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Excite@Home survival chances dim

The Internet access company and its accountants say it may not be able to continue operations, especially if the Nasdaq Stock Market delists its shares.

Excite@Home and its accountants said Monday that the company may not be able to continue operations, especially if the Nasdaq Stock Market delists its shares.

Excite@Home made the disclosure on Monday in an amendment to its annual report, which it initially filed with the Securities and Exchange Commission in April. Shares of the company closed off 41 cents, or 47 percent, to 46 cents Monday.

The company said in the amendment that it may not continue as a "going concern," which in financial lingo means that the cable Internet access company is running out of cash. The company also warned it could get booted off the Nasdaq, a move that would accelerate Excite@Home's financial woes. Companies can be delisted if they trade under $1 for 30 consecutive days.

Excite@Home raised $100 million in June in a convertible bond issue, but its shares have since plunged. Under the terms of the convertible bond deal, Excite@Home has to repay the $100 million immediately if the company's stock is not listed on the New York Stock Exchange, Nasdaq or American Stock Exchange.

The problem? Excite@Home ended its June quarter with $183.4 million in cash, leaving it little room to repay its debt. If Excite@Home is delisted, its options are to declare bankruptcy and reorganize or convince AT&T--already the company's biggest investor--to give it a cash infusion. Analysts said the latter is highly unlikely.

Promethean Asset Management, one of the hedge funds behind the $100 million convertible deal, wouldn't comment on Excite@Home's possibilities. Excite@Home wouldn't comment beyond what can be found in regulatory filings.

Excite@Home can pay off Promethean with stock or cash. The bonds convert to stock at $4.38 and above. Convertible bonds are hybrid securities that companies sell to investors, who can convert them into shares of stock at a future date under certain conditions.

Stock price from August 2000 to present.  
Source: Prophet Finance
"If the company's series A common stock is delisted, the terms of the convertible notes provide for their acceleration of repayment in cash at that time," said accounting firm Ernst & Young in a letter included in the company's filing. "These conditions raise substantial doubt about the company's ability to continue as a going concern."

If Excite@Home is delisted it's likely to declare bankruptcy, said Merrill Lynch analyst Henry Blodget in a research note. The company will probably then reorganize and "sell pieces of itself to cable providers or other ISPs," he said.

Gartner analyst Jay Pultz says that despite the uncertainty created by the woes befalling broadband-service providers, there could be some positive changes in how cable data services are provided.

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In an interview last week, Promethean CEO James F. O'Brien said he was as surprised as anyone about the extent of Excite@Home's problems, detailed in its second quarter earnings report. In the span of six weeks, Excite@Home went from being confident about its funding to saying it would need to raise more cash.

The company has cut its work force and attempted to sell off its media assets to survive. "Our existing cash and other liquid assets may not be sufficient to fund operations through the end of 2001," the company said in its filing. "We cannot guarantee that we will be able to obtain additional funding on acceptable terms, if at all."

Blodget said Excite@Home is facing a Hobson's choice about its media business. The media business "could cost more to close than to keep running at a loss," according to Blodget.

The latest chapter of the Excite@Home saga is likely to spark speculation about how much the company's parts are worth.

Even if the company does break itself up, there won't be "much, or any value for the equity holders," Blodget said, considering the company has $1 billion in debt and only $400 million of hard assets.

The company has plans to conduct a reverse stock split to stay listed on the Nasdaq. Shareholders have approved the split, but the success of such moves has been spotty at best. In its filing, Excite@Home admitted a reverse stock split won't necessarily result in "a sustained increase above the minimum bid price requirements."