Three firms might fall from listing in NASDAQ 'cleanup.'

San Diego Business Journal, March 30, 1992 by Sandy Hock

RF Industries Ltd. and Lancer Orthodontics Inc. are among 200 U.S. companies in danger of losing their listing on the Nasdaq over-the-counter market.

Last week the two local companies admitted they don't meet the stock market's tougher listing requirements that went into effect this month. And, judging by its latest financials, local Decom Systems Inc. also falls short of the new requirements.

The new standards affect 19 local firms traded on the regular Nasdaq (National Association of Securities Dealers Automated Quotations) market. Another 37 local firms are traded on Nasdaq's National Market System, a higher-tier market with tougher standards.

Nasdaq attracts small- to mid-sized companies because its standards are less strict than those of the American Stock Exchange and the New York Stock Exchange. A computerized trading system, Nasdaq is not called an exchange because it has no trading floor, said James Spellman, a spokesman for Nasdaq. All trades are done through computers.

New NASDAQ Standards
INITIAL NASDAQ INCLUSION
Standard                 Previous       Current
Total assets               $2 M           $4 M
Shareholder equity         $1 M           $2 M
Bid price                  none             $3
CONTINUED NASDAQ INCLUSION
Standard                 Previous       Current
Total assets             $750,000         $2 M
Shareholder equity       $375,000         $1 M
Bid price(1)               none           $1(2)
M -- million
1 Dropping below the minimum for 10 consecutive days would be
considered a deficiency.
2 Under the new rules, companies that fail to meet NASD's
proposed minimum bid price continue to qualify if they maintain
$1 million market value of public float and $2 million in
shareholder equity.

Companies that lose their Nasdaq listing are not traded on any stock market but are included on the "pink sheets," a daily publication of the National Quotation Bureau. Although they are still technically public companies, their stocks can't be traded over the telephone. And the pink sheets, which only list stock prices, are much less prestigious in the eyes of investors.

The new Nasdaq rules increase the amount of assets and stockholder equity a company must have to be listed on the system. In addition, for the first time Nasdaq has set a minimum bid price.

Nasdaq is run by the National Association of Securities Dealers, which raised the market requirements in order to attract and retain companies with higher financial standards. The market is eager to get rid of its penny stock companies, said NASD spokesman Enno Hobbing.

Now companies must maintain an asset base of $2 million and shareholder equity of $1 million. Before the new requirements took effect this month, companies had to have an asset base of $750,000 and shareholder equity of $375,000.

The most significant maintenance standard is a minimum bid price of $1 a share. Last week seven of the 16 local firms on the regular Nasdaq fell below the $1 bid price. These include Decom Systems, Golden Quail Resources Ltd., Lancer Orthodontics, Omni U.S.A. Inc., Personal Computer Products Inc., RF Industries and Xscribe Corp.

A company that fails to meet this requirement can continue to qualify for Nasdaq listing if it has $2 million in equity. It must also have at least $1 million worth of stock in the public's hands, which means control doesn't rest with company insiders or one major investor.

Three of the companies with shares selling for less than $1 a share -- RF Industries, Lancer Orthodontics and Decom Systems -- fall short of at least one secondary requirement.

RF Industries will probably not appeal if the NASD moves to delist it, said President Jack Benz. The company's stock price hovered near 13 cents a share last week, far below the new standards. And with shareholder's equity of just $1.2 million, the firm doesn't meet the $2 million equity standard for companies with stock selling below $1 a share.

RF Industries expects to be notified soon that its shares soon will trade on the pink sheets.

Benz said Nasdaq picked a "very bad time" to change its standards for the regular market firms.

"A lot more companies would have been capable of meeting the requirements after the recession," Benz said.

Stock in his high-tech company hasn't traded much to begin with, Benz said. And a slip to the pink sheets won't help the stock's popularity.

"It's definitely not a plus," said Mike Green, a broker with PaineWebber in Escondido and co-host of KCEO-AM's "Market Talk" program. "You're expelled to never-never land."

Benz said he's considered taking his company private.

"We're going to be relegated to an also-ran," Benz said.

Known as Celltronics Inc. until 1990, RF Industries was almost bankrupt when Benz came on board as president, almost three years ago. The company's revenues have shrunk from $8 million in the late 1980s to about $3 million last year. However, the company, which makes radio frequency products such as transmitters and receivers, is now earning a small profit, Benz said. In the late 1980s, Celltronics suffered losses of $2 million a year, Benz said.