Seven Arts Loses 50% On Maiden Trading Day At OTC After Failing To Fulfill Listing Rule In NASDAQ (SAPX)

After failing to demonstrate a minimum closing bid price of $1.00 per share for 10 consecutive days to remain listed on the NASDAQ, shares of Seven Arts Entertainment (OTC: SAPX) nose dived by around 50% in the first hour of trading in the OTC market.

On September 29, 2011, the Los Angeles-based independent motion picture production and distribution company was granted a 180-day compliance period by the staff of the NASDAQ to demonstrate the $1.00 per share bid price requirement. The company was unable to demonstrate the required closing bid price within the granted time period, which ended March 20, 2012.

Seven Arts requested an additional 180-day compliance period, which was granted with an expiry of September 20, 2012. On March 27, 2012, the company held its annual stockholders meeting which passed a resolution favoring the amended increase in the authorized number of shares of capital stock to 250 million. The optimistic management also foresaw an appreciation in the stock price on realization of the company’s business plans. To protect the NASDAQ listing, the board authorized to implement a reverse split in a range of 1:3 to 1:10. Seven Arts CEO, Peter Hoffman, also issued a letter to the company’s stockholders in the month of April to discuss the recent developments including the annual stockholder meeting.

On April 16, 2012, Seven Arts announced the termination of negotiations for a $3 million convertible debenture fearing an unacceptable level of dilution of the company’s stockholders. The company also categorically informed that it has no intention to implement a reverse stock split unless there is no alternative to protect the company’s NASDAQ listing.

Seven Arts made several releases in the following months. Prominent ones include DJ Lade’s debut single, television and digital releases of “The Pool Boys” and “Drunkboat”.

In early August, Seven Arts announced the launch of its new website with better design, information availability and interactivity. With little time left to fulfill the listing requirement of the NASDAQ, the company announced a 1-for-70 reverse split of its common stock effective August 31, 2012. The resulting fractional shares were rounded up to the next whole share.

On September 10, 2012, Seven Arts stated that its subsidiary, Seven Arts Film Entertainment Louisiana (“SAFELA”), has commenced theatrical, video, digital and television distribution in the United States. Two days later, the company also distributed the multi-platinum recording artist DMX’s new album “Undisputed.”

However, none of these attempts resulted in a marked improvement in the company’s share price. Yesterday, the company informed investors that its common stock would begin trading on the OTC Markets’ OTCQB marketplace commencing on Friday, September 14, 2012. Seven Arts also added that it is applying to trade on the highest OTC marketplace, OTCQX.

The fact that all attempts to keep the company listed in the NASDAQ were futile triggered a massive sell-off in the opening hours of trading, resulting in a drop in the share price to $0.28. The share price recovered to end the day at $0.43, down $0.14 or 25% on a volume of 464,995 shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.