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. This discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the heading "Risk Factors" in Part I, Item 1A of this Report. Certain amounts in this section may not foot due to rounding.
In connection with the Merger Agreement (as defined below), and as disclosed in
our Current Report on Form 8-K filed with the
fiscal year end has changed from
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our fiscal year ended
indicated, references to our fiscal year 2022 and prior years mean the
fiscal year ended on
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary,Mullen Investment Properties, LLC , and its 60% owned subsidiary,Bollinger Motors . Intercompany accounts and transactions have been eliminated, if any. The financial statements reflect the consolidated financial position and results of operations of Mullen, which have been prepared in accordance with Generally Accepted Accounting Principles inthe United States As a result, we expect that the financial results of our reports for the periods after we begin commercial operations will not be comparable to the financial results included in this Annual Report.
Components of Results of Operations
We are an early-stage company, and our historical results may not be indicative
of our future results for reasons that may be difficult to anticipate.
Accordingly, the drivers of our future financial results, as well as the
components of such results, may not be comparable to our historical or projected
results of operations.
Revenues
We do not currently generate any revenue. Once we commence production and
commercialization of our vehicles, we expect that most of our revenue will be
initially derived from direct sales of cargo vans, Class 4 through 6 delivery
vehicles, and Sport Utility Vehicles ("SUVs").
Cost of Goods Sold
To date, we have not recorded cost of goods sold, as we have not recorded commercial revenue. Once we commence the commercial production and sale of our EVs, we expect cost of goods sold to include mainly vehicle components and parts, including batteries, direct labor costs, amortized tooling costs, and reserves for estimated warranty expenses.
General and Administrative Expense
General and administrative ("G&A") expenses include all non-production expenses
incurred by us in any given period. This includes expenses such as professional
fees, salaries, rent, repairs and maintenance, utilities and office expense,
employee benefits, depreciation and amortization, advertising and marketing,
settlements and penalties, taxes, licenses and other expenses. Advertising costs
are expensed as incurred and are included in G&A expenses. We expense
advertising costs as incurred in accordance with ASC 720-35, "Other Expenses -
Advertising Cost."
Research and Development Expense
To date, our research and development expenses have consisted primarily of external engineering services in connection with the design of our initial EV and development of the first prototype. As we ramp up for commercial operations, we anticipate that research and development expenses will increase for the foreseeable future as we expand our hiring of engineers and designers and continues to invest in new vehicle model design and development of technology.
Income Tax Expense / Benefit
Our income tax provision consists of an estimate for
income taxes based on enacted rates, as adjusted for allowable credits,
deductions, uncertain tax positions, changes in deferred tax assets and
liabilities, and changes in the tax law. We maintain a valuation allowance
against the full value of our
believe the recoverability of the tax assets is not more likely than not.
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Results of Operations
Comparison of the Year Ended
2021
The following table sets forth our historical operating results for the periods
indicated:
Year Ended
September 30,
2022 2021 $ Change % Change
(dollar amounts, except percentages)
Operating costs and expenses:
Research & development $ 21,650,840 $ 3,009,027 $ 18,641,813 620 %
General and administrative 75,338,256 19,393,141 55,945,115 288 %
Total operating costs and expenses 96,989,096 22,402,168
74,586,928 333 % Loss from operations (96,989,096) (22,402,168) (74,586,928) 333 % Other income (expense):
Loss on disposal of fixed assets (50,574) - (50,574) - % Other financing costs - (1,559,961) 1,559,961 100 % Gain on extinguishment of indebtedness, net 33,413 890,581 (857,168) (96) % Penalty for insufficient authorized shares (3,495,000) - (3,495,000) - % Revaluation of warrant liabilities (122,803,715) - (122,803,715) - % Other financing costs - initial recognition of warrant liabilities (484,421,258) - (484,421,258) - % Other income (expense), net (5,647,841) - (5,647,841) - % Interest expense (26,949,081) (21,168,232) (5,780,849) (27) % Total other income (expense) (643,334,056) (21,837,612) (621,496,444) 2,846 % Net loss before income taxes$ (740,323,152) $ (44,239,780)
Provision for income tax $ 1,600 800
800 - Net Loss$ (740,324,752) $ (44,240,580) $ (696,084,172) 1,573 % Net loss attributable to non-controlling interest 791,946 - 791,946 100 % Net loss attributable to Mullen Automotive Shareholders$ (739,532,806) $ (44,240,580)
Less; Preferred dividends (40,516,440) - (40,516,440) - % Net loss attributable to shareholders less preferred dividends$ (780,049,246) $ (44,240,580)
Research and Development
Research and development expenses increased by approximately$18.6 million or 620% from approximately$3.0 million through the twelve months endedSeptember 30, 2021 , to approximately$21.7 million through the twelve months endedSeptember 30, 2022 . During the year, there was minimal activity due to the COVID-19 pandemic. Research and Development costs are expensed as incurred. Research and development expenses primarily consist of the Mullen FIVE EV show car development and are primarily comprised of personnel-related costs for employees and consultants.
