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Frequently Asked Questions
Listing Council Decision 2017-2
Identification Number
1368

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.

Publication Date*: 5/3/2017 Identification Number: 1368 Mailto Link
Frequently Asked Questions
Listing Council Decision 2014-3
Identification Number
1134
Bid Price and Stockholders' Equity
 
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:
(1) (A) Minimum bid price of $4 per share
Rule 5550: Continued Listing of Primary Equity Securities
 
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.
(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: At issue in this matter is whether the Company should remain listed, yet suspended from trading, notwithstanding that the Company has not received approval of its listing application for listing of the newly-merged company, which was treated as a change of control for purposes of Rule 5110(a), and because the Company does not comply with the Capital Market $4 bid price initial listing requirement of Rule 5505(a)(1)(A). Moreover, it is unclear whether the Company meets all other initial listing standards for listing on the Capital Market.
 
Prior to its merger, the Company did not comply with Rule 5550(b)(1), which requires a Capital Market company to maintain a minimum of $2.5 million in stockholders’ equity for continued listing.
 
Determination: Reverse the Panel decision to delist the Company.
 
It is clear from the record, the Company has had difficulty in resolving what it believes to be the only Capital Market initial listing requirement that it does not meet, namely the $4 bid price requirement. Although it appears that there is some disagreement over whether the Company meets all other listing standards other than bid price, the Listing Council need not settle this factual issue. The Listing Council notes that the Company received approval of, and implemented, a stock split as it had committed to do. The Company requested an extension until September 30, 2014 to evidence compliance with all Capital Market initial listing standards. In light of the brief nature of the extension and because the Company’s securities are currently suspended from trading on Nasdaq, the Listing Council is willing to grant the Company a brief extension to evidence compliance with all initial listing requirements for listing on the Capital Market and to receive approval of an application for listing thereon from Staff.
 
Accordingly, the Listing Council reverses the Panel decision to delist the Company and grants the Company through September 30, 2014 to inform the Listing Council that it has achieved compliance with all requirements for initial listing on the Capital Market and received approval of an initial listing application for listing thereon. Should the Company fail to meet the terms of this decision, the Company’s securities will be delisted from Nasdaq.
 
Publication Date*: 11/19/2014 Identification Number: 1134 Mailto Link
Frequently Asked Questions
Listing Council Decision 2017-1
Identification Number
1367

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 that it has been and remains delinquent in filing its annual report and 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 vague projections as to when it will regain compliance with the Rule lack credibility, that 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.

Publication Date*: 5/3/2017 Identification Number: 1367 Mailto Link
Frequently Asked Questions
Listing Council Decision 2012-1
Identification Number
1037
Public Interest
 
Rule 5101: 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 Listing 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 Listing Rule 5805) exercises its authority under Listing Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Listing Rule 5810(c)(1), and in all circumstances where an Adjudicatory Body (as defined in Listing Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.
 
Bid Price
 
Rule 5550(a)(2): A Company that has its Primary Equity Security listed on the Capital Market must continue to maintain a minimum bid price of at least $1 per share.
 
Issue: The company was delisted by a Hearings Panel for public interest concerns and for failure to regain compliance with NASDAQ’s minimum bid price requirement.  
 
After granting the company two 180 day compliance periods to regain compliance with the minimum bid requirement, Staff issued a delisting determination. The company appealed the determination to the Hearings Panel. During the Hearings Panel proceedings, Staff determined the company was a public interest concern based on the action it took in writing off substantial loans owed by the company’s CEO, who is also Chairman of the company. On November 16, 2011, the Hearings Panel issued a decision to delist the company based on its non-compliance with the minimum bid price requirement and for public interest concerns. On November 29, 2011, the company appealed the Hearings Panel decision to delist the company to the Listing Council.
 
Bid Price
The company has been, and continues to be, out of compliance with NASDAQ’s bid price requirement. The company failed to regain compliance with the bid price rule by effectuating a reverse stock split, as it had committed to do as a condition of receiving a second 180 compliance period. Staff issued a delisting determination at the expiration of the second compliance period, consistent with Listing Rule 5550(a)(2).
 
