TheCorporateCounsel.net

We’re back from the holiday weekend and somehow heading into the final month of 2024. I don’t know about you, but I’ve come down with a case of the Mondays. So, it seems fitting to cover a topic that can sour even the best of days: delistings. The good news is, we’ve also got some tips for righting the ship.

This Honigman memo reports that more companies have been receiving notices of noncompliance with the Nasdaq Capital Market’s minimum stockholders’ equity requirement as the exchange reviews listed companies’ latest quarterly filings. Here’s an excerpt:

Nasdaq evaluates companies’ stockholders’ equity for purposes of compliance with the equity standard on a quarterly basis by reviewing the balance sheet data included in a company’s most recently filed Annual Report on Form 10-K or Quarterly Report on Form 10-Q. If the disclosed amount of stockholders’ equity is less than $2.5 million and the company also fails to meet the Nasdaq Listing Rule 5550(b)’s market value standard and net income standard, then Nasdaq will deliver a notice of deficiency to the company. Typically, such notice of deficiency is delivered within one business day to one calendar week following the company’s most recent Form 10-K or Form 10-Q filing. After receiving the notice of deficiency, the company has four business days to file a Current Report on Form 8-K announcing the receipt of the notice (as required both by Nasdaq rules, and Item 3.01 of Form 8-K). The Form 8-K deadline is based on the date that Nasdaq’s notice is delivered, and not on the date of filing of the Form 10-K or Form 10-Q.

With respect to the deficiency itself, the company has 45 calendar days from the date the notice is delivered from Nasdaq to provide to Nasdaq a compliance plan with the $2.5 million stockholders’ equity threshold. Acceptance of the plan is at Nasdaq’s discretion.

If the company’s plan is accepted, Nasdaq will grant the company an extension of up to 180 calendar days from the date the Company received the notice of deficiency. However, if the company does not regain compliance within the allotted timeframe, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that company’s securities listed on Nasdaq will be subject to delisting. The company would then be entitled to request review of that determination by a Nasdaq hearings panel.

The memo explains that while the stockholders’ equity standard is only one of three alternatives for complying with Rule 5550(b), pre-revenue and newly commercialized life sciences companies have had a harder time relying on the market value standard as of late, and the net income standard is typically also unavailable. So, the stockholders’ equity standard has become more important.

The memo goes on to provide a template for a successful compliance plan. Make sure to check that out, along with the other resources in our “Delistings” Practice Area.

– Liz Dunshee