Rule 5550. Continued Listing of Primary Equity Securities

Generally, Nasdaq will not permit the initial or continued listing of a Company that has no specific business plan or that has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies.

However, in the case of a Company whose business plan is to complete an initial public offering and engage in a merger or acquisition with one or more unidentified companies within a specific period of time, Nasdaq will permit the listing if the Company meets all applicable initial listing requirements, as well as the conditions described below.
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(b) Within 36 months of the effectiveness of its IPO registration statement, or such shorter period that the company specifies in its registration statement, the Company must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the deposit account (excluding any deferred underwriters fees and taxes payable on the income earned on the deposit account) at the time of the agreement to enter into the initial combination.

Rule 5110(c): Reverse Mergers

(1) A Company that is formed by a Reverse Merger (a "Reverse Merger Company") shall be eligible to submit an application for initial listing only if the combined entity has, immediately preceding the filing of the initial listing application:

(A) traded for at least one year in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange, following the filing with the Commission or Other Regulatory Authority of all required information about the transaction, including audited financial statements for the combined entity...

Rule 5505: Initial Listing of Primary Equity Securities

A Company applying to list its Primary Equity Security on the Capital Market must meet all of the requirements set forth in Rule 5505(a) and at least one of the Standards in Rule 5505(b).

(a) Initial Listing Requirements for Primary Equity Securities:
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(3) At least 300 Round Lot Holders

Issue: May a special purpose acquisition company ("SPAC"), which has failed to consummate a business combination within the 36 month time period prescribed by IM-5101-2, nevertheless avoid de-listing because it expects to consummate a reverse merger prior to the expected date when de-listing would become effective?

Determination: Affirm the Hearing Panel decision to suspend and delist the Company.

The Company, which is a SPAC, acknowledged the ruling of the Hearings Panel that it had failed to consummate a business combination with the 36 month period required by IM-5101-2.

The Company's sole argument for asking the Listing Council to overrule the Hearing Panel decision was that the Company believed that it would be meaningless for the Listing Council to proceed with de-listing the Company's securities given that the Company did not expect Nasdaq, as a practical matter, to be able to finalize the de-listing process before the Company consummated its merger. That is, if the Company consummated its reverse merger before its de-listing became final and effective, then the merged entity would qualify for immediate initial listing on Nasdaq and it would not be subject to seasoning requirements. The Listing Council rejected this argument.

The Listing Council stated that it will not excuse a listed company for its self-acknowledged, numerous, and prolonged violations of the Listing Rules simply because the Company plans to take actions that may ultimately moot any practical impact of the punishment that Nasdaq would otherwise impose upon it. To excuse violations under these circumstances, the Council said, would diminish the importance of the Listing Rules and delegitimize the Listing Council and its work to enforce compliance with the Rules. Public confidence in Nasdaq depends upon the legitimacy of Nasdaq's system of self-regulation. The legitimacy of this system, in turn, requires Nasdaq to hold listed companies consistently accountable when they fail to satisfy the requirements of the Listing Rules. Thus, even if the practical impact of de-listing a company's securities from Nasdaq was likely to be minimal or even nil, the Listing Council determined that it must nevertheless order de-listing when the fair administration of the Listing Rules requires the Listing Council to take such action or renders it appropriate.¹

That said, the Listing Council disagreed with the Company that de-listing the Company's securities would be pointless and have no practical effect given the imminence of the Company's merger. In light of the history of this matter, the Listing Council said that it lacked confidence in the Company's latest assertions about the likelihood success of and the timing of its plan to consummate its merger. The Listing Council noted that almost a year has passed since the Company first announced its prospective merger, and the transaction had yet to close despite several assurances by the Company that it would do so. Even during the course of this appeal, the Company changed its position as to when it expected to obtain shareholder approval for the merger.

Moreover, even if the Company did consummate the merger as planned, the Listing Council did not believe that Rule 5110 required Staff to initially list the combined entity. Rule 5101 provides Nasdaq with "broad discretionary authority" over the listing of securities on Nasdaq "in order to maintain the quality of and public confidence in the market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to protect investors and the public interest." Pursuant to this authority and Nasdaq's Interpretive Material on the application of Rule 5101 (IM-5101-1), Nasdaq may "impose additional or more stringent criteria" to the application of its Rules. Thus, Staff was empowered to determine that because the Company was subject to a pending de-listing decision at the time it executed a reverse merger, the merged entity did not meet the one year prior listing requirement set forth in Rule 5110(c)(1) and must trade over-the-counter for a year prior to initial listing on Nasdaq.