Subsequent to Staff’s delisting determination, and the company’s appeal of the matter to the Hearings Panel , the company asserted that it had regained compliance with Listing Rule 5550(a)(2) since its bid price had closed at or above $1.00 for ten trading days. Staff had not made such a determination and was reviewing what it considered suspicious trading in the company’s stock. Upon completion of its preliminary review of the aberrant trading in the company’s stock, Staff determined to extend the period to regain compliance with the bid price requirement to twenty days, consistent with the authority provided by Listing Rule 5810(c)(3)(F). Staff based its decision on several facts that led it to believe that the stock was manipulated.
 
The company did not maintain a bid price of $1 or more during the twenty day compliance period, never had a closing bid price significantly over $1, and currently has closing bid prices in the mid 20 cent range, which is near the price it had traded prior to the brief run up in its stock price. The company had committed to effectuate a stock split if its stock was still below $1.00 at the end of the second compliance period, a condition to receiving the second period pursuant to Listing Rule 5810(c)(3)(A)(ii), yet did not do so. The company did not indicate a willingness to effectuate a reverse stock split during the Hearings Panel proceedings.
 
Public Interest Concerns: Related Party Loan Write Off
Prior to its listing in August 2008, the company extended loans totaling approximately $140 million to two companies controlled by the company’s CEO and largest shareholder for the stated purpose of funding the construction of expressways in China. Subsequently, the loan terms were modified and extended on multiple occasions. Despite receiving only one interest payment on the non-performing notes, the company also froze interest accruals on the non-performing notes and determined to extend $129 million in new loans to the two entities owned and controlled by the Chairman and CEO, in addition to two other companies also owned by him (collectively, the “Non-Performing Loans”).
  
In September 2009, in an attempt to collect on the monies owed by the CEO’s entities, the company entered into a letter of intent to purchase 51% of one of the companies, yet it had to abandon the purchase when it was clear that government approval was not forthcoming. In July 2011, the company announced that its board of directorsors had determined to write off a substantial portion of the Non-Performing Loans. The company also announced that the CEO had offered ownership interest in a commercial, residential real estate and retail shopping mall development project as partial payment of the Non-Performing Loans, and that the board of directorsors was evaluating the proposal. In August 2011, the company issued a press release that announced that the board of directorsors had met and discussed, among other things, the company’s plans to write off the Non-Performing Loans involving the CEO, and taking a 51% interest in a property held by the CEO as a partial offset to the Non-Performing Loans. In a Form 8-K filed with the SEC in October 2011, the company stated that it had entered into agreements to acquire 51% of the entity controlled by the CEO, (the “Development Company”), as described in the company’s prior disclosures. The company also noted that it had recorded provisions for bad debt expense of $149.5 million, or more than 70% of the $210 million owed by the companies controlled by the CEO.
 
In October 2011, Staff informed the company that it had determined that the company’s actions concerning the related party Non-Performing Loans represented a public interest concern, which was an additional basis for delisting pursuant to Listing Rule 5101. As a basis for its determination, Staff asserted that the company failed to undertake sufficient efforts to collect the amounts due on the Non-Performing Loans, instead accepting rights to control a separate related-party company, the value of which was much less than the outstanding principal and interest balances. Staff further noted that the company’s failure to aggressively pursue collection efforts, and the subsequent transactions, were done for the benefit of the CEO and to the detriment of non-affiliated shareholders. In response to the additional basis for delisting, the company claimed that management and the board of directorsors acted in the best interests of the public shareholders with respect to the Non-Performing Loans, noting that it had modified, extended, and deferred interest payments on the loans as a normal response to any non-performing loan and the decision to write off the majority of the loan was made only made after all efforts were exhausted.
 
Public Interest Concerns: CFO Resignation
In mid-December 2011, the company issued a Form 8-K that disclosed that, the company received a letter of resignation on September 21, 2011 from CFO of the company, who was also a company director. The resignation letter was sent to the CEO. The company asserted in the Form 8-K that it did not accept the CFO’s resignation, but that it knew that he did not continue to perform his duties as CFO of the company. There is evidence in the record that the company along with then-company counsel and independent auditors were aware of the CFO’s unambiguous and immediate resignation from the company as a director and CFO. The company appointed an interim CFO a day prior to filing the mid-December 2011 Form 8-K.
 
