LV tech firm inching toward delisting

Kevin Ferguson

Friday, Aug. 24, 2001 | 11:15 a.m.

Less than two years ago Las Vegas-based PurchasePro was making national headlines as one of the darlings of the New Economy. Its shares traded as high as $175.

Now the software firm is gasping for breath and may be exiled by Wall Street.

The company's shares hit an all-time low of 45 cents Wednesday before rebounding a bit to close at 52 cents. The stock fell again Thursday to 50 cents.

The stock has been trading below a $1 -- the minimum listing price for the Nasdaq Stock Market -- for 18 of the past 20 days.

Its shares peeked above a $1 on Aug. 2 and Aug. 6 during that span.

If the stock remains below a $1 for 30 consecutive days, the National Association of Securities Dealers, the organization that operates the Nasdaq Stock Market, will begin the delisting process that would banish the stock to the sparsely traded over-the-counter bulletin board exchange.

Companies that get dropped to that exchange find it difficult to get access to new rounds of financing or use their shares in an acquisition, said Sam Hayes, a professor of finance at the Harvard Business School.

One reason for that is because the demand for the stock fades quickly, he said speaking in generalities because the professor was unfamiliar with PurchasePro.

"There's a cascading implosion of interest (by investors) and it's difficult to get a good price for the stock, " Hayes said.

NASD officials may give a company 90 days, after the delisting process begins, to get back in compliance before officially dropping it from the Nasdaq.

PurchasePro, which was founded in 1996, is part of the once white-hot niche of business-to-business e-commerce, which was expected by many to revolutionize the way businesses purchase goods using the Internet.

Although PurchasePro has never turned a profit, it reached a staff level of 600-plus employees earlier this year. But in a cost-cutting move, the company has drastically scaled back its operations, firing roughly 350 staffers in the past few months.

Investors have lost faith in the business-to-business e-commerce sector.

PurchasePro and its major competitors Pleasanton, Calif.-based Commerce One and Mountain View, Calif.-based Ariba have all been trading below $5 for the past month or longer.

In fact, Patrick Walravens, the analyst who had been covering the sector for the New York-based investment firm Lehman Brothers, left the company in mid-July.

Lehman Brothers has suspended coverage of the stocks Walravens covered, Dow Jones News Service reported earlier this month.

But some investment firms say it's too early to give up on PurchasePro or its industry sector.

"(PurchasePro's) on our watch list, but we don't cover it that closely anymore," said Pawan Malhatra, an analyst for S.G. Cowen. "It'll remain on our watch for at least the next two quarters."

PurchasePro Chief Executive Richard Clemmer, who has revamped the company since taking over in May by slashing its payroll and restructuring its focus, predicts the company will reach profitability by the end of the year.

Clemmer came on board trying to patch holes in a sinking ship. He joined a company that was riddled with sloppy bookkeeping and had recently ousted its founder and chairman, Charles "Junior" Johnson.

Clemmer said the company will generate the bulk of its revenue through a new reverse auction software called e-Source.

Wedbush Morgan Securities analyst George Santana, who has been very bearish on PurchasePro for the past few months, said he will continue to track the Las Vegas-based firm to see how its e-Source software competes with FreeMarkets, a Pittsburgh company Santana believes has a bright future.

"PurchasePro will have to ramp up its sales of e-Source to make its revenue projections," Santana said.

Clemmer said the company expects revenue of between $3 million to $8 million in the current quarter through the e-Source software. Investment firm Dresdner Kleinwort Wasserstein issued a report last week, stating its analysts see a "possible turnaround under way," due to the 41 companies that have signed on to PurchasePro's pilot program of e-Source.

The Dresdner report said PurchasePro needs to convert eight to 20 of the 41 pilot programs into sales in order to meet its revenue projections for the current quarter.