General and Administrative
General and administrative expenses increased by approximately$55.9 million or 288% from approximately$19.4 million in the twelve months endedSeptember 30, 2021 , to approximately$75.3 million in the twelve months endedSeptember 30 , 49 Table of Contents
2022, primarily due to increases in professional services, marketing, and
payroll related expenses with the growth of personnel and resources.
Interest Expense
Interest expense increased by approximately$5.8 million or 27% from approximately$21.2 million through the twelve months endedSeptember 30, 2021 , to approximately$26.9 million through the twelve months endedSeptember 30, 2022 , primarily due to an increase in convertible debt.
Gain on extinguishment of debt
During
the CARES Act loan forgiveness amount of
interest on
Net Loss
Net loss was$740.3 million for the twelve months endedSeptember 30, 2022 , an increase of$696.1 million or 1,573% from$44.2 million in the twelve months endedSeptember 30, 2021 .
Liquidity and Capital Resources
To date, we have yet to generate any revenue from our business operations. We have funded our capital expenditure and working capital requirements through the sale of equity and debt securities, as further discussed below. Our ability to successfully commence commercial operations and expand our business will depend on many factors, including our working capital needs, the availability of equity or debt financing and, over time, our ability to generate cash flows from operations.
As of
amounted to approximately
approximately
Debt
To date, our current working capital and development needs have been primarily funded through the issuance of convertible indebtedness, convertible preferred stock and Common Stock. Short-term debt comprises a component of our funding needs. Short-term debt is generally defined as debt with principal maturities of one-year or less. Long-term debt is defined as principal maturities of one
year or more. Short and Long-Term Debt
The short-term debt classification primarily is based upon loans due within
twelve-months from the balance sheet date, in addition to loans that have
matured and remain unpaid. Management plans to renegotiate matured loans with
creditors for favorable terms, such as reduce interest rate, extend maturities,
or both; however, there is no guarantee favorable terms will be reached. Until
negotiations with creditors are resolved, these matured loans remain outstanding
and will be classified within short-term debt on the balance sheet. Interest and
fees on loans are being accounted for within accrued interest. The loans are
secured by substantially all the Company's assets. Several principal
shareholders have provided loans to and hold convertible debt of the Company and
are related parties.
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The following is a summary of our debt as of
Net Carrying Value
Unpaid Principal Contractual
Type of Debt Balance Current Long-Term Interest Rate Maturity
Matured Notes $ 3,051,085 $ 3,051,085 $ - 0.00 - 10.00 % 2019-2021
Promissory Notes 1,096,787 - 1,096,787 28 % 2024
Real Estate Note 5,247,612 247,612 5,000,000 5.0 - 8.99 % 2023 - 2024
Loan Advances 557,800 557,800 - 0.00 - 10.00 % 2016 - 2018
Less: Debt Discount (932,235) - (932,235) NA NA
Total Debt $ 9,021,049 $ 3,856,497 $ 5,164,552 NA NA
Cash Flows
The following table provides a summary of Mullen’s cash flow data for the years
ended
Years Ended September 30,
Net cash provided by (used in): 2022 2021
Operating activities $ (65,795,610) $ (17,522,115)
Investing activities (47,154,109) (161,783)
Financing activities 197,282,630 17,692,704
Cash Flows used in Operating Activities
Our cash flow used in operating activities to date has been primarily comprised of costs related to research and development, payroll and other general and administrative activities. As we continue to ramp up hiring ahead of starting commercial operations, we expect our cash used in operating activities to increase significantly before we start to generate any material cash flow from our business. Net cash used in operating activities was$65.8 million in the twelve months endedSeptember 30, 2022 , an increase from$17.5 million net cash used in the twelve months endedSeptember 30, 2021 . Net losses for the year endedSeptember 30, 2022 , were$740.3 million offset by non-cash operating activities of$484.4 million financing loss on warrants and$122.8 on revaluation of warrant liabilities. Stock based compensation for employees, directors and consultants totaled$43.7 million .
