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  Listing Council Decision 2004-4
Identification Number 656
Relevant Facts: After appearing before a Panel, the company was granted an exception that required the company to demonstrate stockholders’ equity of $2,500,000 in its next periodic filing. During the exception period, the company was also required to provide the Panel with prompt notification of any significant events that occurred, and should there be a material change in the company’s financial or operational character, the Panel reserved the right to reconsider the terms of the exception. The company made the required public filing, and the Panel determined that the company had met the terms of the exception and placed the company back into compliance. Later that year, in a Form 8-K filing, the company disclosed that, during the exception period, it had discovered an overstatement of certain balance sheet items included in its previously filed financial statements, which led to an inquiry by management that was subject
to oversight by the company’s audit committee.
Rule 4310(c)(2)(B): For continued inclusion, the issuer shall maintain: (i) stockholders' equity of $2.5 million; (ii) market value of listed securities of $35 million; or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
Issue: The company no longer satisfied the stockholders’ equity requirement or its alternatives. The company planned to regain compliance by raising $1,300,000 of additional equity from a private placement and from the conversion of debt into equity by note holders.
Determination: The company’s Form 10-Q for the quarter ended October 31, 2003, which was filed after being delisted, reflected stockholders’ equity of $1,900,000. As such, the company did not demonstrate compliance with the stockholders’ equity requirement. Even if the additional equity of $1,300,000 from the private placement and the debt to equity conversion was included in the calculation of stockholders’ equity, given the company’s history of losses, the company would have been non-compliant at the date of the Listing Council’s consideration. In analyzing whether a company will be able to regain and sustain compliance with the stockholders’ equity requirement over the long term, the Listing Council reviews the company’s recent losses and how such losses would affect stockholders’ equity over the next 12-month period. Accordingly, the company did not demonstrate sustainable compliance.
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Rule 4330(c): NASDAQ may request any additional information or documentation, public or non-public, deemed necessary to make a determination regarding a security's initial or continued inclusion, including, but not limited to, any material provided to or received from the Commission or other appropriate regulatory authority. Information requested pursuant to this subparagraph shall be submitted within a reasonable period. An issuer may be delisted if it fails to provide such information. An issuer may also be delisted if any communication to NASDAQ contains a material misrepresentation or omits material information necessary to make the communication to NASDAQ not misleading.
Issue: The company did not inform the Panel that it had an overstatement of certain balance sheet items included in its previously filed financial statements. The Panel relied upon those financial statements in determining that the company had demonstrated compliance.
Determination: The company was properly delisted based upon a failure to provide information relating to the accounting issues and the investigations in violation of Listing Rule 4330(c), as well as the requirements of the Panel’s decision.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 656
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