MULLEN AUTOMOTIVE INC. MANAGEMENT REPORT ON THE FINANCIAL POSITION AND OPERATING RESULTS. (form 10-K)


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
contains 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 SEC on November 12, 2021, our
fiscal year end has changed from December 31 to September 30, effective for our
fiscal year ended September 30, 2021. As a result, and unless otherwise
indicated, references to our fiscal year 2021 and prior years mean the
fiscal year ended on September 30 of such year.

Presentation basis


As a pre-revenue company with no commercial operations, our activities to date
have been limited and were conducted primarily in the United States and our
historical results are reported under accounting principles generally accepted
in the United States ("GAAP" or "U.S. GAAP") and in United States ("U.S.")
dollars. Upon commencement of commercial operations, we expect to expand our
operations substantially into the European Union ("E.U.") and, as a result, we
expect our future results to be sensitive to foreign currency transaction and
translation risks and other financial risks that are not reflected in our
historical financial statements. As a result, we expect that the financial
results our reports for periods after we begin commercial operations will not be
comparable to the financial results included in this Annual Report.

Components of the 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.

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Revenues

We have not begun commercial operations and do not currently generate any
revenue. Once we commence production and commercialization of our vehicles, we
expect that the significant majority of our revenue will be initially derived
from direct sales of Sport Utility Vehicles ("SUVs") and, subsequently, from
flexible leases of our electric vehicles ("EVs").

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 costs


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 costs

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 Charge / Benefit

Our provision for income taxes consists of an estimate of we Federal and state income taxes based on prevailing rates, adjusted for qualifying credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in tax legislation. We maintain a valuation allowance on the full value of our we and disclose the net deferred tax assets because we believe that the collectibility of the tax assets is not more likely than not.

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Results of Operations

Comparison of the completed year September 30, 2021 at the end of the year September 30, 2020


The following table sets forth our historical operating results for the periods
indicated:


                                                             Year Ended
                                                            September 30,
                                                                                                         %
                                                       2021              2020            $Change       Change

                                                       (dollar amounts in thousands, except percentages)
Operating costs and expenses:
General and administrative                         $      19,394     $      10,427     $     8,846      84.84 %
Research & development                                     3,009             1,667           1,342      80.50 %
Total operating costs and expenses                        22,403           
12,094          10,188      84.24 %
Loss from operations                                    (22,403)          (12,094)        (10,188)      84.24 %

Other income (expense):
Interest expense                                        (22,728)          (18,094)         (4,634)      25.61 %
Gain on extinguishment of debt                               891                 -             891     100.00 %
Loss on disposal of fixed assets                               -                 -               -            %
Other income (expense), net                                    -                10            (10)     100.00 %
Total other income (expense)                            (21,838)          (18,084)         (3,753)      20.75 %
Net loss                                           $    (44,241)     $    (30,178)     $  (13,940)      46.20 %




General and Administrative
General and administrative expenses increased by $8.8 million or 84.8% from
$10.4 million in the twelve months ended September 30, 2021 to $19.4 million in
the twelve months ended September 30, 2021, primarily due to increases in
professional services, marketing, and payroll related expenses with the growth
of personnel and resources.

Research and Development

Research and development expenses increased by $1.3 million or 80.5% from $1.7
million through the twelve months ended September 30, 2020 to $3.0 million
through the twelve months ended September 30, 2021. 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.

Interest charges

Interest expense increased by $ 4.6 million or 25.6% of $ 18.1 million in the past twelve months September 30, 2020 at $ 22.7 million in the past twelve months September 30, 2021, mainly due to an increase in convertible debt.

Gain on debt extinction

While november 2020, the U.S. Small Business Administration (“SBA”) approved the CARES Act loan forgiveness amount of $ 875,426 in principal and accrued interest on November 20, 2020.

Net loss

Net loss was $44.2 million for the twelve months ended September 30, 2021, an
increase of $14 million or 46.2% from $30.2 million in the twelve months ended
September 30, 2020, mainly for the reasons discussed above.

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Liquidity and capital resources


As of the date of this Annual Report, we have yet to generate any revenue from
our business operations. To date, we have funded our capital expenditure and
working capital requirements through equity and debt capital, 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 September 30, 2021, our cash and cash equivalents amounted to $0.04
million and our total debt amounted to $39.5 million, of which $3.8 million is
owed to the IRS and other tax jurisdictions related to payroll taxes and sales
and use taxes.

