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 August 9, 2024, a total of
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(unaudited)
| June 30, 2024 | September 30, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Inventory | ||||||||
| Prepaid expenses and prepaid inventories | ||||||||
| Accounts receivable | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant, and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets | ||||||||
| Related party receivable | ||||||||
| Goodwill, net | ||||||||
| Other noncurrent assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Series E Preferred Stock ( authorized, shares issued and outstanding with redemption value of $ per share) | ||||||||
| ELOC commitment fee liability | ||||||||
| 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 June 30, 2024 and September 30, 2023, respectively (preference in liquidation of $ and $ at June 30, 2024 and September 30, 2023, respectively) | ||||||||
| Preferred Series C; shares authorized; and shares issued and outstanding at June 30, 2024 and September 30, 2023, respectively (preference in liquidation of $ and $ at June 30, 2024 and September 30, 2023, respectively) | ||||||||
| Preferred Series A; shares authorized; and shares issued and outstanding at June 30, 2024 and September 30, 2023, respectively (preference in liquidation of $ and $ at June 30, 2024 and September 30, 2023, respectively) | ||||||||
| Common stock; $ par value; and shares authorized at June 30, 2024 and September 30, 2023, respectively; and shares issued and outstanding at June 30, 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 June 30, |
Nine months ended June 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenue |
||||||||||||||||
| Vehicle sales |
$ | $ | $ | $ | ||||||||||||
| Costs and expenses applicable to sales and revenues |
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| Cost of goods sold |
$ | |||||||||||||||
| Other inventory costs and expenses |
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| Total cost of goods sold and other inventory expenses |
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| Gross profit / (loss) |
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| Operating expenses: |
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| General and administrative |
$ | $ | $ | $ | ||||||||||||
| Research and development |
||||||||||||||||
| Impairment of goodwill |
||||||||||||||||
| Impairment of right-of-use assets |
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| Impairment of intangible assets |
||||||||||||||||
| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense): |
||||||||||||||||
| Other financing costs - initial recognition of derivative liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other financing costs - ELOC commitment fee |
( |
) | ( |
) | ||||||||||||
| Other financing costs - initial recognition of warrants |
( |
) | ( |
) | ||||||||||||
| Gain/(loss) on derivative liability revaluation |
( |
) | ( |
) | ( |
) | ||||||||||
| Gain/(loss) on other warrants revaluation |
||||||||||||||||
| Gain/(loss) on extinguishment of debt |
( |
) | ( |
) | ( |
) | ||||||||||
| Loss on financing |
( |
) | ( |
) | ||||||||||||
| Gain/(loss) on disposal of fixed assets |
( |
) | ( |
) | ||||||||||||
| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income, net |
||||||||||||||||
| Total other income (expense) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss before income tax benefit |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Income tax benefit/ (provision) |
( |
) | ( |
) | ||||||||||||
| Net loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to noncontrolling interest |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to stockholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Waived/(accrued) accumulated preferred dividends and other capital transactions with Preferred stock owners |
( |
) | ( |
) | ( |
) | ||||||||||
| Net loss attributable to common stockholders after preferred dividends and other capital transactions with Preferred stock owners |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| 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 nine months ended June 30, 2024
(unaudited)
| Preferred Stock, 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 |
||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible notes and interest |
||||||||||||||||||||||||||||||||
| Common stock issued to settle other derivative liability |
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| Common stock issued to settle legal commitment |
||||||||||||||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||||||||||
| Preferred stock dividends |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Extinguishment of Series C P/S by issuance of Series E P/S |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Financial result from exchange of Series C P/S for Series E P/S |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Common stock issued to avoid fractional shares on reverse stock split |
( |
) | ||||||||||||||||||||||||||||||
| Noncontrolling interest |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, June 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Balance, April 1, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Cashless warrant exercise |
||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible notes and interest |
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| Common stock issued to settle other derivative liability |
||||||||||||||||||||||||||||||||
| Common stock issued to settle legal commitment |
||||||||||||||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||||||||||
| Preferred stock dividends |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Extinguishment of Series C P/S by issuance of Series E P/S |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Financial result from exchange of Series C P/S for Series E P/S |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Noncontrolling interest |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, June 30, 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 nine months ended June 30, 2023
(unaudited)
| Preferred Stock, total |
Common Stock Owed but not Issued |
|||||||||||||||||||||||||||||||||||||||
| (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 |
||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock, common stock and prefunded warrants in lieu of preferred stock |
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| Issuance of common stock for conversion of convertible notes |
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| Issuance of common stock for conversion of preferred stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Reclassification of derivatives to equity upon authorization of sufficient number of shares |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Warrants exercised for receivable and financing loss |
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| 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 |
— | — | — | |||||||||||||||||||||||||||||||||||||
| Noncontrolling interest |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Net Loss |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
| Balance, March 31, 2023 (*) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
| Cashless Warrant exercise |
||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock, common stock and prefunded warrants in lieu of preferred stock |
||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of preferred stock and dividends |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation |
— | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends waiver (accrual) |
— | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||
| Noncontrolling interest |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Net Loss |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 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)
| Nine Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Impairment of intangible assets | ||||||||
| Impairment of goodwill | ||||||||
| Impairment of right-of-use assets | ||||||||
| Other financing costs - ELOC commitment fee | ||||||||
| Other financing costs - Initial recognition of derivative liabilities | ||||||||
| Other financing costs - initial recognition of warrants | ||||||||
| Revaluation of derivative liabilities | ||||||||
| Loss/(gain) on other warrants revaluation | ( | ) | ||||||
| Loss/(gain) on extinguishment of debt | ||||||||
| Loss/(gain) on assets disposal | ||||||||
| Amortization of debt discount | ||||||||
| Non-cash interest and other operating activities | ( | ) | ||||||
| Non-cash financing loss on over-exercise of warrants | ||||||||
| Issuance of warrants to suppliers | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaids and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Deferred tax liability | ||||||||
| 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 notes payable with attached warrants | ||||||||
| Proceeds from issuance of common stock and prefunded warrants | ||||||||
| 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 | $ | $ | ||||||
| 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 | ||||||||
| Extinguishment of accounts payable with recognition of derivatives | ||||||||
| Common stock issued to settle other derivative liability | ||||||||
| Common stock issued to extinguish other liabilities | ||||||||
| Common stock issued to extinguish liability to issue stock | ||||||||
| Reclassification of derivatives to equity upon authorization of sufficient number of shares | ||||||||
| Waiver of dividends by stockholders | ||||||||
| Warrants issued to suppliers | ||||||||
| Debt conversion to common stock | ||||||||
| Extinguishment of operational liabilities by sale of property | ||||||||
| Preferred stock converted to common stock | ||||||||
| Prefunded warrants converted to common stock | ||||||||
| 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 electric vehicle company that operates in various verticals of businesses 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 Electric Last Mile Solutions ("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 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 nine months ended June 30, 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 Securities and Exchange Commission ("SEC") on January 16, 2024.
Reverse Stock Splits
During the calendar year ended December 31, 2023, we 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 had 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 had regained compliance with the annual shareholder meeting requirement set forth in Nasdaq Listing Rule 5620(a).
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 did not change 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 nine months ended June 30, 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 is actively pursuing additional funds. However, there is no guarantee that the Company will be able to restructure its debts and/or secure the necessary financing on favorable terms.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are defined as those that reflect significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. See our 2023 Annual Report for a detailed discussion of our significant accounting policies.
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 rates for the 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. It depends on the ability of these suppliers to deliver the 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 impact 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
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. The 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 demand forecasts, product life cycles, product development plans, and current market conditions. Allowance is recognized 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 the 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 are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred.
Estimated Useful Lives
| Description | 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". 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 recognize deferred tax assets and liabilities for the expected future tax consequences of events 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 on 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. As of June 30, 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. We maintain a full valuation allowance against the value of our U.S. and state net deferred tax assets because the recoverability of the tax assets does not meet the “more likely than not” requirement as of June 30, 2024 and September 30, 2023.
