Decorize delists from AMEX, citing costs

The home furnishings company was delisted from the exchange April 27 because Decorize did not meet the $2 million minimum requirement for stockholder equity and had not paid listing fees for the exchange. But the decision to delist was not based on failing operations, said Decorize CEO Steve Crowder.

Decorize’s revenues for the nine-month period ending March 31, according to its quarterly financial statement issued May 15, were $11.54 million, up 62 percent compared to the same period a year earlier. Sales to independent furniture retailers are up 50 percent to 80 percent, and the company has added deals with companies including Bass Pro Shops and Wal-Mart Stores in recent months.

Crowder said the company decided that the requirements to stay on AMEX were not worth the effort.

“We didn’t want to go out and raise more equity just to stay in compliance,” Crowder said. “Our board decided that it didn’t make sense to raise more equity unless there was a reason to raise capital – to grow the business without diluting the shares.”

Decorize is not alone in its move. Four Springfield-area companies have gone private or changed their listing status since 2005.

Stainless steel manufacturer Paul Mueller Co. removed its stock from the Nasdaq stock exchange in January 2005, while sound-system builder SLS International was removed from the AMEX in November. John Q. Hammons Hotels Inc. went private in September 2005 after a $132 million purchase by a Delaware-based investor group.

Stifling regulations

Much of the movement can be traced back to the Sarbanes-Oxley Act of 2002, which created new oversight regulations for public companies in the wake of highly publicized scandals at companies such as Enron and Worldcom.

Those increased regulatory requirements equal increased corporate costs. Crowder said listing on AMEX cost the company at least $250,000 a year in registration and other fees, significantly more than where Decorize stock is now traded, the Over the Counter Bulletin Board. Decorize began trading under the ticker symbol DCZI.OB on May 16, when shares closed at 47 cents. Company stock closed at 35 cents its last day on AMEX.

And the bigger the company, the bigger the compliance costs. Scott Tarwater, vice president of development for Hammons Hotels, said the company was spending close to $5 million “for nothing but paperwork.”

“We were betwixt and between a medium-size and a large corporation, and just paying the cost of Sarbanes-Oxley was a continuing challenge,” Tarwater said. “Plus, the mood of the litigators at the time was not favorable. So when we weighed all of our options, it was far more beneficial to go private again.”

Robert Wyatt, head of the Breech School of Business at Drury University, said he’s not surprised by the growing trend of companies leaving larger exchanges – it’s something the academic world had predicted.

“It used to be a slam-dunk decision to be listed when you reached a certain size, but now I think it’s a valid concern that firms have to look at – particularly firms where the equity issue is not as big a deal,” Wyatt said. “The regulations there would make it not cost-effective anymore for smaller companies to go through the process.”

Despite the increased costs and regulations, Crowder sees the public trading floor as a place where Decorize would be traded again, when it’s a better fit with the company’s size. But it probably won’t be on the AMEX.

“With microcap stocks like ours, over the counter is the place to be,” Crowder said, noting that when the company reaches a size large enough to merit the costs of public trading, Decorize would probably apply for entry to the Nasdaq. “There aren’t a lot of businesses like ours on the AMEX. The analysts and businesses there were just different industries.”

Why go public?

There are advantages to being public – the largest being available capital.

“A private equity launch is a difficult thing to do, but (raising money) is pretty easy on the public exchanges,” Wyatt said. “You have a much wider range of potential investors than going to a private equity firm and coming up with people interested in those kinds of offerings.”

Public companies also have additional opportunities to offer employee benefits, according to Tom McFall, senior vice president and chief financial officer of O’Reilly Automotive. O’Reilly went public on the Nasdaq in 1993.

“(Going public) was a chance to offer stock options to our key employees, so they could participate in the success of the business and have a market to exchange those options to cash when they so chose,” McFall said, adding that public companies also tend to have lower debt due to their ability to raise money without borrowing.

Additionally, there’s a prestige factor involved. Wyatt said that larger exchanges, especially the New York Stock Exchange, could provide access to a slightly larger capital market.

Crowder, however, said that being publicly traded hasn’t made much difference in making sales to potential customers. In fact, he pointed out an additional drawback of customers knowing too much about a company’s financial status.

“If you have a big customer that is a majority of your business, and they see you’re making ‘too much’ money, they can use that as leverage against you,” Crowder said.

The costs and the desire for company privacy are two reasons Hammons Hotels’ Tarwater said his company is very happy with the decision to go private – and it’s not likely that the company will go public again any time soon.

“You never say never in this crazy business, but I’ll say this – all the stars in the universe would have to line up correctly before we would do that,” he said. “I don’t see a scenario where that would happen.”

Decorize 3Q revenues improve

Decorize Inc. reported increased revenues but a net loss for its fiscal third quarter, according to its Securities and Exchange Commission filing May 15.

Revenues for the quarter ended March 31 were $3.86 million, up 14 percent from fiscal third-quarter 2006. The company showed an operating profit of $14,000 but had a net loss of $214,000 for the quarter.

For the nine months ended March 31, operating income was $126,000, up by $1.07 million from a $948,000 operating loss reported in the same period last year. Revenues were $11.54 million, up 62 percent from a year ago, while Decorize reported a net loss of $474,000. The loss, however, was an improvement compared to the $1.39 million net loss a year ago.

The company’s backlog exceeds $5 million.