Daou, Synbiotics Forced to Delist From Nasdaq

San Diego Business Journal, May 7, 2001 by Mike Allen

Finance: Firms Tend to Downplay Significance as Impacts Hard to Pinpoint

While companies downplay its significance, getting delisted from a major stock exchange like the Nasdaq is something they try to avoid.

Recently, two San Diego firms were delisted from Nasdaq, when the shares of both firms dropped below the minimum trade price of $1. The national stock exchange is home to many of the country's fastest growing firms.

In Daou Systems Inc.'s case, the stock slid below the benchmark dollar figure in September and was traded at 14 cents as of May 2. Synbiotics Corp. shares dropped below $1 beginning in November and were trading at 65 cents for the same date.

Both companies, which are now traded in the over the counter bulletin board, attempted to get the Nasdaq to change its mind, but in Daou's case, it has already lost its appeal.

"They essentially told us, 'You're not alone. There have been 500 other companies delisted from Nasdaq this year. There isn't much you can do when your stock drops below a dollar,"' said Neil Cassidy, Daou's chief financial officer.

As a way to prop up the stock, the company considered, but ultimately rejected, a reverse stock split. The process essentially reduces the number of shares resulting in an increases in the individual share price.

Cassidy said the evidence of firms doing a reverse stock split shows the stocks eventually falling back down because the market still perceives the stock as devalued.

He asserted being delisted from the Nasdaq and moving to the OTC board will not hurt the firm's operations or its strategy of returning to profitability.

"At this point we are focused on a turnaround effort, and this does not change our belief that there is enough time on the clock and money in the bank to get back to profitability," he said.

Multimillion-Dollar Losses

Daou, which provides information technology services to the health care industry, lost $19 million last year on revenues of about $64 million.

Synbiotics lost $18.5 million on revenues of $31.3 million for 2000 compared with a net loss of $1.5 million on revenues of $30.7 million in the prior year.

Synbiotics is a developer and manufacturer of veterinary diagnostic products.

While companies tend to downplay delisting, and its impacts may be hard to pin down, it can cause a perception problem that may result in losing business, says Bud Leedom, a stock analyst for Wells FargoVan Kasper in San Diego.

"When you see a company's stock going down to below a dollar it leads one to wonder whether these guys will be around. It may not bring a company down, but on the other hand, it calls into question the viability of a company," he said.

In its 2000 year-end report, Daou acknowledged its difficulties in losing the revenue it made in 1999 from the loss of Y2K business.

Cassidy said Daou was spreading itself too thin and needed to retrench.

"We were a company trying to be a one-stop shop for everyone, including those outside of health care," he said. "When our customers pulled back we were left with too many people on the bench."

Staff Cutbacks

Early this year, Daou said goodbye to 50 employees, reducing its full-time staff to 275, Cassidy said. Most of its employees work at its two main divisions in Kensington, Md., and Indianapolis. Its headquarters in San Diego has about 25 employees.

Although the market has dealt a stiff blow to Daou, perception is sometimes worse than actual financial numbers indicate, Leedom said.

At the end of last year, the company had more than $10.5 million in cash on its books, meaning even if it liquidated, the amount was well above the market value on a diluted basis, he noted.