Notwithstanding the CFO’s resignation several SEC disclosures were subsequently filed with the SEC containing his signature. As detailed in the company’s mid-December 2011 Form 8-K, the company’s Form 10-K for the fiscal year ended June 30, 2011 filed on October 13, 2011, its Quarterly Report on 10-Q for the quarter ended September 30, 2011, filed on November 14, 2011 and its Annual Report on Form 10-K/A for the fiscal year ended June 30, 2011, filed on November 14, 2011, all of which included the resigned CFO’s signatures, had in fact not been prepared or reviewed by the resigned CFO, and the resigned CFO had not personally signed such reports or consented to the use of his signature on such reports. It also appears that the company forged the resigned CFO’s signature on a letter to Staff, dated September 30, 2011 – eight days after his resignation and unknown to him.
 
Determination: Affirmed. After a review of the record in this matter, the Listing Council affirms the Hearings Panel decision.
 
Bid Price
The Listing Council concludes that Staff acted appropriately in delisting the company based on bid price deficiency and its failure to cure the deficiency with a reverse stock split at the end of its second compliance period as it had committed to do. The Listing Council further concludes that it was appropriate for Staff to apply a 20-day compliance period to the bid price deficiency pursuant to Listing Rule 5810(c)(3)(F) based on concerns of stock price manipulation. The company asserts that the increases in its stock price and volume are due to the public’s positive reaction to the Development Company acquisition. The Listing Council finds this argument unpersuasive given that the abnormal trading in the company’s stock began over a month after the initial notice of the potential acquisition on, yet days prior to subsequent news concerning the prospective transaction.  The Listing Council further concludes that Hearings Panel acted appropriately in delisting the company for failing to regain compliance with the minimum bid price requirement. The company was unwilling to effectuate a reverse stock split adequate for it to regain compliance with Listing Rule 5550(a)(2) and the company’s closing bid price was declining during the period from the Hearings Panel  hearing through the issuance of its decision.
 
The company’s revised compliance plan provided to the Listing Council includes a provision to seek authority to effectuate a reverse stock split to regain compliance with Listing Rule 5550(a)(2), which would take approximately 45 to 50 days according to the company. The Listing Council believes that the company has had ample opportunity to cure its bid price deficiency over the 360 days it was afforded by Staff, and as such, the Listing Council finds no reason to reverse the Hearings Panel’s decision to delist the company.
 
Public Interest Concerns: Related Party Loan Write Off
The company wrote off as bad debt approximately $150 million of the $210 million owed under the Non-Performing Loans. The Listing Council believes that it was a reasonable determination to find a public interest concern based on the facts and circumstances. The Non-Performing Loans were made to entities controlled by the company’s Chairman and CEO, who received the benefits of the loans over many years, paying negligible interest and repaying only a fraction of the original amount loaned. The Listing Council is concerned that the company has not acted in the best interest of its public shareholders and believes that the company’s actions with respect to the Non-Performing Loans show a pattern of conduct that, in aggregate, reasonably support a determination that delisting was warranted pursuant to Listing Rule 5101.
 
Public Interest Concerns: CFO Resignation
The Listing Council finds very concerning the apparent forgery of the resigned CFO’s signature on documents filed with the Commission and submitted to NASDAQ, the failure to disclose the CFO’s resignation as CFO and director timely, and the statements made an independent director at the Hearings Panel  hearing, which were misleading and evasive. It is undisputed that the CFO resigned in September 2011. It is also undisputed that the CEO and independent director were notified of resignation at the time of the resignation. Notwithstanding, the CEO and independent director permitted the company to submit documents to the SEC and NASDAQ with the resigned CFO’s signature as the purported CFO. In addition, at the Hearings Panel hearing, which occurred after the resignation of the CFO yet before the appointment of an interim CFO, an independent director stated that he had spoken to the CFO regarding possible manipulation of the company’s stock price. The earliest evidence in the record of NASDAQ’s concern regarding possible manipulation of the company’s stock price was in a request for information sent to the company’s then-counsel on September 22, 2011, a day after the resignation of the CFO from the company. The Listing Council finds the company’s misrepresentations and lack of disclosure concerning CFO’s resignation very troubling and an additional basis to delist the company pursuant to Listing Rule 5101.
 
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.” This authority stems directly from NASDAQ’s delegated responsibilities under the Securities Exchange Act of 1934. Listing Rule 5101 is not invoked lightly and, in instances in which a public interest concern is identified, the issues are very serious. In the present case, Staff’s concerns over the company’s actions concerning the loans made to the CEO and Chairman were sufficient to find a public interest concern and to delist the company pursuant to Listing Rule 5101. The company’s misrepresentations and lack of disclosure concerning the CFO’s resignation is an independent, and truly troubling, basis for determining the company represents a public interest concern, and thus warrants delisting pursuant to Listing Rule 5101.
 