We agreed to sell $20 million of Series C Preferred with warrants to an
unaffiliated investor immediately prior to the Effective Time of the Merger at a
per share exercise price of $0.6877, subject to adjustment in accordance with
the terms of the Merger Agreement. Mullen and the investor are negotiating an
amendment to such agreement whereby such amount may be increased to an aggregate
of $60 million by mutual agreement of Mullen and the investor. In addition, we
entered into an agreement with ESOUSA to provide us with a $30.0 million equity
line of credit on September 1, 2021 and a $15 million note receivable with
CEOcast, Inc. on October 8, 2021.

We received $ 7.4 million of the net proceeds of the Net Element merger transaction. We also received a supplement $ 10.6 million in convertible notes of TDR Capital and JADR Consulting Group Pty Limited.

As part of our agreement with NASDAQ, the Company must complete a qualified
offering within six months after regulatory approval. Additionally, the Company
has committed to file a registration statement for the Series B and Series C
shares, which are expected to result in the increase of common shares
outstanding and enhance market capitalization.

We expect our capital expenditures and working capital requirements to increase
substantially in the near term, as we seek to produce our initial EVs, develop
our customer support and marketing infrastructure and expand our research and
development efforts. We may need additional cash resources due to changed
business conditions or other developments, including unanticipated delays in
negotiations with OEMs and tier-one automotive suppliers or other suppliers,
supply chain challenges, disruptions due to COVID-19, competitive pressures, and
regulatory developments, among other developments. To the extent that our
current resources are insufficient to satisfy our cash requirements, we may need
to seek additional equity or debt financing. If the financing is not available,
or if the terms of financing are less desirable than we expect, we may be forced
to decrease our level of investment in product development or scale back our
operations, which could have an adverse impact on our business and financial
prospects. See Note 1 to the audited consolidated financial statements included
elsewhere in this Annual Report.

Debt


To date, our current working capital and development needs have been primarily
funded through the issuance of convertible indebtedness and Common Stock.
Short-term debt comprises a significant 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
of 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 at September 30, 2021:


                                          Net Carrying Value
                                  Unpaid Principal                       Long-Term     Contractual      Contractual
        Type of Debt                   Balance             Current                     Interest Rate      Maturity
Matured Notes                    $         5,838,591    $   5,838,591    $        -    0.00% - 15.00 %   2016 - 2021
Promissory Notes                          23,831,912       23,831,912             -        28.00     %   2021 - 2022
Demand Note                                  500,000          500,000             -        27.00     %          2020
Convertible Unsecured Notes               15,932,500       15,932,500             -    15.00%-20.00  %   2021 - 2022
Real Estate Note                             283,881           36,269       247,612        5.00      %          2023
Loan Advances                              1,122,253        1,122,253             -    0.00% - 10.00 %   2019 - 2020
Less: Debt Discount                      (8,060,555)      (8,060,555)             -         NA               NA
Total Debt                       $        39,448,582    $  39,200,970    $  247,612         NA               NA



The following is a summary of our debt at September 30, 2020:



                                          Net Carrying Value
                                  Unpaid Principal                       

Contractual Long Term Contractual

        Type of Debt                   Balance             Current                     Interest Rate      Maturity
Matured Notes                    $         4,828,450    $   4,828,450    $        -    0.00% - 15.00 %   2016 - 2019
Promissory Notes                          25,288,063       25,288,063             -    0.00% - 28.00 %   2021 - 2022
Demand Note                                  500,000          500,000             -        27.00     %          2020
Convertible Unsecured Notes                1,867,500        1,867,500             -        20.00     %     2021-2022
Real Estate Note                             318,384           34,503       283,881        5.00      %          2023
Loan Advances                              1,931,017        1,931,017             -    0.00% - 10.00 %   2019 - 2020
Less: Debt Discount                      (1,401,062)      (1,401,062)             -         NA               NA
Total Debt                       $        33,332,352    $  33,048,471    $  283,881         NA               NA




Cash Flows

The following table presents a summary of Mullen’s cash flow data for the years ended. September 30, 2021 and 2020:


                                                 Years Ended September 30,
                                                   2021               2020

                                               (dollar amounts in thousands)

Net cash used in operating activities $ (17,522) (10,781) $
Net cash used in investing activities

                   (162)            

(567)

Net cash provided by financing activities              17,693            9,160



Cash flow 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 starts to generate any material cash flow from
our business.

