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
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
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.