UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported) June 12, 2020

Net Element, Inc.

(Exact Name of Registrant as Specified in Charter)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company       ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 1.01 Entry into a Material Definitive Agreement.

On June 12, 2020, Net Element, Inc., a Delaware corporation (the “Company”), entered into a binding letter of intent (the “LOI”) with Mullen Technologies, Inc., a California corporation.

Pursuant to the LOI, the parties thereto intend that, subject to satisfaction of various conditions, including satisfactory due diligence of Mullen Technologies, Inc. and its subsidiaries (collectively “Mullen”) by the Company, satisfactory due diligence of the Company by Mullen, the Company receiving a fairness opinion satisfactory to the Company’s board of directors, Mullen receiving a fairness opinion satisfactory to Mullen’s board of directors, obtaining third-party consents, if any are required upon a change in control, the Company’s board of directors and the Company’s stockholders approval of the merger agreement and the merger (described below), the Company would acquire Mullen in a reverse triangular merger, pursuant to which one or more newly-formed subsidiaries of the Company (organized for the purposes of the transaction) will merge with and into applicable entity comprising Mullen (the “Merger”), with each such applicable entity comprising Mullen surviving the Merger as a wholly-owned subsidiary of the Company.

Each party agreed to conduct a business, financial, and legal due diligence investigation of the other party and each of its subsidiaries and affiliates and sister entities, their business and operations.

Subject to and after the consummation of the Merger, the parties to the LOI contemplate that (i) the Company will be renamed to Mullen Technologies, Inc. and (ii) the trading ticker for the Company to be changed to reflect the Mullen identity.

The LOI provides that (i) the terms of the Merger will be negotiated by the parties and, when mutually agreed upon and executed, constitute the binding obligations of the parties (the “Definitive Agreements”), (ii) the Definitive Agreements will provide for certain conditions of closing, (including a condition that any cash obligations or severances the Company may have to its employees that are payable solely by reason of a change in control of the Company shall have been satisfied), customary representations, warranties, and covenants for transactions like the Transaction, (iii) the parties anticipate filing a proxy statement and Form S-4 registration statement by as soon as practical following entering into the Definitive Agreements and (iv) subject to the parties obtaining the applicable internal and third-party approvals, regulatory compliance and satisfying the conditions to closing, the closing of the Merger and other transactions contemplated by the LOI (the “Closing;” and the date of the Closing shall be referred herein as the “Closing Date”) would occur at the earliest date practicable.

Pursuant to the LOI, if the Closing occurs, at the Closing, the Company will acquire Mullen for an aggregate purchase price, satisfied through the issuance of shares of the Company shares of common stock, such that on a fully diluted post-acquisition basis Mullen’s shareholders would collectively own 85% of the then issued and outstanding shares of the Company’s common stock (the “Purchase Price”), and the current Company’s shareholders as of the Closing Date would collectively own 15% of the then issued and outstanding shares of the Company’s common stock. For purposes of determining the number of outstanding shares of the Company’s common stock, all shares of the Company’s common stock issuable upon exercise or conversion of outstanding warrants, options or other convertible securities would be included.

The LOI provides that, in the event that the total aggregate GAAP-determined gross revenue at any time during the twenty-four (24) months following the Closing arising from the operations of the post-Merger Company meets certain target levels (the “Benchmark Gross Revenue”), Mullen’s shareholders’ would have an opportunity to earn additional ownership in the Company. The Benchmark Gross Revenue to be calculated no later than the 15th day following the end of the 25th month following the Closing Date, but could be reached earlier than that date, at which time the adjustment procedures described in this paragraph would occur. Based on the Benchmark Gross Revenue figure, the following post-closing adjustments to the Purchase Price would be made through the issuance of additional shares of stock: (a) if the organic Benchmark Gross Revenue is more than $100,000,000, then Mullen shareholders (determined immediately prior to the Closing) to be issued such number of shares of common stock of the Company so that in the aggregate, such Mullen shareholders own 90% of the fully diluted common shares of the Company; and (b) if the organic Benchmark Gross Revenue is less than $80,000,000, then the Company shareholders (determined immediately prior to the Closing) to be issued such number of shares of common stock of the Company so that in aggregate, such Mullen shareholders own 80% of the fully diluted common shares of the Company.

Pursuant to the LOI, the parties contemplate that, if the Closing occurs, all shares that could be issued as part of the Merger (including the above-described adjustments) shall be issued at the Closing, registered in a registration statement on Form S-4 and held by a third party escrow agent or the Company’s transfer agent who would manage the shares’ allocation and distribution according to the milestones set forth above.

