DEF: Mullen Automotive Seeks Shareholder Approval for Extensive Dilution and Reverse Stock Split Amidst Nasdaq Listing Challenges

Mullen Automotive Inc. is calling a special meeting to approve multiple highly dilutive financing agreements, a significant reverse stock split, and an expanded equity incentive plan, all aimed at maintaining its Nasdaq listing and securing additional capital.

Summary

• Mullen Automotive Inc. (MULN) is holding a Special Meeting of Stockholders on July 22, 2025, to vote on eight key proposals.
• The company seeks approval for the issuance of common stock related to three senior secured convertible note and warrant agreements: a $1.6 million agreement (dated May 16, 2025), an $11 million agreement (dated May 29, 2025), and a $2.8 million agreement (dated May 29, 2025). These issuances are in excess of the Nasdaq 19.99% share cap and include additional investment rights.
• The $1.6 million notes had approximately $6.3 million outstanding principal and accrued interest as of June 24, 2025, with potential conversion into up to 213,374,173 shares of common stock at the $0.03 Floor Price, and associated warrants potentially exercisable for up to 1,186,904,484 shares at the $0.01 Warrant Price Floor.
• The $11 million notes had approximately $11.7 million outstanding principal and accrued interest as of June 24, 2025, with potential conversion into up to 777,504,873 shares of common stock at the $0.03 Floor Price, and associated warrants potentially exercisable for up to 4,662,842,110 shares at the $0.01 Warrant Floor Price.
• The $2.8 million notes had approximately $3.7 million outstanding principal and accrued interest as of June 24, 2025, with potential conversion into up to 363,605,848 shares of common stock at the $0.03 Floor Price, and associated warrants potentially exercisable for up to 2,187,296,330 shares at the $0.01 Warrant Price Floor.
• The company proposes a reverse stock split at a ratio between 1-for-2 to 1-for-250, at the Board's discretion, primarily to regain or maintain compliance with Nasdaq's $1.00 minimum bid price rule.
• Mullen has a history of multiple reverse stock splits: 1-for-25 (May 4, 2023), 1-for-9 (August 11, 2023), 1-for-100 (December 21, 2023), 1-for-100 (September 17, 2024), 1-for-60 (February 18, 2025), 1-for-100 (April 11, 2025), and 1-for-100 (June 2, 2025). The cumulative ratio of these splits exceeds 250-to-1.
• Shareholders will also vote on approving the issuance of up to $20 million in common stock under Section 3(a)(10) of the Securities Act, primarily for financing, paying vendors, and extinguishing liabilities, at a maximum discount of 35% of the 90-day volume-weighted average price.
• An amendment to the 2022 Equity Incentive Plan is proposed to adopt an automatic quarterly increase in shares available for issuance, equal to 10% of the total fully-diluted common stock outstanding from the preceding fiscal quarter, commencing October 1, 2025.
• Approval is sought for the issuance of shares upon exercise of Additional Warrants, as amended on June 13, 2025, which sets the Warrant Floor Price for cashless exercise at $0.01 per share. As of June 24, 2025, these warrants could result in the issuance of up to 5,227,741,177 shares at the Warrant Floor Price.
• The company's common stock closed at $0.2572 per share on July 7, 2025.
• As of June 16, 2025, there were 7,594,989 shares of common stock outstanding, 648 Series A Preferred Stock, and 458 Series C Preferred Stock.

Sentiment

Score: 2

Explanation: The document reveals a company in significant financial distress, relying on highly dilutive financing and repeated reverse stock splits to maintain its listing. The potential for massive dilution, coupled with ongoing non-compliance with multiple Nasdaq listing standards, indicates a very high-risk investment with substantial downside for existing shareholders. While the company is attempting to secure necessary capital, the terms are highly unfavorable, reflecting a desperate situation.