Even if the Listing Council was sympathetic to the Company's plight, the Listing Council noted that it lacked discretionary authority to grant the Company further exceptions from compliance with the Rule 5505. Rule 5505 (the "Public Holder Requirement") a listed company's securities have at least 300 round lot holders. Rule 5820(d)(1) states that the Listing Council may grant an exception for a period not longer than 360 calendar days from the date of the Staff's delisting determination with respect to the deficiency for which the exception is granted; Staff issued its delisting decision for the Company's failure to comply with the Public Holder Requirement in February 2017.

The Listing Council stated that the scope of its authority to grant the Company an exception from the Business Combination Requirement was less certain. Although nothing in the Listing Rules expressly precluded the Listing Council from exercising its discretionary authority to grant exceptions under Rule 5820(d)(1), the nature of IM-5101-2 was such that this limitation could be reasonably implied. The Listing Council agreed with Staff that the Commission seemingly approved the Exchange's rules to list SPACs, in part, because the Exchange assured the Commission that any listed SPACs would face de-listing if they failed to complete a business within 36 months of the effective date of their initial public offering registration statement. See Securities Exchange Act Release No. 34-58228, 73 FR 44794 (July 31, 2008), SR-Nasdaq-2008-013 (July 25, 2008). Even if such a limitation on the Listing Council's authority was not reasonably implied, the Listing Council found good policy reasons for it to refrain from granting SPACs additional time beyond 36 months to complete their business combinations. The Council stated that the inability of a SPAC to execute a business combination, and to do so within the generous three year time period that the Exchange allots to it, strongly indicates that the SPAC is not fit for continued listing on the Exchange. It concluded that the listing of a company's securities for trading on Nasdaq is a mark of distinction that should not be afforded to companies that cannot fulfill in a timely manner even their most basic and fundamental corporate missions.

^[1]The Listing Council noted that, on a dubious basis, the Company created the very scenario that it asked the Listing Council to help it to avoid. That is, the Company filed an appeal of the Hearings Panel decision even though it expressly acknowledged in its appeal that it did not dispute the Hearing Panel's determination that the Company is non-compliant with the Listing Rules and therefore subject to de-listing. By the mere act of filing this appeal, the Company set in motion an appellate process whose only possible effect was to delay a final de-listing action by several months. Although the Listing Council encourages listed companies to file legitimate appeals to vindicate their rights under the Listing Rules, the Listing Council is loathe to reward companies that file frivolous appeals in an effort to game the system and to achieve strategic business goals for themselves. The Listing Council stated that it was especially reticent to reward such behavior when it observes that the companies which engage in it were represented by experienced advisors who are well-versed in the Listing Rules and the procedures of this Listing Council.

Quantitative Continued Listing Standards

Rule 5450: A Company that has its Primary Equity Security listed on the Global Market must continue to substantially meet all of the requirements set forth in Rule 5450(a) and at least one of the Standards in Rule 5450(b). Failure to meet any of the continued listing requirements will be processed in accordance with the provisions set forth in the Rule 5800 Series. A security maintaining its listing under 5450(b)(3) need not also be in compliance with the quantitative maintenance criteria in the Rule 5500 series.

(a)...
(b) Continued Listing Standards for Primary Equity Securities:

(1) Equity Standard

(A) Stockholders' equity of at least $10 million;
(B) At least 750,000 Publicly Held Shares;
(C) Market Value of Publicly Held Shares of at least $5 million; and
(D) At least two registered and active Market Makers.

(2) Market Value Standard

(A) Market Value of Listed Securities of at least $50 million;
(B) At least 1,100,000 Publicly Held Shares;
(C) Market Value of Publicly Held Shares of at least $15 million; and
(D) At least four registered and active Market Makers.

(3) Total Assets/Total Revenue Standard

(A) Total assets and total revenue of at least $50 million each for the most recently completed fiscal year or two of the three most recently completed fiscal years;
(B) At least 1,100,000 Publicly Held Shares;
(C) Market Value of Publicly Held Shares of at least $15 million; and
(D) At least four registered and active Market Makers.