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 the carrying amount in subsequent periods.
Extinguishment of Liabilities
The Company derecognizes financial liabilities when the Company’s obligations are discharged, canceled, 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 potential 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 billed and 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 vehicle 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 such dealer has sold the vehicles 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 nine months ended June 30, 2024.
Cost of Revenues
The cost of revenues primarily includes vehicle components and parts, labor costs, and other relevant costs and expenses applicable to sales and revenues, such as provisions for estimated warranty expenses and an allowance to adjust the value of inventories to net realizable value.
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 expenses, 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 the occurrence of the future event in accordance with ASC 720‑35, “Other Expenses – Advertising Cost.” Advertising costs for the three and nine months ended June 30, 2024 were approximately $
Research and Development Costs
Per ASC 730, "Research and Development," the Company recognizes all research and development 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) was based on an independent valuation. The Company recognizes forfeitures of awards 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 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 revalued each period based on an earned portion of the grant and changes in the market price of the shares of common stock of the Company until a 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, determining 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 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 the probability the amounts due to us are going to be paid. We monitor our customers' payment history and current creditworthiness to determine that collectability is reasonably assured. We also consider the overall business climate in which our customers and other counterparties operate. On June 30, 2024 and September 30, 2023, no material allowance for credit losses was needed to be recognized to cover anticipated credit losses under current conditions. However, uncertainties regarding changes in the financial condition of our counterparties, 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 the high credit rating of relevant financial institutions. The amounts in excess of insured limits as of June 30, 2024 and September 30, 2023 are $
Accounting Pronouncements
The Company has implemented all applicable accounting pronouncements that are in effect. The Company has recently adopted the following pronouncements:
ASU 2022-04 - Supplier Finance Program (SFP). This ASU requires that a buyer in an SFP disclose qualitative and quantitative information about its program, including the nature of the SFP and key terms, outstanding amounts as of the end of the reporting period, and presentation in its financial statements. This pronouncement has not impacted 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 is examining the impact this pronouncement may have 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. It 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 for 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 the main financial information pertaining to the segments (there were no material differences from the last annual report regarding segmentation or measuring segment profit or loss).
| Segment reporting for the three and nine months ended June 30, 2024 | ||||||||||||
| Bollinger | Mullen/ELMS | Total | ||||||||||
| Revenue for the three months ended June 30, 2024 | $ | $ | $ | |||||||||
| Revenue for the nine months ended June 30, 2024 | ||||||||||||
| Segment's net loss before impairment and income taxes for the three months ended June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before impairment and income taxes for the nine months ended June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before income taxes for the three months ended June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before income taxes for the nine months ended June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Total segment assets | ||||||||||||
| Segment reporting for the three and nine months ended June 30, 2023 | ||||||||||||
| Bollinger | Mullen/ELMS | Total | ||||||||||
| Revenue for the three and nine months ended June 30, 2023 | $ | $ | $ | |||||||||
| Segment's net loss before income taxes for the three months ended June 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||
| Segment's net loss before income taxes for the nine months ended June 30, 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:
| June 30, 2024 | September 30, 2023 | |||||||
| Inventory | ||||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Finished goods delivered to dealer for distribution | ||||||||
| Less: inventory write down to net realizable value | ( | ) | ||||||
| Total Inventory | $ | $ | ||||||
During the nine months ended June 30, 2024, approximately $
NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The goodwill net carrying amounts of $
Other intangible assets
Intangible assets with indefinite useful lives are not amortized but instead tested for impairment. Due to unfavorable market conditions and the decline of 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
| June 30, 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 (3 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total Future Amortization | $ | |||
For the three and nine months ended June 30, 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 from the balance sheet date; long-term debt has maturities greater than one year, in addition to loans that have matured and remain unpaid.
The following is a summary of our indebtedness as of June 30, 2024:
| Net Carrying Value | ||||||||||||||||||||
| Unpaid Principal | Contractual | Contractual | ||||||||||||||||||
| Type of Debt | Balance | Current | Long-Term | Interest Rate | Maturity | |||||||||||||||
| Matured notes | $ | $ | $ | % | 2019 - 2021 | |||||||||||||||
| Matured loan advances | % | 2016 - 2018 | ||||||||||||||||||
| Convertible notes | % | September, 2024 | ||||||||||||||||||
| Less: debt discount to convertible notes | ( | ) | ( | ) | September, 2024 | |||||||||||||||
| 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 | ||||||||||||||||||
| Matured loan advances | % | 2016 – 2018 | ||||||||||||||||||
| Less: debt discount | ( | ) | ( | ) | ||||||||||||||||
| Total Debt | $ | $ | $ | |||||||||||||||||
Scheduled Debt Maturities
The following are scheduled debt maturities as of June 30, 2024:
| Year Ended September 30, | ||||||||||||||||||||||||
| 2024 (3 months) | 2025 | 2026 | 2027 | 2028 | Total | |||||||||||||||||||
| Total Debt due (excluding debt discount) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Accrued interest
As of June 30, 2024 and September 30, 2023, accrued interest on outstanding notes payable was $
Non-convertible promissory note (terminated)
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 $
The $
Series D 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 $
In February 2023, the holders converted the remaining balance of the Notes (with the principal of $
$50 Million Senior Secured Convertible Notes and Warrants
On May 14, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited investors for the sale of Senior Secured Convertible Notes ("Convertible Notes") and -year warrants exercisable for shares of common stock (the “Warrants”). Upon execution of the Securities Purchase Agreement, investors purchased an initial aggregate principal amount of $
The Convertible Notes accrue interest at
As security for payment of the amounts due and payable under the Convertible Notes, the Company collaterally assigned and granted to the holders a continuing security interest in all of the Company’s right, title, and interest in, to, and under the property of the Company, whether then or hereafter owned, existing, acquired or arising and wherever then or hereafter located (subject to certain exceptions). The Convertible Notes are senior in right of payment to all other current and future notes to which the Company is a party. The Convertible Notes also impose restrictions on the Company, limiting additional debt, asset liens, stock repurchases, outstanding debt repayment, dividends distribution, and affiliate transactions, except for specified exceptions.
In connection with the issuance of the Convertible Notes, the holders also received 5-year warrants exercisable for
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, the Black Scholes value is determined and 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 (i.e., $
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 (iii) 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.
The Convertible Notes and Warrants are not convertible by a holder to the extent that the holder or any of its affiliates would beneficially own in excess of
The Company and the investors also executed a registration rights agreement, pursuant to which the Company agreed to file a registration statement within five days following the closing of the Securities Purchase Agreement. Such registration statement registered for resale by the selling stockholders listed therein, up to
For a period beginning on May 14, 2024, and ending on the one-year anniversary from the later of (i) the date registration statements registering the shares issuable upon conversion of all of the Convertible Notes and exercise of all the Warrants is declared effective or (ii) the date the Company has obtained stockholder approval for the transaction, the investors have the right, but not the obligation, to purchase an additional $
The exercise price and number of shares issuable upon conversion of the Convertible 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 during restricted period. “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 Convertible Notes and Warrants also 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.
On May 14, 2024, upon execution of the Securities Purchase Agreement, the investors purchased an initial aggregate principal amount of $
These warrant liabilities were recognized as liabilities due to requirements of ASC 480 as the variable number of shares to be issued upon cashless exercise (deemed 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 is carried forward subsequently at fair value and the gain or loss from revaluation is recorded within the line item "Gain/(loss) on other warrants revaluation". The fair value of the warrants is based on the fair value of the shares they are exercisable into. Upon initial recognition, the warrant liability fair value was $
In May 2024, $
As of June 30, 2024, the outstanding convertible notes amounted to $
Outstanding warrants in the amount of
Only
The Convertible Notes were in technical default on the balance sheet date because the Company failed to obtain shareholders’ approval by June 28, 2024, as was required by the contract. This gave investors the right to demand immediate repayment of the outstanding notes. None of the investors utilized this right to accelerate payment. An increased interest rate of 20% was applied until the Company obtained shareholders' approval for this transaction after the balance sheet date on July 9, 2024.