Publication Date*: 7/31/2012 Identification Number: 1037 Mailto Link
Frequently Asked Questions
Listing Council Decision 2014-2
Identification Number
1133
Disclosure, Filing Delinquency, and Public Interest Concern
 
Rule 5101: Nasdaq 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.
 
Rule 5250(b)(1): Except in unusual circumstances, a Nasdaq-listed Company shall make prompt disclosure to the public through any Regulation FD compliant method (or combination of methods) of disclosure of any material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions.
 
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 in this matter is whether the Company should remain listed, yet suspended from trading, notwithstanding that it is delinquent in filing its annual report, failed to publicly disclose material information timely, and public interest concerns have been raised based on the Company’s bankruptcy.
 
Determination: Affirm the decision to suspend and delist the Company.
 
In light of the facts and circumstances of this matter, including the Company’s failure to file its Form 10-K by its stated deadline, the Listing Council finds that delisting for failure to file its Form 10-K for the fiscal year ended December 31, 2013 is a valid basis under Rule 5250(c)(1) for delisting the Company.
 
The Listing Council conducts a de novo review of matters before it and, accordingly, it may consider issues not raised in the matter before the Panel or relied on by the Panel as a basis for its decision. One such issue, which was raised by Staff yet not noted as a basis for delisting in the Panel decision, is Staff’s determination that delisting the Company was warranted given it had violated Rule 5250(b)(1). Rule 5250(b)(1) states, in part, that a “Nasdaq-listed Company shall make prompt disclosure to the public through any Regulation FD compliant method (or combination of methods) of disclosure of any material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions.” Staff argues that the Company violated Rule 5250(b)(1) when it failed to disclose the loss of control of a subsidiary. The record shows that, as of November 22, 2013, the Company knew that the former CEO possessed the subsidiary’s chops and had advised the Company that he would not return them. Furthermore, the Company was aware on November 27, 2013 that the former CEO had threatened the validity of the VIE structure of the Company. By the Company’s own admission, it realized on November 27, 2013 that there was a potentially serious challenge to the structure of the enterprise, yet waited until December 11, 2013 to disclose the issue. Staff believes, and the Listing Council agrees, that the Company had an obligation to disclose these issues pursuant to Rule 5250(b)(1) far sooner than when the Company ultimately disclosed the issues in December 2013. To argue that an investor would not find these developments material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions, is nonsensical.
 
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. The importance of timely filing of financial statements, as required by Rule 5250(c)(1), cannot be understated. Moreover, the Listing Council notes that the Company was slow, or failed altogether, to disclose material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions, as required by Rule 5250(b)(1). Taken together, the Listing Council concludes that the Company does not fully understand the obligations of a public company. Based on the facts and circumstances of this matter and for the reasons stated above, the Listing Council has determined to delist the Company’s shares from Nasdaq. 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.
 
Publication Date*: 11/19/2014 Identification Number: 1133 Mailto Link
Frequently Asked Questions
Listing Council Decision 2006-11
Identification Number
640
Rule 4350(i)(1)(D)(ii): Each issuer shall require shareholder approval or prior to the issuance of securities…in connection with a transaction other than a public offering involving…(ii) the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.
 
Issue: The company failed to obtain shareholder approval before issuing Series E preferred stock that was convertible into the common stock. The company had previously completed two series of similar financings. After analysis, Staff determined to aggregate the three financings. As such, when aggregated with the prior financings, the Series E preferred stock transaction required shareholder approval because it was issued at a discount to market value and its issuance could potentially exceed greater than 20% of the company’s pre-transaction total shares outstanding. The Panel delisted the company’s securities based on a violation of the shareholder approval rules.
 