Net cash used in operating activities was $17.5 million in the twelve months
ended September 30, 2021, an increase from $10.8 million net cash used in the
twelve months ended September 30, 2020.

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.

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The net cash used in investing activities was $ 0.2 million in the year ended
September 30, 2021, a decrease in $ 0.6 million used in investing activities during the year ended September 30, 2020.

Cash flow generated by financing activities

Through September 30, 2021, we financed our activities primarily through the issuance of convertible notes and equity securities.


Net cash provided by financing activities was $17.7 million for the year ended
September 30, 2021 primarily due to issuance of notes payable, as compared to
$9.2 million net cash provided by financing activities for the year ended
September 30, 2020, which included (i) $12.8 million net proceeds from issuance
of notes payable; (ii) $4.8 million in net proceeds from issuance of Common
Stock which was partially offset by $.6 million of payments of notes payable;
(iii) $.7 million in proceeds to issue preferred C shares.

Obligations and contractual commitments

The following tables summarize our contractual obligations and other cash expenditure commitments at the September 30, 2021, and the years during which these obligations are due:

Operating Lease Commitments


                                       Scheduled
Years Ended September 30,               Payments
2022                                   $ 1,213,728
2023                                     1,157,693
2024                                       824,287
2025                                       436,155
2026                                       222,787
2027 and Thereafter                              -

Total future minimum lease payments $ 3,854,650

We are currently renting out our head office in the Los Angeles area under a single lease classified as an operating lease expiring in March 2026. We have not signed any binding agreement for leases beyond 2026.

Expected debt maturities

Here are the debt maturities provided for in September 30, 2021:


                                                Years Ended December 31,
                                2021        2022       2023       2024     2025     2026     Thereafter        Total
Total Debt                  $ 39,200,970    $   -    $ 247,612    $   -    $   -    $   -    $         -    $ 39,448,582



Off-balance sheet provisions

We are not a party to any off-balance sheet arrangement, as defined under SECOND
rules.

Critical accounting conventions and estimates


Our financial statements have been prepared in accordance with U.S. GAAP. In the
preparation of these financial statements, our managemnet 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

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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 audited consolidated financial statements included elsewhere in this annual report. Since we are a non-trading company, management believes that we currently have no critical accounting policies or estimates. Management believes that the accounting policies most likely to become critical in the near future are those described below.

Stock-based compensation and valuation of ordinary shares


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 duration – We use the simplified method to calculate the expected duration

due to insufficient historical exercise data.

Expected volatility – As our stocks were not actively traded during the periods

? shown, volatility is based on a benchmark of comparable companies

in the automotive and energy storage sectors.

Expected dividend yield – The dividend rate used is zero because we never paid

? no cash dividend on common shares and does not plan to do so in the

the foreseeable future.

Risk-free interest rate – The interest rates used are based on the implied return

? Available on we Treasury zero coupon issues with an equivalent residual maturity

equal to the expected lifetime of the scholarship.

Common stock valuations

The grant date fair value of our Common Stock (pre-merger with Net Element) was
typically be 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.

Recent accounting positions


In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260),
Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock
Compensation (Topic 718) and Derivatives and Hedging - Contracts in Entity's Own
Equity (Subtopic 815-40). The ASU will be effective for fiscal years beginning
after December 15, 2021, (December 15, 2023 for smaller reporting companies). We
have issued debt and equity instruments, the accounting for which could be
impacted by this update. Company management is evaluating the impact this
guidance on our financial condition and results of operations.

In July 2021, the FASB issued ASU No. 2021-05, Lessors - Certain Leases with
Variable Lease Payments (Topic 842). The amendments in this update affect
lessors with lease contracts that have (1) have variable lease payments that do
not depend on a reference index or a rate, and (2) would have resulted in the
recognition of a selling loss at lease commencement if classified a sales-type
or direct financing. The ASU will be effective for fiscal years beginning after

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December 15, 2021. Management of the Company is evaluating the impact this directive will have on our consolidated financial statements.

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