The Company also signed a commitment letter agreement with an investor for a total investment of $
NOTE 8 – WARRANTS AND OTHER DERIVATIVE LIABILITIES AND FAIR VALUE MEASUREMENTS
ASC 825-10 defines fair value as the price 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 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 and generally due upon receipt or within 30 to 90 days.
Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
Non-financial assets must be measured at fair value when acquired as part of a 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 the fair value of these assets or liabilities.
Financial Liabilities Measured at Fair Value on a Recurring Basis
During nine months ended June 30, 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, were 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. They 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. These warrant liabilities were also classified as derivates in accordance with ASC 815. At each warrant exercise date and each accounting period end, the warrant liability for the remaining unexercised warrants was carried forward subsequently at fair value.
During the quarter that ended December 31, 2022, the 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 $
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 $
The pool of investors exercised final voluntary investment rights under the Series D SPA in June 2023. The Company received $
Upon initial accounting of these investments, the warrant liability recognized in June 2023 amounted to $
As of September 30, 2023,
During the nine months ended June 30, 2024, all remaining Preferred D Warrants were exercised on a cashless basis for
The fair value of warrant obligations was calculated based on the number and market value of shares that can be issued upon the exercise of the warrants. The number of shares to be issued in accordance with relevant agreements is variable. It depends on (i) the lowest closing market price of shares for 2 days before the exercise and (ii) the 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 the 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 restated to current fair value, and the gain or loss from revaluation is recorded in the 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 according 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. 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, 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, automatic increase in interest rate upon an event of default and optional conversion features that were not clearly and closely related to the economic characteristics and risks of a debt host), and preferred stock that failed equity presentation when the Company had an insufficient number of authorized shares available to settle all potential future conversion transactions. They were carried at fair value and have been reclassified to equity respectively upon conversion of the notes, and authorization of increase of common stock available for issuance by stockholders of the Company during the three months ending March 2023.
Warrants issued with $50 Million Senior Secured Convertible Notes
On May 14, 2024, upon execution of the Securities Purchase Agreement, the investors purchased an initial aggregate principal amount of $
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. As a part of consideration for the Company’s entry into the IP Agreement, the Company issued to Qiantu USA warrants to purchase shares of the Company’s common stock (the “Qiantu Warrants”). 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. The Qiantu Warrants have anti-dilution provisions similar to those described above, but they provide for an exemption for Series D Preferred Stock transaction rights and obligations that existed when the Qiantu Warrants were issued. 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 ($
Liabilities settlement agreement (SCC)
On May 13, 2024, the Company entered into a Settlement Agreement and Stipulation (the “SAS”) with Silverback Capital Corporation (“SCC”), pursuant to which the Company agreed to issue common stock to SCC in exchange for the settlement of an aggregate of $
Upon initial recognition of the transaction, the Company derecognized the liability to vendors in the amount of $
In connection with the SAS, the Company issued
As of June 30, 2024, derivative liabilities to SCC in the amount 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 June 30, 2024 and on September 30, 2023 is presented below:
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| June 30, | Identical Assets | Inputs | Inputs | |||||||||||||
| 2024 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Liabilities recorded at fair value on a recurring basis | $ | $ | $ | $ | ||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | ||||||||||||||
| Markets for | Observable | Unobservable | ||||||||||||||
| September 30, | Identical Assets | Inputs | Inputs | |||||||||||||
| 2023 | (Level 1 ) | (Level 2) | (Level 3) | |||||||||||||
| Liabilities recorded at fair value on a recurring basis | $ | $ | $ | $ | ||||||||||||
A summary of all changes in liabilities recorded at fair value on a recurring basis is presented below:
| Balance, September 30, 2023 | $ | |||
| Derivative liabilities recognized upon issuance of convertible instruments | ||||
| Other warrants recognized upon issuance of convertible instruments | ||||
| Loss / (gain) on revaluation | ||||
| Conversions of derivatives into common shares | ( | ) | ||
| Derivatives issued upon extinguishment of accounts payable | ||||
| Balance, June 30, 2024 | $ | |||
| Balance, September 30, 2022 | $ | |||
| Derivative liabilities recognized upon issuance of convertible instruments | ||||
| Derivative liability recognized 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, June 30, 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 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 the 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 the 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 a 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 $
Stockholder Rights Agreement
On May 1, 2024, the Company entered into a Rights Agreement with Continental Stock Transfer & Trust Company as the rights agent. The Board of Directors declared a dividend of 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 -thousandth of a share of Series A-1 Junior Participating Preferred Stock (“A-1 Preferred Stock”) of the Company at a price of $
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% or 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 preceding, the Board of Directors generally will not be empowered to effect such exchange at any time after any person becomes the beneficial owner of
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 (see description below), Series E Preferred Stock (see Note 18—Series E Preferred Stock), Series AA Preferred Stock (cancelled), and Series A-1 Junior Participating Preferred Stock (see Stockholder Rights Agreement above).
Transactions with Preferred Stock during the three and nine months ended June 30, 2024 and during the three and nine months ended June 30, 2023 are presented in the table below. For more information on extinguishment of Series C Preferred Stock and issuance of Series E Preferred Stock, please see Note 18 – Series E Preferred Stock.
| 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, October 1, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Extinguishment of Series C P/S by issuance of Series E P/S | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Balance, April 1, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Extinguishment of Series C P/S by issuance of Series E P/S | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Balance, October 1, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of preferred stock, common stock and prefunded warrants in lieu of preferred stock | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of preferred stock and dividends | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred shares series AA issued to officers | ||||||||||||||||||||||||||||||||||||||||
| Preferred shares series AA refund | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Balance, April 1, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of preferred stock, common stock and prefunded warrants in lieu of preferred stock | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of preferred stock and dividends | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 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
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 Stockholders, 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 June 30, 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 June 30, 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 the 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 cases such as approval of a liquidation event, authorization of the 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.
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 by the weighted-average shares of common stock outstanding plus amounts representing the dilutive effect of outstanding warrants and the dilution resulting from converting convertible preferred stock, if applicable. For the three and nine months ended June 30, 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 June 30, |
Nine months ended June 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Net loss attributable to common stockholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Less: preferred stock dividends waived/(accrued) |
( |
) | ( |
) | ( |
) | ||||||||||
| Less: financial result from exchange of Series C P/S for Series E P/S (see Note 18 - Series E Preferred Stock) |
( |
) | ( |
) | ||||||||||||
| 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 part of its annual discretionary share-based compensation program. The plans include consultants, 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 June 30, | For the nine months ended June 30, | |||||||||||||||
| Composition of Share-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 the relevant number of shares to be issued. It is recognized, in correspondence with additional paid-in capital, over the service period. The majority of awards to employees are equity-classified. The liability related 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 the monetary value of those shares, if applicable, is negotiated by our Chief Executive Officer and approved by the 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 the 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 revalued each period based on the part of the services performed and the market price of the shares of common stock of the Company until a sufficient number of shares is issued. The liability to consultants as of June 30, 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, the 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 the fulfillment of the milestone requirements is no longer probable.