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Rule 5550: A Company that has its Primary Equity Security listed on the Capital Market must continue to meet all of the requirements set forth in Rule 5550(a) and at least one of the Standards set forth in Rule 5550(b). Failure to meet any of the continued listing requirements will be processed in accordance with the provisions set forth in the Rule 5800 Series.

(a) …
(b) Continued Listing Standards for Primary Equity Securities:

(1) Equity Standard: Stockholders' equity of at least $2.5 million;
(2) Market Value of Listed Securities Standard: Market Value of Listed Securities of at least $35 million; or
(3) Net Income Standard: Net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years.

Issue: The company was before the Hearing Panel on an appeal of a Staff determination to delist the company for failing to provide an adequately definitive plan to regain compliance with Rule 5450(b). In reaching its determination that the company’s plan was not definitive, Staff noted that the company did not provide signed agreements or contracts demonstrating the its ability to complete multiple capital raising transactions, the form and timing of which had changed multiple times during the period Staff was reviewing the plan. The Hearing Panel issued a decision that moved the company to the Capital Market and provided an extension through June 2012 to regain compliance with Rule 5550(b). The Listing Council called the Hearing Panel decision for review, yet holding the Listing Council proceedings in abeyance until final action was reached in the Hearing Panel matter. Prior to the expiration of the Hearing Panel extension, the company informed the Listing Council that it would not regain compliance with the listing standards by expiration of the Hearing Panel exception and requested that the Listing Council exercise its authority to stay delisting of the company. The Listing Council did not exercise such authority, and the Hearing Panel thereafter issued a decision to delist the company. The company appealed the Hearing Panel decision to delist the company to the Listing Council.

Determination: Affirm the decision to delist the company.

The company’s estimations both on timing and the amount of capital raised have been consistently over-optimistic and inaccurate. The various milestones set by the company relating to its plan of compliance were not met. With respect to a conversion of notes described in the compliance plan, the company encountered delays in the timeframe set forth to the Staff and the Hearing Panel. The Listing Council was not provided with any update from the company concerning the actual amounts raised through such conversions and the effect such conversions have had in regard to its stockholders’ equity deficit. Given the low price of the company’s shares relative to the currently applicable conversion prices, the Listing Council agrees with Staff’s concern that the company’s note holders will not be motivated to convert their debt to equity. With respect to the private placement and registered direct offerings described in the compliance plan, the company’s description of the offerings was not definitive. The company’s description did not provide milestones, commitments or agreements. The company merely stated that such equity raises would occur sometime following the agreement with the note holders. As recently as August 2012, the company has publicly stated that “it has been difficult so far to attract new equity investments,” which provides further evidence that the company is not likely to close a transaction sufficient to regain compliance in the near term and maintain compliance going forward. As such, the Listing Council agrees with Staff that the company’s plans of compliance have not been definitive^[1], and that the company will not likely be able to regain and maintain compliance with continued listing standards.

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^[1] Nasdaq FAQs provide guidance to companies on, among other things, what is expected to be presented in plans of compliance (To view these FAQs, click here). These FAQs are clear that such plans should be definitive and, with regard to private placements and other financial arrangements, companies should provide agreements and lists of investors. The Listing Council acknowledges that the determination of whether a plan of compliance is definitive is a matter of judgment and respects Hearing Panel discretion in the exercise thereof. However, in the present case, the Listing Council failed to find, either in the record or in the Hearing Panel decision, a basis for concluding with any confidence that the Company’s plan of compliance was “definitive.” This observation affects neither the Hearing Panel decision of March 2012 nor the Hearing Panel decision of June 2012.

5101. Preamble to the Rule 5100 Series

Nasdaq is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. Nasdaq stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. Nasdaq Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives.

Nasdaq, therefore, in addition to applying the enumerated criteria set forth in the Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. Nasdaq may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq. In all circumstances where the Listing Qualifications Department (as defined in Rule 5805) exercises its authority under Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810(c)(1), and in all circumstances where an Adjudicatory Body (as defined in Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.

IM-5101-1. Use of Discretionary Authority

To further Companies' understanding of Rule 5101, Nasdaq has adopted this Interpretive Material as a non-exclusive description of the circumstances in which the Rule is generally invoked.
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Although Nasdaq has broad discretion under Rule 5101 to impose additional or more stringent criteria, the Rule does not provide a basis for Nasdaq to grant exemptions or exceptions from the enumerated criteria for initial or continued listing, which may be granted solely pursuant to rules explicitly providing such authority.

