Nasdaq boots the dot-com failuresgreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
Nasdaq boots the dot-com failures By Beverly Goodman Red Herring, February 13, 2001 Current comparison chart Quote & Chart for: MDCM This article appears in the February 13, 2001, issue of Red Herring Magazine.
Not only is the party over for a multitude of dot coms, but the doors to the dance hall have been bolted and the building condemned. And nothing says "get out" more than a dreaded deficiency notice from the Nasdaq.
While the number of delistings in 2000 doesn't seem earthshaking at first glance -- 700 companies had been delisted, compared to 873 in 1999 -- expect a surge in the first quarter of this year. Why? Because of the lengthy delisting process -- up to six months -- companies caught in the autumn downdraft may not be forced off the exchange until March.
These notices aren't exactly a surprise. They arrive after the stock has been trading below $1 for 30 consecutive business days. Besides keeping its share price above a buck, to remain listed a company must have net tangible assets of $4 million, a market capitalization of $5 million across a public float of 750,000 shares (with at least 400 investors owning 100 shares or more), and two brokerages making a market in the stock. After receiving the Nasdaq's deficiency notice, the company has 90 days to push the stock above $1 for 10 consecutive business days. Companies with a sub-$5 million market capitalization receive a notice after 10 days and have just 30 days to get up to snuff.
THE DEMISE OF THE DELISTED While companies can theoretically reapply and be listed again, it's a rare feat, because the rules for getting listed are more stringent than those for maintaining a listing. The harsh reality is that once delisted, most companies are permanently relegated to trade on the Over the Counter Bulletin Board, where they languish and often dissolve.
To see how quickly a company facing delisting can fade into oblivion, look no further than Mortgage.com (Nasdaq: MDCM). Its stock had shot up to $17.50 a share a month after its IPO at $8 on August 11, 1999. But one year and a steady decline later, the stock was down 95 percent and trading at less than a dollar. The company, based in Sunrise, Florida, saw the writing on the wall and in October laid off 518 people from its 618-person staff. The deficiency notice arrived in November, and the company set about selling everything it could. Argentina's Banco Hipotecario acquired Mortgage.com's technology and some employees on November 13, and a month later, on December 14, ABN-AMRO (NYSE: ABN) bought the Mortgage.com domain name for $1.8 million. All this, and Mortgage.com has not even been officially delisted, although trading was halted on December 14. As Lewis Freeman, an attorney and forensic accountant who served as Mortgage.com's executor, says, "I'm somewhere between a physician and a mortician -- I help make companies better or put them to bed. Mortgage.com needed a mortician."
It's high season for coffin makers.
-- Carl Jenkins (firstname.lastname@example.org), February 13, 2001