NOTE 7 – DEBT

Short- and Long-Term Debt

The following is a summary of our indebtedness as of  June 30, 2025 and of transactions during the nine months ended June 30, 2025:

Scheduled Debt Maturities

The following are scheduled debt maturities as of June 30, 2025:

Accrued Interest

As of June 30, 2025, and September 30, 2024, outstanding accrued interest on notes payable was $2.7 million and $2.4 million, respectively. During the three and nine months ended June 30, 2025, accumulated interest in the amount of $0.1 million and $1.5 million, respectively, was converted into shares of common stock (see section "Senior secured convertible notes" below), and interest for the Bollinger Motors loan was paid in cash. The weighted average interest rate on short term borrowings outstanding as of June 30, 2025, was 20% (default interest rate, see below). The weighted average interest rate on short-term borrowings outstanding as of September 30, 2024, was 18.8%. As the warrants issued along with the Senior secured convertible notes created a 100% original issue discount (see relevant section below), the Company recognized initial carrying amount of the notes at nominal value and applied an effective interest rate of 8.06% per day, in order to fully amortize the original issue discount under effective interest rate during the 4 months until maturity of the Senior secured convertible notes (unless converted earlier). Amortization of the debt discounts and issuance costs during the three and nine months ended June 30, 2025, amounted to $23.4 million and $47.4 million, respectively (during the three and nine months ended June 30, 2024, $8.2 million, and $8.4 million, respectively).

Matured Notes and Advances 

In October 2024, the Company reached an agreement with holders of matured notes and loan advances in an amount of $2.7 million, as well as accumulated interest in an amount of approximately $1.8 million, that the liabilities would be settled pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended (the "Securities Act") by issuance of shares of common stock of the Company worth of $3 million. The transaction resulted in recognition of gain on extinguishment of $1.5 million.

Bollinger Motors Loan

In October 2024, Bollinger Motors, Inc., a majority-owned subsidiary of the Company, issued an Amended and Restated Secured Promissory Note for $10.0 million to Robert Bollinger, obtaining additional capital to support the production and sale of Bollinger’s Class 4 EV truck, the Bollinger B4. The note bore interest at 15% per annum, with interest-only payments starting November 29, 2024, and principal repayment due by October 30, 2026 (or earlier, upon Event of Default). It was secured by part of the assets of Bollinger Motors (then owned or hereafter acquired), excluding inventory and certain intellectual property that does not relate to commercial vehicles. On March 21, 2025, Robert Bollinger filed a complaint against Bollinger Motors in the U.S. District Court for the Eastern District of Michigan. In the complaint, Mr. Bollinger alleged breach of contract in connection with failure by Bollinger Motors to make a payment under the Amended and Restated Secured Promissory Note for $10.0 million entered into on October 24, 2024 (the "Bollinger Note"). Mr. Bollinger was seeking $10.5 million plus interest, attorney’s fees, costs and other damages arising from the breach and the appointment of a receiver over Bollinger Motors. On March 24, 2025, Mr. Bollinger filed an emergency motion to appoint a receiver of Bollinger Motors and on May 7, 2025, the court entered an order placing Bollinger Motors into receivership and appointing a receiver to manage its affairs. During May 2025, Mr. Bollinger loaned an additional $1.25 million to the entity. On May 28, 2025, the parties signed a Settlement and Release Agreement resolving all claims. 

Senior Secured Convertible Notes

Initial May 2024 Senior secured convertible notes 

On May 14, 2024, the Company entered into a securities purchase agreement (the  "May 2024 Securities Purchase Agreement") with certain accredited investors for the sale of Senior secured convertible notes ( "May 2024 Senior Convertible Notes") and five-year warrants exercisable for 200% of shares of common stock (the “May 2024 Warrants” - see further details in the Note 8 - Warrants and other derivative liabilities and fair value measurements).

