The extraordinary collapse of high-tech stocks — not Nasdaq’s listing requirements — is to blame for some Calgary companies and dozens of U.S. firms at risk of being delisted, stock exchange officials say.
Some companies have received warning letters because their trading stock prices have dropped below $1 US, Nasdaq officials said. They refused to identify which firms are at imminent risk of being bumped from the bourse.
Under U.S. security regulations, companies trading below $1 over a 30-day trading period have 90 days to resolve the matter or be delisted. But the situation has not reached a crisis and the stock exchange has no plans to change its listing and delisting rules, said Judy Inosanto, associate director of media relations at Nasdaq.
“I think it’s a little irresponsible to say that it’s a crisis . . .” she said from her office in New York.
The situation is due to an extraordinary year that saw the value of tech stocks skyrocket in the first three months of 2000 and then plummet, Inosanto said. “It hasn’t been a typical year.”
More than 140 Canadian companies are listed on Nasdaq. In the first three quarters of 2000, they generated on the average trading day $4.83 billion Cdn in volume.
Now, however, several companies that are headquartered in Calgary or have major operations here are either trading below $1 or hovering close to Nasdaq’s the minimum trading requirement.
Jawz Inc., which began trading below $1 in early December, closed last week at 63 cents after hitting a yearly high of $8.06 on Nasdaq. The company, which has a 150-employee workforce in Calgary, specializes in Internet security software products, consulting services and secure Internet data storage.
Calgary-based QSound Labs, Inc., which has developed three-dimensional audio technology, ended the week trading at 81 cents after hitting a yearly high of $5.38.
FutureLink Corp., a Calgary-grown software applications service provider now headquartered in California, has also been dropping but ended the week just above $1. Its yearly high was $38.50.
Local company Synsorb Biotech Inc. dropped below $1 for three consecutive days in December, but had recovered to $1.38 on Nasdaq by closing time last week. Its yearly high was $10.38.
QSound reported third-quarter revenue in 2000 of $1.2 million, up 41 per cent compared with $855,000 in the same quarter of 1999.
Business Edge couldn’t reach a spokesman at QSound for comment.
At JAWZ, company officials said they remain optimistic. The company is in the 90-day time period provided to raise its stock prices.
“It’s not a waiting period, it’s more of an activity period,” says company spokeswoman Leanne Bucaro.
“We’re obviously not the only company in this situation,” she adds. “We speak to other companies such as FutureLink who are in the same boat as we are, and we look at everything we can do to try to get (stock prices) up over a dollar.
“It’s not a matter of them (Nasdaq) sending a letter and saying: ‘You bad company, you have to get your stock price up over a dollar.’ It’s more how we can work together.”
David Cox, president and chief executive of Synsorb Biotech, blames “some unusual market conditions” rather than Nasdaq’s listing criteria for so many tech stocks trading below $1.
“There’s been a lot of tax-loss selling, the tech sector’s out of favour and we (Synsorb) kind of get dragged down because we’ve got technology in our name,” Cox said.
Synsorb is “terribly undervalued” in such a depressed market, he said. “The net asset value of our company is about $3 Canadian a share.”
The markets are inefficient at valuing companies in the short term, but quite efficient at valuing them in the long term, Cox said. “So if the fundamentals are there, they (stock prices) will come back.
“I’m pretty confident that Synsorb is out of danger territory and will continue to stay that way,” Cox said.
The situation is more dire for dozens of U.S. companies listed on Nasdaq, according to a report by The Industry Standard, an Internet economy magazine. Its investigation revealed that 257 companies have fallen below Nasdaq’s listing requirements in the last six weeks.
But Inosanto argued that the report exaggerates the situation. With so many companies falling below the $1 requirement, “there’s probably a good chance that some of those companies would be (delisted),” she acknowledged.
But the $1-marker is only one component in two sets of criteria that Nasdaq uses in deciding whether a company will be bumped, Inosanto said. Other components in the first set include: net tangible assets of $4 million; public float of $750,000; a $5-million market value of public float; 400 shareholders and two market makers.
Some companies, depending on the category in which they’re listed on Nasdaq, also have to meet the second set of criteria.
It includes: market capitalization greater than $50 million or total assets and revenue of $50 million each; public float over $1.1 million; market value of public float over $15 million; a $5 bid price; 400 shareholders and four market makers.
In order to encourage the growth of young and entrepreneurial companies, Nasdaq’s listing criteria aren’t as tough as those used by the New York Stock Exchange, Inosanto said.
“We want to be able to provide companies with the opportunity to list in the market and to have access to capital,” she said. “But at the same time, there is a certain attention paid to (a company’s) quality and, first and foremost, to investor protection.”
Inosanto pointed out that companies are delisted for several reasons, not just because they can’t meet the listing criteria. Some companies go private, are acquired by or merge with another firm, or move to another stock exchange.
Firms at risk of being delisted can go through a hearing process, which includes implementing a plan to meet the criteria for staying on Nasdaq. “It takes some time before a company would be dropped off the market,” Inosanto said.
Synsorb Biotech’s president said he sees no problems with Nasdaq’s listing criteria or delisting process.
“The objective is that you don’t have micro-cap companies on an exchange which is a senior exchange,” Cox said. “And I think that’s a reasonable thing to do.”