The LOI contemplates that:

(i)       the Definitive Agreements will provide that, as a condition to Closing, the Company’s cash on hand less accounts payable and debt, exclusive of unfunded warrant proceeds (“Net Cash Position”), will need to be $10 million;

(ii)      if such funds will be raised through a private placement offering conditioned on the Closing, both the Company’s and Mullen’s shareholders should be diluted equally in accordance with such financing;

(iii)     prior to Closing but after the Company’s shareholder approval of the Merger shall have been obtained, the Company will be required to divest itself of its payments processing business and eliminate all liabilities in the Company associated with its current operations, or in the event that it shall not have satisfied all of its liabilities, the Company will be required to set cash reserves in addition to the Net Cash Position sufficient to fund such liabilities when they become due;

(iv)     the Definitive Agreements will provide for customary materiality (including material adverse effect), ordinary course of business and other qualifications, knowledge qualifiers and use of dated representations and warranties where appropriate, and for customary covenants of the parties for the period between the date of execution of the Definitive Agreements and the Closing Date.

The LOI provides that the conditions to occur prior to execution the Definitive Agreements include, but not limited to, the approval by the respective boards of directors and shareholders each of the entities comprising Mullen terms of the Merger and the Definitive Agreements, the approval by the Company’s board of directors of the Merger and the Definitive Agreements (subject to submission of the Merger for the Company’s shareholders’ approval) and the entry by the Company’s management and 5% holders into voting agreements to vote their shares in favor of the Merger.

The LOI provides that the conditions to the Closing include, but not limited to, the receipt of the Company shareholders’ approval of the Merger and Mullen nominated directors, the receipt of Nasdaq’s approval of the transaction and the continued listing of the company’s common stock post-Closing and the declaration of effectiveness of the registration statement on Form S-4.

The LOI contemplates that at the Closing, if it occurs, David Michery would be appointed as CEO, a director and the Executive Chairman of the post-Merger Company and all current directors and officers of NETE will resign (except for Oleg Firer, who will stay on as a director after resigning as the Executive Chairman and CEO), and Mullen shall appoint eight new directors and all officers of the post-Merger Company, subject to compliance with the Nasdaq rules and the securities laws and rules, including director independence rules promulgated by the Nasdaq and the U.S. Securities and Exchange Commission.

The LOI provides that (i) each party will bear its own expenses in connection with the LOI, the negotiation, drafting and execution of the Definitive Agreements; provided, however, if the Definitive Agreements are executed (i) the Company and Mullen will jointly prepare, but Mullen shall pay for, the proxy statement/Form S-4 registration statement preparation filing and printing costs, and the Company will pay for any fairness opinions; and (ii) Mullen will appoint PCAOB auditors at its expense to ensure the audit is completed in a timely manner necessary for inclusion in Form S-4.

The parties agreed to exclusive negotiations from June 12, 2020 until 11:59 p.m. Eastern Time on the date 30 days from the date hereof.

The above description of the LOI is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein. A copy of the LOI is attached hereto as Exhibit 10.1 and is incorporated herein by this reference.

Item 7.01 Regulation FD Disclosure.

On June 15, 2020, the Company issued a press release announcing the LOI. A copy of the press release is furnished as Exhibit 99.1 to this report.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: June 15, 2020

EXHIBIT INDEX

Exhibit 10.1

BINDING LETTER OF INTENT

This Binding Letter of Intent (the “Binding Letter of Intent”) sets forth the principal terms of a proposed transaction by which Net Element, Inc. (“NETE”) intends to acquire 100% of the applicable ownership interests of Mullen Technologies, Inc. and its subsidiaries (“MULLEN”) (the “Transaction”). The term “Parties” shall mean NETE and MULLEN.

Determination of Share Ownership. For purposes of determining the number of shares of NETE common stock issuable to MULLEN’s shareholders, NETE’s transfer agent shall provide, on the day prior to the Closing, a list of the currently outstanding shares of common stock of NETE. In addition, NETE shall include, for purposes of determining the number of outstanding shares of its common stock, all shares of NETE’s common stock issuable upon exercise or conversion of outstanding warrants, options or other convertible securities.

