Rule 4330(f): An issuer must apply for initial inclusion following a transaction whereby the issuer combines with a non-NASDAQ entity, resulting in a change of control of the issuer and potentially allowing the non-NASDAQ entity to obtain
a NASDAQ listing. In determining whether a reverse merger has occurred, NASDAQ will consider all relevant factors including, but not limited to, changes in the management, board of directors, voting power, ownership, and financial structure of the issuer.
NASDAQ will also consider the nature of the businesses and the relative size of the NASDAQ issuer and non-NASDAQ entity.
Issue: Following a merger, shareholders of the non-NASDAQ entity controlled approximately 40% of the company. Former directors and officers of the company, who owned approximately 65% of the company prior to the transaction, owned approximately
23% after the transaction. The shareholders of the non-NASDAQ entity serving as directors and executive officers of the company owned no shares of the company prior to the transaction, but beneficially owned approximately 40% after the transaction. Such shareholders
as a group constituted the single largest shareholder of the company. Following the transaction, two out of five directors on the board resigned and were replaced by shareholders of the non-NASDAQ entity, and four out of the seven executive officers listed
in the company's proxy statement were shareholders of the non-NASDAQ entity. The company asserted that no change of control occurred because shareholders of the non-NASDAQ entity did not acquire majority control of the company's common stock or board. The
company also asserted that the financial structure and the relative sizes of the non-NASDAQ entity and the company did not indicate a reverse merger.
Determination: The company was properly delisted because it entered into a transaction that resulted in a reverse merger, and it did not meet the initial listing standards following the reverse merger. Even though the shareholders of the
non-NASDAQ entity did not have majority control of the company, a significant change in the ownership structure had occurred. The transaction with the non-NASDAQ entity resulted in a change of control and significant changes to the company's management, board
of directors, voting power, ownership, financial structure and business. The company's business was not similar to the non-NASDAQ entity, and the company's financial structure adversely changed as a result of the transaction. The company distributed substantial
capital dividends shortly before the transaction and recorded significant goodwill as a result of the transaction. The company did not meet the requirements for initial listing on the SmallCap Market.
* * *
Rule 4310(c)(4): $1 minimum bid price requirement for continued listing on the SmallCap Market.
Issue: The bid price of the company's common stock was below $1.
Determination: The company was properly delisted for failure to comply with the minimum bid price requirement. The company stated that it wanted to finalize the reverse merger issue before it resumed its investment in an aggressive investor
relations program in order to regain compliance with the minimum bid price requirement. Because the company did not have a definitive plan to regain compliance in the near term, it would be inappropriate to relist the company's securities. In this regard,
the Securities and Exchange Commission has determined that investors are entitled to assume that the securities on NASDAQ meet the listing requirements.*
* See JJFN Services, Inc., Securities Exchange Act Rel. No. 39343 (November 21, 1997) (citing Tassaway, Inc., Securities Exchange Act Rel. No. 34151 (March 13, 1975)).