Determination: The company was properly suspended because it had violated the shareholder approval requirements, as set forth in Rule 4350(i)(1)(D)(ii). NASDAQ shareholder approval requirements are designed to provide shareholders with a meaningful voice in significant transactions and in transactions where they may face significant dilution, such as in the current case before the Listing Council. The Listing Council believes that this voice, mandated by NASDAQ rules, is a basic tenet of the NASDAQ corporate governance rules. The NASDAQ shareholder approval requirements are also designed to provide shareholders with notice prior to the consummation of the transaction so that they have the opportunity to sell their shares. In this case, there was no shareholder vote or advance notice of the consummation of this transaction. The Listing Council agrees with the Panel’s assessment that because the Series E documents do not by their terms preclude an issuance without shareholder approval; there exists a theoretical possibility that the company could be compelled to issue the securities. The Listing Council also considered the company’s argument that it would either restructure the transaction with investors unrelated to the Series C, D, and E transactions in an effort to craft a re-financing plan that would allow the company to unwind the Series E transaction, or move forward with a shareholder vote for approval of the Series E transaction. To date the company has done neither. As such, the company is still in violation of the shareholder approval rules. At the time of its deliberations, the Listing Council noted that: (i) there have been no Form 8-K filings with announcements regarding a re-financing plan that would allow the company to unwind the Series E transaction, (ii) the company’s recently filed definitive proxy statement for its annual meeting of stockholders and did not include any proposals to obtain shareholder approval of the Series E transaction, and (iii) the company did not provide an update as to the status of its previously filed amended proxy statement and notice of a special meeting of shareholders, in which the company was seeking shareholder approval for the Series E financing. The Listing Council does not disagree with the company’s assessment that its imperfect efforts to file completed Listing of Additional Shares Notifications should be the cause of its delisting. However, the Listing Council notes that the company was effectively put on notice by staff’s letter, regarding its, first of three, Listing of Additional Shares Notification violations. The Listing of Additional Shares program is used by NASDAQ to monitor compliance with listing rules governing shareholder approval, public interest concerns, reverse mergers, and voting rights. As such, the Listing Council views compliance with the Listing of Additional Shares program as essential in order to protect investors in securities listed on The NASDAQ Stock Market.
 
The Listing Council is aware that the company is a repeat offender of both the filing of Listing of Additional Shares Notifications and the shareholder approval requirements. If the company was a first time offender, the Listing Council may have been more sympathetic, such is not the case here. In its deliberations, the Listing Council considered that: (i) there is a large amount of easily accessible information on the NASDAQ Legal and Compliance website regarding staff’s views as to when shareholder approval for transactions is required and when a Listing of Additional Shares Notification must be filed; (ii) Staff stands ready to offer informal guidance to assist issuers in structuring transactions so that there will not be violations of the Marketplace Rules; and (iii) there is a process pursuant to Rule 4550, which requires the payment of a fee, for formal guidance regarding shareholder approval interpretations. As such, the company’s argument that once its senior management and Board learned of the repeated Listing of Additional Shares violations they acted promptly and decisively to ensure that no similar violations would occur in the future, was not persuasive. Management should have been on notice with the staff’s warning letter to become more actively engaged and should have taken proactive steps at that time in an effort to prevent future violations. Based on the foregoing, the Listing Council affirms the Panel’s decision to delist the company’s securities from The NASDAQ Stock Market.
 
* * *
 
Rule 4310(c)(4): For continued inclusion, the minimum bid price per share for common stock shall be $1.
 
Issue: At the time of the Listing Council’s deliberations, the bid price of the company’s common stock was below $1.
 
Determination: As an additional and separate ground for its decision, the Listing Council finds that the company fails to comply with the $1.00 minimum bid price requirement contained in Listing Rule 4310(c)(4). The Listing Council notes that although the company was provided an opportunity to address its non-compliance with this rule, the company declined to do so. Given that at the time of the Listing Council’s deliberations the company’s bid price as quoted on the OTC Bulletin Board was $0.57, the Listing Council finds this violation of Listing Rule 4310(c)(4) as a separate and additional basis for affirming the company’s suspension and delisting from The NASDAQ Stock Market.
Publication Date*: 7/31/2012 Identification Number: 640 Mailto Link
Frequently Asked Questions
Listing Council Decision 2002-2
Identification Number
688
Rule 4310(c)(2): $2,000,000 net tangible assets/$2,500,000 shareholders’ equity requirement, or its alternatives, for continued listing on the SmallCap Market.
 
Issue: The company no longer satisfied the net tangible assets/shareholders’ equity requirement. The company provided projections and stated it would be in compliance after certain reorganization transactions were consummated.
 
Determination: The company was properly delisted for failure to comply with the net tangible assets/ shareholders’ equity requirement. Even assuming that the company’s projections were accurate, the company would soon fall below the net tangible assets/shareholders’ equity requirement based on the company’s history of losses.
 
* * *
 
Rule 4310(c)(7): 500,000-share public float requirement for continued listing.
 