Rule 5250(c)(1): A Company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A Company that does not file through the EDGAR System shall supply to Nasdaq two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to Nasdaq at continuedlisting@nasdaq.com. All required reports must be filed with Nasdaq on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with Nasdaq shall contain audited financial statements.

Rule 5820(d)(4): In the case of a Company that fails to file a periodic report (e.g., Form 10-K, 10-Q, 20-F, 40-F, or N-CSR), the Listing Council may grant an exception for a period not to exceed 360 days from the due date of the first such late periodic report. The Company can regain compliance with the requirement by filing that periodic report and any other delinquent reports with due dates falling before the end of the exception period. In determining whether to grant an exception, and the length of any such exception, the Listing Council will consider the Company's specific circumstances, including the likelihood that the filing can be made within the exception period, the Company's past compliance history, the reasons for the late filing, corporate events that may occur within the exception period, the Company's general financial status, and the Company's disclosures to the market. This review will be based on information provided by a variety of sources, which may include the Company, its audit committee, its outside auditors, the staff of the SEC and any other regulatory body.

Issue: At issue is whether the Listing Council has discretion to allow a company to remain listed notwithstanding the fact that it was delinquent in filing its periodic financial reports for more than a year prior to the Panel's de-listing determination, when during the pendency of the Company's appeal, the Company filed its delinquent financial reports?

Determination: Affirm the decision of the Hearings Panel to suspend and delist the Company.

The Listing Council agreed with Staff that the Company made no cognizable or persuasive arguments in its briefs that the Panel's delisting determination was made in error. In this regard, the Listing Council noted that the Company itself stated expressly that it does not quarrel with the Panel's determination or its interpretation of the Listing Rules.

Listing Rule 5815(c)(1)(F) provides that the extent of the Panel's discretion to grant a company an exception to Listing Rule 5250(c) is 360 days following the due date of a company's first delinquent periodic report, and that a company may regain compliance with the Listing Rule only by filing its delinquent reports before the end of the exception period. In this instance, the Company requested and it received from the Panel the full 360 day exception period within which to regain compliance. Nevertheless, the Company informed the Panel, on May 4, 2018, that it would not be in a position to regain compliance before the end of the exception period on May 10, 2018. Given that Listing Rule 5815(c)(1)(F) afforded the Panel no further discretion to grant the Company an exception beyond February 23, the Listing Council determined that the Panel had no choice but to de-list the Company.

Moreover, the Listing Council noted that Listing Rule 5820(d)(4) afforded no additional discretion to the Listing Council to grant the Company a further extension. Like Listing Rule 5815(c)(1)(F), Listing Rule 5820(d)(4) states that the Listing Council "may grant an exception for a period not to exceed 360 days from the due date of the first such late periodic report" and that a company "can regain compliance with the requirement by filing … delinquent reports with due dates falling before the end of the exception period."

The Listing Council disagreed with the Company's assertion that Listing Rule 5101 authorized the Listing Council to act as it sees fit, notwithstanding restrictions imposed upon it by other Listing Rules, such as Listing Rule 5820. Although Listing Rule 5101 does state that the Exchange has "broad discretionary authority over the initial and continued listing of securities," the Listing Council noted that the Rule also states immediately thereafter that "Nasdaq may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq." Moreover, the Listing Council observed that IM-5101-01 makes clear that the Listing Council's discretion does not include granting exemptions from Listing Rules to the extent that the Listing Rules do not explicitly authorize such exemptions to be made:

The Listing Council said that, although Nasdaq has broad discretion under Rule 5101 to impose additional or more stringent criteria, the Rule did not provide a basis for Nasdaq to grant exemptions or exceptions from the enumerated criteria for initial or continued listing, which may be granted solely pursuant to rules explicitly providing such authority. Any other interpretation of Listing Rule 5101, it said, would render meaningless the express limits that the Exchange placed upon the authority of the Listing Council elsewhere in the Listing Rules, including in Listing Rule 5820. The Listing Council presumed that the Exchange intended to impose limits on the Listing Council's authority, and it interpreted Listing Rule 5101 accordingly.