May 2024 Senior Convertible Notes accrue interest at 15% per annum and mature in four months from the date of issuance. Upon any event of default, the interest rate automatically increases to 20% per annum. The outstanding principal and accrued but unpaid interest on the May 2024 Senior Convertible Notes may be converted by the holder into shares of common stock at the lower of (i) 95% of closing sale price of common stock at execution date, (ii) 95% of the closing sale price of the common stock on the date that the Company’s Registration Statement on Form S-1 is declared effective, or (iii) 95% of the lowest daily volume weighted average price in the five (5) trading days prior to such conversion date, provided that the conversion price will not be less than $1.16 per share (not subject to adjustment for reverse stock splits).

As security for payment of the amounts due and payable under the May 2024 Senior Convertible Notes, the Company collaterally assigned and granted to the holders a continuing security interest in all of the Company’s right, title and interest in, to and under the property of the Company, whether then or hereafter owned, existing, acquired or arising and wherever then or hereafter located (subject to certain exceptions). May 2024 Senior Convertible Notes are senior in right of payment to all other current and future notes to which the Company is a party. The May 2024 Senior Convertible Notes also impose restrictions on the Company, limiting additional debt, asset liens, stock repurchases, outstanding debt repayment, dividend distributions and affiliate transactions, except for specified exceptions.

The May 2024 Senior Convertible Notes and May 2024 Warrants are not convertible by a holder to the extent that the holder or any of its affiliates would beneficially own in excess of 9.9% of the Company's common stock.

In connection with this securities purchase agreement and the additional securities purchase agreements described below, the Company also entered into registration rights agreements with the investors, pursuant to which the Company agreed to prepare and file one or more registration statements with the SEC covering the resale of all registrable securities (issuable upon conversion of the Senior secured convertible notes described here in Note 7 - Debt and upon exercise of related warrants, described further in Note 8 - Warrants and other derivative liabilities and fair value measurements). The Company also agreed to provide certain piggyback registration rights to the investors. In addition, pursuant to the registration rights agreements, the Company is required to use its reasonable best efforts to keep the registration statements continuously effective from the date on which the SEC declares the registration statements to be effective until such date that all registrable securities covered by the registration statements have been sold pursuant to a registration statement under the Securities Act or under Rule 144 as promulgated by the SEC, or have otherwise ceased to be registrable securities. With certain exceptions, the Company may not file another registration statement that does not relate to the registrable securities until the 30 day anniversary of the first date on which the resale by the investors is covered by one or more registration statement.

The exercise price and number of shares issuable upon conversion of the Senior Convertible Notes or exercise of the May 2024 Warrants, as applicable, will further be adjusted upon the occurrence of certain events, and holders will be allowed to participate in certain issuances and distributions (subject to certain limitations and restrictions), including certain stock dividends and splits, dilutive issuances of additional common stock, and dilutive issuances of, or changes in option price or rate of conversion of, options or convertible securities, as well as the issuance of purchase rights or distributions of assets during the period commencing on the purchase date and ending on the earlier of (i) the date immediately following the 90th day after a registration statement registering for the securities has been declared effective by the SEC and (ii) the 90th day after the securities purchased are saleable under Rule 144 without the requirement for current public information and without volume or manner of sale limitations.

May 2024 Senior Convertible Notes and 2024 May 2024 Warrants also provide for certain purchase rights whereby if the Company grants, issues, or sells any options, convertible securities, or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of common stock, then the holder will be entitled to acquire such purchase rights which the holder could have acquired if the holder had held the number of shares of common stock acquirable upon complete exercise of the May 2024 Warrants.

For a period beginning on the investment date, and ending on the one-year anniversary from the later of (i) the date registration statements registering the shares issuable upon conversion of all of the May 2024 Senior Convertible Notes and exercise of all the May 2024 Warrants is declared effective or (ii) the date the Company has obtained stockholder approval for the transaction, the investors were given the right, but not the obligation, to purchase an additional $52.6 million of 5% the May 2024 Senior Convertible Notes and related May 2024Warrants on the same terms and conditions as provided in the May 2024 Securities Purchase Agreement.

