The struggles of Mullen Automotive, Inc. (MULN) to keep itself well-capitalized in a turbulent macroeconomic environment have been well-documented. As the company resorted to the issue of additional equity shares for infusion of fresh capital amid rising interest rates, its weighted average shares outstanding jumped from 17.47 million as of December 31, 2021, to 1.36 billion as of December 31, 2022.

As the fresh capital was being used to retire old debt that was getting more expensive to service, the consequent dilution of stake opened up a different can of worms for MULN. The electric vehicle (EV) manufacturer and distributor, yet to report revenue, witnessed a precipitous decline in its share price. The stock has plummeted 99.6% over the past year to its current range of just above 10 cents.

The stock performance makes for a grimmer read because this is after the announcement of a 1-for-25 reverse stock split that became effective on May 4, 2023, after a 180-day extension to the March 6 deadline from Nasdaq, to meet the $1 minimum bid price requirement for continued listing.

However, even the reverse stock split wasn’t enough to spare MULN’s blushes. With the company failing to meet the $1 minimum price on or 30 days preceding Russell 2000’s “rank day” on April 28, the index’s annual reconstitution became effective on June 23, leaving the embattled EV maker to fall by the wayside.

Faced with significant downward pressure due to outflows because the funds tracking the index must sell out of their stake in the company, and having until September 5 to regain compliance and remain listed on the exchange, the stock is apparently living on borrowed time caught between a rock and a hard place.

While MULN would need to proceed with another reverse stock split in its bid to regain compliance and tide over the current crisis, a look at its recent financial performance could give investors a clearer idea if a more enduring reversal of the fortunes of MULN is likely and whether it’s worth the wait.
For the fiscal 2023 second quarter ending March 31, MULN’s losses from operations more than doubled to $67.89 million.

Although the company’s cash, cash equivalents, and restricted cash for six months ended March 31, 2023, came in at $86.75 million, which is greater than its current market cap of $30.52 million, and its total assets and liabilities have increased and decreased, respectively, over the same period, dilution of capital structure seems to be the nagging and fundamental issue behind the stock’s decline.

MULN’s weighted average shares outstanding for three and six months ended March 31, 2023, came in at 82.41 million and 68.26 million, respectively, compared to 2.06 million and 1.39 million for the prior-year period.

Hence, despite MULN announcing a moratorium on new financings for the rest of the year followed by the exercise of the final investment option of $100 million by Series D holders, thereby assuring investors of the adequacy of operating capital for almost two years, resale of up to 2.33 billion shares to make that happen neutralizes the progress made.

Therefore, in a nutshell, it appears that in a bid to keep itself afloat and well-financed, the struggling EV maker is simply substituting debt with equity and ending up in the vicious circle of share devaluation and reverse stock splits as a result of this Faustian bargain.

Bottom line

In view of the above, investors who have stayed married to their positions in MULN through this turbulence could find two rules and a simple sentence on investing by the Oracle of Omaha, whose favorite holding period is forever, beneficial:

“Rule #1: Never lose money.

Rule #2: Never forget rule No. 1.

‘You don’t have to make it back the way you lost it.’



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