Finally, the Listing Council noted that Nasdaq, as a Self-Regulatory Organization, is responsible for maintaining a fair and orderly market and for enforcing its Listing Rules consistently and in a manner that serves the interests of investors and the public. It said that Nasdaq would be acting contrary to these responsibilities if it credited companies for their belated successes in regaining compliance with the Listing Rules. Simply put, the Listing Council remarked that it would be unfair for a basketball referee to allow a team to win a game with a half-court shot – no matter how skillful and impressive that shot may be – if the shot occurs after the buzzer sounds and the game ends.

Filing Delinquency

Rule 5250(c)(1): A Company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A Company that does not file through the EDGAR System shall supply to Nasdaq two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to Nasdaq at continuedlisting@nasdaq.com. All required reports must be filed with Nasdaq on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with Nasdaq shall contain audited financial statements.

Rule 5820(d)(4): In the case of a Company that fails to file a periodic report (e.g., Form 10-K, 10-Q, 20-F, 40-F, or N-CSR), the Listing Council may grant an exception for a period not to exceed 360 days from the due date of the first such late periodic report. The Company can regain compliance with the requirement by filing that periodic report and any other delinquent reports with due dates falling before the end of the exception period. In determining whether to grant an exception, and the length of any such exception, the Listing Council will consider the Company's specific circumstances, including the likelihood that the filing can be made within the exception period, the Company's past compliance history, the reasons for the late filing, corporate events that may occur within the exception period, the Company's general financial status, and the Company's disclosures to the market. This review will be based on information provided by a variety of sources, which may include the Company, its audit committee, its outside auditors, the staff of the SEC and any other regulatory body.

Issue: At issue is whether the Listing Council has discretion to allow a company to remain listed notwithstanding that it has been and remains delinquent in filing its periodic financial reports for more than a year.

Determination: Affirm the decision to suspend and delist the Company.

In light of the facts and circumstances of this matter, which include the fact that the Company has been delinquent in filing its periodic financial reports with the SEC for more than a year, in violation of Rule 5250(c), and that it has failed to regain compliance with the Rule notwithstanding its receipt from the Staff and the Hearing Panel of multiple extensions of time within which to do so, the Listing Council finds that it lacks discretion under Rule 5820(d)(4) to grant any further compliance extensions, and that delisting of the Company’s securities is required.

Delisting does not bar the Company from applying to relist on Nasdaq, or another U.S. exchange. In this regard, should the Company resolve the issues that give rise to this matter it may reapply to list on Nasdaq.

Lastly, the Listing Council deems to be non-cognizable within the context of the Company’s disciplinary hearing the Company’s request that the Listing Council consider modifying Rule 5820(d)(4) to permit it and companies like it to have a period of time longer than a year to regain compliance with Rule 5250(c). Although the Listing Council may recommend to the Exchange’s Board of Directors amendments to its Rules, the Listing Council lacks authority to unilaterally modify those Rules.

Filing Delinquency

Rule 5250(c)(1): A Company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A Company that does not file through the EDGAR System shall supply to Nasdaq two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to Nasdaq at continuedlisting@nasdaq.com. All required reports must be filed with Nasdaq on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with Nasdaq shall contain audited financial statements.

Issue: At issue is whether the company should remain listed notwithstanding the fact that it was delinquent in filing its annual report and several quarterly filings notwithstanding its receipt of several prior periods of exemption from Rule 5250(c).

Determination: Affirm the decision to suspend and delist the Company.

In light of the facts and circumstances of this matter, which include the fact that the Company has been delinquent in filing its periodic financial reports with the SEC for a prolonged period of time, in violation of Rule 5250(c), and that it has failed to regain compliance with the Rule notwithstanding its receipt from the Hearing Panel of multiple extensions of time within which to do so, the Listing Council finds that the Company's partial progress in regaining compliance (by filing its delinquent Form 10-K) is inadequate, its request for a further extension is unwarranted, and that delisting of the Company's securities is appropriate, pursuant to Rule 5820(d)(4).

Delisting does not bar the Company from applying to relist on Nasdaq, or another U.S. exchange. In this regard, should the Company resolve the issues that give rise to this matter it may reapply to list on Nasdaq.

(1) Equity Standard: Stockholders' equity of at least $2.5 million; (2) Market Value of Listed Securities Standard: Market Value of Listed Securities of at least $35 million; or (3) Net Income Standard: Net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years.