Initially, in May to July 2024, the investors purchased an aggregate principal amount of $52.6 million, or $50 million including the 5% original issue discount. Subsequently, by September 30, 2024, investors purchased an aggregate principal amount of $12.5 million, or $11.9 million including the 5% original issue discount, of Senior Convertible Notes and May 2024 Warrants pursuant to the May 2024 Securities Purchase Agreement.

New investments

During the nine months ended June 30, 2025, the Company issued an additional aggregate principal amount of approximately $68 million of Senior secured convertible notes (and warrants – see Note 8 - Warrants and other derivative liabilities and fair value measurements below) under the additional investment rights granted pursuant to the May 2024 Securities Purchase Agreement (including the Additional Investment Right Agreement dated December 31, 2024) and Securities Purchase Agreements entered into on January 23, 2025, February 5, 2025, March 6, 2025,  May 16, 2025 and  May 29, 2025 (including the Additional Investment Right Agreements), with similar terms. Summary of the subsequent Senior secured convertible notes issued pursuant to the May 2024 Securities Purchase Agreement and the subsequent securities purchase agreements, and their primary differences from the terms and conditions described in detail in the section “Initial May 2024 Senior secured convertible notes”, are presented in the table below.

Upon initial recognition of all Senior secured convertible notes, the fair value of issued warrants exceeded the amount of proceeds (see Note 8 - Warrants and other derivative liabilities and fair value measurements). The resulting discount to the carrying amount of the Senior secured convertible notes is amortized over the life of the note and recognized as interest expense under the effective interest method until the earliest of conversion date and end of the 4 months period after the date of the relevant tranche.

Conversions

During the nine months ending  June 30, 2025, Senior secured convertible notes with a carrying amount of approximately $26.1 million and interest with a carrying amount of approximately $1.5 million were converted to 2,561 shares of common stock (giving retroactive effect to reverse stock splits, see Note 1 - Description of business and basis of presentation).

Remaining notes

As of June 30, 2025, the outstanding senior secured convertible notes with a principal of $62.3 million and unamortized original issue discount of approximately $38.2 million were potentially convertible (hereinafter, without giving effect to the 9.9% blocker described above) into 409,697 shares of common stock, having a fair value of approximately $44.2 million. See also Note 20 - Subsequent events for disclosure on default after the balance sheet date.

Conversion of the notes depends on the lowest daily volume weighted average price of the Company's common stock ("VWAP") with a floor from $0.02 to $1.16 depending on the investment (the floor is not subject to adjustment for reverse stock splits), and by June 30, 2025, the applicable lowest weighted average price was lower than the floor in respect of approximately 10% of outstanding notes. If the August 2025 1:250 reverse stock split was made effective before June 30, 2025, the notes would have been theoretically convertible into 430,519 shares of common stock. The maximum number of shares that could theoretically be issued upon conversion of these notes (calculated as if the lowest daily VWAP in the five trading days prior to conversion date decreased to or below relevant conversion floors), was approximately 1,215 million. If the lowest daily VWAP in the five trading days prior to June 30, 2025, was $1 less (and if the August 2025 1:250 reverse stock split was made effective before June 30, 2025), the Company, upon full conversion of outstanding notes, would theoretically be liable to issue approximately 2,870 shares more. If the lowest daily VWAP in the five trading days prior to June 30, 2025, was $1 higher (and if the August 2025 1:250 reverse stock split was made effective before June 30, 2025), the Company, upon full conversion of outstanding notes, would theoretically be liable to issue approximately 2,832 shares less.

Cross-default on Senior secured convertible notes

All outstanding Senior secured convertible notes and relevant accumulated interest are technically in cross-default due to the non-payment of a portion of one of the loans that matured; therefore the interest rate increased from 15% to 20%. During the three and nine months ended June 30, 2025, and as of the date these financial statements were available to be issued, none of the investors demanded immediate payment of the notes and outstanding interest in cash.