Net companies face Nasdaq delisting

Hundreds of companies on the Nasdaq exchange - including Drkoop.com and E-Stamp - have been warned that their shares may be delisted because their prices have fallen to less than US$1.

Hundreds of companies on the Nasdaq exchange - including Drkoop.com and E-Stamp - have been warned that their shares may be delisted because their prices have fallen to less than US$1.

Delisting could make it more difficult for cash-strapped dot-com and other Internet companies to raise money or to use Silicon Valley's favorite tool - stock options - to attract and keep talent.

Drkoop confirmed last week that Nasdaq sent notification that its minimum bid price was less than $1 for 30 consecutive trading days, therefore putting the company at risk of being dropped.

"We consider the maintenance of our Nasdaq National Market listing to be very important, and intend to take the appropriate steps to ensure that we maintain it," Richard Rosenblatt, chief executive of Drkoop, said in a statement. The troubled company cut its payroll by 35 percent to improve its finances.

Robert Ewald, president of E-Stamp, said his company also received a notice from Nasdaq and might do a reverse split or buy back shares. Ewald echoed Rosenblatt's comment about the importance of remaining on the Nasdaq National Market System.

Ewald said he was informed that Nasdaq sent out 200 similar warnings in November, and that it planned to send another 200 in December. Nasdaq would not confirm the notices and considers the information private.

A survey by Interactive Week found at least 30 Internet-related companies whose shares are near or less than US$1. E-Stamp was selling for less than the price of a postage stamp - around 22 cents per share - last week.

Theglobe.com is a 31-cent bauble. Vitaminshoppe.com is limping along at 38 cents per share. Youbet.com is less than 50 cents per share, and investors would be doing iParty a favor if they bought its stock at 20 cents; it sold last week for 19 cents per share. Nasdaq first tracks a stock when the price falls to less than US$5 per share. Deficiency notices are sent out when the stock trades at less than US$1 for 30 consecutive days. The company has 90 days in which to get back in Nasdaq's good graces, or it has to go through a six-month process that can lead to banishment.

A low share price by itself will not cause automatic delisting. Nasdaq has a complex matrix of requirements that a company has to meet to stay on either the National Market System or the Small Cap Market.

Companies whose stocks are taken off the National Market System can move down to the Small Cap Market or even further down to the Over the Counter Bulletin Board.

But a company becomes virtually invisible to most investors when it reaches the Over the Counter Bulletin Board: Institutional investors are usually not allowed to buy shares in these companies, and securities analysts don't follow them.

As a result, companies have a difficult time raising equity money, and finding affordable debt financing gets tough. Companies dangerously close to sliding off Nasdaq

Company Share Price
Autoweb.com $0.47
Beyond.com $0.31
Burst.com $1.00
Buy.com $1.03
Circle.com $0.75
Egreetings Network $0.25
E-Stamp $0.22
Fogdog.com $0.91
Theglobe.com $0.31
HealthGate Data $0.44
ImproveNet $0.40
Infonautics $0.94
Internet America $0.72
Internet Commerce & Communications $0.97
Iparty $0.19
The Knot $0.78
Loislaw.com $0.69
MessageMedia $0.94
MotherNature.com $0.84
NetCurrents $0.56
PFSWeb $0.69
PSINet $1.00
Quotesmith.com $0.84
Quokka Sports $1.00
Snowball.com $0.50
Stonepath Group $0.63
Streamedia.net $0.78
Talk City $0.31
US Interactive $0.50
US Search.com $0.31
VitaminShoppe.com $0.38
WebStreet $0.97
Youbet.com $0.47

Source: Interactive Week There are ways that companies can avoid being delisted. They can buy back shares to decrease the number available, thus raising the bid price. For example, MyPoints.com - share price US$1.50 - has authorized spending up to US$20 million to buy its own stock.

If it doesn't have the cash to buy back shares, a company can reduce the number of shares outstanding by doing a reverse split - that is, it notifies investors that three shares are now worth one, or four shares are worth one, etc.

NetCurrents did reverse splits in June 1996 and May 1998, when its share price was less than US$1. In this case, the effort was to little avail; last week, NetCurrents' stock traded at 56 cents.

A company can also move to the American Stock Exchange, where listing requirements are not as stringent. The Amex is also less aggressive in moving against deficient companies because it is a smaller exchange and wants to keep as many stocks listed as possible, said Robert Matlin, a New York lawyer and general counsel at iParty. The company would not comment on its stock price.

Virginia Turner, investor relations at HearMe.com, a supplier of voice-over-Internet Protocol technology that currently trades at $1.19 per share, said she has gone through delisting in the past with other companies. "You get a lot fewer calls from people and are able to concentrate more on just doing your job," Turner said.

ESoft, a provider of broadband solutions for small and midsized companies, now trades at US$1.75 per share and is not concerned about its share price, said Jeff Finn, eSoft president and CEO. ESoft might repurchase some shares. It has enough cash to survive for almost two years, Finn said.

Matlin said reverse splits, buybacks or switching exchanges are only temporary fixes - a company must also get its story out to the investment community and, if possible, announce some new product or an acquisition, partnership or investment by a major company.

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