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DEFICIENCY IN STOCKHOLDERS' EQUITY
 12 Months Ended
Sep. 30, 2022
DEFICIENCY IN STOCKHOLDERS' EQUITY  
DEFICIENCY IN STOCKHOLDERS' EQUITY

NOTE 8 –DEFICIENCY IN STOCKHOLDERS’ EQUITY

The accompanying financial statements include a retrospective recapitalization to reflect the composition of stockholder’s equity, as if they had existed for the periods presented.

Preferred Stock

On November 5, 2021, the Company filed an Amended and Restated Certificate of Incorporation, which includes the rights and privileges of Preferred Stock Series A, Series B, and Series C. Under the terms of our Certificate of Incorporation, the Board of Directors may determine the rights, preferences and terms of our authorized but unissued shares of preferred stock.

On September 19, 2022, the Company entered into Amendment No. 2 to the Series D SPA, which amendment provided for the sale of $35 million of the Series D Preferred Stock (the “Initial Purchase”) at a purchase price per share equal to the lower of (i) $1.27 or (ii) the closing price of the Common Stock on the trading day immediately after the date on which the registration statement becomes effective. For every share of Series D Preferred Stock purchased in the Initial Purchase, such investor also received Warrants exercisable into Common Stock at a rate of 185% of the shares of Common Stock initially issuable upon conversion of the Series D Preferred Stock purchased by such investor.

The Company issued to the investors 79,926,925 shares of Series D Preferred Stock, par value $0.001 per share, and 147,864,810 warrants exercisable for shares of Common Stock on cash or cashless basis.  The shares of common stock issuable upon conversion of the Series D Preferred Stock and issuable upon exercise of the warrants were registered for resale on a FormS-3 Registration Statement filed with the Securities and Exchange Commission (the “SEC”) on September 19, 2022.  The Company also filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the "Certificate of Designation") with the Secretary of State of the State of Delaware. The Certificate of Designations provides for the issuance of up to 87,500,001 shares of Series D Preferred Stock. 

​

Holders of our Series D Preferred Stock have no voting rights except in a liquidation event, issuance of equity security having a preference over the Series D Preferred Stock, amendment of the Company’s Certificate of Incorporation or bylaws that adversely affect the rights of the Series D Preferred Stock, and corporate dissolution or bankruptcy, each as set forth in Section 8 of the Certificate of Designation for Series D Preferred Stock. To the extent the holder of a share of Series D Preferred Stock is entitled to vote on a matter pursuant to Section 8, then the holder of each share of Series D Preferred Stock has the right to one vote for each share.

​

At September 30, 2022, the Company had 500,000,000 shares of Preferred Stock authorized with $0.001 par value per share. There were 1,924 shares of Series A Preferred Stock, 1,360,321 shares of Series C Preferred Stock, and 4,359,652 shares of Series D Preferred Stock as of September 30, 2022. There were 100,363 shares of Series A Preferred Stock and 5,567,319 shares of Series B Preferred Stock as of September 30, 2021.

​

Dividends

The holders of Series A Preferred Stock 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 shall participate on a pro rata basis (on an “as converted” basis to common stock) in any cash dividend paid on common stock. No dividends have been declared or paid during the twelve months ending September 30, 2022 and 2021.

The Series C Preferred Stock bears a 15.0% per annum fixed dividend accumulated and compounded monthly, payable no later than the 5th day after the end of each month on the Series C Original Issue Price plus unpaid accrued and accumulated

dividends (See Note 20 – Subsequent Events). Dividends on the Series C Preferred Stock are payable prior to any dividends on any other series of Preferred Stock or the Common Stock. The balance was approximately $7.5 million at September 30, 2022.

The Company may elect to pay dividends for any month with a paid-in-kind election (“PIK”) if (i) the shares issuable further to the PIK are subject to an effective registration statement, (ii) the Company is then in compliance with all listing requirements of NASDAQ and (iii) the average daily trading dollar volume of the Company’s Common Stock for 10 trading days in any period of 20 consecutive trading days on the NASDAQ is equal to or greater than $2.0 million.

The Series D Preferred Stock bears a 15.0% per annum fixed dividend accumulated and compounded monthly, payable no later than the 5th day after the end of each month on the Series D Original Issue Price plus unpaid accrued and accumulated dividends. Dividends on the Series D Preferred Stock will be prior to any dividends on any other series of Preferred Stock or the Common Stock. The balance was approximately $0.3 million at September 30, 2022.

The Company may elect to pay dividends for any month with a paid-in-kind 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 ten trading days in any period of twenty consecutive trading days on the NASDAQ is equal to or greater than $27.5 million.

