Internet service provider Realestate.com.au has been rapped on the knuckles for being too slow to disclose its cash burn rate to the market.
The Australian Securities and Investment Commission (ASIC) claims Realestate wasn't in compliance with the Australian Stock Exchange (ASX) continuous disclosure regime, which requires listed companies to divulge to the market anything that might effect its share price.
ASIC claims that the company's cash flow position was deteriorating at a faster rate than it was telling the market.
"The cash burn rate is very critical news for a dot.com," ASIC's national coordinator, mergers, fundraising and acquisitions, Richard Cockburn, told ZDNet.
The big question these days is whether or not a dot.com can develop a positive cash flow business before they run out of cash, otherwise they may have trouble raising more capital, Cockburn said.
Realestate's continuous disclosure was called into at the time when RP Data was making a bid for the company and ASIC's Takeovers Panel claims there were "unacceptable circumstances concerning the takeover announcement by reason of the creation of a false market".
"[Realestate] should have reasonably known that its financial position had deteriorated considerably from the position disclosed to RP Data and the market," ASIC said.
Realestate.com.au said it has "acknowledged issues" raised by ASIC that its financial position in early October 2000 had deteriorated from the position previously disclosed to the market.
"We do not fully agree with the Panel's observation," Realestate.com.au's CEO Nigel Purves Purves said. "But we acknowledge that there was room for improvement in last year's continuous disclosure obligations".
"Since that time the company has further reviewed its procedures. Senior management has been restructured, systems have been upgraded and the company remains alert and diligent to its obligations."
ASIC has prohibited Realestate from using the shorter form of disclosure for 12 months and must conduct regular audits and due diligence if it wishes to issue a prospectus - a more costly and time-consuming process.
"It's not so much as punishment as protection," Cockburn said.
"It's a relatively rare use of power but its one ASIC intends to use more frequently when it detects companies' failure to report [adequately]."
