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How a Nasdaq Uplisting Works
BY JOHN UDOVICH
Dec 22, 2015 6:54:59 PM PST | No Comment(s) - Post a Comment Rating
http://www.smallcapnetwork.com/How-a-Nasdaq-Uplisting-Works/s/via/3414/article/view/p/mid/1/id/2298/

At the end of September, small cap Staffing 360 Solutions Inc (NASDAQ: STAF) became the latest OTC stock to uplist to the NASDAQ – making it a good case study to understand the process for a small cap stock uplisting to the NASDAQ. After all, there are sometimes misconceptions about the whole uplisting process and the requirements that OTC listed small caps like Staffing 360 Solutions Inc need to be able to meet before being uplisted. I should first mention that there are a number of obvious reasons why a small cap stock like Staffing 360 Solutions, which is utilizing a high growth buy-and-build model to develop a pipeline of staffing acquisition targets in the finance and accounting, administrative, engineering and IT industries, would want to uplist from the OTC to the NASDAQ. As the Executive Chairman stated back in September when the stock began trading on the NASDAQ:

"NASDAQ opens the doors to numerous opportunities for growth and it will play an important role in our efforts to enhance the value of Staffing 360 Solutions moving forward. We are better positioned to advance our stated mission of reaching $300 million in revenue as we build a major international staffing company through organic growth and accretive acquisitions."

The Executive VP added: "Now as a NASDAQ-listed company, our ability to communicate our progress with a broader audience, raise the visibility of our M&A strategy, and generate more value for our shareholders will improve dramatically."

With that in mind and while there is a whole section of the NASDAQ website dedicated to listing requirements with a short guide here, here are a few key points for retail investors to be aware of:

Criteria. Uplisting companies must meet all of the criteria under at least one of the four financial standards plus applicable liquidity requirements. The four financial standards are the following:

Standard 1: Earnings
Standard 2: Capitalization with Cash Flow
Standard 3: Capitalization with Revenue
Standard 4: Assets with Equity
The liquidity requirements fall under the following criteria:

Initial Public Offerings and Spin-Off Companies
Seasoned Companies: Currently Trading Common Stock or Equivalents
Affiliated Companies
Listing Rule
Required Share Price. The required share price to uplist to the NASDAQ is $4 and this share price is determined by the bid price rather than the closing price. The bid price will more accurately reflect demand for the stock and unlike the closing price, which can be influenced by a single trade, its harder to manipulate. However, uplisting companies can also qualify under the closing price alternative if it meets the following requirements (in addition to satisfying the other financial and liquidity requirements):

Average annual revenues of $6 million for three years, or
Net tangible assets of $5 million, or
Net tangible assets of $2 million and a 3 year operating history.
Reverse Splits. In order to meet NASDAQ’s minimum share price requirements, many small cap stocks will conduct a reverse split with the post reverse split share price being the price the stock exchange will consider. Its important to remember that reverse splits are actually a sign of good things for companies on the way up, but tend to be a sign of bad things for companies on the way down. For example: Reverse splits tend to be associated with stocks trying to prevent themselves from being delisted from a stock exchange.

In the case of Staffing 360 Solutions, the stock met all the listing requirements for the NASDAQ with the exception of its share price. So in mid September, the company conducted a 1-for-10 reverse stock split.

It should be kept in mind that an uplisting application to the NASDAQ does not automatically mean the application will be approved and the process for a decision can come fairly quickly or take several weeks or months.

Moreover, investors need to remember that while NASDAQ may be a stock exchange, its also a business. After all, stock exchanges like the NYSE, AMEX and NASDAQ all charge substantial listing fees to companies for listing on their exchanges and all want to maximize revenue. They are also competing with each other to attract high quality small cap stocks with potential like Staffing 360 Solutions who they feel have the potential to succeed and thus attract more companies to list on their respective exchanges.

John Udovich is a paid contributor of the SmallCap Network. John Udovich's personal holdings should be disclosed above. You can also view SmallCap Network's complete Disclaimer and SEC Rule 17b Disclosure.