ISSUES WITH NASDAQ/EXCHANGE LISTING AFTER A REVERSE MERGER
A significant factor in evaluating whether to go public via an IPO or a public merger (reverse merger) is the impact of NASDAQ Rule 5200, and comparable rules of the US stock exchanges.
NASDAQ Rule 5200(c) is as follows:
- c)Reverse Mergers
(1) A Company that is formed by a Reverse Merger (a “Reverse Merger Company”) shall be eligible to submit an application for initial listing only if the combined entity has, immediately preceding the filing of the initial listing application:
(A) traded for at least one year in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange, following the filing with the Commission or Other Regulatory Authority of all required information about the transaction, including audited financial statements for the combined entity; and
(B) maintained a closing price of $4 per share or higher for a sustained period of time, but in no event for less than 30 of the most recent 60 trading days.
(2) In addition to satisfying all of Nasdaq’s other initial listing requirements, a Reverse Merger Company will only be approved for listing if, at the time of approval, it has:
(A) timely filed all required periodic financial reports with the Commission or Other Regulatory Authority (Forms 10-Q, 10-K or 20-F) for the prior year, including at least one annual report. The annual report must contain audited financial statements for a full fiscal year commencing after filing the information described in paragraph (1)(A) above; and
(B) maintained a closing price of $4 per share or higher for a sustained period of time, but in no event for less than 30 of the most recent 60 trading days prior to approval.
(3) A Reverse Merger Company will not be subject to the requirements of this Rule 5110(c) if, in connection with its listing, it completes a firm commitment underwritten public offering where the gross proceeds to the Reverse Merger Company will be at least $40 million. In addition, a Reverse Merger Company will no longer be subject to the requirements of this Rule 5110(c) once it has satisfied the one-year trading requirement contained in paragraph (1)(A) above and has filed at least four annual reports with the Commission or Other Regulatory Authority containing all required audited financial statements for a full fiscal year commencing after filing the information described in that paragraph. In either case described in this paragraph (3), the Reverse Merger Company must satisfy all applicable requirements for initial listing, including the minimum price requirement and the requirement contained in Rule 5210(e) that the Company not be delinquent in its filing obligation with the Commission or Other Regulatory Authority.
This means, in short that if a private company chooses to go public through a reverse merger, it must wait at least one year after completing the reverse merger and filing all required financial reports. The exception is if the public resulting public company complete completes a firm commitment underwriting with at least 40 million in net meaning that proceeds.
Obviously, for nearly all companies which have gone public the reverse merger, this is a very limited circumstance.
The New York another stock exchange in the US have similar rules.