Cash Flows used in Investing Activities
Our cash flows used in investing activities, to date, have been comprised mainly of purchases of equipment and have not been material. We expect these costs to increase substantially in the near future as we ramp up activity ahead of commencing commercial operations.
Net cash used in investing activities was
the year ended
outflows was the
Cash Flows provided by Financing Activities
Through
the issuance of convertible notes and equity securities.
Net cash provided by financing activities was$197.3 million for the year endedSeptember 30, 2022 primarily due to issuance of preferred shares, as compared to$17.7 million net cash provided by financing activities for the year endedSeptember 30, 2021 , which included (i)$12.2 million net proceeds from issuance of notes payable; (ii)$42.3 million in net proceeds from issuance of Common Stock; (iii)$142.9million in proceeds to issue Preferred C and D shares. 51
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Contractual Obligations and Commitments
The following tables summarizes our contractual obligations and other
commitments for cash expenditures as of
which these obligations are due:
Operating Lease Commitments
Scheduled
Years Ended September 30 , Payments
2023 $ 2,820,060
2024 2,706,912
2025 2,082,614
2026 243,539
2027 15,173
2028 and Thereafter -
Total Future Minimum Lease Payments
We currently lease our headquarters space in the
lease classified as an operating lease expiring in
executed any binding agreement for leases beyond 2026.
Scheduled Debt Maturities
The following are scheduled debt maturities as of
Years Ended September 30,
2023 2024 2025 2026 2027 2028 Thereafter Total
Total Debt $ 3,856,497 $ 5,164,552 $ - $ - $ - $ - $ - $ 9,021,049
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, as defined under
rules.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance withU.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.
Stock-Based Compensation and Common Stock Valuation
We recognize the cost of share-based awards granted to employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. Our management reverses previously recognized costs for unvested options in the period that forfeitures occur. Mullen determines the fair value of stock options using the Black-Scholes option pricing model, which is impacted by the following assumptions:
? Expected Term-We use the simplified method when calculating the expected term
due to insufficient historical exercise data.
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Expected Volatility-As our shares were not actively traded during the periods
? presented, the volatility is based on a benchmark of comparable companies
within the automotive and energy storage industries.
Expected Dividend Yield-The dividend rate used is zero as we have never paid
? any cash dividends on Common Stock and does not anticipate doing so in the
foreseeable future.
Risk-Free Interest Rate-The interest rates used are based on the implied yield
? available on
equal to the expected life of the award.
Common Stock Valuations
The grant date fair value of our Common Stock (pre-merger withNet Element ) was typically determined by our board of directors with the assistance of management and a third-party valuation specialist. Given our pre-revenue stage of development, management believed that an Option Pricing Model ("OPM") was the most appropriate method for allocating enterprise value to determine the estimated fair value of our Common Stock. Application of the OPM involved the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Once Mullen's stock became publicly traded, the Board of Directors elected to determine the fair value of our post-merger Common Stock based on the closing market price the day before the date of grant. Warrant Valuations
Management determined the fair value of the warrant liability for Series C warrants on recognition date and on subsequent dates 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 conditions. At each warrant exercise date and each accounting period end the warrant liability for the remaining unexercised warrants is marked-to-market value and the resulting gain or loss is recorded. The contracts for the Series D Warrants contain cashless exercise provisions similar to Series C Warrants described above. Therefore, Management applied similar accounting treatment to recognition, measurement and presentation of the warrant liabilities.
Recent Accounting Pronouncements
Accounting standard updates issued but not yet added were assessed and
determined to be either not applicable or not expected to have a material impact
on our consolidated financial statements.
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