Redemption Rights

There is no mandatory redemption date, but, subject to the conditions set forth below, all, but not less than all, of the shares are redeemable by the Company at any time, provided that if the Company issues notice to redeem, holders of Series C Preferred Stock and holders of Series D Preferred Stock shall have 15 days to convert such shares to common stock prior to the date of redemption.

In addition to the above, the shares of Series C Preferred Stock are also redeemable by the Company in accordance with the following schedule provided the issuance of shares of common stock underlying the shares has been registered and the registration statement remains effective:

Year 1: No Redemption

Year 2: Redemption at 120% of the Series C Redemption Price

Year 3: Redemption at 115% of the Series C Redemption Price

Year 4: Redemption at 110% of the Series C Redemption Price

Year 5: Redemption at 105% of the Series C Redemption Price

Year 6 and thereafter: Redemption at 100% of the Series C Redemption Price

The Series D Preferred Stock may be redeemed by the Company  subject to the following  conditions: (i) the shares have been issued and outstanding for at least one year, (ii) the issuance of the shares of common stock underlying the shares has been registered pursuant to the Securities Act and the registration statement is effective, and (iii) the trading price for the common stock is less than the Series D Conversion Price (as such term is defined in the Certificate of Designation) for 20 trading days in any period of 30 consecutive trading days on the Nasdaq CM. In addition to the above, the shares will also be redeemable in accordance with the following schedule provided the issuance of shares of Common Stock underlying the shares has been registered and the registration statement remains effective:

Year 1: No Redemption

Year 2: Redemption at 120% of the Series D Redemption Price

Year 3: Redemption at 115% of the Series D Redemption Price

Year 4: Redemption at 110% of the Series D Redemption Price

Year 5: Redemption at 105% of the Series D Redemption Price

Year 6 and thereafter: Redemption at 100% of the Series C Redemption Price

Liquidation

Subject to applicable law, in the event of any Liquidation Event (as defined in the Certificate of Incorporation), the holders of 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 Price (as defined in the Certificate of Designation), plus declared but unpaid dividends. The holders of the Series B Preferred Stock will then be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of the other series of Preferred Stock or the Common Stock by reason of their ownership thereof, an amount per share equal to the Series B Original Issue Price plus declared but unpaid dividends. The holders of the Series C Preferred Stock will then 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 plus declared but unpaid dividends. Upon completion of the distribution to the Series B Preferred Stock and Series C Preferred Stock, the holders of the Series A Preferred Stock will be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of the Common Stock by reason of their ownership thereof, $1.29 per share for each share of Series A Preferred Stock (subject to adjustment), plus declared and unpaid dividends, Thereafter, any remaining proceeds will be distributed to holders of the Common Stock ratably in proportion to the number of shares of Common Stock held by them.

Conversion

Each share of Series A Preferred Stock is convertible at any time at the option of the holder into one hundred shares of fully paid and non-accessible shares of Common Stock. 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 fully paid and nonassessable shares of Common Stock as is determined by dividing the Series B Original Issue Price of $8.84 or Series C Original Issue Price of $8.84 (plus all unpaid accrued and accumulated dividends thereon, as applicable, whether or not declared), by the Series B Conversion Price or Series C Conversion Price, as applicable (in each case, subject to adjustment).  As of September 30, 2022, each share of Series B Preferred Stock and each share of Series C Preferred Stock are convertible into one share of Common Stock.

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.  The "Series D Original Issue Price" for each share of the Series D Preferred Stock means the lower of (i) $1.27 or (ii) the closing price on the Trading Day immediately preceding the Purchase Notice Date.

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 this corporation’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 this corporation’s Common Stock during such 20 trading days is equal to or greater than $4.0 million.

Each share of Series B Preferred Stock will automatically be converted into shares of Common Stock at the applicable conversion rate at the time in effect immediately upon the earlier of (i) this corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 or Form S-3 under the Securities Act of 1933, as amended, the public offering price of which was not less than $100,000,000 in the aggregate (a “Qualified Public Offering”) or (ii) the date specified by written consent or agreement of the holders of the then outstanding shares of Series B Preferred Stock.

Each share of Series A Preferred Stock will automatically be converted into shares of Common Stock on a 100-for-1 basis (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the like with respect to the Common Stock) upon the earlier of (i) a Qualified Public Offering or (ii) the date specified by written consent or agreement of the holders of the then outstanding shares of Series A Preferred Stock.

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 $27,500,000.

Voting Rights

The holders of shares of Common Stock and Preferred Stock shall at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders; provided, however, that, any proposal which adversely affects the rights, preferences and privileges of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D 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, Series C Preferred Stock and Series D Preferred Stock have the right to one vote per share (on a fully converted basis) held of record by such holder and each holder of Series A Preferred have the right to 1,000 votes per share held of record by such holder.

