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ACQUISITION OF BOLLINGER MOTORS, INC.

12 Months Ended

Sep. 30, 2022

ACQUISITION OF BOLLINGER MOTORS, INC.

ACQUISITION OF BOLLINGER MOTORS, INC.

NOTE 4 – ACQUISITION OF BOLLINGER MOTORS, INC.

On September 7, 2022, the Company acquired, through a series of purchase agreements, 544,347 shares of common stock of Bollinger Motors, Inc. (“Bollinger Motors”), representing approximately 60% of the outstanding shares. Purchase accounting is open with respect to taxes until all tax basis information can be gathered.

The following table summarizes the preliminary purchase price consideration to acquire Bollinger Motors:


Cash consideration	$	75,000,000
Cash consideration- deferred		32,000,000
Stock consideration (book value of $41.2 million)		41,577,647
Total Consideration	$	148,577,647

Total consideration of $148.6 million was paid or payable to Bollinger Motors and Bollinger shareholders as follows:

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Cash consideration due to Bollinger Motors is approximately $107 million, of which $75 million was paid at closing and $32 million is to be paid in five installments through August 5, 2023. The Company deposited $32 million into an escrow account on November 29, 2022 to fulfill the five installment amount.

●

Stock consideration due to Bollinger shareholders is 63,599,876 shares of the Company’s Common Stock valued at approximately $41.6 million.

The Company has determined that the acquisition of Bollinger Motors constitutes a business acquisition as defined by ACS 805, Business Combinations. Accordingly, the assets acquired, and the liabilities assumed in the transaction were recorded at their acquisition date estimated fair value, while the transaction costs associated with the acquisition were expensed as incurred pursuant to the purchased method of accounting in accordance with ASC 805. The Company’s purchase price allocation was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data. Fair values are determined based on the requirements of ASC 820, Fair Measurements and Disclosure.

The following table summarizes the allocation of fair value of assets acquired and liabilities assumed:


Purchase Consideration
Cash and debt consideration	$	107,000,000
Stock consideration		41,577,647
Total consideration received for 60% of Bollinger		148,577,647
Noncontrolling interest (40%)		99,051,765
Consideration transferred including noncontrolling interest	$	247,629,412


Allocation of Purchase Consideration
Cash and restricted cash	$	77,238,086
Other current assets		867,112
Fixed assets		1,009,662
Goodwill		92,479,704

Intellectual property		58,304,612
Patents		32,391,186
Trademarks		1,075,048
Non-compete agreements		745,947
Other non-current assets		246,896
Accounts payable		(638,752)
Refundable deposits		(213,679)
Deferred tax liability		(14,882,782)
Other current liabilities		(993,628)
Estimated fair value of 100% of net assets acquired	$	247,629,412

As a result of the acquisition transaction, Mullen acquired controlling interest of Bollinger. Acquired intellectual property, patents and non-compete agreements have finite life. The finite-lived intangible assets will be amortized using the straight-line method of the respective lives of each asset. Below are the acquired intangibles with their relative useful lives and method of amortization:


Intangible Asset		Useful Life		Amortization Method
Intellectual property		10 years		Straight-line
Patents		10 years		Straight-line
Trademarks		10 years		Straight-line
Non-compete agreements		5 years		Straight-line

Valuation Methodology

The fair value of Intellectual Property was determined using the Relief from Royalty Method. This method was applied to the core intellectual property of Bollinger Motors consisting of the designs, trademarks and processes. Under the MPEEM, the Company determines free cash flows for a group of assets, and then adjusts it for a contributory charge for the use of other identifiable tangible and intangible assets. The present value of the resulting excess cash flows is adjusted for any tax benefits and the resulting amount represents the fair value of the intangible asset.

The fair value of the Company’s patents was determined using the Relief from Royalty Method. The method considers what a purchaser could afford, or would be willing to pay, for a license of similar intellectual property rights. The royalty stream is then capitalized reflecting the risk and return relationship of investing in the asset. The Company used 5% as an initial royalty rate, gradually decreasing it to 1% over 10 years in 2031 to reflect technological obsolescence.

The non-compete agreement was valued using a discounted cash flow with and without method. Under this method, estimated enterprise value is calculated with non-complete clauses and compared to the enterprise value in the absence of the clauses. Estimated enterprise value is determined as present value of future cash flows. The after-tax differential of enterprise value is adjusted for the probability, reflecting specific facts and circumstances.

As part of application of the above methods, the annual discount rate used to determine the present value of future cash flows varied between 40% and 42%.

Assumptions used in forecasting cash flows and determining the fair value for each of the identified intangible asset included consideration of the following:

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Historical performance of the assets, sales and profitability

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Estimation of the economic life of the assets

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Risk profile of an individual assets

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Business prospects and industry expectations

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Amortization benefits on intangible assets

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Acquisition of new customers.

Supplemental pro forma information

The following supplemental pro forma information summarizes the Company’s results of operations for the current reporting period, as if the Company completed the acquisition as of the beginning of the annual reporting period.

Supplemental pro forma information is as follows:


		Year ended September 30,
		2022		2021
Total Revenues		—		—
Net loss		(753,916,185)		(57,647,534)