August 14, 2000
Dot-Coms Falling From Nasdaq’s Grace The market has begun to boot Internet companies that are falling below its standards. By Megan Barnett
It was just a matter of time before the Nasdaq followed the lead of investors and dumped its Internet stocks. Last week, three Internet-related companies disclosed to shareholders that their days on the exchange were numbered. One of them, messaging firm eFax.com , was officially removed last Wednesday.
Other dot-coms are marching dangerously close behind eFax. Nasdaq officials warned e-retailer Beyond.com and music distributor K-Tel that each could lose its listing status unless the companies meet certain requirements within 90 days.
To remain listed on the Nasdaq, companies must meet a range of standards. In some cases, companies must maintain a stipulated market capitalization or tangible asset level. For others, stock prices cannot close below a set price for 30 consecutive trading days. Companies that don’t meet these mandates can trade on the over-the-counter market. The requirements at the New York and American stock exchanges are often stiffer.
Company executives can appeal to Nasdaq officials if they can convince them they will correct the problem within a certain time frame. Beyond.com traded some of its convertible notes last week in an attempt to boost its net assets. EFax, which had only $2.9 million in net assets, tried unsuccessfully to appeal its delisting.
“I think Nasdaq has become a lot more strict on compliance in the last six months,” says eFax.com CFO Todd Kenck, who notes that while he was disappointed with the outcome, the market officials’ analysis of eFax’s appeal was thorough and fair. “Their intention is to protect investors,” he adds.
Nasdaq spokesman Wayne Lee says nothing has changed in the last six months, and that the exchange has always operated an extensive surveillance and regulation department to detect companies that fail to pass muster. So far this year, 332 companies have been delisted, less than half the 873 delisted in 1999.
But in the aftermath of the market’s correction, the number of Internet companies on that list is rising. A look at the Nasdaq stocks trading at or near $1 per share indicates more dot-coms could soon be shown the door. Value America closed under a buck for its 26th consecutive day last week, and MotherNature.com its 25th. The clock is ticking.