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By Jack Willoughby

merica's Internet companies continue to burn prodigious amounts of cash, raising the prospect that dozens more will disappear from the landscape over the next 12 months. But the deteriorating cash position of the Internet universe as a whole masks the fact that an important change is taking place: The players are rapidly being separated into winners and losers.

During the summer, CDNow was acquired by Bertlesmann, drkoop.com bought a few more months of life and Value America filed for bankruptcy. Even as these companies were foundering, 14 of the 339 outfits surveyed by Pegasus Research International in the second quarter stopped drawing down cash. They include DoubleClick , Prodigy , VeriSign /zigman2/quotes/205260150/composite VRSN -0.92% , Xpedior and internet.com . Surprisingly, the biggest improvement came from e-tailers, which reduced their cash burn rate by almost $100 million.

To assess the current state of Internet stocks, Pegasus calculated the rate at which they were consuming cash in the second quarter and then projected ahead to estimate when each company would burn through the cash it had on hand as of June 30. Our aggregate burn-rate survey of 339 companies showed that 273 companies burned more cash than they took in. The group consumed $1.8 billion, up from $1.7 billion in the first three months of 2000.

A much larger number of dot.coms have been sucked into the conflagration, many of them less than a year old. In the second quarter, 86 of the 273 companies reporting negative cash flow -- nearly one-third -- stand to run out of money within the next 12 months. The number of such operations in critical condition stands much higher than the 66 recorded in the first quarter.

"Clearly the industry is coming under much more of a strain as they reach to maintain cash levels, but this doesn't necessarily mean bankruptcy," says Greg Kyle, president of Pegasus Research International. "The burn rate, in essence, gauges the kind of financial pressure a company's likely to come under in the next 12 months. Those at the top of our list will have to find ways to deal with the stress on their balance sheets."

Ones to Watch Expect news -- good and bad -- on these companies' cash positions in coming months. Company GenesisIntermedia drkoop.com Streamline.com Choice One audiohighway.com Bluefly Lending Tree iGo

Let's go to the results:

GenesisIntermedia , based in Van Nuys, California, No. 1 on our list, spent furiously in recent months to wire a network of 22 shopping malls with multiple electronic kiosks that carry advertising. Revenues generated from operating the kiosks should reduce the burn rate in the coming quarters. "We've been pretty much funding ourselves; we haven't had to rely on outside sources," says Ramy El-Batrawi, the company's chief executive and a major shareholder. He adds that Bermuda-based Ultimate Holdings increased its stake to 22% from 7% with a $23 million equity infusion and has lent the company about $25 million.

No. 2 on the list, Austin-headquartered drkoop.com, received a temporary reprieve with a $27 million financing from a venture-capital group. Streamline.com , based in Westwood, Massachusetts, No. 4 on the list, raised $12 million by selling its Chicago and Washington operations to Peapod, another e-grocer, which itself was rescued by Netherlands-based supermarket operator Ahold .

"Clearly, it has now become apparent that these companies must first prove unit-center profitability," observes Timothy A. DeMello, founder and chairman of Streamline.com, in a prepared statement. "The capital provided by the divestiture of these markets will allow us to prove the profitability of our business model, which we plan to demonstrate by next year."

Burn-rate pressure also has forced companies to seek marriage partners. No. 8 audiohighway , of Cupertino, California, has agreed to merge with nicheMusic.com, based in San Francisco, subject to stockholder approval. The idea: Combine their marketing and cash reserves. NicheMusic has just raised $5.7 million in venture financing. (The CEO of nicheMusic, David Schulhof, and the CEO of audiohighway, Nathan Schulhof, are brothers.)

And just a few weeks ago, Earthlink , an Atlanta-based Internet service provider, completed a $262 million purchase of Reston, Virginia-based rural ISP OneMain , No. 3 on the list.

Other companies simply hunkered down. Douglas Hanson, chairman of RMI.net , a Denver firm that provides high-speed Internet service to small businesses, instituted a strategic action plan this spring, designed to make its EBITDA (earnings before interest, taxes, depreciation and amortization, a measure of operating cash flow) positive by yearend. RMI.net, No. 7 on our list, has trimmed expenses by renegotiating contracts and consolidating some 24 acquired companies. Hanson says the company has $6 million remaining on a $12 million financing, and a $30 million shelf registration.

Some simply pinched pennies. Medium4.com , No. 11, which provides on-demand broadcasting over the Internet, moved production to Miami from New York to cut costs. "We don't need a lot of capital to keep going," says a company spokesman. "We're going to get money. We're okay."

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