As of June 30, 2024, the accrual for future awards under 2023 PSA Agreement amounted to approximately $
NOTE 12 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| June 30, 2024 |
September 30, 2023 |
|||||||
| Provision for settlement expenses and legal fees |
$ | $ | ||||||
| Tax payables |
||||||||
| Accrued payroll |
||||||||
| Accrued interest |
||||||||
| Refund liability |
||||||||
| Dividend payable |
||||||||
| Accrued expense - other |
||||||||
| Total |
$ | $ | ||||||
NOTE 13 - LIABILITY TO ISSUE STOCK AND ELOC COMMITMENT FEE
Liability to issue stock
The liability to issue stock on June 30, 2024 (current liability in the amount of $
ELOC commitment fees
On May 21, 2024, the Company entered into the Equity Line of Credit (“ELOC”) Purchase Agreement (the “Purchase Agreement”) with Esousa LLC (the “Investor"), pursuant to which the Investor agreed to purchase from the Company, at the Company’s direction from time to time, in its sole discretion, from and after July 5, 2024, and until the earlier of (i) the 36-month anniversary of the Commencement Date of July 16, 2024, or (ii) the termination of the ELOC Purchase Agreement in accordance with the terms thereof, shares of common stock, having a total maximum aggregate purchase price of $
After the Commencement Date (as defined above), on any business day selected by the Company, the Company may, from time to time and at its sole discretion, direct the Investor to purchase a number of shares of common stock that does not exceed
The Purchase Agreement prohibits the Company from directing the Investor to purchase any shares of common stock if those shares, when aggregated with all other shares of common stock, then beneficially owned by the Investor and its affiliates, would result in the Investor and its affiliates beneficially owning more than
The Purchase Agreement may be terminated by the Company at any time, at its sole discretion, without any cost or penalty. From and after the date of the Purchase Agreement until its termination, the Company agreed not to effect or enter into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents (or a combination of units thereof), involving a Variable Rate Transaction (as defined in the Purchase Agreement), other than in connection with an exempt issuance as described in the Purchase Agreement. The Investor has agreed not to cause or engage in any manner whatsoever any direct or indirect short selling or hedging of the Company’s common stock.
As consideration for its commitment to purchase the Company’s common stock under the Purchase Agreement, the Company agreed to issue shares of common stock equal to $6.0 million divided by the lower of (i) the VWAP on the effective date of the Initial Registration Statement and (ii) the closing price of the common stock on the effective date of the Initial Registration Statement (the “Commitment Shares”) to the Investor. Half of the Commitment Shares will be issued upon the effective date of the Initial Registration Statement, and the remaining amount will be delivered upon stockholder approval of the issuance of shares in excess of the Exchange Cap (as defined above); provided that all Commitment Shares will be issued by the date that is 6 months from the date of the Purchase Agreement. The commitment fee of $
NOTE 14 – PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment consist of the following:
| June 30, | 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 year ended September 30, 2023, due to unfavorable market conditions, a 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 assets for recoverability. The test was performed on September 1, 2023, by management with the assistance of independent third-party valuation professionals, using both the discounted cash flow method and the 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 Bollinger's segment (see Note 4 - Segment information) were not impaired, except for goodwill impairment (see Note 6 - Goodwill and Other Intangible Assets). An impairment loss in the amount of $
NOTE 15 – PREPAID EXPENSES AND PREPAID INVENTORY
| June 30, 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 June 30, | Nine months ended June 30, | |||||||||||||||
| 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 nine months ended June 30, 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 that 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 payments 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.
| June 30, 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 nine months ended June 30, 2024, we recognized impairment of right-of-use assets in the amount of $
| Operating lease costs: | For the three months ended June 30, | For the nine months ended June 30, | ||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Fixed lease cost | $ | $ | $ | $ | ||||||||||||
| Variable and short-term lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating lease costs | $ | $ | $ | $ | ||||||||||||
The following table reflects the maturities of operating lease liabilities on June 30, 2024:
| Years ending September 30, | ||||
| 2024 (3 months) | $ | 945,167 | ||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Carrying amount of lease liabilities | $ |
NOTE 18 – SERIES E PREFERRED STOCK
On May 31, 2024, the Company entered into the Settlement Agreement and Release with Ault Lending, LLC, under which the Company issued $
The Company has designated
Conversion and Exchange. The Series E 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 E Original Issue Price by the Series E Conversion Price in effect on the date of conversion. “Series E Original Issue Price” means $
Voting Rights. Holders of the Series E Preferred Stock are entitled to vote on an as-converted-to-Common-Stock basis, have full voting rights and powers equal to the voting rights and powers of the holders of the common stock, and are entitled to vote together with the common stock for any question upon which holders of common stock have the right to vote. In addition, approval of holders of a majority of the shares of Series E Preferred Stock, voting as a separate class, is required to (i) alter or change the powers, preferences, or rights of the Series E Preferred Stock to affect them adversely, (ii) amend the Certificate of Incorporation or other charter documents in a manner adverse to the holders of Series E Preferred Stock, (iii) increase the number of authorized shares of Series E Preferred Stock, or (iv) enter into any agreement for any of the foregoing.
Dividends. Holders of the Series E Preferred Stock are entitled to receive dividends on shares of Series E Preferred Stock equal (on an as-if-converted-to-Common-Stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the same form as dividends paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends will be paid on shares of Series E Preferred Stock.
Liquidation, Dissolution, and Winding Up. In the event of any Liquidation Event (as defined in the Certificate of Designation), the holders of the Series E Preferred Stock will be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of the common stock, but subject to and after the distribution of proceeds to the Series A preferred stock, Series C preferred stock and Series D preferred stock, because of their ownership thereof, an amount per share equal to the Series E Original Price (as described above), plus declared but unpaid dividends on such share.
Pursuant to the Settlement Agreement, Series E holders, at their discretion, were also permitted to exchange, under Section 3(a)(9) of the Securities Act, or any other applicable securities exemption, some or all of the shares of Series E Preferred Stock for an equal dollar amount of Notes (maturing in 4 months) and Warrants (exercisable within 5 years) under additional investment rights of the Securities Purchase Agreement. For more information on these Notes and Warrants, see Note 7 - Debt, $50 Million Convertible Notes and Warrants.
The Series E Preferred Stock has been recognized at fair value of $
The difference of $
After the balance sheet date, on July 8, 2024, all
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.
Occasionally, 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 over the amount accrued if such disclosure is necessary for our consolidated financial statements. 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, 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. They could be material to our operating results and cash flows for a particular period. At least quarterly, we evaluate developments in our legal proceedings and other contingencies that could affect the amount of liability, including amounts over 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 over the amounts recorded, which could have a material effect on our business, consolidated financial position, results of operations, or cash flows.
Information regarding 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.
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 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.
During May and June 2024, the Company fully settled the matter for a cash payment of $
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. On August 3, 2023, the arbitrator ordered Mullen to deposit $
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 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 January 24, 2024, the arbitrator ordered Mullen to deposit an additional $
On May 10, 2024, the arbitrator issued his final award, awarding the GEM Group $
The Company has paid $
Mullen Stockholder Litigation
In re Mullen Automotive, Inc. Securities Litigation
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, seeks monetary damages, and an award of reasonable fees and expenses.
As of June 30, 2024, the Company has created a provision for losses expected to arise from this litigation.
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, and 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.
In re Mullen Automotive, Inc. Derivative Litigation
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, against 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 concerning the issues and claims asserted in the Schaub Lawsuit. The Witt Lawsuit seeks monetary damages and an award of reasonable fees and expenses.
The Company has accrued expected settlement expenses as of June 30, 2024.
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 concerning 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. Also, it 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.
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 also seeks monetary damages and an award of reasonable fees and expenses.
Other contingencies
Accrued debt settlement
As discussed in the Note 7 - Debt, section "Non-convertible promissory note (terminated)", 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 in 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 who 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 a cash payment in full settlement of all outstanding amounts (including outstanding notes receivable, advances, and related interest and penalties) of approximately $
Director Provided Services
For the three months ended June 30, 2024, our non-employee directors earned compensation for service on our Board of Directors and associated committees for thousand in cash and thousand in shares of common stock (for the nine months ended June 30, 2024 - $
In addition, the following non-employee directors were engaged in certain other consulting contracts with the Company:
William Miltner
William Miltner is a litigation attorney who provides legal services to the Company. Mr. Miltner is also an elected Director of the Company. For the three and nine months ended June 30, 2024, Mr. Miltner, for services rendered, was entitled to $
Mary Winter
Mary Winter, Corporate Secretary and Director, is compensated for Corporate Secretary responsibilities at $
NOTE 21 – SUBSEQUENT EVENTS
Company management has evaluated subsequent events through August 12, 2024, when these financial statements were available to be issued. Except as discussed below, management has determined that no subsequent events required recognition, adjustment to, or disclosure in the financial statements.
