EarthLink to refile harsh SEC report
By Suzanne Galante
August 14, 1997, 12:50 p.m. PT
update EarthLink Network's (ELNK) stock fell nearly 14
percent
in early trading today after the company filed an
unintentionally
harsh financial report yesterday, which it then
rescinded.
A quarterly report filed with the Securities and Exchange
Commission by EarthLink led to the suspension of its stock
trading and sent executives scrambling to explain
themselves.
The company's stock dropped 1-5/8 in early trading to
10, from
yesterday's halted close of 11-5/8. Volume was heavy
with about
78,000 shares trading hands. The stock since gained
some of the
losses.
The Internet service provider, which said it was just
"being
conservative," stated in the SEC filing that its
finances might be
strained by an insufficient cash supply and that it
expects to
continue to incur losses at least through the end of 1997.
EarthLink said it planned to continue spending to
build out its
infrastructure, develop new service and product
offerings, and
build its sales and marketing and administrative
organizations.
As news of the filing spread out to the financial
community,
Nasdaq took action to halt trading. The security began
trading
again when the markets opened this morning.
The company's stock was halted yesterday at 2:09 ET,
said Curtis
Rimmey, an associate analyst at Nasdaq. He explained
that it is
not unusual for Nasdaq to halt trading on a security
when there is
news that could have an impact on trading. "Halting
trading is
neither positive nor negative," Rimmey said. "It is
implemented to
level the playing field" so that all investors and
analysts can digest
the information before making trading decisions.
EarthLink said in the filing that it does not believe
available cash
will be sufficient to meet the company's operating
expenses and
capital requirements through the end of this fiscal
year, given its
current burn rate.
The company plans to raise additional cash from
potential sources
such as debt, leases, existing investors, large
institutional
investors, or strategic partners. However, "the
company has no
formal commitments for additional financing, and there
can be no
assurance that any such commitments can be obtained on
favorable terms, if at all," said the filing.
Afterwards, the company said that was just legalese.
Company CFO Barry Hall said, "We filed our 10Q, and a
section
talks about capital resources...We try to be
conservative, but we
worded it a bit too harshly, and one of the wire
services made it
look like we were about to go out of business." He
added that the
company will refile its 10Q today "to set the record
straight." But
the restatement of the filing has yet to be made.
Hall noted that the company has no formal commitments for
future financing but that deals have been offered and
should be
closed in the near future.
Rimmey said that stocks are normally halted for an
hour but that if
the stoppage comes near the market's close, trading
may not
resume for the day--such was the case with EarthLink.
Company CEO Garry Betty said EarthLink, like other
ISPs, is
continuing to generate a negative cash flow. "We spend
money in
advance of having subscribers on board in order to be
able to
accommodate growth...We've grown over 50 percent this year
alone."
The company expects to reach cash flow neutrality,
known as
EBITDA, at 500,000 customers. The company currently has
340,000 customers.
For the quarter ending in June, EarthLink reported a
net loss of
$7.8 million, on revenue of $18.8 million.
--The people in Hell want icewater too. Wayne Baisley
<> tbyars@earthlink.net <>