Post-Closing Adjustments. In the event that the total aggregate GAAP determined gross revenue at any time during the twenty-four (24) months following the Closing arising from the operations of MULLEN Group meets certain target levels, the MULLEN shareholders’ should have an opportunity to earn additional ownership. Such revenue shall be referred to as the “Benchmark Gross Revenue”. The Benchmark Gross Revenue shall be calculated no later than the 15th day following the end of the 25th month following the Closing Date, but could be reached earlier than that date, at which time the adjustment procedures set forth herein would occur. Based on the Benchmark Gross Revenue figure, the following post-closing adjustments to the Purchase Price shall be made through the issuance of additional shares of stock:

For the purposes of the adjustment described in (i) or (ii) above, notwithstanding any change in the capital structure of MULLEN Group’s common stock arising between the Closing and date of any purchase price adjust arising from new share issuance, acquisition transactions, etc., it is the understanding of the Parties that the adjustment will be with respect to the proportional ownership interest between the (1) shareholders of NETE as of Closing an (2) the shareholders of MULLEN as of Closing. All shares that could be issued as part of this Section shall be issued at the Closing, registered in the S-4 and held by a third party escrow agent or NETE’s transfer agent who will manage the issuances according to the milestones set forth in this Section.

Prior to NETE’s filing its preliminary proxy statement, MULLEN may submit replacement directors for any persons that do not meet the said qualifications until a full slate of directors is agreed to so that at Closing, all members of NETE’s Board (except Oleg Firer, who shall remain on the Board) shall resign and shall be replaced by the members of MULLEN’s proposed board of directors, subject to compliance with the Nasdaq rules and the securities laws and rules (including director independence rules promulgated by the Nasdaq and the U.S. Securities and Exchange Commission). The MULLEN Group post-Closing board of directors should be composed of eight nominees from MULLEN and one member (at the discretion of MULLEN Group) that results in the combined company meeting the required independence rules of the Nasdaq.

The proposal set forth in this Binding Letter of Intent will remain open until 5 PM Eastern Time on June 12,2020. If, by then, all Parties to this Binding Letter of Intent shall not executed by their respective authorized representatives and deliver this Binding Letter of Intent, this proposal will be deemed withdrawn automatically without any further action by any party and this Binding Letter of Intent shall be null and void.

ACKNOWLEDGED AND AGREED:

Exhibit 99.1

Net Element Enters into a Letter of Intent to Merge with Electric Vehicle Company Mullen Technologies

MIAMI, FL – June 15, 2020 - Net Element, Inc. (NASDAQ: NETE) (“Net Element” or the “Company”), a global technology and value-added solutions group that supports electronic payments acceptance in a multi-channel environment including point-of-sale (“POS”), e-commerce and mobile devices, announced today that it has entered into a binding Letter of Intent to merge with privately-held Mullen Technologies, Inc. (“Mullen”), 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.

Founded in 2014, Mullen expects to launch the Dragonfly K50, a luxury sports car, in the first half of 2021 through ICI (Independent Commercial Importers). Mullen currently 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 will, subject to Net Element’s stockholders’ approval, divest itself of its payments processing business and portfolio. If the merger receives the requisite approvals, at closing of the merger, 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.

According to Mullen, Mullen also owns several synergistic businesses including: Mullen Auto Sales, a fast-growing series of automobile dealerships and CarHub, a new and unique digital platform that leverages Artificial Intelligence (AI) and offers a complete, easy-to-use solution for buying, selling and owning a car. 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). Subsequently, in May 2020, Mullen signed an agreement with Academy Medical, Inc. 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. The company has 15 patents or patents pending related to its electric vehicles technology, including nine in the United States.

The Dragonfly K50 has been featured at the New York International Auto Show on April 2019. The car also won the Governor’s Choice Award at the 2019 Balboa Bay Club’s Classic Auto Show. The K50 has also been the subject of stories in the Wall Street Journal, ABC News, Autoweek, MotorTrend and Forbes, among many other publications. A video of the launch of the car at the New York Auto Show can be seen here. Mullen is launching this car in conjunction with a cooperation agreement with Qiantu Motor, a wholly-owned subsidiary of CH-Auto, a leading automotive design and manufacturing company in China. Due to the COVID-19 pandemic, Mullen pushed the targeted date for ICI release of the Dragonfly K50 for 2^nd quarter of 2021.

“We believe the timing of this merger is ideal for Mullen Technologies,” said Mr. Michery. “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.”

