Net Element Inc (NETE) Enters Into LOI To Merge With Mullen Technologies

By Amit Chowdhry ● June 15, 2020
  • Net Element Inc (NASDAQ: NETE) announced today that it has entered into a binding Letter of Intent (LOI) to merge with privately-held Mullen Technologies

Net Element Inc (NASDAQ: NETE), a global technology and value-added solutions company that supports electronic payments acceptance in a multi-channel environment including point-of-sale, e-commerce, and mobile devices, announced today that it has entered into a binding Letter of Intent (LOI) to merge with privately-held Mullen Technologies — which is a Southern California-based electric vehicle company in a stock-for-stock reverse merger in which Mullen’s stockholders will receive the majority of the outstanding stock in the post-merger company.

Launched in 2014, Mullen is expecting to launch the Dragonfly K50 luxury sports car in the first half of 2021 through ICI (Independent Commercial Importers). Currently, Mullen has eight retail locations in California and one in Arizona. 

Immediately prior to completion of the merger — expected to occur in the third quarter (subject to various conditions to the merger, including Net Element’s and Mullen’s stockholders’ approval, a fairness opinion satisfactory to the boards of Net Element and Mullen and other conditions) — Net Element plans to divest itself of its payments processing business and portfolio.

And if the merger receives the requisite approvals, the current management team and the board of directors of Net Element will also resign except for Oleg Firer — who will remain on as a board member — and be replaced by a management team led by Mullen’s Founder, Chairman, and Chief Executive Officer David Michery and the board of directors nominated by Mullen.

Mullen also owns several synergistic businesses, including Mullen Auto Sales (fast-growing series of automobile dealerships) and CarHub (a new and unique digital platform that leverages AI and offers a complete solution for buying, selling, and owning a car).

In order to assist in the fight against a novel coronavirus pandemic (COVID-19), Mullen’s subsidiary Smart 8 Energy recently began sourcing ventilators, COVID-19 antibody and virus test kits, and Personal Protective Equipment (PPE).

Last month, Mullen also signed an agreement with Academy Medical to sell its products to the U.S. Federal Government, including without limitation the U.S. Department of Defense, Department of Veterans Affairs, Department of Homeland Security, Indian Health Services, and Department of Health and Human Services and their respective sub-agencies and facilities. And the company has 15 patents or patents pending related to its electric vehicle technology, including nine in the United States.

Due to the COVID-19 pandemic, Mullen had pushed the targeted date for the ICI release of the Dragonfly K50 for the 2nd quarter of 2021.

The parties are intending to structure the transaction as a reverse triangular merger whereby shareholders of Mullen would receive 85% ownership of a surviving entity at closing with Net Element’s investors owning 15%. And Mullen shareholders would have an opportunity to earn an additional 5% in the event Mullen generates more than $100 million in revenue over the 24th months period post-closing.

The closing of the transaction is conditional on the satisfactory completion of due diligence, shareholder and Nasdaq approval, and the completion of a capital raise of $10 million. The dilution from the financing is expected to be borne by the companies on a pro rata basis. Each of the parties Boards of Directors have unanimously approved the letter of intent for the transaction on a preliminary basis with entering into a definitive agreement being subject to satisfactory fairness opinion and satisfactory due diligence among other conditions. But there can be no assurance that the merger will occur or that the parties will enter into the definitive agreement for the transaction.

Key Quotes:

“We believe the timing of this merger is ideal for Mullen Technologies. It comes on the preparation of our launch of the Dragonfly K50, which will be available in Q2 of 2021 and through our retail network in California and Arizona and the development of a new EV model, the MX-05 Sport Utility Vehicle, that we expect the start of production next year. In addition, becoming public at this time should allow us to accelerate the development of our unique battery technology which is non-flammable, puncture proof, capable of maintaining full capabilities after 500,000 cycles, and is synthetic, requiring no mining of natural resources. We look forward to working with the Net Element team to complete the merger as quickly as possible.”

– David Michery

“We feel, after considering an array of strategic alternatives, that the agreement with Mullen provides our shareholders with the most compelling opportunity. We conducted an extensive search of companies that have disruptive technologies, and believe that Mullen represents the best path forward. COVID-19 has created a unique set of challenges for our payment processing business, as many of our payment processing customers are located in the Northeast, which has been hit especially hard by the coronavirus. We expect that the merger with Mullen will create a new path forward that should reward our long-time shareholders.”

– Oleg Firer, Net Element’s Chairman and Chief Executive Officer