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 nine months ended June 30, 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 nine months ended June 30, 2024, respectively), which was recognized as part of research and development expenses 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 nine months ended June 30, 2025, we recorded a loss of $8.9 million and $9.7 million, respectively ($0.0 during the three and nine months ended June 30, 2024), to write the inventories down to net realizable value (Bollinger 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, as well as expected additional costs required to sell the vehicles. Should actual sales prices or demand decline, or selling costs increase, 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 June 30, 2025, production activities in Bollinger Commercial and Bollinger Motors segments were temporarily suspended due to short-term liquidity constraints. The Company has initiated a transition of its commercial vehicle production from a third-party outsourced manufacturer to its owned facility in Tunica, Mississippi. This move is expected to improve operational control and cost efficiency once production resumes, subject to available funding. The transition is ongoing, and production volumes remain limited as of the filing date.