NetZero's Platinum Play, Merger Fail to Draw Investors.

ON the eve of Independence Day, free Internet Service Provider NetZero Inc. became one of the latest local Internet companies to be flagged by the Nasdaq National Market for failing to meet the minimum $1 bid price requirement.

In an effort to kick-start some buzz, the socalled "Defender of the Free World," as NetZero was known in its past promotions, shipped out heavy, silver-plated mice to some members of the media with the hope of attracting them to the newly launched Platinum service.

Platinum, established to help reduce the money-losing company's reliance on online advertising, has met with some success. The service won over more than 100,000 users in the first six weeks following its introduction in March and, at $9.95 per month, is priced attractively below rivals America Online and Microsoft Corp.'s MSN.

Investors nevertheless have not been impressed with the company lately.

Despite drawing a flood of new subscribers, Platinum's revenue has been disappointing. The $150 million in cash on NetZero's balance sheet has failed to elicit investor enthusiasm - and the company's recently announced merger plans with New York-based Juno Online Services were met with a yawn.

If the deal with Juno is consummated, the newly formed company - to be called United Online - will create the nation's second largest ISP with 7 million users.

Still, investors are not betting on its chances of success against powerhouse AOL, which has some 30 million paying customers. NetZero stock has been trading in the 80 cent range for months.

Profits seem elusive for NetZero, silver mouse or not. It reported a net loss of $91.4 million (80 cents per diluted share) for the first quarter ended March 3, compared with a loss of $24.9 million (27 cents) in the like year-earlier quarter. Its first quarter revenues were $12.8 million, down from $16 million in the previous quarter and $16.9 million in the like year-earlier quarter.

While NetZero chief executive Mark Goldston has said in interviews that he expects advertising revenues to pick up for the merged companies, he and president Ronald Burr have been unloading shares recently. Since last May, the executives have together sold, or indicated an intention to sell, more than 360,000 of their shares.

Another major shareholder to back out of NetZero recently was CPQ Holdings Inc., the investment arm of Compaq Computer Corp. According to SEC filings, CPQ sold 1.5 million shares in the first six months of the year, reducing its stake to 5.5 million common shares, a 4.41 percent interest.