- Mullen Automotive stock has lost about 80% of its value since May 4.
- Now the EV startup is issuing another 586 million shares to investors for immediate re-sale.
- Mullen will receive no remuneration for this re-sale.
- Mullen hopes to approve another reverse stock split at its August 3 meeting.
Another day, another sell-off for Mullen Automotive (MULN). CEO David Michery and company continue to dilute the burgeoning electric vehicle (EV) upstart at a record pace, which is causing the MULN share price to dwindle. MULN stock is now down 79.9% since the 1-for-25 reverse stock split that took place just a little over one month ago on May 4.
The NASDAQ Composite gained 0.16% in Wednesday’s morning session, while MULN stock has shed another 14.9% to trade at $0.2736.
Mullen Automotive stock news: Another boatload of dilution
Following the Acuitas Capital deal in early June that allowed Mullen common stock to be diluted as much as 36%, give or take since much of it was in warrants, management at the development-stage automaker issued a new filing with regulators on Monday to issue nearly 586 million in new common stock shares.
Dated June 12, the filing with the Securities & Exchange Commission (SEC) is a prospectus supplement that details Mullen registering 585,937,467 of new shares of common stock for re-sale.
A number of individuals and entities who were issued warrants in the past have now been exchanging those warrants for common stock and immediately selling them. None of the proceeds of these sales go to Mullen. These seller entities include Esoussa Holdings, Michael Wachs 2022 Dynasty Trust, Acuitas Capital, Micael Friedlander, Jess Mogul, Jim Fallon, Davis-Rice Pty Limited and Ault Lending.
For color, Mullen’s filing reads: “As of June 7, 2023, we had outstanding 243,567,602 shares of Common Stock. As of that same date, we also had outstanding 1,037 shares of Series A Preferred Stock convertible into an aggregate of 4,148 shares of Common Stock, 1,210,056 shares of Series C Preferred Stock convertible into an aggregate of 14,523 shares of Common Stock and 363,097 shares of Series D Preferred Stock convertible into an aggregate of 48,402 shares of Common Stock. The issuance of shares of Common Stock upon the conversion of such shares of preferred stock would dilute the percentage ownership interest of holders of our Common Stock, dilute the book value per share of our Common Stock and increase the number of our publicly traded shares, which could depress the market price of our Common Stock.”
At least they are aware! Mullen’s current agreement with its board allows for the creation of up to 5 billion shares of common stock and 500 million preferred shares.
Mullen stock news: Another reverse stock split headed for shareholder vote
Mullen also announced that it will schedule its shareholder meeting for August 3. At the meeting, management said it will bring up for a vote the need to effect another reverse stock split. This is because the NASDAQ exchange requires companies to maintain a share price above $1.
The separate SEC filing says Mullen will enact a reverse split between a 1-for-2 and a 1-for-10 structure. The reverse split on May 4 was 1-for-25, pushing the share price from around $0.064 to $1.60. The share price dropped below $1 before the calendar had even switched to June however.
The shareholder event will also allow voting on switching from a Delaware Corporation to a Maryland Corporation, issuing another $30 million in common stock and approving 52 million in new shares for incentive pay.
Penny stocks FAQs
What is a penny stock?
Originally, penny stocks were any stock that traded for less than $1, i.e. pennies. The Securities & Exchange Commission has since altered the definition to include any stock that trades for less than $5. Penny stocks are typically associated with small companies that have either experienced poor results, sending their share price down, or with companies who dilute their share price by issuing lots of shares over time in order to fund operations or acquisitions.
Where do penny stocks trade?
Some penny stocks trade on respected exchanges, such as the NASDAQ or the NYSE. Examples of these are Mullen Automotive (MULN) and Bark (BARK). Those exchanges have requirements though. For the NYSE, listed stocks must have 1.1 million publicly traded shares outstanding with a market value of at least $40 million. The NASDAQ requires a share price minimum of $4, a minimum of 1.25 million shares and a market cap of $45 million. Most penny stocks, however, trade on the OTC (over-the-counter) market. This may mean the OTC Bulletin Board or the privately-owned OTC Markets Group.
Why are penny stocks so volatile?
Quite often the sharpest movers on any normal trading day are found among penny stocks. This is because non-penny stocks tend to have more liquidity, and the market is more certain about larger companies’ long-term values. Penny stocks are illiquid, meaning there is little supply available if an announcement drives more buying demand into a particular stock. There are no market makers that hold large amounts of penny stocks just to dispense them at a slightly higher price point. Additionally, most of these penny stocks suffer from a news desert where few market players know anything relevant about them. This is why a small biopharma company can issue news about a successful drug trial and immediately rocket 500% higher, with no analysts on Wall Street covering it.
Should I invest in a penny stock?
Typically, the answer is “No”. Penny stocks are more risky than higher-priced stocks on average. Penny stock investors have a higher chance of losing their capital by investing in weaker companies. There is a reason why they are penny stocks in the first place, which is that largely the mainstream market is not interested in investing in them. Two groups of investors tend to focus on penny stocks, however. The first group are day traders, who know that the lack of liquidity in penny stocks could lead to extremely large swings over a short time period. The other group is made up of investors who like the fact that these stocks are disregarded. This allows these investors to gain an advantage by benefiting from upcoming announcements, because the larger market is not paying attention.
Mullen stock forecast
While the rest of the market is booming due to the lower May Consumer Price Index (CPI) data reported on Tuesday and Wednesday’s expectation for a Fed rate pause, Mullen stock should continue to fall. The heavy amount of constant dilution required for Mullen to ramp up to a profitable business is large.
The Relative Strength Index (RSI) is highly oversold, but in this case that is not a bullish signal. Mullen will likely lose more than 50% of its per share value before the next reverse split is enacted in August, and then shareholders should expect to continue being diluted after that.
MULN daily chart
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