Additional investments after the balance sheet date
Pursuant to the Securities Purchase Agreement ($50 million convertible notes and warrants contract described in Note 7—Debt above), the following transactions took place after the balance sheet date:
| ● | On July 8, 2024, as part of the additional investment right, an investor exchanged |
| ● | On July 9, 2024, the Company held a special meeting of stockholders. For purposes of complying with Nasdaq Listing Rule 5635(d), shareholders approved issuance of shares of common stock (i) pursuant to senior secured convertible notes and related warrants, and any future adjustments of the conversion price of the notes and exercise price of the warrants, purchased pursuant to a Securities Purchase Agreement dated May 14, 2024, in excess of the |
| ● | On July 9, 2024, as part of the obligated purchases, investors purchased an additional initial aggregate principal amount of $ |
| ● | On July 15, 2024, as remaining part of the obligated purchases, investors purchased an additional initial aggregate principal amount of $ |
In total, after the balance sheet date, investors purchased an additional aggregate principal amount of $
Stock issuances after the balance sheet date and exercise of remaining warrants
After the balance sheet date and by August 9, 2024, the Company issued
Additional investments in Bollinger
On July 26, 2024, Mullen Automotive Inc. entered into a Common Stock Purchase Agreement, by and among the Company and Bollinger Motors, Inc., a Company subsidiary, to acquire up to
At closing, $
Separately, for a period of eighteen months following July 26, 2024, the Company shall have the right to acquire up to
Asset Purchase Agreement with Mullen Technologies, Inc.
On July 18, 2024, the Company entered into an Asset Purchase Agreement with Mullen Technologies, Inc. (“MTI”), pursuant to which the Company assumed a lease for premises located in Oceanside, California and all equipment and inventory in the premises, as well as staffing and other infrastructure for vehicle sales and repairs for consideration of million. The Company’s CEO has a controlling financial interest and is Chairman of MTI, and one of the Company's directors is CFO of MTI.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis are 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 of operations, financial condition, 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 June 30, 2024 to the Three Months Ended June 30, 2023
The following table sets forth our historical operating results for the periods indicated:
| Three Months Ended |
||||||||||||||||
| June 30, |
||||||||||||||||
| 2024 |
2023 |
$ Change |
% Change |
|||||||||||||
| (dollar amounts, except percentages) |
||||||||||||||||
| Revenue |
||||||||||||||||
| Vehicle sales |
$ | 65,235 | $ | 308,000 | $ | (242,765 | ) | (79 | )% | |||||||
| Costs and expenses applicable to sales and revenues |
||||||||||||||||
| Cost of goods sold |
26,222 | 248,669 | (222,447 | ) | (89 | )% | ||||||||||
| Other inventory costs and expenses |
9,786 | — | 9,786 | — | % | |||||||||||
| Total cost of goods sold and other inventory expenses |
36,008 | 248,669 | (212,661 | ) | (86 | )% | ||||||||||
| Gross profit / (loss) |
29,227 | 59,331 | (30,104 | ) | (51 | )% | ||||||||||
| Operating expenses: |
||||||||||||||||
| General and administrative |
47,477,377 | 31,777,812 | 15,699,565 | (49 | )% | |||||||||||
| Research and development |
14,292,744 | 22,088,011 | (7,795,267 | ) | 35 | % | ||||||||||
| Impairment of right-of-use assets |
30,060 | — | 30,060 | — | % | |||||||||||
| Loss from operations |
$ | (61,770,954 | ) | $ | (53,806,492 | ) | $ | (7,964,462 | ) | (15 | )% | |||||
| Other income (expense): |
||||||||||||||||
| Other financing costs - initial recognition of derivative liabilities |
(4,261,718 | ) | (248,413,090 | ) | 244,151,372 | 98 | % | |||||||||
| Other financing costs - ELOC commitment fee |
(6,000,000 | ) | — | (6,000,000 | ) | — | % | |||||||||
| Other financing costs - initial recognition of warrants |
(13,652,762 | ) | — | (13,652,762 | ) | — | % | |||||||||
| Gain/(loss) on derivative liability revaluation |
2,218,148 | (241,168 | ) | 2,459,316 | 1,020 | % | ||||||||||
| Gain/(Loss) on other warrants revaluation |
82,938 | — | 82,938 | — | % | |||||||||||
| Gain/(loss) on extinguishment of debt |
(690,346 | ) | 206,081 | (896,427 | ) | (435 | )% | |||||||||
| Loss on financing |
— | (8,934,892 | ) | 8,934,892 | 100 | % | ||||||||||
| Gain/(loss) on disposal of fixed assets |
(103,973 | ) | 1,346 | (105,319 | ) | (7,825 | )% | |||||||||
| Interest expense |
(8,277,802 | ) | (608,332 | ) | (7,669,470 | ) | (1,261 | )% | ||||||||
| Other income, net |
829,056 | 826,378 | 2,678 | 0 | % | |||||||||||
| Total other income (expense) |
(29,856,459 | ) | (257,163,677 | ) | 227,307,218 | 88 | % | |||||||||
| Net loss before income tax benefit |
$ | (91,627,413 | ) | $ | (310,970,169 | ) | $ | 219,342,756 | 71 | % | ||||||
| Income tax benefit/ (provision) |
(1,200 | ) | (456,191 | ) | 454,991 | 100 | % | |||||||||
| Net loss |
(91,628,613 | ) | (311,426,360 | ) | 219,797,747 | 71 | % | |||||||||
| Net loss attributable to noncontrolling interest |
(4,267,796 | ) | (2,568,126 | ) | (1,699,670 | ) | (66 | )% | ||||||||
| Net loss attributable to stockholders |
$ | (87,360,817 | ) | $ | (308,858,234 | ) | $ | 221,497,417 | 72 | % | ||||||
| Waived/(accrued) accumulated preferred dividends and other capital transactions with Preferred stock owners |
(8,627,095 | ) | (13,125 | ) | (8,613,970 | ) | (65,630 | )% | ||||||||
| Net loss attributable to common stockholders after preferred dividends |
$ | (95,987,912 | ) | $ | (308,871,359 | ) | $ | 212,883,447 | 69 | % | ||||||
| Net Loss per Share |
(7.91 | ) | (1,114.23 | ) | ||||||||||||
| Weighted average shares outstanding, basic and diluted |
12,134,899 | 277,205 | ||||||||||||||
Revenues
We are an early-stage company that has only recently started to generate notable revenues. As we expand vehicle production and commercialization, we expect the majority of our revenue to be derived from sales of commercial vehicles.
We plan 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. Generally, the control is transferred to the customer at the point of delivery. Still, 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 such dealer has sold the vehicles 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 June 30, 2024 (in thousand dollars) |
|||||||
| Vehicle type |
Units invoiced |
Amount invoiced |
Cash received |
Revenue recognized |
|||
| Mullen 3 (UU) | 3 | 195.6 | — | — | |||
| Urban Delivery (UD1) |
12 |
315.7 |
65.2 |
65.2 |
|||
| Total |
15 |
$ |
511.3 |
$ |
65.2 |
$ |
65.2 |
Cost of Revenues
The costs of revenues primarily include vehicle components and parts, labor costs, and other relevant costs and expenses applicable to sales and revenues, such as provisions for estimated warranty expenses and an allowance to bring the value of inventories down to net realizable value.