Positives

• The Board of Directors believes the proposed financing agreements are in the best interests of the company and stockholders due to the need for additional financing.
• The proposed reverse stock split aims to maintain the company's listing on The Nasdaq Capital Market, which is crucial for liquidity and marketability.
• The amendment to the 2022 Equity Incentive Plan is intended to ensure flexibility for stock-based compensation, helping to attract and retain talent.
• The company has not yet received a deficiency notice regarding the Nasdaq Bid Price Rule as of the proxy statement date, indicating current compliance, though the stock has closed below $1.00 since June 25, 2025.

Negatives

• The proposed issuance of shares from convertible notes and warrants will result in significant dilution of existing stockholders' percentage ownership, voting power, and economic rights.
• The number of shares issuable upon conversion of notes and cashless exercise of warrants substantially increases if the stock price declines, exacerbating dilution.
• The company has a history of multiple reverse stock splits (seven since May 2023), with a cumulative ratio exceeding 250-to-1, which Nasdaq views negatively and could lead to delisting without a compliance period if the bid price rule is violated again.
• The company received a notice on February 25, 2025, for non-compliance with Nasdaq's Market Value of Listed Securities ($35.0 million minimum), Stockholders' Equity ($2.5 million minimum), and Net Income ($500,000 minimum) requirements.
• The reverse stock split may not result in a sustained increase in stock price and could decrease liquidity, lead to odd lots, and negatively impact market perception, potentially reducing overall market capitalization.
• The issuance of up to $20 million in shares under Section 3(a)(10) will further dilute existing stockholders and could concentrate voting power in the hands of a few investors.
• The convertible notes carry a high interest rate of 15% per annum, increasing to 20% upon an event of default, indicating high-risk financing.
• Events of default for the convertible notes include failure to obtain stockholder approval within 40-45 days, failure to maintain 250% share reserves for conversion, and failure to timely deliver shares, which could trigger higher interest rates or cash penalties.

Risks

• Significant dilution of existing stockholders' percentage ownership, voting power, and economic rights due to the issuance of shares from convertible notes and warrants.
• Potential for further substantial increases in shares issuable from convertible notes and warrants if the common stock price declines.
• Risk of delisting from Nasdaq if the company fails to maintain the $1.00 minimum bid price after another reverse stock split, as it has already exceeded Nasdaq's cumulative reverse stock split threshold (250 shares or more to one) within a two-year period.
• Failure to meet Nasdaq's Market Value of Listed Securities, Stockholders' Equity, or Net Income requirements could lead to delisting.
• The reverse stock split may not achieve its objective of a sustained increase in stock price and could negatively impact market perception, liquidity, and overall market capitalization.
• The company's ability to raise additional capital is critical for business plans, and failure to do so would require curtailing expansion, reducing expenses, or disposing of assets, adversely impacting future operating results.
• The issuance of shares under Section 3(a)(10) could lead to concentrated voting power if large blocks are acquired by a few investors.
• The company faces high interest rates on its secured convertible notes (15% per annum, 20% upon default) and stringent default conditions, including specific operational requirements related to Bollinger Motors, Inc. CEO.

Future Outlook

The company's future outlook is heavily dependent on its ability to secure additional financing through highly dilutive instruments and maintain its Nasdaq listing. If unable to raise capital, the company anticipates curtailing manufacturing and sales capabilities, reducing operating expenses, disposing of assets, and seeking extended terms on obligations, which would adversely impact future operating results. The Board aims to use the proposed reverse stock split to maintain Nasdaq compliance and potentially improve marketability and liquidity, but acknowledges that these benefits are not assured and further delisting risk exists.

Management Comments

• The Board has determined that the sale of the notes and warrants is in the best interests of the Company and its stockholders because of the Company's need to obtain additional financing.
• The Company will effect a reverse stock split ONLY to the extent that it is necessary to maintain compliance with the continued listing requirements of The Nasdaq Capital Market.
• As of the date of this proxy, the Company has not received a deficiency notice regarding the Bid Price Rule from the Listing Qualifications Staff of Nasdaq.
• Our ability to successfully implement our business plans and ultimately generate value for our stockholders is dependent on our ability to maximize capital raising opportunities.
• If we were unsuccessful in raising additional capital, we would be required to curtail our plans to expand our manufacturing and sales capabilities and instead reduce operating expenses, dispose of assets, as well as seek extended terms on our obligations, the effect of which would adversely impact future operating results.

