On June 13, Mullen Automotive (NASDAQ:MULN) released the proxy statement for its annual meeting of stockholders on Aug. 3. In the filing, Proposal 3 sought approval for a reverse stock split in a ratio between 1-for-2 and 1-for-10. However, the higher ratio of the reverse split has now been lifted to 1-for-100.
The price of MULN stock generally needs to breach the $1 threshold for 10 consecutive trading days in order to comply with Nasdaq’s continued listing standards. MULN has accomplished this, yet it still remains on Nasdaq’s Noncompliant Companies list. And now, shares have once again fallen below the $1 point by a wide margin. What’s going on?
MULN Stock: Mullen Increases Maximum Proposed Reverse Split Ratio to 1-for-100
In certain situations, Nasdaq may require a noncompliant company to trade above the $1 threshold for more than 10 consecutive days, “but generally no more than 20 consecutive business days,” before the exchange determines that a company is compliant. The decision to extend the period trading above $1 over 10 consecutive business days is based on, but not limited to, the margin of compliance, trading volume, the trend of the stock and the market maker montage.
Furthermore, Mullen’s decision to initiate any reverse split above a ratio of 1-for-9 appears to be problematic. Per Nasdaq:
“However, pursuant to Listing Rule 5810(c)(3)(A)(iv), if a Company’s security fails to meet the continued listing requirement for minimum bid price and the Company has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one, then the Company shall not be eligible for a 180-day compliance period and the Listing Qualifications Department shall issue a Staff Delisting Determination.”
Mullen already initiated a 1-for-25 reverse split back in May, which means that a 1-for-10 split would result in a cumulative ratio of 1-for-250. A 1-for-10 reverse split would split the shares already split into 25 by a factor of 10. As a result, Mullen may only initiate a 1-for-9 reverse split in order to regain compliance with Nasdaq.
It’s surprising to see Mullen propose a reverse split figure so high. As Nasdaq notes, “a series of reverse stock splits may undermine investor confidence in securities listed on Nasdaq, especially where the reverse stock splits follow dilutive transactions.”
On Penny Stocks and Low-Volume Stocks:?With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that?InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More:?Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