Research and Development
Research and development expenses decreased by $7.8 million, or 35%, from $22.1 million through the three months ended June 30, 2023, to $14.3 million through the three months ended June 30, 2024. Research and development expenses are primarily comprised of external fees and internal costs for engineering, homologation, prototyping, and other expenses related to preparation for the production of electric vehicles such as Mullen Five EV and Mullen One EV cargo van.
General and Administrative
General and administrative expenses include all non-production expenses incurred in a given period. This includes professional fees, salaries, rent, repairs and maintenance, utilities and office expenses, 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 $15.7 million, or 49%, from approximately $31.8 million in the three months ended June 30, 2023, to approximately $47.5 million in the three months ended June 30, 2024, primarily due to decreases in compensation to employees, partially offset by increases in professional fees, employee benefits, utilities, depreciation expense, and advertising and promotions expenses.
Other financing costs
The Company recognized other financial costs (on initial recognition of derivative liabilities and other warrants, and ELOC commitment fee) during the three months ended June 30, 2024 in the amount of $23.9 million, vs $248.4 million over the same period of the previous year. The change of $224.5 million, or 90%, was mainly due to the fact that investments during the three months ended June 30, 2024 were lower than investments during the three months ended June 30, 2023 (see Notes 7 - Debt and 8- Warrants and Other Derivative Liabilities and Fair Value Measurements to the financial statements).
Interest Expense
Interest expense increased by approximately $7.7 million, or 1261%, from approximately $0.6 million through the three months ended June 30, 2023 to approximately $8.3 million through the three months ended June 30, 2024, primarily due to a conversion of debt which resulted in an $8.1 million debt discount being recognized in the three months ended June 30, 2024.
Net Loss
The net loss attributable to common stockholders (after preferred dividends) was approximately $96.0 million, or $7.91 net loss per share, for the three months ended June 30, 2024, as compared to a net loss attributable to common stockholders after preferred dividends of approximately $308.9 million, or $1,114.23 loss per share, for the three months ended June 30, 2023 (giving effect to reverse stock splits, see below).
Comparison of the nine months ended June 30, 2024 to the nine months ended June 30, 2023
The following table sets forth our historical operating results for the periods indicated:
| Nine Months Ended |
||||||||||||||||
| June 30, |
||||||||||||||||
| 2024 |
2023 |
$ Change |
% Change |
|||||||||||||
| (dollar amounts, except percentages) |
||||||||||||||||
| Revenue |
||||||||||||||||
| Vehicle sales |
$ | 98,570 | $ | 308,000 | $ | (209,430 | ) | (68 | )% | |||||||
| Costs and expenses applicable to sales and revenues |
||||||||||||||||
| Cost of goods sold |
34,962 | 248,669 | (213,707 | ) | (86 | )% | ||||||||||
| Other inventory costs and expenses |
14,486 | — | 14,486 | — | % | |||||||||||
| Total cost of goods sold and other inventory expenses |
49,448 | 248,669 | (199,221 | ) | (80 | )% | ||||||||||
| Gross profit / (loss) |
49,122 | 59,331 | (10,209 | ) | (17 | )% | ||||||||||
| Operating expenses: |
||||||||||||||||
| General and administrative |
138,615,121 | 144,186,161 | (5,571,040 | ) | 4 | % | ||||||||||
| Research and development |
54,486,237 | 51,188,991 | 3,297,246 | (6 | )% | |||||||||||
| Impairment of goodwill |
28,846,832 | — | 28,846,832 | — | % | |||||||||||
| Impairment of right-of-use assets |
3,197,668 | — | 3,197,668 | — | % | |||||||||||
| Impairment of intangible assets |
73,447,067 | — | 73,447,067 | — | % | |||||||||||
| Loss from operations |
$ | (298,543,803 | ) | $ | (195,315,821 | ) | $ | (103,227,982 | ) | (53 | )% | |||||
| Other income (expense): |
||||||||||||||||
| Other financing costs - initial recognition of derivative liabilities |
(4,261,718 | ) | (504,373,115 | ) | 500,111,397 | 99 | % | |||||||||
| Other financing costs - ELOC commitment fee |
(6,000,000 | ) | — | (6,000,000 | ) | — | % | |||||||||
| Other financing costs - initial recognition of warrants |
(13,652,762 | ) | — | (13,652,762 | ) | — | % | |||||||||
| Gain/(loss) on derivative liability revaluation |
(888,075 | ) | (89,462,559 | ) | 88,574,484 | 99 | % | |||||||||
| Gain/(Loss) on other warrants revaluation |
82,938 | — | 82,938 | — | % | |||||||||||
| Gain/(loss) on extinguishment of debt |
(655,721 | ) | (6,246,089 | ) | 5,590,368 | 90 | % | |||||||||
| Loss on financing |
— | (8,934,892 | ) | 8,934,892 | 100 | % | ||||||||||
| Gain/(loss) on disposal of fixed assets |
(477,838 | ) | 386,377 | (864,215 | ) | (224 | )% | |||||||||
| Gain on lease termination |
— | — | — | — | % | |||||||||||
| Interest expense |
(8,795,525 | ) | (5,414,185 | ) | (3,381,340 | ) | (62 | )% | ||||||||
| Other income, net |
2,318,164 | 2,044,258 | 273,906 | 13 | % | |||||||||||
| Total other income (expense) |
(32,330,537 | ) | (612,000,205 | ) | 579,669,668 | 95 | % | |||||||||
| Net loss before income tax benefit |
$ | (330,874,340 | ) | $ | (807,316,026 | ) | $ | 476,441,686 | 59 | % | ||||||
| Income tax benefit/ (provision) |
3,890,100 | 520,385 | 3,369,715 | 648 | % | |||||||||||
| Net loss |
(326,984,240 | ) | (806,795,641 | ) | 479,811,401 | 59 | % | |||||||||
| Net loss attributable to noncontrolling interest |
(45,796,565 | ) | (6,748,302 | ) | (39,048,263 | ) | (579 | )% | ||||||||
| Net loss attributable to stockholders |
$ | (281,187,675 | ) | $ | (800,047,339 | ) | $ | 518,859,664 | 65 | % | ||||||
| Waived/(accrued) accumulated preferred dividends and other capital transactions with Preferred stock owners |
(8,670,441 | ) | 7,387,811 | (16,058,252 | ) | (217 | )% | |||||||||
| Net loss attributable to common stockholders after preferred dividends |
$ | (289,858,116 | ) | $ | (792,659,528 | ) | $ | 502,801,412 | 63 | % | ||||||
| Net Loss per Share |
(37.92 | ) | (5,544.35 | ) | ||||||||||||
| Weighted average shares outstanding, basic and diluted |
7,644,049 | 142,967 | ||||||||||||||
Revenues
See above for a discussion of accounting policy on revenue recognition. This table discloses information on vehicle deliveries, revenue recognized, and payments received from our customers over nine months ended June 30, 2024.
| Invoiced during the 9 months ended June 30, 2024 (in thousand dollars) |
||||||||||||||||
| Vehicle type |
Units invoiced |
Amount invoiced |
Cash received |
Revenue recognized |
||||||||||||
| Mullen 3 (UU) |
134 | 8,739.4 | 652.2 | — | ||||||||||||
| Urban Delivery (UD1) |
243 | 8,085.1 | 98.6 | 98.6 | ||||||||||||
| Total |
377 | $ | 16,824.5 | $ | 750.8 | $ | 98.6 | |||||||||
Cost of Revenues
See above for a description of the cost of revenues.
Research and Development
Research and development expenses increased by $3.3 million, or 6%, from approximately $51.2 million through the nine months ended June 30, 2023 to approximately $54.5 million through the nine months ended June 30, 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 for the 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, employee compensation and benefits, rent, repairs and maintenance, utilities and office expenses, 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 $5.6 million, or 4%, from approximately $144.2 million in the nine months ended June 30, 2023, to approximately $138.6 million in the nine months ended June 30, 2024, primarily due to decreases in professional fees and compensation to employees, partially offset by increases in advertising and promotions expenses, employee benefits, and depreciation expense.
