Net Auction Venture May Close Before It Opens
2TheMart.com disclosed that it doesn’t have enough cash to complete its already delayed Internet auction site, sending the Irvine company’s stock into a tailspin Friday.
The company’s outside auditor also warned that there’s substantial doubt about 2TheMart’s ability to continue as a going concern.
The stock tumbled 37% Friday, the third-biggest percentage loss in U.S. markets, closing at $7.31 a share, down $4.25. A total of 412,000 shares traded, about seven times the daily average over the last three months.
2TheMart.com, which once had a market value of $1 billion with promises of a Web site to compete with established auction services like eBay.com, said in its first regulatory filing Thursday that it had $2.1 million cash remaining on June 30. It said it still owed International Business Machines Corp. $7.8 million of the $10.3-million cost of developing its site.
The company had said in January that its auction site was in “final development” and would open in the second quarter. That announcement sent its shares soaring from $2 on Jan. 13 to $40 a week later.
The site’s projected completion date is now Oct. 8, according to a copy of the IBM contract included with documents filed with the Securities and Exchange Commission. The company didn’t hire IBM to design and build its site until May 28, near the end of the second quarter, the filing says.
2TheMart said in its filing that it lost $1.9 million between Jan. 8, when it began business, and June 30. It had no sales.
Its auditor, Grant Thornton LLP, said the company’s survival depends on, among other things, “obtaining additional capital, meeting other obligations under various agreements and achieving satisfactory levels of profitable operations.”
The company was founded by Chief Executive Dominic J. Magliarditi, 35, and Chairman Steven Rebeil, 37. They own 70% of the company and are its only directors.
Each now owns 8.5 million shares of 2TheMart.com, worth nearly $70 million. They each paid $850 for their stock, according to the filing, about 1/100th of a cent a share.
The company raised about $6.4 million with private stock sales this year at discounts of as much as 95% to the market price, the filing said. The buyers weren’t identified in the filing, which indicated the average sales price was $1.38 a share, far less than the prevailing market price.
For example, 1 million shares were sold at $1 a share on Jan. 29, when the stock closed at $16.50. An additional 1.5 million shares were sold for $1 each on Feb. 4, when the stock closed at $13.25. In April, when the stock never traded for less than $19, the company sold 840,000 shares at $1 each and 300,080 for $5.
On July 12, the company offered 1 million shares in a private placement at $10 a share. Only 53,000 shares have been sold, raising $530,000, the filing said. The market price has fallen from $17.13 when the offering began, making the private placement less attractive to potential buyers.
