Stocks Under $5 in Danger of Delisting

Share price of First Place Financial corrected to read $3.25 as of Feb. 28

BOSTON ( TheStreet) -- Small-cap stocks, measured by the Russell 2000 Index, rose more than 5% last month, attracting investors to growth companies on hopes of outsized profits as the economy rebounds. Still, many carry risks rarely present at larger peers, including the inability to remain compliant with listing standards of the Nasdaq and New York Stock Exchange.

February was a winning month for the stock market, with the S&P 500, Nasdaq and Dow Jones Industrial Average each rising roughly 3% despite geopolitical waves over protests in the Middle East.

But some smaller companies, which typically expose investors to greater volatility, suffer from deficiencies ranging from violations of the minimum bid-price rule, as share prices of some penny stocks have languished below $1, to violations of audit-committee requirements, market value, proxy solicitation or even public interest. Companies faced with a delisting tend to meet their fate with large losses.

The list of deficient companies isn't limited to under-the-radar stocks that consumers aren't familiar with. For instance, book retailer Borders Group ( BGP) was slapped with a delisting notice in early February due to a share price that languished below $1. Borders eventually filed for bankruptcy and began liquidating several stores. The company's stock was bounced from the NYSE and now trades for about a quarter on the Pink Sheets.

Because companies on exchanges' watch lists record higher-than-average volatility, risk-friendly investors have the chance to make lots of money, either by shorting the stocks on expectations shares will fall, or going long on the hopes they will live to fight another day. Companies like eDiets.com ( DIET) and Star Buffet ( STRZ), both slapped with delisting warnings, are up 23% and 78%, respectively, over the past three months.

Nevertheless, the following seven companies were notified in February that they're in violation of listing requirements and could be kicked off the Nasdaq. The companies now have a limited window of time to regain compliance with the exchange's listing rules.


LiveDeal ( LIVE)

Company Profile: LiveDeal provides local customer acquisition services for small businesses. LiveDeal was the first company to bring the print yellow pages to the Internet in 1994.

Current Share Price: $4.90 (Feb. 28)

Listing Violation: Public float. The listing rule requires that a company have at least 500,000 publicly held shares for continued listing. Currently, LiveDeal has a public float of about 376,000 shares.

Received Nasdaq Notice: Feb. 2

Management's Expected Action: LiveDeal has until March 19 to provide the Nasdaq staff with a specific plan to achieve and sustain compliance with all listings requirements, including a time frame for the completion of the plan. While LiveDeal says it has not made any final decisions regarding what actions to take, the company noted that potential compliance strategies it is considering include a forward stock split, which would increase the number of shares held, or the issuance of additional shares of common stock.

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