Impairment
The net loss for the nine months ended June 30, 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 ($58.5 million) and ELMS ($15.1 million), and the write-down of right-of-use assets of $3.2 million.
Other financing costs and revaluation of liabilities
The Company recognized other financial costs (on initial recognition of derivative liabilities and other warrants, and ELOC commitment fee) during the nine months ended June 30, 2024 in the amount of $23.9 million vs $504.4 million over the same period of the previous year. The change of $480.5 million, or 95%, was mainly due to the fact that investments during the nine months ended June 30, 2024 were lower than investments during the nine months ended June 30, 2023 (see Notes 7 - Debt and 8- Warrants and Other Derivative Liabilities and Fair Value Measurements to the financial statements).
Similarly, the derivative liability revaluation loss has decreased by $88.7 million from $89.5 million to $0.8 million. These changes are due to the fact that less warrants were issued and outstanding during the nine months ended June 30, 2024 and the monetary value of relevant obligations has significantly decreased in comparison to the nine months ended June 30, 2023 (see Notes 7- Debt and 8 - Warrants and Other Derivative Liabilities and Fair Value Measurements to the financial statements).
Interest Expense
Interest expense increased by approximately $3.4 million, or 62%, from approximately $5.4 million through the nine months ended June 30, 2023 to approximately $8.8 million through the nine months ended June 30, 2024, primarily due to a conversion of debt which resulted in an $8.1 million debt discount being recognized in the three months ended June 30, 2024.
By accounting standards, applying the effective interest method will, in the next quarter ending September 2024, result in higher interest costs in respect of the convertible notes issued by the Company in May 2024.
Net Loss
The net loss attributable to common stockholders (after preferred dividends) was approximately $289.9 million, or $37.92 net loss per share, for the nine months ended June 30, 2024, as compared to a net loss attributable to common stockholders after preferred dividends of approximately $792.7 million, or $5,544.35 loss per share, for the nine months ended June 30, 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
We completed three reverse stock splits during the calendar year ending December 31, 2023 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 a 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).
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 by selling 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 $4.0 million as of June 30, 2024. During the nine months ended June 30, 2024, the Company used approximately $145.2 million of cash for operating activities. The net working capital deficit on June 30, 2024 amounted to approximately $59.0 million, or $10.4 million, after excluding derivative and warrant liabilities, Series E Preferred Stock liability, ELOC commitment fees, and liabilities to issue stock that are supposed to be settled by issuing common stock without using cash. For the nine months ended June 30, 2024, the Company incurred a net loss of $327.0 million, and as of June 30, 2024, our accumulated deficit was $2,143.3 million. This creates substantial doubt about the Company's ability to continue as a going concern, as its cash on hand may be insufficient to meet its working capital and capital expenditure requirements for a period of at least twelve months from the date of the filing of this Form 10-Q.
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). 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 notes with warrants, convertible preferred stock with warrants, and common stock.
The short-term debt includes 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 reducing interest rates, extending 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 as short-term debt on the balance sheet. Interest and fees on loans are being accounted for within accrued interest.
On May 14, 2024, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors for the sale of Senior Secured Convertible Notes ("Convertible Notes") and five-year warrants exercisable for shares of common stock (the “Warrants”). The investors have purchased senior secured convertible notes of $52.6 million, or $50.0 million, including the 5% original issue discount, bearing 15% interest and maturing in 4 months.
The holder may convert the outstanding principal and accrued but unpaid interest on the Notes into shares of common stock at the lower of (i) $5.49, (ii) 95% of the closing sale price of common stock on the date the Company’s registration statement on Form S-1 is declared effective (i.e. $3.61) or (iii) 95% of the lowest daily volume weighted average price in the five (5) trading days before such conversion date, provided that the conversion price will not be less than $1.16 per share.
As security for payment of the amounts due and payable under the Convertible Notes, the Company collaterally assigned and granted to the Holder a continuing security interest in all of the Company’s right, title, and interest in, to, and under the property of the Company, whether then or hereafter owned, existing, acquired or arising and wherever then or hereafter located (subject to certain exceptions). The Convertible Notes are senior in right of payment to all other current and future notes to which the Company is a party. The Convertible Notes also impose restrictions on the Company, limiting additional debt, asset liens, stock repurchases, outstanding debt repayment, dividends distribution, and affiliate transactions, except for specified exceptions.
In connection with the issuance of the Convertible Notes, the holder also received 5-year warrants exercisable for 200% of the shares of common stock underlying such Notes. The Warrants also provide for a cashless exercise pursuant to which the holder may receive a “net number” of shares of common stock determined according to a formula prescribed by the contract.
For a period beginning on May 14, 2024, and ending on the one-year anniversary from the date registration statements registering the shares issuable upon conversion of all of the Notes and exercise of all the Warrants is declared effective, the investors have the right, but not the obligation, to purchase an additional $52.6 million of 5% Original Issue Discount Senior Secured Convertible Notes and related Warrants on the same terms and conditions.
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. The completion of this transaction remains contingent upon mutual consent and the execution of final documentation by both parties.
The following is a summary of our indebtedness as of June 30, 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 | |||||||||||
| Matured loan advances |
332,800 | 332,800 | — | 0.00 - 10.00 | % | 2016 - 2018 | ||||||||||||||
| Convertible notes |
5,021,891 | 5,021,891 | — | 15 | % | September, 2024 |
||||||||||||||
| Less: debt discount to convertible notes |
(5,007,305 | ) | (5,007,305 | ) | — | September, 2024 |
||||||||||||||
| Total Debt |
$ | 2,732,390 | $ | 2,732,390 | $ | — | ||||||||||||||
Scheduled Debt Maturities
The following are scheduled debt maturities as of June 30, 2024:
| Year Ended September 30, |
||||||||||||||||||||||||||||
| 2024 (3 months) |
2025 |
2026 |
2027 |
2028 |
Thereafter |
Total |
||||||||||||||||||||||
| Total Debt |
$ | 7,739,695 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 7,739,695 | ||||||||||||||
Cash Flows
The following table provides a summary of our cash flow data for the nine months ended June 30, 2024 and 2023:
| Nine Months Ended June 30, |
||||||||
| Net cash provided by (used in): |
2024 |
2023 |
||||||
| Operating activities |
$ | (145,182,897 | ) | $ | (113,627,945 | ) | ||
| Investing activities |
(14,053,838 | ) | (107,449,762 | ) | ||||
| Financing activities |
7,504,168 | 364,134,630 | ||||||
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 $145.2 million in the nine months ended June 30, 2024, a 28% increase from $113.6 million net cash used during the nine months ended June 30, 2023.
Cash Flows used in Investing Activities
To date, our cash flows used in investing activities have been comprised mainly of equipment purchases.
Net cash used in investing activities was $14.1 million in the nine months ended June 30, 2024, an 87% decrease from $107.4 million used in investing activities during the nine months ended June 30, 2023. The primary factor of the change was the acquisition of ELMS assets during the three months ended December 31, 2022.
Cash Flows provided by Financing Activities
Through June 30, 2024, we have financed our operations primarily through the issuance of convertible notes and equity securities.
Net cash provided by financing activities was $7.5 million for the nine months ended June 30, 2024, as compared to $364.1 million net cash obtained from financing activities for the nine months ended June 30, 2023, when we issued convertible notes in lieu of preferred shares. During the nine months ended June 30, 2024, we issued senior secured convertible notes and warrants in return for $12.5 million cash and fully settled a mortgage loan of $4.9 million.
Contractual Obligations and Commitments
The following tables summarize our contractual obligations and other commitments for cash expenditures as of June 30, 2024, and the years in which these obligations are due:
Operating Lease Commitments
| Scheduled |
||||
| Years Ended September 30, |
Payments |
|||
| 2024 (3 months) |
$ | 945,167 | ||
| 2025 |
6,500,102 | |||
| 2026 |
5,077,875 | |||
| 2027 |
5,029,859 | |||
| 2028 |
4,830,545 | |||
| Thereafter |
7,352,924 | |||
| Total Future Minimum Lease Payments |
$ | 29,736,472 | ||
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 by 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 preparing these financial statements, management applied critical estimates and assumptions while performing impairment tests 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.
