Aligning with another rough day on Wall Street, troubled electric vehicle manufacturer Mullen Automotive (NASDAQ:MULN) again courted volatility for the midweek session. Following a stratospheric performance to start the new year, MULN stock began losing steam one week ago. However, management’s warning about the ability to continue as a going concern weighed heavily on investors.
Fittingly in a macabre sense, Mullen submitted its Form 10-K on Friday the 13th, revealing a number of risk factors. According to the U.S. Securities and Exchange Commission (SEC), federal securities laws require publicly reporting domestic companies to file annual reports on the 10-K disclosure. This document “…provides a comprehensive overview of the company’s business and financial condition and includes audited financial statements.”
Specifically for Mullen, management stated that its auditor, Daszkal Bolton, expressed substantial doubt about the EV maker’s ability to continue as a going concern. Further, the company acknowledged a “history of losses and expect to incur significant expenses and continuing losses for the foreseeable future,” thus adding more fuel to the going concern fire.
Under the section “Risk Factors” from the Form 10-K, Mullen declared the following:
“Our ability to continue as a going concern is dependent upon our ability to raise additional debt or equity financings or enter strategic partnerships. Since our inception, we have financed our operations through convertible debt and preferred stock financings. We intend to continue to finance our operations through debt or equity financing and/or strategic partnerships. The failure to obtain sufficient financing or strategic partnerships could adversely affect our ability to achieve our business objectives and continue as a going concern.”
For the year, MULN stock now finds itself down about 11%.
Steep Financial Losses Impose Big Risks for MULN Stock
To clarify, the auditor’s opinion about Mullen’s going concern risk factors represents an unqualified opinion. Per Investopedia, such an assessment signifies an independent auditor’s judgment that “…a company’s financial statements are fairly and appropriately presented, without any identified exceptions” and aligned with generally accepted accounting principles (GAAP).
Therefore, no legal concerns exist regarding how Mullen divulged its financial status. Rather, the major issue for MULN stock centers on what it did disclose.
For the full year ended Sept. 30, 2022, Mullen — which posted no revenue — spent $21.65 million on research and development and $75.3 million on general and administrative expenses, totaling a loss from operations of just under $97 million. This compares unfavorably to the year-ago loss of $22.4 million.
Further down the statement, the net loss for the most recent fiscal year came out to $740.3 million. Again, this tally contrasted unfavorably with the year-ago’s net loss of $44.2 million.
As Mullen’s own Form 10-K stated, it must raise cash, likely through additional debt or equity financings. Fundamentally, the core concern for stakeholders is dilution, posing major worries for MULN stock. In the trailing year, shares fell around 92%.
Why It Matters
While MULN stock occasionally receives dramatic spikes of upward momentum, the underlying problems present no surprising material. Back in May of last year, InvestorPlace contributor Dana Blankenhorn warned that Mullen lacks the cash to forward its polymer car battery or EV initiatives.
Notably, since the time of publication of Blankenhorn’s article to Wednesday afternoon, MULN stock dropped 78% of its equity value.
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On the date of publication, Josh Enomoto did not have (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.