a total investment of $100 million through the issuance of Senior Secured Convertible Notes and Warrants. The Convertible Notes will accrue interest at 15%, include a 5% Original Issue Discount, and have a maturity of four months. They will be issued in eight tranches of $12.5 million over 13 months. The investor will receive a $4 million non-refundable commitment fee, payable in registered common stock. Other conditions are similar to those described above for the $50 million Financing Arrangement. The completion of this transaction remains contingent upon mutual consent and the execution of final documentation by both parties.
Director and Officer Trading Arrangements
None of the Company's directors or executive officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's quarter ended March 31, 2024.
* Filed herewith (furnished herewith with respect to Exhibit 32.1).
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Mullen Automotive Inc. |
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| May 14, 2024 |
By: |
/s/ David Michery |
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| David Michery |
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| Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer and duly authorized officer) |
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| /s/ Jonathan New |
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| Jonathan New Chief Financial Officer (Principal Financial Officer) |
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