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 tests performed by management during the nine months ended June 30, 2024, impairment was recognized in the financial statements: including $28.8 million for goodwill, $58.5 million for indefinite-lived in-process research and development assets, as well as $1.3 million for right-of-use assets. No additional material impairment was recognized during the last three months ended June 30, 2024. The impairment has been recognized primarily due to the present uncertainty of the availability of future funding required to support this segment and the decrease in the Company's market capitalization.
Critical accounting estimates for impairment of assets of the ELMS/Mullen segment
As a result of impairment tests performed by management during the nine months ended June 30, 2024, impairment was also recognized in respect of part of right-of-use assets in the amount of $1.9 million, as well as engineering design intangible assets with a carrying amount of $15.1 million which belong to the ELMS/Mullen segment. No additional material impairment was recognized during the last three months ended June 30, 2024. The primary reasons for the impairment of these assets were sales slower than expected and a decrease in the 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. 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
As of June 30, 2024, being the end of the period covered by this Quarterly Report, our management conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting as discussed in Item 9A. Controls and Procedures – in the Company’s Form 10-K for the fiscal year ended September 30, 2023, under the heading “Management’s Annual Report on Internal Control Over Financial Reporting”.
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 management must apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2024, management continued to commit resources to the remediation of the material weaknesses reported in the Company’s Form 10-K for the fiscal year ended September 30, 2023.
Except for the above, there were no other changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 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 nine months ended June 30, 2024, the Company used approximately $145.2 million of cash for operating activities.
The Company's principal source of liquidity consists of existing cash and restricted cash of approximately $4.0 million as of June 30, 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 discussing with potential financiers (see Note 21 - Subsequent events). 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. Still, we cannot assure you that any of our strategies will yield sufficient funds to meet our working capital or other liquidity needs. 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. We 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, which can force us to seek protection under 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:
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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; |
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it may become more difficult to retain, attract or replace key employees; |
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employees could be distracted from performance of their duties or more easily attracted to other career opportunities; and |
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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.
Our commitment to issue shares of common stock pursuant to the terms of the Convertible Notes, the ELOC Purchase Agreement, our preferred stock and Warrants could encourage short sales by third parties, which could contribute to the future decline of our stock price.
Our commitment to issue shares of common stock pursuant to the terms of the Notes, the ELOC Purchase Agreement, our preferred stock and Warrants has the potential to cause significant downward pressure on the price of our common stock. In such an environment, short sellers may contribute exacerbate any decline of our stock price. If there are significant short sales of our common stock, the share price of our common stock may decline more than it would in an environment without such activity. This may cause other holders of our common stock to sell their shares. If there are many more shares of our common stock on the market for sale than the market will absorb, the price of our common stock will likely decline.
Sale or issuance of our common stock pursuant to the ELOC may cause dilution and the sale of the shares of common stock acquired by the Investor, or the perception that such sales may occur, could cause the price of our common stock to fall.
The purchase price for the shares that we may sell to the Investor under the ELOC Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
Subject to the terms of the ELOC Purchase Agreement, we generally have the right to control the timing and amount of any future sales of our shares to the Investor. The extent to which we rely on the ELOC as a source of funding will depend on a number of factors, including the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources and other factors to be determined by us. We may ultimately decide to sell to the Investor all, some, or none of the shares of our common stock that may be available for us to sell pursuant to the ELOC Purchase Agreement. After the Investor has acquired shares, the Investor may resell all or some of those shares at any time or from time to time in its discretion. Therefore, sales to the Investor by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to the Investor, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in operating our manufacturing facilities.
Our operations are subject to international, federal, state and local environmental laws and regulations relating to the use, handling, storage, disposal of and exposure to hazardous materials and batteries. Environmental, health and safety laws and regulations are complex and evolving. For example, regulations regarding battery storage, recycling, disposal and processing are relatively new and the current lack of industry standards may increase our cost of compliance. Moreover, we may be affected by future amendments to such laws or other new environmental, health and safety laws and regulations which may require a change in our operations, potentially resulting in a material adverse effect on our business, prospects, results of operations and financial condition. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations could result in substantial fines and penalties, third-party damages, suspension of production or a cessation of our operations.
Contamination at properties we currently or will own and operate, we formerly owned or operated, that are adjacent or near our properties, or to which hazardous substances were sent by us, may result in liability for us under environmental laws and regulations, including, but not limited to the Comprehensive Environmental Response, Compensation and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on our financial condition or operating results. We may face unexpected delays in obtaining the required permits and approvals in connection with our manufacturing facilities that could require significant time and financial resources and delay our ability to operate these facilities, which would adversely impact our business prospects and operating results.
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 $50 million and a $18 million original issue discount was terminated (refer to Note 7—Debt for further information).
Settlement Agreement
On May 13, 2024, the Company entered into a Settlement Agreement and Stipulation (the “SAS”) with Silverback Capital Corporation (“SCC”), pursuant to which the Company agreed to issue common stock to SCC in exchange for the settlement of an aggregate of $4,623,655 (the “Settlement Amount”) to resolve outstanding overdue liabilities with different vendors. On May 29, 2024, the Circuit Court of the Twelfth Judicial Circuit in and for Manatee County, Florida (the “Court”), entered an order (the “Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act in accordance with a stipulation of settlement, pursuant to the SAS between the Company and SCC. SCC commenced action against the Company to recover the Settlement Amount of past-due obligations and accounts payable of the Company (the “Claim”), which SCC had purchased from certain vendors of the Company pursuant to the terms of separate receivable purchase agreements between SCC and each of such vendors. The Order provides for the full and final settlement of the Claim and the related action. The SAS became effective and binding upon execution of the Order by the Court on May 29, 2024. Pursuant to the terms of the SAS approved by the Order, the Company agreed to issue to SCC shares (the “Settlement Shares”) of the Company’s common stock. The price of the Settlement Shares is calculated as 75% of the average of the three lowest prices traded during the valuation period. The SAS provides that the Settlement Shares will be issued in one or more tranches, as necessary, sufficient to satisfy the Settlement Amount through the issuance of securities issued pursuant to Section 3(a)(10) of the Securities Act. Pursuant to the SAS, SCC may deliver requests to the Company for additional shares of common stock to be issued to SCC until the Settlement Amount is paid in full, provided that any excess shares issued to SCC will be cancelled. In connection with the SAS, the Company has issued 1,022,500 shares of common stock to settle a part of the liability up to June 30, 2024. Subsequent to June 30, 2024, up to August 8, 2024, the Company has issued an additional 1,644,200 shares of common stock.
The issuance of common stock to SCC pursuant to the terms of the Agreement approved by the Order is exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof, as an issuance of securities in exchange for bona fide outstanding claims, where the terms and conditions of such issuance are approved by a court after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear. The Agreement provides that in no event will the number of shares of common stock issued to SCC or its designee in connection with the Agreement, when aggregated with all other shares of common stock then beneficially owned by SCC and its affiliates (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder), result in the beneficial ownership by SCC and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and the rules and regulations thereunder) at any time of more than 4.99% of the common stock.
Director and Officer Trading Arrangements
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 June 30, 2024.
| Exhibit No. |
Description |
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| 3.1 |
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| 3.2 |
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| 4.1 |
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| 10.1* |
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| 10.2 |
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| 10.3 |
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| 10.3(a) |
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| 10.3(b) |
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| 10.3(c) |
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| 10.4 |
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| 10.5 |
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| 10.6 |
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| 31.1* |
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| 31.2* |
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| 32.1* |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350 |
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| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) |
* Filed herewith (furnished herewith with respect to Exhibit 32.1).
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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| August 12, 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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