Issue: The company’s proxy statement reflected that the company had less than 500,000 shares in the public float. The company stated it had in excess of 500,000 shares in the public float, assuming conversion of its preferred stock.
 
Determination: The company was properly delisted for failure to comply with the public float requirements. The public float requirement is based solely on shares issued and outstanding.
 
* * *
 
Rules 4350(c) and 4350(d)(2): Independent director and audit committee composition requirements.
 
Issue: One of the three members of the audit committee beneficially owned approximately 90% of the company.
 
Determination: The company was properly delisted for failure to demonstrate compliance with the independent director and audit committee composition requirements. A director, who has the ability to directly or indirectly control the company through 90% ownership, is an affiliate of the company, as referred to in Listing Rule 4200(a)(14)(A), and accordingly, he is not independent. The company did not disclose in its proxy statement a basis for an exception to the audit committee composition requirements, pursuant to Rule 4350(d)(2)(B).
 
* * *
 
Rules 4350(g) and 4350(e): Annual meeting and proxy solicitation requirements.
 
Issue: The company did not hold an annual shareholder meeting or mail proxy statements for 2½ years, while it was resolving a takeover contest and related litigation.
 
Determination: The company was properly delisted for failure to comply with the annual shareholder meeting and proxy solicitation requirements. An unresolved takeover contest and related litigation is an insufficient reason to violate the proxy solicitation and annual meeting requirements.
 
* * *
 
Rule 4350(h): Requirement for independent review of related party transactions for conflicts of interest.
 
Issue: The company, the chief executive officer, a director and a shareholder group led by the director entered into related party transactions and, as majority shareholders, approved the transactions. The company provided minutes of meeting, reflecting the existence of a special committee of directors.
 
Determination: The company was properly delisted for failure to demonstrate that the company’s audit committee or a comparable body of the board of directors reviewed the transactions for conflicts of interest. The minutes did not reflect that the audit committee or an independent committee reviewed the transactions for conflicts of interests. The minutes did not state whether the special committee reviewed the transactions for conflicts of interests or which directors were on the special committee.
 
* * *
 
Rule 4351: Voting rights requirement.
 
Issue: The company issued convertible preferred shares to investors at a discount to the market price on the date the investors and the company entered into a stock purchase agreement. The company’s majority shareholders approved the transaction. The preferred shareholders had the right to vote their shares on an as-converted basis at the company’s annual shareholder meeting. To determine whether a voting rights violation exists, the preferred shareholders’ voting rights are compared to their relative contribution based on the company’s market value at the time of issuance of the preferred shares. The company stated that for purposes of the voting rights rule, the time of issuance of the preferred stock should be the date the letter of intent was signed, not the date the shares were issued.
 
Determination: The company was properly delisted for failure to comply with the voting rights requirements. In determining whether a voting rights violation exists, the execution date of a non-binding agreement cannot be the basis for determining the value of the securities because the value is not definitive if the agreement is unenforceable and the terms can be changed. The company created a new class of securities that vote at a higher rate than the existing common shareholders, and shareholders cannot otherwise agree to permit a voting rights violation by the company through approval of the transaction.
Publication Date*: 7/31/2012 Identification Number: 688 Mailto Link
Frequently Asked Questions
Listing Council Decision 2010-2
Identification Number
605
Rule 5550(a)(2):  For continued listing, the minimum bid price per share for common stock shall be at least $1 per share.
 
Issue:  The company was delisted by a Hearings Panel for failing to regain compliance with Listing Rule 5550(a)(2) after it was provided with the full extent of time available to do so by Staff and a Hearings Panel. The company appealed the Hearings Panel decision to the Listing Council.
 
Determination:   Affirmed.  The Hearings Panel was willing to grant the company an extension of time so that it could regain compliance with Listing Rule 5550(a)(2) because the company had committed to gaining shareholder approval of a stock split in a ratio sufficient to regain compliance with the rule. The company was unable to gain such approval in the time afforded. The Hearings Panel issued a second decision, which granted the company the full extent of time available under the rules contingent on the company gaining the required shareholder approval by a date sufficient for it to regain compliance with Listing Rule 5550(a)(2) prior to the expiration of the extension. The company failed to gain shareholder approval by the deadline, and the Hearings Panel issued a decision to delist the company’s shares.  
 