Common Stock

At September 30, 2022, the Company had 1,750,000,000 shares of common stock authorized with $0.001 par value per share. There were 833,468,180 shares and 7,048,387 shares of common stock issued and outstanding at September 30, 2022 and 2021, respectively.

Amendments to Anti-Dilution Provisions of Preferred Stock

On January 31, 2022, the Company received stockholder approval by the written consent of a majority of our stockholders approving, and on January 31, 2022, filed a preliminary information statement of Schedule 14C with the SEC, seeking to ratify, the filing of a Certificate of Amendment to the Amended and Restated Certificate of Incorporation to increase the conversion price of the Series B Preferred Stock and Series C Preferred Stock from $0.6877 per share to $8.84 per share. The Certificate of Amendment was adopted to honor the terms set forth in the Merger Agreement, pursuant to which the Company agreed to issue shares of Series B Preferred Stock and Series C Preferred Stock to holders of Series B Preferred Stock and Series C Preferred Stock of Mullen Technologies, Inc. at a ratio of 1 for 12.846. Upon issuance of the preferred stock at such ratio a corresponding adjustment should have been made to the conversion price of such Series B Preferred Stock and Series C Preferred Stock and such adjustment should have been reflected in the Amended and Restated Certificate of Incorporation that was filed after the closing of the Merger. A Certificate of Amendment effecting the Amendments was filed on March 8, 2022.

Additional Investment Rights

Certain selling stockholders of the Company have the right to purchase additional shares of Series C Preferred Stock and warrants. Until November 5, 2022, (a) pursuant to the Exchange Agreement certain investors have the right to purchase additional up to 2,336,690 shares of Series C Preferred Stock and up to 7,010,093 warrants and (b) the investor under the $20 Million SPA (as defined below) has the right to purchase up to 2,637,524 shares of Series C Preferred Stock and up to 7,912,574 warrants, at the same price as the original securities purchased and on the same terms and conditions.

​

Additional Securities Purchase Agreement and Related Warrants

​

One of the noteholders and Mullen Technologies entered into an additional Securities Purchase Agreement (the “$20 Million SPA”) dated as of May 7, 2021, providing for the purchase of 29,082,449 shares of Series C Preferred Stock of Mullen Technologies (the “Purchase Shares”) at a price per share equal to $0.6877 per share, and five-year warrants to purchase, at no additional cost, 75,990,980 shares of common stock of Mullen Technologies at an exercise price $0.6877 per share. The investor may also purchase until November 5, 2022 an additional $40 million of Series C Preferred Stock with similar warrant coverage. The exercise price of these warrants is subject to adjustment in accordance with their terms.

​

At the effective time of the Merger, (i) each of the Purchase Shares were canceled and converted automatically into the right to receive 0.078 shares of the Series C Preferred Stock, and (ii) each of the warrants to purchase Mullen Technologies common stock were canceled and converted automatically into a warrant exercisable for shares of common stock of the Company.

​

Warrants

The following table summarizes warrant activity for the years ended September 30, 2022, and 2021:

​

​

​

​

​

​

​

    

Common Stock 

    

Weighted Average 

​

​

Shares

​

Exercise Price

Warrants outstanding at September 30, 2021

 

4,924,452

​

$

8.84

Warrants exercised

 

(46,873,726)

​

$

8.84

Warrants granted

 

192,785,950

​

$

2.39

Warrants expired

 

—

​

$

—

Warrants outstanding at September 30, 2022

 

150,836,676

​

$

0.60

​

​

​

​

​

​

​

​

​

Common Stock 

​

Weighted Average

​

    

Shares

    

Exercise Price

Warrants outstanding at September 30, 2020

​

540,905

​

$

0.69

Warrants exercised

​

—

​

$

—

Warrants granted

​

4,480,855

​

$

0.69

Warrants expired

​

(97,308)

​

$

0.69

Warrants outstanding at September 30, 2021

​

4,924,452

​

$

0.69

​

2021 Warrants

The warrants in the amount of 4,924,447 as of September 30 (and 540,905 warrants outstanding on September 30, 2020) were valued under Black Scholes method and recorded as debt discount and were being amortized over the remaining life of relevant convertible debt. The warrants had five-year exercise period and weighted average exercise price of $0.69. No

warrants were exercised during 12 months ended September 30, 2021. These pre-merger warrants were exchanged for Preferred C warrants upon the completion of the reverse acquisition, see below.

​

​

​

​

​

​

​

    

September 30, 2022

 

Expected term (in years)

 

​

4.0

​

Volatility

 

​

—

%

Dividend yield

 

​

0.00

%

Risk-free interest rate

 

​

0.78

%

Common stock price

 

$

0.69

​

​

The allocation of the fair value of these warrants was included as a discount of the Series C and D Preferred Stock  on the consolidated balance sheet and amortized to discount expense immediately upon issuance since the preferred stock has no stated maturity.

