DEF: Crown Electrokinetics Corp. Seeks Stockholder Approval for Reverse Stock Split and Auditor Ratification

Crown Electrokinetics Corp. is holding a special meeting to seek stockholder approval for a reverse stock split and to ratify the appointment of their new independent auditor.

Summary

• Crown Electrokinetics Corp. is requesting stockholder approval for a reverse stock split of its common stock at a ratio between 1-for-2 and 1-for-200, to be determined by the Board of Directors by December 31, 2025.
• The company aims to increase its stock price to regain compliance with Nasdaq's minimum bid price requirement of $1.00 per share.
• The special meeting will also include a vote to ratify the appointment of BPM LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2024.
• The record date for determining stockholders eligible to vote at the special meeting is December 16, 2024.
• As of the record date, there were 64,075,342 shares of common stock outstanding, each entitled to one vote.
• The reverse stock split requires a majority vote of shares present in person or by proxy, while the auditor ratification requires a majority of votes cast.
• The company's board of directors has the discretion to abandon the reverse stock split at any time before filing the amendment with the Secretary of State of Delaware.

Sentiment

Score: 3

Explanation: The document indicates significant challenges for the company, including a second delisting notice from Nasdaq and the need for a reverse stock split. While the company is taking action, the overall tone is negative due to the underlying issues.

Positives

• The proposed reverse stock split aims to increase the stock price, potentially attracting institutional investors and improving marketability.
• The company is actively addressing the Nasdaq delisting notice by proposing the reverse stock split.
• The company has appointed a new independent auditor, BPM LLP, which may improve investor confidence.
• The company is providing multiple ways for stockholders to vote, including by mail, phone, and internet.

Negatives

• The reverse stock split could reduce the number of outstanding shares, potentially decreasing liquidity.
• There is no guarantee that the reverse stock split will increase the stock price or maintain Nasdaq listing.
• The company has received multiple deficiency notices from Nasdaq regarding its stock price.
• The company has a history of reverse stock splits, which may be viewed negatively by investors.
• If the stock is delisted from Nasdaq, it could trade on the over-the-counter market, which may result in lower prices and larger spreads.

Risks

• The reverse stock split may not achieve the desired increase in stock price.
• The company may still be delisted from Nasdaq despite the reverse stock split.
• Delisting from Nasdaq could make it more difficult to raise capital.
• The reduced number of outstanding shares after the reverse split could negatively impact liquidity.
• The company's stock price is subject to market conditions and business performance, which could impact the effectiveness of the reverse stock split.

Future Outlook

The company intends to request a hearing with the Nasdaq Hearings Panel to appeal the delisting notice and regain compliance with the minimum bid price rule. The board of directors will determine whether to implement the reverse stock split and at what ratio prior to December 31, 2025.

Management Comments

• Our Board of Directors believes that approval of this proposal to effect the Reverse Split and to determine the ratio as opposed to approval of an immediate reverse stock split at a specific ratio, and to effect such reverse stock split at any time prior to December 31, 2025, will provide our Board of Directors with maximum flexibility to react to current market conditions and therefore to achieve the purposes of the Reverse Split, if implemented, and to act in the best interests of our stockholders.
• The Board of Directors primary objective in proposing a potential Reverse Split is to raise the per share trading price of our Common Stock.

Industry Context

The company's situation is not unique, as many small-cap companies face challenges in maintaining Nasdaq listing compliance due to low stock prices. Reverse stock splits are a common strategy used by companies to address this issue, but they do not guarantee long-term success.

Comparison to Industry Standards

• Many companies facing delisting from major exchanges like Nasdaq or NYSE often resort to reverse stock splits to artificially inflate their share price and meet minimum listing requirements.
• The proposed reverse split ratio of up to 1-for-200 is within the range of what is seen in similar situations, although some companies have used even higher ratios.
• Companies like DryShips Inc. (DRYS) and Globalstar Inc. (GSAT) have previously implemented multiple reverse stock splits to maintain their listings, with varying degrees of success.
• The effectiveness of a reverse stock split is often dependent on the company's underlying business performance and market conditions, not just the split itself.
• The change of auditors from Marcum to BPM is not uncommon, as companies may seek different expertise or cost structures, but it is important to ensure a smooth transition and maintain audit quality.

Stakeholder Impact

• Shareholders face the risk of further share price decline and potential delisting.
• Employees may be concerned about the company's financial stability and future prospects.
• Customers and suppliers may be impacted by the company's financial challenges.
• Creditors may be concerned about the company's ability to repay debts.

Next Steps

• The company will request a hearing with the Nasdaq Hearings Panel to appeal the delisting notice.
• Stockholders will vote on the proposed reverse stock split and the ratification of the new auditor at the special meeting on January 14, 2025.
• The Board of Directors will determine the exact ratio of the reverse stock split and whether to implement it by December 31, 2025.
• The company will file a Certificate of Amendment with the Secretary of State of Delaware if the reverse stock split is approved and implemented.

Key Dates

Keywords

reverse stock split, Nasdaq, delisting, BPM LLP, proxy statement, stockholders meeting, common stock, auditor ratification, minimum bid price, corporate action