In affirming the Hearings Panel decisions, the Listing Council finds that granting the company extensions to regain compliance with the $1 bid price requirement was reasonable and appropriate given the facts and circumstances presented by the record at the time the decisions were issued. In particular, it was reasonable for the Hearings Panel to rely on the company’s statements and commitments. It is incumbent on a company to provide NASDAQ accurate statements and to make commitments based on well-considered and reasonable assumptions. In the present case, it is not clear that the company’s failure to achieve the various commitments made to the Hearings Panel was due to a failure to consider all contingencies or was a result of unreasonable assumptions. In any event, the company failed to meet the most critical of those commitments, and the Listing Council finds no reason not to affirm the decision to delist the company’s securities.
 
Publication Date*: 7/31/2012 Identification Number: 605 Mailto Link
Frequently Asked Questions
Listing Council Decision 2016-1
Identification Number
1288

Public Interest Concern, Filing Delinquency, and Failure to Pay Fees

Rule 5101: Staff has raised public interest concerns over the degree of control the Company has over subsidiary.

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 5250(f): A Company is required to pay all applicable fees as described in the Rule 5900 Series.

Issue: At issue is whether the company should remain listed notwithstanding that it is delinquent in filing its annual report, failed to publicly disclose material information timely, and public interest concerns raised by Nasdaq’s Staff.

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

In light of the facts and circumstances of this matter, including but not limited to, the conduct of the Company and its board of directors with respect to the Company’s independent auditor, the Company’s independent counsel, and Nasdaq in the delisting proceeding, particularly including: the events giving rise to the resignation of the Company’s independent auditor, which concluded that it could no longer accept the representations of the Company’s Chairman and CEO, and determined that it could not continue as the Company’s auditor unless he was separated from the Company; the independent auditor’s finding that the Company does not appear to have an effective board with the ability to discharge its responsibilities; and evidence from the Company’s independent counsel that the Company made misrepresentations to Nasdaq in its effort to remain listed; the the Listing Council finds that delisting the Company is appropriate, pursuant to Rules 5101, 5250(c)(1), and 5250(f).

The Listing Council conducts a de novo review of matters before it and, accordingly, it may consider issues not raised in the matter before the Panel or relied on by the Panel as a basis for its decision.

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. The importance of timely filing of financial statements, as required by Rule 5250(c)(1), cannot be understated. Moreover, the Listing Council notes that the Company failed to pay its annual listing fees, as required by Rule 5250(f). Taken together, the Listing Council concludes that the Company does not fully understand the obligations of a public company. Based on the facts and circumstances of this matter and for the reasons stated above, the Listing Council  determined to delist the Company’s shares from Nasdaq. 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.

Publication Date*: 11/28/2016 Identification Number: 1288 Mailto Link
Frequently Asked Questions
Listing Council Decision 2013-3
Identification Number
1089
Public Interest and Quantitative Continued Listing Standards
 
Rule 5101: Nasdaq 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.
 
Rule 5110(b): Nasdaq may use its discretionary authority under the Rule 5100 Series to suspend or terminate the listing of a Company that has filed for protection under any provision of the federal bankruptcy laws or comparable foreign laws, or has announced that liquidation has been authorized by its board of directors and that it is committed to proceed, even though the Company's securities otherwise meet all enumerated criteria for continued listing on Nasdaq. In the event that Nasdaq determines to continue the listing of such a Company during a bankruptcy reorganization, the Company shall nevertheless be required to satisfy all requirements for initial listing, including the payment of initial listing fees, upon emerging from bankruptcy proceedings.
 
Rule 5550(b): For continued listing, a Company shall have either:
(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 #1: As initially presented to the Listing Council, at issue in this matter is whether the Company should remain listed, yet suspended from trading, notwithstanding that the Company does not comply with Rule 5550(b), which requires the Company to have a minimum of $2.5 million in stockholders' equity, or Rule 5110(b) as the Company filed for protection under Chapter 11 bankruptcy. Staff also raised public interest concerns pursuant to Rules 5101 and IM-5101-1. Staff determined to deny the Company continued listing. On appeal, a Panel initially determined to grant the Company additional time to regain compliance subject to certain milestone, but subsequently determined to delist the Company for failing to meet all of the milestones.
 
Determination #1: Reverse the Panel decision to delist the Company.
 
