TOKYO - Earlyworks Co., Ltd. (NASDAQ:ELWS), a Japanese firm specializing in private blockchain technology, has announced a change in the ratio of its American Depository Shares (ADSs) to its ordinary shares. Effective on or about May 16, 2024, the company will adjust the ratio from one ADS representing one ordinary share to one ADS representing five ordinary shares.
This adjustment, which essentially acts as a one-for-five reverse ADS split, is designed to support liquidity and assist the company in meeting the Nasdaq's minimum bid price requirement. Earlyworks' ADS holders will maintain their proportional equity interest in the company without any impact.
Registered holders of the company's certificated ADSs must surrender their shares to the Bank of New York Mellon (NYSE:BK), the depositary bank, for cancellation. They will receive one new ADS for every five existing ADSs surrendered. Meanwhile, holders of uncertificated ADSs in the Direct Registration System and The Depository Trust Company will see their ADSs automatically exchanged and need not take any action.
No fractional new ADSs will be issued; instead, fractional entitlements will be aggregated and sold, with net cash proceeds distributed to the applicable ADS holders after deductions. Although the trading price of the ADSs is expected to increase proportionally, the company has stated that it cannot guarantee that the post-adjustment trading price will be equal to or greater than the price prior to the change or that the change will enhance liquidity.
This announcement follows the company's appeal against a Nasdaq delisting determination. Earlyworks had previously disclosed that it received a notice from Nasdaq on May 1, 2024, regarding its failure to comply with the minimum bid price requirement. The company appealed on May 7, 2024, and a hearing has been scheduled for June 18, 2024. The appeal process has stayed any suspension or delisting action until a final decision is made.
Earlyworks operates the Grid Ledger System (GLS), a hybrid blockchain technology, and is involved in various applications across industries, including real estate, advertising, telecommunications, the metaverse, and financial services. The company's mission is to continually update GLS to serve as infrastructure in a future data society akin to Web3 or the metaverse. This news is based on a press release statement from Earlyworks Co., Ltd.
InvestingPro Insights
As Earlyworks Co., Ltd. (NASDAQ:ELWS) navigates through its corporate restructuring with the ADS ratio change, investors are looking closely at the company's financial health and market performance. According to InvestingPro data, Earlyworks has a market capitalization of $8.83 million, indicating a relatively small player within its sector. The company's P/E ratio stands at -3.52, reflecting its current earnings challenges. Additionally, the PEG ratio for the last twelve months as of Q1 2024 is -0.13, suggesting potential concerns over the company's future growth relative to its earnings.
Investors should note that Earlyworks' stock has experienced significant price volatility. The one-week price total return as of day 134 of 2024 is -17.79%, and the price has declined by -83.68% over the last year, highlighting the stock's recent underperformance. However, there has been a strong return over the last three months, with a 29.1% total return, and a large price uptick over the last six months, totaling 30.22%. This could be indicative of a potential turnaround or a short-term positive trend in investor sentiment.
Among the InvestingPro Tips, it's important to highlight that Earlyworks is quickly burning through cash and suffers from weak gross profit margins, which could be critical factors for investors to consider in light of the upcoming Nasdaq hearing. The company's valuation also implies a poor free cash flow yield, and it does not pay a dividend to shareholders, which may affect its appeal to income-focused investors.
For those looking to delve deeper into Earlyworks' financials and stock performance, InvestingPro offers additional tips that can provide further insights. There are currently 9 more InvestingPro Tips available for ELWS at https://www.investing.com/pro/ELWS. Investors interested in these insights can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a more comprehensive analysis to help inform investment decisions.
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