Industry Context

This announcement reflects the significant capital challenges faced by many emerging electric vehicle (EV) companies, particularly those in the early stages of manufacturing and sales. The repeated need for highly dilutive financing and reverse stock splits to maintain exchange listing is a common indicator of financial distress in capital-intensive industries like EV manufacturing, where substantial investment is required before achieving profitability and scale. The company's struggle to meet Nasdaq's listing standards (bid price, market value, equity, net income) suggests it is operating in a highly competitive and capital-constrained environment, potentially lagging behind more established or better-funded competitors.

Comparison to Industry Standards

• The company's repeated reliance on reverse stock splits (seven in less than two years) to maintain Nasdaq listing is highly unusual and significantly deviates from typical corporate finance practices for healthy, growing companies. Most established companies rarely, if ever, resort to such measures.
• The high interest rate (15%, increasing to 20% on default) and deep discounts (up to 35% of 90-day VWAP) on convertible notes and warrants are indicative of a company struggling to secure financing on favorable terms, contrasting sharply with the lower cost of capital available to financially stable industry peers.
• The potential for massive dilution, with billions of shares issuable at low floor prices (e.g., $0.01-$0.03), is far beyond what would be considered acceptable or sustainable for a company aiming for long-term shareholder value, unlike well-capitalized EV manufacturers or automotive companies.
• The failure to meet Nasdaq's minimum requirements for Market Value of Listed Securities ($35 million), Stockholders' Equity ($2.5 million), and Net Income ($500,000) places the company in a precarious position, unlike industry leaders who comfortably exceed these thresholds.

Corporate Governance

Legal Proceedings

• An event of default for the convertible notes includes a final judgment, arbitration, mediation award, or settlement of litigation exceeding $300,000 against the company, if not bonded, discharged, or stayed within 30 days.

Stakeholder Impact

• Shareholders: Will experience significant dilution of their percentage ownership, voting power, and economic rights due to the conversion of notes, exercise of warrants, and potential future equity issuances. The reverse stock split may not provide sustained price improvement and carries delisting risk.
• Employees/Management: Benefit from the expanded 2022 Equity Incentive Plan, which provides more shares for compensation, potentially aiding in talent attraction and retention.
• Creditors (Holders of Secured Notes): Benefit from the notes being senior secured by all of the company's assets and from high interest rates (15%, increasing to 20% on default), providing a degree of protection in a financially precarious situation.
• Vendors/Service Providers: May be paid through the issuance of common stock under the Section 3(a)(10) proposal, potentially converting outstanding liabilities into equity.

Next Steps

• Hold a Special Meeting of Stockholders on July 22, 2025, to vote on the proposed resolutions.
• If approved, the Board of Directors will determine the exact ratio for the reverse stock split (between 1-for-2 to 1-for-250) and effect it within 12 months of stockholder approval, if necessary to maintain Nasdaq compliance.
• If approved, the company will proceed with issuing shares under the various convertible note and warrant agreements, and potentially raise up to $20 million under the Section 3(a)(10) exemption.
• If approved, the 2022 Equity Incentive Plan will be amended to include an automatic quarterly increase in shares available for issuance, commencing October 1, 2025.
• The company must regain compliance with Nasdaq's Market Value of Listed Securities, Stockholders' Equity, and Net Income requirements by August 25, 2025.

Key Dates

Recommendation

Keywords

Mullen Automotive, MULN, SEC Filing, Proxy Statement, Reverse Stock Split, Nasdaq Listing, Dilution, Convertible Notes, Warrants, Capital Raise, Equity Incentive Plan, Corporate Governance, Shareholder Meeting, Financial Distress, Electric Vehicles