Over the years, we’ve been asked a lot of questions and one of the most common questions is whether the client’s Company is feasible to uplist from US OTC Markets to National Exchanges such as Nasdaq.
In this discussion, we focus on compliance requirements to uplist to Nasdaq Capital Market by registering additional shares, outlined as follows:
1. Financial and liquidity requirements of the Nasdaq Capital Market (see table 1).
2. Corporate governance requirement of the Nasdaq Capital Market (see table 2).
3. Appoint US Securities Attorney, Underwriter and from Nasdaq point of view reputable PCAOB Auditor.
4. An effective registration statement on either Form S-1 or Form F-1 from U.S. Securities and Exchange Commission (SEC).
5. Approval from Nasdaq on the company's application to uplist, which should be accompanied by 4 requirements mentioned above.
Table 1: Financial and Liquidity Requirements of Nasdaq Capital Market
1 Currently traded company qualifying solely under the Market Value Standard must meet the $50 million Market Value of Listed Securities and the applicable bid price requirement for 90 consecutive trading days before applying.
2 To qualify under the closing price alternative, a company must have met one of the following criteria, in addition to satisfying the other financial and liquidity requirements listed above.
I Average annual revenues of $6 million for three years, or;
II Net tangible assets of $5 million, or;
III Net tangible assets of $2 million and 3 years of operating history.
3 Effective August 2019 Nasdaq’s initial listing criteria were revised to exclude securities subject to resale restrictions for any reason from the calculation of publicly held shares, market value of publicly held shares and round lot shareholders. In addition, the round lot shareholder requirements were revised to also require that at least half of the minimum required number of round lot holders must each hold unrestricted securities with a minimum value of $2,500.
In addition to the above requirements, if the security is trading in the U.S. over-the-counter market as of the date of application, the security must have a minimum average daily trading volume of 2,000 shares (including trading volume of the underlying security on the primary market with respect to an ADR), over the 30 trading day period prior to listing, with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million.
Table 2: Corporate Governance Requirement of the Nasdaq Capital Market
For elaboration purposes, we will be discussing NuZee Inc (the “Company”) uplisting to Nasdaq Capital Market back on June 20, 2020.
NuZee Inc is a Plano, Texas-based single-serve pour-over coffee producer and co-packer. The company stocks quoted on US OTC Markets since 2012. The company grew steadily since then and booked $1.79 million in audited revenue for the year ended September 30, 2019, and $4.01 million stockholders’ equity as of March 31, 2020, which met the financial requirements to list on Nasdaq Capital Market under Market Value Standard.
The Company filed Form S-1 Registration Statement with the SEC on November 12, 2019, registering the public offering of 700,000 shares at $9.00/share for a gross proceed of $6,300,000 which was declared effective on June 18, 2020, and applied with Nasdaq to list on Nasdaq Capital Market.
The public offering closed on the effective date of the registration statement, net proceeds from the offering, after deducting underwriting discounts and commissions and estimated offering expenses amounted approximately $5,300,000 went directly to the Company.
Upon the closing of the offering, the company has a total outstanding share of 14,534,421 shares. At offering price of $9 (the closing sale price for its common stock as reported on the OTCQB on May 20, 2020), its market capitalization was approximately $130 million, exceed the required Market Value of Listed Securities of $50 mil.
The Company's common stock began trading on the NASDAQ Capital Market on June 19, 2020, under the symbol NUZE.
For further elaboration, we compare each requirement of Nasdaq Capital Market with the Company financial statement extracted from Registration Statement as following
Financial & Liquidity Requirements of the Nasdaq Capital Market
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATION
Stockholders’ Equity, based on the audited consolidated statements of operations for the years ended September 30, 2019, and 2018 and the balance sheet data as of September 30, 2019, the Company did not satisfy the Stockholders’ Equity requirement under Equity Standard and Net Income requirement under the Net Income Standard.
However, the Company has met all financial requirements and liquidity requirements under the Market Value of Listed Securities Standard. (See table 3)
Table 3: Comparison between Market Value of Listed Securities Standard Requirements with the Company
Market Value of Listed Securities, upon the closing of the offering, the company has a total outstanding share of 14,534,421 shares. At offering price of $9 (the closing sale price for its common stock as reported on the OTCQB on May 20, 2020), its market capitalization was approximately $130 million, exceed the required Market Value of Listed Securities of $50 mil.
Unrestricted Publicly Held Shares, based on the information extracted from the US OTC Markets website, as of January 20, 2020, the company has a public float of 4,918,441 shares, of which satisfy the liquidity requirement of 1,000,000 Unrestricted Publicly Held Shares.
Market Value of Unrestricted Publicly Held Shares, at $9.00 per share (the offering price), multiply the public float of 4,918,441 shares, the company achieved Market Value of Unrestricted Publicly Held Shares of over $40 million, exceeding the requirement of $15 million.
Unrestricted Round Lot Shareholders, based on the information abstracted from its Form 10K filed on December 26, 2020, as of November 12, 2019, the stockholders list of the company showed 468 registered stockholders. Assuming no significant change, the shareholder number has met the liquidity requirement of the Nasdaq Capital Market of 300 round lot of shareholders.
Trading Volume, the company was exempted to fulfill the minimum requirement of average daily trading volume of 2,000 shares over the 30-trading day period prior to listing on Nasdaq Capital Market, as the underwriter, The Benchmark Company, LLC agreed to underwrite the stock on a firm commitment basis, at the public offering price.
Corporate Governance Requirement of the Nasdaq Capital Market
Comparison between Nasdaq Capital Market Requirements with NuZee Inc.
General Progress of Uplisting to Nasdaq Capital Market
1. Appoint US Securities Attorney and Underwriter. The company engages Polsinelli PC as US Securities Attorney and The Benchmark Company, LLC is their underwriter of the IPO.
2. Submission of Registration Statement to SEC and declared effective by the SEC on June 18, 2020. The company closed the public offering on the same day.
3. Submission of Nasdaq listing application subsequent approves accompanied by satisfying requirements mentioned above.
Other Information: Cost and Expenses
The following table shows the approximate costs and expenses, other than underwriting discounts and commissions, in connection with the uplisting and registration of the stocks.
We hope you now better understand the requirements to uplist your company to Nasdaq Capital Market. Perhaps in the next topic, we can share with you our experience in helping our client to uplist their US OTC Markets company to NYSE American. Till next time, stay tuned…
Should you interested to know more, feel free to contact us at [email protected] or visit us at www.hexcellence.co.
We are happy to assist you.
Hexcellence Consulting has experienced IPO consulting team focus on listing in US Stock Market,
namely NYSE, Nasdaq and OTC Markets.
Should you interested to list your company in US Stock Market,
please contact us at [email protected].