Bombed-out stocks may get booted off market
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Ten Northwest companies, including ailing dot-com N2H2, face being kicked off the stock market because their share prices have fallen to less than a dollar.
Eleven other companies in the region - former Internet highfliers drugstore.com, Aptimus, Network Commerce and Onvia.com among them - have come close to triggering the delisting process, according to a study by The Seattle Times.
These 21 companies are part of a national pandemic of bombed-out stocks that appears likely to set a record in 2001 for companies being ejected from stock exchanges, after a lull last year.
The wild stock market is largely to blame. As the roaring bull run of the 1990s screeched to a halt in 2000, shares of many young technology companies fell 80 percent or 90 percent to prices below the $1 minimum that most exchanges require. As the market malaise deepened, it dragged down companies in other industries, too.
The slowdown now rippling through the economy is threatening to carry the decline further. Disappointing earnings reports and cutbacks by many large companies have raised concerns about a recession, dimmed recovery prospects for many troubled companies and set the stage for what could be unprecedented levels of delistings.
"I haven't seen it like this before," said Randall Williams-Gurian, founder and president of Northwest Capital Management, a Seattle fund-management firm. "This is the worst bear market in technology stocks and the worst capital market in 30 years."
Less active trading
Being ejected from a stock exchange doesn't kill a company. But it can destroy access to two key ingredients of business success: investors and money. Stocks booted from Nasdaq, for example, are relegated to the exchange's over-the-counter bulletin-board trading system, or a smaller system called the pink sheets, where they are much less actively traded.
As a result, few analysts write reports about these stocks, and most mutual funds and individual investors regard them as too risky - and steer clear. Loss of a major-exchange listing also scares away bankers and business partners, creating a downward spiral of confidence that makes raising capital to build and run the business ever more difficult.
Companies faced with delisting are entitled to 90 days in which to recover to minimum standards. By trading above $1 for 10 consecutive days, for example, a Nasdaq company can cancel the delisting process. Appeals procedures can halt expulsion or delay delisting.
But the nation's three major exchanges, Nasdaq, the New York Stock Exchange and the American Exchange, also routinely purge companies that don't make the grade.
Last year nationally, Nasdaq dropped 26 stocks in the fourth quarter for failing to stay above $1, compared with 13 in the first quarter.
Companies also are dropped for not meeting requirements other than stock price. With those included, Nasdaq dropped 241 stocks in 2000, down from 440 in 1999.
But Northwest figures paint a discouraging picture for 2001. The 21 regional companies facing delisting today compare with only 10 that had traded below $1 in 1999. Only two of those 10 - T&W Financial and TJT Inc. - were on the list for imminent dismissal. Both were dumped in 2000.
"The Nasdaq getting whacked has been a challenge for a lot of small listed companies," says Jeffrey Anthony, chairman of SAFLINK, a Redmond technology company that is facing delisting. "Anybody that's at or under a buck has got a Nasdaq reviewer looking at them."
Not surprisingly, companies are trying desperately to hang on. And some have been at it for years.
Oxis International
Consider the experience of Oxis International. Nasdaq officials warned the unprofitable Portland, Ore., drug-research firm last month that it was in danger of being delisted because its share price had traded below $1 for 30 consecutive days. It was the company's second brush with being expelled. In 1999, it also faced a delisting, but managed to get its share price above the crucial $1 threshold for 10 days. That was enough to stop the disciplinary process, and it helped the company raise $6.25 million by selling additional shares to private investors in April 2000.
What saved Oxis a year ago was a mysterious trading day. On Dec. 23, 1999, Oxis shares quadrupled in value, rising to $2.53 from 56 cents. The number of shares traded that day was even more surprising: 15.1 million, or 500 times the normal daily average. The aberration was enough to prompt Nasdaq officials to ask the company for an explanation.
Oxis officials say they still don't know why the shares rose. But they don't doubt the benefit. Once over $1, the stock climbed briefly above $8 before April, when the financing was in place.
"If I recall right, that was when the stock got back above a dollar and corrected our problem with Nasdaq," said Jon Pitcher, Oxis' chief financial officer.
That didn't remove the risk for investors, however. Buyers paid between $3.73 and $4.95 a share in the private placement completed in April and have since lost money. Additional share options they acquired as part of the deal also are not profitable. Last week, Oxis filed documents with the Securities and Exchange Commission that removed a lock-up on the shares, allowing the owners to sell them - but doing so would incur a loss.
The prospect of this year's delisting is even more bleak. Oxis has enough cash to last through midyear, at which point it would have to raise more money, cut costs or face going out of business. If the company were delisted, "it could be more difficult to raise money because your outstanding stock might not be traded as freely," Pitcher said.
Technology and drug research
Technology and drug-research companies are the main group flirting with delisting in the Northwest, and most already had other problems.
Seattle-based N2H2, which makes software to block Internet pornography, has come under pressure from free-speech groups. Sonus Pharmaceuticals, in Bothell, recently abandoned the sole drug it was developing after regulators raised concerns. Data Dimensions of Bellevue geared much of its business toward disruption expected from the Y2K bug, which didn't materialize.
Not all of the tech companies are startups, either. Data Dimensions was founded in 1968 and has gone through several alterations as the computer market has changed.
After the Y2K problem "wound down ungraciously," says spokesman Jim McLendon, the company sold its data-center business and concentrated on software testing and maintenance. It has cut staff to about 400 from 800 in 1999, and has hired an investment bank to look at whether to sell or break up the business.
If the stock exchange moves ahead with delisting, "we certainly will exercise our option to go in front of Nasdaq and present our plan for the company and hope that they would see it would eventually get the stock above a dollar," McLendon says.
The rout in stock prices last year has cut down weaker firms in a broad swath of industries. In the Northwest, potential casualties include Vancouver, Wash.-based Western Power & Equipment, which sells and rents construction and farming equipment; Wenatchee-based Pacific Aerospace and Electronics, a defense, medical and aircraft-parts maker, and silver producer Hecla Mining of Coeur D'Alene, Idaho.
Hecla is 110 years old, has been publicly traded since 1915 and has been on the New York Stock Exchange since 1964. But a drop in the price of silver has dragged Hecla down with many other stocks this year. The Big Board notified it in September that it was in danger of losing its listing. Starting Feb. 22, NYSE will monitor the stock's price for 30 days. If the average fails to stay above $1, Hecla could be delisted.
Hecla is already taking steps to retain its place. It sold its industrial-minerals business for $68 million, money it will use to pay off $55 million in debt and explore some mining properties in Mexico. The company also may reduce the number of shares it has on the market so that each one is worth more. Such a remedy seldom provides lasting benefits, however, and it also prevents Hecla from selling more stock to raise money.
"We're watching our pennies," says Vicki Veltkamp, a vice president. "The thing is to be around when the metal price goes up. We don't know when that will be and we would very much like to be here when that happens."
Seattle Times business reporter Alwyn Scott can be reached at 206-464-3329, or at ascott@seattletimes.com.