In its submissions to the Listing Council, the Company notes that it is diligently working to obtain all necessary approvals, complete the restructuring, emerge from bankruptcy, and immediately evidence compliance with all applicable requirements for initial listing on the Capital Market well within the discretionary period available to the Listing Council. Moreover, the Company notes that the its Board of Directors will be reconstituted concurrent with the Company's emergence from bankruptcy so as to ensure the Company's compliance with all applicable board composition and corporate governance criteria upon emergence from bankruptcy.
 
Staff argues that the Company should be delisted because it failed to meet the milestones of the Panel decision and its own deadlines, and it failed to provide evidence that it will satisfy the applicable initial listing standards upon its emergence from bankruptcy. In addition, Staff is concerned that maintaining the Company's listing does not protect investors or the integrity of Nasdaq, notwithstanding that its securities are suspended from trading on Nasdaq. In support of this argument, Staff notes that prospective investors have an expectation that companies listed on Nasdaq meet the requirements of listing.
 
The Listing Council notes Staff's concern, but believes the risk of investor harm is low. The Company has made ongoing disclosure of the status of the bankruptcy and reorganization. Hence investors are aware of the bankruptcy proceedings, and importantly the Company appears to have genuine viable business operations. In this regard, the Company disclosed $328,377,000 in revenues as of the last fiscal quarter. As such, it is unclear to the Listing Council what prospective investor harm is caused by a Company that is suspended from trading on Nasdaq, is traded with minimal volume over the counter, has provided ongoing public disclosure of its bankruptcy proceedings, and has significant other operations. The Listing Council is aware and considered that the Company has not filed its 10-K for the last fiscal year, but it believes for the reasons set forth above that, even with that failure, the risk of investor harm is low.
 
Bankruptcy proceedings can take time to resolve and the bankruptcy in the present case is, at the very least, adversarial. The Listing Council is unable to continue the Company's listing in perpetuity as it has limited discretion to grant a deficient company an extension to its listing on Nasdaq. The Panel previously granted the Company the full extent of its discretionary authority to allow the Company to regain compliance. When faced with clear evidence that the Company would be unable to regain compliance within its discretionary period, the Panel appropriately determined to delist the Company. The Listing Council, however, has additional discretionary authority that it can exercise in this matter. Based on the facts and circumstances of this case and for the reasons stated above, the Listing Council has decided to exercise its discretionary authority and allow the Company to remain listed on Nasdaq, subject to a suspension of trading.
 
Accordingly, the Listing Council reverses the Panel decision to delist the Company.
 
Issue #2: Should the Company remain listed when, subsequent to the issuance of the Listing Council decision, the Company filed for Chapter 7 liquidation, became deficient for not meeting board independence requirements, and became delinquent in paying its listing fees to Nasdaq. Based on the new facts and circumstances, the Listing Council revisited the matter and issued a second decision.
 
Decision #2: Subsequent to the issuance of the Listing Council decision in this matter, Staff notified the Company and Listing Council of two additional deficiencies: (1) Rule 5250(f), which requires payment of applicable Listing Fees and (2) Rule 5605, which requires a majority independent board and independent directors on certain committees. Staff noted that these deficiencies served as additional bases for delisting the Company's securities from Nasdaq. Staff also noted that the bankruptcy proceedings were converted from Chapter 11 bankruptcy to Chapter 7 liquidation. In response, the Company stated that that an interim Trustee was recently appointed and that the election for the permanent Trustee will be held in the near future, and thereafter the decision relating to the payment of the 2013 Nasdaq annual fee, and the timing of payment of such fee, will be made by the permanent Trustee. Last, the Company noted that it still remains possible that the proceeding could be converted back to a Chapter 11 proceeding in the future.
 
In conducting its review of the new facts and circumstances of this matter, the Listing Council considered the entire record reviewed by the Listing Council in issuing its initial decision, as supplemented by Staff's letter and the Company's response noted above. As disclosed by Staff's letter, the facts and circumstances on which the Listing Council based its initial decision have changed. The Company's Chapter 11 reorganization has been converted into Chapter 7 liquidation. The Company represented in its response that it remains possible that the bankruptcy could be converted back to Chapter 11 reorganization. However, the Company provided no information on how or when such a conversion could take place. Therefore, in the absence of any evidence that the Company could emerge from its Chapter 7 bankruptcy proceedings as an operating company that can comply with the listing requirements on or prior to the expiration of the discretion afforded to the Listing Council, it has determined to delist the Company.
 
Publication Date*: 8/21/2013 Identification Number: 1089 Mailto Link
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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