Local Firms Make Peace With OTCB, Pink Sheets
On Friday Oct. 15, shareholders of Generex Biotechnology Corp. took a vote that could have saved the company from being delisted from the Nasdaq stock exchange.
Instead, only 47.5 percent of Generex shareholders voted for a reverse split, which kept the value of the stock below $1 per share, the minimum price a share can be traded at and remain on the Nasdaq.
On that next Monday, Oct. 18, Generex — which owns Worcester-based Antigen Express — began trading on the Over the Counter Bulletin Board, or the OTCB.
Unlike the Nasdaq and New York Stock Exchange, there are no requirements for a stock to trade at a certain price on the OTCB. Plus, there are also no restrictions on the market cap of the company or who sits on the board of directors of the business.
While there are almost 3,000 companies on the OCTB, it’s widely viewed as an inferior trading venue. Major institutional investors don’t commonly follow these stocks, the number of investors in the market is smaller and the amount of money traded is smaller.
“If the New York Stock Exchange is a Cadillac dealership, then the Nasdaq is a Lexus one and the OTCB is a used car lot,” said James Angel, a finance professor at Georgetown University in Washington, D.C.
But that’s what Generex has been relegated to.
And the small biotech company is now fending for itself, along with dozens of other companies in Central Massachusetts, on the OTCB.
Strength In Numbers
Generex isn’t alone in terms of getting delisted. Last year, 105 stocks were delisted by Nasdaq, compared to 85 the year before. That’s more than double the number of stocks (48) that were delisted in 2007.
According to Angel, the recession has led more stocks in the past few years to fall below the minimum listing requirements for Nasdaq.
“In my experience, nobody looks to be on the OTCB versus the Nasdaq or some other exchange,” said Mara Rogers, a partner at the New York law firm Fulbright & Jowarski, where she specializes in securities law. “It’s a step below.”
Still, not all the companies on the OTCB are Nasdaq rejects.
According to Angel, there are a few unofficial common subgroups OTCB stocks fall into. Some are the “fallen angels,” as he calls them: These stocks once traded on the Nasdaq, have fallen off, and now are on the OTCB. “Wannabe” stocks begin trading on the OTCB and company officials have dreams of one day graduating to the Nasdaq or even more exclusive exchanges, like the NYSE, home of Dow Jones Industrial Average companies.
And then there are the “zombies,” as Angel describes them. These are stocks that are basically dead; the company does not have a viable business model and they do not attract the investors needed to ever be traded on the Nasdaq or other exchanges.
Plenty of companies across Central Massachusetts fall into some of these categories.
For example, Advanced Cell Technology could be classified as one of the “wannabe” stocks.
ACT’s stock has been trading on the OTCB since the company was founded in 2005. Its share price has fall from $6 to just 4 cents per share. Its total market capitalization is $44 million.
William Caldwell, president and CEO of ACT, said the ultimate goal is to one day graduate up to the Nasdaq exchange if the company’s stock can achieve the minimum listing price requirement.
“We’ve learned to live with it, but we clearly would like to move to a broader environment that will open the doors for significantly larger investments,” he said.
Pinker Shade
For other companies, these alternative exchanges seem like a good fit.
Take Littleton-based LiveWire Mobile Inc. The company used to be a subsidiary of Framingham-based NMS Communications Corp., a child of the dot-com boom. At its peak in 2000, NMS’s shares soared to more than $700.
Within a few years, the stock had a precipitous fall. LiveWire Mobile broke off as its own company in mid-2008 and delisted from the Nasdaq to trade on what are known as the Pink Sheets.
Named for the pink color of the paper that the stock quotes used to be printed on, the forum has even looser requirements than the OTCB and the Nasdaq. There are no requirements for minimum stock price, market cap or regulatory reporting.
“The profile [of the Pink Sheets] fits us today,” said Todd Donahue, CFO of LiveWire.
The biggest knock against exchanges like the Nasdaq or the OTCB, Donahue explained, is the cost of complying with their regulatory requirements. Donahue estimates that a company must spend upwards of a half million dollars annually to meet Nasdaq reporting requirements. That includes compiling quarterly and annual Securities and Exchange Commission reports and having the supporting legal staff. By trading on the Pink Sheets, the company has no such burdens. LiveWire Mobile does still get regular independent financial audits, even though there are no requirements for the company to do so, Donahue added.
LiveWire’s stock was last trading just under $3 per share, with a market cap of about $13.5 million. Third-quarter losses for the company narrowed from $600,000 last year to $300,000 this year on $3.1 million in revenues.
Michael Refolo, a partner at Worcester law firm Mirick O’Connell, said that while non-traditional exchanges such as the OTCB and Pink Sheets have a negative stigma, companies can survive, if not excel, on them.
“While most companies aspire to be listed (on the Nasdaq or other exchanges), some companies thrive on the bulletin board,” he said. “It’s not unheard of to see a perfectly viable business trading on the OTCB or Pink Sheets.”
Even so, Donahue said LiveWire’s eventual goal is to grow the company back onto the Nasdaq.
Back at Generex, Interim President and CEO Mark Fletcher said he too hopes to return to the Nasdaq or another exchange in the near future. Being delisted, he said, will make it harder to attract new investors to the company.
The company is already working with an investment firm and putting together a business plan with a goal of getting back on the Nasdaq. An announcement relative to the specifics of how to do that should come sometime in January, Fletcher said.
Angel, the Georgetown professor, said there is a simple way to regain Nasdaq status: Have a good, profitable business.
“If you’re a good business that’s making money with a stock that’s growing, your stock price will eventually reflect that, and the major exchanges will be begging you to trade on their service,” he said.
WBJ Web Partners
Most Recent
Most Recent
0 Comments