2022 Warrants

Preferred C warrants

The exercise price of pre-merger Warrants was adjusted as provided in the warrants and further in accordance with the Merger Agreement such that the exercise price became $8.834 per share upon the closing of the reverse acquisition on November 9, 2021. At the effective time of the Merger, each of the warrants to purchase Mullen Technologies common stock were canceled and converted into a warrant exercisable for shares of common stock of the Company. The warrants are exercisable for a five-year period commencing upon conversion.

Along with the cash exercise option (at $8.834) these warrants had a cashless exercise option based on certain formula established by relevant contracts. Under the cashless exercise provision of the warrants, the number of shares to be issued upon exercise is determined based on a calculated derived dollar amount.

Under ASC 480-10, a freestanding financial instrument (such as a warrant) is required to be accounted for a liability if it may be settled with a variable number of shares of monetary value of which is based solely or predominantly on a variable inversely related to the fair value of the issuer’s shares.

Therefore, Management determined that the cashless option of the warrants precluded recognition as an equity instrument and all the warrants issued attached to Preferrable Series C Stock have been recognized at fair value with subsequent revaluation through earnings.

Management determined fair value of the warrant liability 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.

The initial financial costs recorded upon the issuance of the Preferred C warrants was $429,883,573. This amount is comprised of $137,090,205 preferred stock discount (amortized immediately as the preferred stocks do not have a stated term of life) and $292,793,368 finance costs (calculated as the difference between fair value of warrant liabilities recognized and the preferred stock discount).

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. A mark-to-market net loss of $121,153,249 was recorded for the year ended September 30, 2022.

On February 10, 2022, the Company entered into amendments to the Prior SPAs. Pursuant to these amendments, the terms of the Prior SPA Warrants were amended, resulting in a change to the calculated derived dollar amount. The effect of these changes in amount of $ 32,735,345 has been accounted for as deemed dividends on preferred stock and decreased additional paid-in capital of the Company.

During the year ended September 30, 2022 41,949,279 Preferred C warrants were exercised on a cashless basis under which 533,214,489 shares of common stock were issued, with a total fair market value of $554,371,539 at the date of exercise.

At September 30, 2022, 2,973,276 Preferred C warrants remain outstanding which, if on a cashless basis, could be exercised for 89,092,811 shares of common stock with a fair market value of $29,400,627 at September 30, 2022.

​

​

​

​

​

​

​

    

September 30, 2022

 

Expected term (in years)

 

​

5.0

​

Volatility

 

​

34.14

%

Dividend yield

 

​

0.00

%

Risk-free interest rate

 

​

4.06

%

Common stock price

 

$

0.33

​

​

Preferred D warrants

For every share of Series D Preferred Stock purchased, the investors received 185% warrants exercisable for shares of Common Stock at an exercise price equal to the lower of (i) $1.27 or (ii) the closing price of the Common Stock on the trading day immediately after the date on which the registration statement registering the shares of Common Stock issuable upon conversion of the Series D Preferred Stock becomes effective ($0.4379 on transaction date). The warrants are exercisable for a five-year period commencing upon issuance.

The contracts for these 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.

Initial financial costs recorded upon the issuance of the Preferred D warrants were $54,537,685. A mark-to-market net loss of $860,866 was recorded for the year ended September 30, 2022.

During the year ended September 30, 2022 no Preferred D warrants were exercised. At September 30, 2022, 147,864,810 Preferred D warrants remain outstanding which, if on a cashless basis, could be exercised for 167,874,398 shares of common stock with a fair market value of $55,398,551 at September 30, 2022.

​

​

​

​

​

​

​

    

September 30, 2022

 

Expected term (in years)

 

​

5.0

​

Volatility

 

​

34.14

%

Dividend yield

 

​

0.00

%

Risk-free interest rate

 

​

4.06

%

Common stock price

 

$

0.33

​

​

Other Warrants

​

CEOcast $15 Million Notes Receivable Warrants

​

On October 8, 2021, the Company entered into an agreement with CEOcast, Inc., whereby CEOCast, Inc. purchased warrants to acquire shares of Company common stock for $15 million. The warrant price was paid via issuance of a $15 million promissory note.   During the third quarter of 2022, the Company received $15 million cash collected on the promissory note and issued 14,343,550 shares of the Company’s common stock upon the exercise of these warrants.

​

$10.5 Million Warrant Issuance

​

During 2021, the company received $10.5 million in cash for issuance of 154,592 warrants, which were converted into 2,193,533 shares of the Company’s common stock upon exercise of these warrants.

​

Company management evaluated the terms of these warrant for classification and accounting under the provisions of ASC 815-40 and determined the warrants met treatment as equity.