Business strategies: leaving NASDAQ

There is no doubt: there is a certain kudos that being listed on a major board brings to a company. And being a public company means that capital raising has less regulatory obstacles.

But being listed on a major exchange also brings with it heavy compliance obligations, and they have a substantial cost.

So Craftmade International has made the decision that the benefits of being NASDAQ listed do not justify the difference in cost between being NASDAQ listed and being listed on an OTC board.

And so, the company will list on the OTCQX, a "premier tier" OTC market operated by PINK OTC Inc.

According to Craftmade, a Texas company, Pink reckons that a company can save between USD500,000 to USD750,000. And that doesn't include the time that senior staff spend on regulatory affairs that don't feed to the bottom line.

But, says Craftmade, the savings in 2010-11 will be greater than they would have been this year due to the imminent implementation of additional requirements on small companies under Sarbanes-Oxley.

The company says that it chose the OTCQX market because it is much more regulated than some other OTC markets and requires detailed and "rigorous" financial reporting. "Specifically, OTCQX-listed issuers are required to publicly disclose annual audited financial statements, unaudited quarterly financial statements and current information pertaining to material events and trading by insiders," says the company.

So it's not choosing the change of market as a means of hiding any financial issues. Moreover "The company believes that these disclosures, which will be reviewed by a reputable investment bank sponsor, will provide its shareholders with the ability to monitor the Company's progress and make informed investment decisions. In addition, the company currently intends to continue to hold annual meetings of stockholders."

J. Marcus Scrudder, Craftmade's Chief Executive Officer said "We're taking this important step with our shareholders' interests in mind. The burden of reporting under the Exchange Act and in recent years the added burden of Sarbanes-Oxley have become too much for many small companies like Craftmade. After careful consideration, the Company believes that by moving its stock listing to OTCQX, it can re-invest significant resources to help drive growth and profitability."

He says that Craftrade is not the first to jump: others taking the same step have seen little impact on either trading volumes or share price.

The company will hold a conference call tomorrow morning (12 November) to give more information.

Craftmade was founded in 1985 and designs, manufactures, markets and distributes its branded product for home construction and improvement.

The company makes the strong point that "Given the limited public trading volume and liquidity of the Company's common stock, the Company does not believe the benefits of having its common stock listed on a national exchange and registered under the Exchange Act outweigh the associated annual costs."

In short, the company is too small to interest institutional investors. In fact, it is entitled to de-register because it has less than 300 registered investors.

There are many small US companies that fit into that category, including many financial institutions and family-owned businesses for whom savings of more than half-a-million dollars a year would be a significant bonus.

Craftmade isn't the first to make the change and it won't be the last. For many businesses the logic would appear compelling. The benefits of NASDAQ and other big boards are access to market capital through new issues. That doesn't seem to be something that businesses like Craftmade have any genuine access to. And, technically, there is no reason why that access should not be available to companies listed on OTCQX.