NOTE 5 – INVENTORY

The cost of inventories is determined using a standard cost method, which approximates the first-in, first-out (FIFO) method. This includes direct materials, direct labor, and relevant manufacturing overhead costs. Variances between standard and actual costs are recognized in the cost of goods sold during the period in which they occur.

During the three and six months ended March 31, 2025, approximately $0.9 million and $2.0 million,respectively, of the Company's inventories were consumed in R&D activities (approximately $0.1 million and $0.9 million during the three and six months ended March 31, 2024, respectively), which was recognized as part of research and development expense in the consolidated statement of operations.

The Company regularly reviews its inventories for excess and obsolete items by assessing their net realizable value. The net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. During the three and six months ended March 31, 2025, we recorded a loss of $0.8 million and $0.8 million, respectively ($0.0 during the three and six months ended March 31, 2024), to write the inventories down to net realizable value (Mullen commercial segment) - mainly due to excess raw materials and slower-moving inventory.

The net realizable value assessment considered the current expected selling prices of Mullen One, Mullen Three, and Bollinger B4 vehicles, based on recent sales and current market demand. Should actual sales prices or demand decline, additional write-downs may be required in future periods. Additionally, if the Company is unable to secure sufficient funding to continue operations as planned, inventory may need to be sold at further discounted prices, which could negatively impact future financial results. As of March 31, 2025, production activities in Mullen Commercial and Bollinger segments were temporarily suspended due to short-term liquidity constraints.