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.

* * * * *

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.