According to Mullen, Mullen expects to be entering the market with a Sport Utility Vehicle (SUV) using an established and proven product, manufacturing and advanced technologies, and to be produced in the United States. According to Mullen, Mullen has created a different business model to enter the EV market with core tenants that include: fast-to-market, highly efficient, ready and proven initial vehicle leveraging an existing vehicle produced internationally and designed to U.S. market needs (development reduced from 4 years to 17 months), and complemented with a portfolio of competitively priced vehicles (three platforms) in the fast-growing Electric SUV segment. According to Mullen, the first SUV Mullen expects to introduce will be the MX-05, a mid-size luxury SUV that will be featured as a battery electric vehicle. 

According to Mullen, due to launch in Q3-Q4 of 2021, the MX-05 represents Mullen Automotive’s entry into the full-electric and range extender, luxury SUV market. The MX-05 is expected to fit the Mid-Size SUV segment. Mullen projects for pre-launch to have several hundred units produced in 2021 and kickoff into full production in 2022.

“We feel, after considering an array of strategic alternatives, that the agreement with Mullen provides our shareholders with the most compelling opportunity,” said Oleg Firer, Net Element’s Chairman and Chief Executive Officer. “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.”

Transaction Structure:

The parties intend 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%. 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. 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. Dilution from such 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. There can be no assurance that the merger will occur, or that the parties will enter into the definitive agreement for the transaction.

About Mullen Technologies:

Mullen Technologies is a Southern California based licensed electric vehicle manufacturer with international distribution that operates in various verticals of businesses focusing in the automotive industry; Mullen Automotive, Mullen Energy, Mullen Auto Sales, Mullen Funding Corp., and Carhub. Each of these divisions provide Mullen with diversity of different products and services within the automotive industry. For more information, please visit: www.mullenusa.com.

About Net Element

Net Element, Inc. (NASDAQ: NETE) operates a payments-as-a-service transactional and value-added services platform for small to medium enterprise ("SME") in the U.S. and selected emerging markets. In the U.S., the Company aims to grow transactional revenue by innovating SME productivity services using blockchain technology solutions and Aptito, our cloud-based, restaurant and retail point-of-sale solution. Internationally, Net Element's strategy is to leverage its omni-channel platform to deliver flexible offerings to emerging markets with diverse banking, regulatory and demographic conditions. Net Element was ranked as one of the fastest growing companies in North America on Deloitte's 2017 Technology Fast 500™. In 2017 we were recognized by South Florida Business Journal as one of 2016's fastest-growing technology companies. Further information is available at www.NetElement.com.

Forward-Looking Statements

Securities Exchange Act of 1934, as amended. Any statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Words such as "continue," "will," "may," "could," "should," "expect," "expected," "plans," "intend," "anticipate," "believe," "estimate," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, many of which are generally outside the control of Net Element and are difficult to predict. Examples of such risks and uncertainties include but are not limited to whether the proposed merger will be consummated, what impact or resultant benefits the merger with Mullen and related transaction documents will have on the Company and its stockholders, whether Mullen will be successful in the various ventures and initiatives it is undertaking, whether the Company’s and Mullen shareholders will approve the merger and the divestiture of the payment processing business, whether Net Element will be able to complete a capital raise of $10 million, whether the fairness opinion will be satisfactory to the boards of directors of Net Element and Mullen. Additional examples of such risks and uncertainties include, but are not limited to (i) Net Element's ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed; (ii) Net Element's ability to maintain existing, and secure additional, contracts with users of its payment processing services; (iii) Net Element's ability to successfully expand in existing markets and enter new markets; (iv) Net Element's ability to successfully manage and integrate any acquisitions of businesses, solutions or technologies; (v) unanticipated operating costs, transaction costs and actual or contingent liabilities; (vi) the ability to attract and retain qualified employees and key personnel; (vii) adverse effects of increased competition on Net Element's business; (viii) changes in government licensing and regulation that may adversely affect Net Element's business; (ix) the risk that changes in consumer behavior could adversely affect Net Element's business; (x) Net Element's ability to protect its intellectual property; (xi) local, industry and general business and economic conditions; and (xii) adverse effects of potentially deteriorating U.S.-Russia relations, including, without limitation, over a conflict related to Ukraine, including a risk of further U.S. government sanctions or other legal restrictions on U.S. businesses doing business in Russia. Additional factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements can be found in the most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed by Net Element with the Securities and Exchange Commission. Net Element anticipates that subsequent events and developments may cause its plans, intentions and expectations to change. Net Element assumes no obligation, and it specifically disclaims any intention or obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

Contact:

Net Element, Inc.

+1 (786) 923-0502

www.netelement.com 

Media@NetElement.com