Nasdaq rule suspension helps Heska

Market conditions have spurred the Nasdaq Stock Exchange to temporarily suspend its minimum pricing rules, giving a reprieve to hundreds of companies that faced delisting including Loveland-based Heska Corp.

On Oct. 20, Heska received a letter from Nasdaq alerting the company that it did not comply with the exchange’s Bid Price Rule, which requires listed securities to remain above $1. However, the letter also explained that the stock exchange had received approval from the U.S. Security and Exchange Commission on Oct. 16 to suspend enforcement of its listing requirements related to bid price and market value through Jan. 16.

“A number of companies have had difficulty satisfying our price-based requirements due to recent severe market conditions, as opposed to any changes in their underlying business model or prospects,” according to a Nasdaq spokesman who asked not to be identified. “We are recognizing that reality with a three-month suspension of our $1 bid price and market value of publicly held shares rules, provided the company meets all other listing requirements.”

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According to Nasdaq’s request to the SEC, as of Sept. 30 there were 227 securities trading below $1 compared to 62 at the same time last year. By Oct. 9, 344 securities were under $1 and more than 300 were trading between $1 and $2.

Heska, a veterinary medicine and equipment company, first fell below $1 on Aug. 11. The stock resurfaced two weeks later, but dropped below $1 again on Aug. 28. At the time, it seemed to be a short-term issue, and the Nasdaq rules don’t kick in until a stock has been below $1 for 30 consecutive days.

“I certainly did not anticipate that the Dow and S&P would take the dramatic declines that they did,´ said Heska CFO Jason Napolitano.

This is not Heska’s first time dealing with the threat of delisting. Napolitano said that the company received notices twice before during his tenure as CFO, which started in 2002. Each time, the company has been back in compliance with the bid-price rule within the deadline.

“It’s really no magic,” Napolitano said of boosting the company’s stock price, adding that it is about running the company wisely. “We did our best to get in front of investors in both cases.”

Market slams micro-caps

Napolitano feels that current conditions are especially hard on micro-cap stocks. He explained that the stock market is largely dominated by two emotions – fear and greed.

“We’ve seen greed for the past two years,” he said. “This year, we’ve been reminded of what the fear feels like.”

During October, the S&P 500 lost 16.8 percent of its value, the Dow Jones Industrial Average was down 14 percent and the Nasdaq Composite dropped 17.7 percent. Napolitano explained that if investors are shying away from investments in larger, well-known companies, the appetite for investments in small firms is likely to be less.

Of course, the market decline is creating opportunity even as it is ravaging prices and portfolios. Investors might be able to find some pretty good deals. Napolitano said that Heska’s stock is now at levels not seen since late 2002.

“That was a company that had a trailing loss of $8 million,” he said.

Now Heska has three profitable years under its belt. Through the second quarter, Heska has recorded $44.5 million in sales and $440,000 in net income. For the first half of 2002, the company reported sales of $22.4 million and a net loss of $6.7 million.

None of Northern Colorado’s other public companies are out of compliance in terms of trading rules, but all of them have been impacted by the market decline (see chart).

“I think we’ve seen our share price move in line with the market,´ said UQM Technologies Inc. CFO Donald French. “Our belief is that our stock is undervalued.”

UQM Technologies, based in Frederick, develops and manufactures electric motors and controllers. The company’s stock fell about 18 percent during October, closing on Oct. 31 at $2.20. Despite the decline, French counts UQM lucky.

“I think we’re doing maybe a little better than some others in the (alternative energy) industry,” he said. He attributes the stock performance to the company’s work on alternative fuel and electric vehicles, an area of keen interest right now.

Exchange changes

UQM’s stock used to trade on the American Stock Exchange, which was recently purchased by NYSE Euronext. The exchange is now called NYSE Alternext US but will keep its rules in place for now. The exchange has different levels of listing, one of which does not include a minimum price rule.

As for the New York Stock Exchange, there are no plans to change any rules due to the market conditions.

“The New York Stock Exchange has never suspended its bid rules,´ said Scott Peterson, managing director for the regulations division of NYSE. NYSE lists 2,700 companies and through the end of September only had to delist 19 “for cause” – either bankruptcy or lack of compliance. Last year, the exchange saw 21 delistings, a far cry from the 65 for-cause delistings in 2001.

“The number will shoot up a little bit,” Peterson acknowledged. Going into the final week of October, four companies were delisted. “Overall, we’re looking at a relatively low number.”

With the Nasdaq suspension, companies will have 180 days from the Jan. 16 reinstatement to regain compliance, meaning Heska shares will have until mid-July to return above $1. Napolitano added that companies can also file for an extension after that if they meet the initial listing criteria, which he believes Heska does. The extension would add another 180 days.

“It does give us more flexibility, but we’re reacting now anyway,´ said Napolitano. “We’re not using (the rule suspension) as a breather. We’ll continue to drive value and get in front of investors.”