Posted on May 19th, 2016
by Jeffrey Bacha
Up-listing to a National Exchange is one of our corporate goals for 2016. We view listing our shares on a senior stock exchange as an important and positive step in DelMar’s long-term growth strategy.
One of the quantitative requirements for initial listing on a senior exchange is that the closing price of our stock must meet a minimum listing requirement. Properly executing a reverse stock split allows us to fulfill this crucial price requirement and reap the benefits of being on a senior exchange in the timeliest manner possible.
We also believe the higher stock price resulting from the reverse stock split and successfully achieving the up-listing will make our stock more attractive to a wider investor base. Currently, many institutional and retail investors are restricted or prohibited from owning our Company’s shares for a number of reasons, including our trading on an OTC market and a lower stock price. A reverse split will help open the opportunity for ownership of our shares to new investors and is therefore a good thing.
Furthermore, we believe we will be in a better position to attract Wall Street analysts to cover our Company’s progress with a higher stock price. The inherent increase in visibility associated with analyst coverage can also translate to greater liquidity for our shareholders, which we believe will also increase shareholder value.
Any company’s market capitalization — the total value of all its shares — remains the same immediately before and after a split. Say a company has 80 million outstanding shares and a stock price of 1 dollar per share, for a market cap of $80 million. If the company then executes a 1-for-4 reverse split, reducing the number of outstanding shares to 20 million. The company’s market capitalization remains the same, at $80 million, and now each share is worth $4. If you owned 4,000 shares at 1 dollar apiece before the split, now you own 1,000 shares worth $4 apiece after the split. The total value of your investment remains the same: $4,000. Nothing about the company has changed except the number of shares available, and that by itself has increased the stock price threefold.
Companies execute a reverse stock split for one of two primary reasons. It is critical to understand the distinction and motivation behind the two routes to fully appreciate what drives market perception of this action.
Reverse Stock Split by a Troubled Company to Avoid Delisting
Once listed on a senior exchange (NASDAQ or NYSE), companies must comply with a number of qualitative and quantitative listing requirements in order to maintain that listing. One such rule is a minimum price requirement: companies that fall under the threshold risk losing their listed status.
A company facing delisting due to the failure to meet the minimum bid price requirement has a few options to consider. One option is a reverse split, which is used to avoid the negative market perception of losing their listing.
An investor who has witnessed a company’s share price drop below the minimum listing requirement knows it is often a signal that the company is in trouble. In this case, implementing a reverse stock split to maintain its senior exchange listing can maintain the listing price, but does nothing to address any of the issues underlying the stock price decline.
A company receiving a stock exchange deficiency must make a public announcement to this effect, so it is no surprise that there is generally a negative market perception of a reverse stock split for this purpose.
Reverse Stock Split by A Growing Company to Gain a Senior Listing
In contrast to companies executing a reverse stock split to maintain a listing, companies that execute a reverse stock split in order to up-list often have an upward trajectory.
In fact, companies that up-list to gain a senior exchange listing can often deliver positive stock price performance post-split as they take an important step in their growth, enhance access to capital and increase liquidity.
Of course, key attributes of any successful company, including those that conduct successful splits and up-listings include having sufficient cash to reach near-term milestones, consistent news flow, a commitment to transparency in communicating company goals, and a track record of success in meeting its milestones. DelMar intends to continue following this trajectory.
In selecting the 1-for-4 reverse stock split ratio, DelMar’s Board of Directors decided on a target price above $5.00. This threshold not only meets the minimum price requirement for both NASDAQ and NYSE-MKT, but is also an important threshold for stock ownership by institutional investors and for larger brokerage firms to permit solicitation of their clients because it removes “penny stock” restrictions from our shares.
We look forward to reporting to you on our anticipated success following our reverse stock split and planned up-listing and thank you for your ongoing support and confidence.
Forward Looking Statements
Any statements contained in this blog that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein are based on current expectations, but are subject to a number of risks and uncertainties. The factors that could cause actual future results to differ materially from current expectations include, but are not limited to, risks and uncertainties relating to the Company's ability to develop, market and sell products based on its technology; the expected benefits and efficacy of the Company's products and technology; the availability of substantial additional funding for the Company to continue its operations and to conduct research and development, clinical studies and future product commercialization; and, the Company's business, research, product development, regulatory approval, marketing and distribution plans and strategies. These and other factors are identified and described in more detail in our filings with the SEC, including, our current reports on Form 8-K.
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