‘Substantial doubts’ about Excite@home

Excite@Home said in a recent SEC filing that there are “substantial doubts” about its ability to continue as a going concern.

Among a litany of concerns the company cites, one of the most serious deals with the company’s potential delisting from the Nasdaq National Market and its recent sale of $100 million in convertible notes.

Currently, Excite@Home fails to meet the Nasdaq’s minimum thresholds for net tangible assets and stockholders’ equity. In such a situation, the bid price for a company’s Series A common stock must be above three dollars to avoid delisting. Currently Excite@Home is trading below one dollar.

If the company—after it receives a redemption notice from a holder—is unable to keep its Series A common stock listed on the Nasdaq, New York Stock Exchange or American Stock Exchange, the notes provide for accelerated repayment to the holder.

However, Drake Johnstone, first vice president with Davenport & Co., believes that shareholders would only put their own investments at risk by calling in notes while the company is in financial distress.

“The bondholders have a higher chance of recouping investment should the company survive. … Taking the hard-line approach now is guaranteeing they would get zip on their invest.”

Redemption of these notes could prove to be a serious drain on Excite@Home’s already limited cash supply. Currently the company has only enough money to last the year.

To avoid delisting, Excite@Home is considering a reverse stock split to raise the share price above three dollars. Even if the split does raise the price, though, the filing said it could not guarantee the stock would hold at that level.

Other factors could also contribute to the company’s possible demise. According to the filing the company sees no near-term recovery in its online advertising business, has no buyer for its media operations and is unsure of its ability to obtain additional funding.

In related news, the filing also revealed that Excite@Home laid off 200 employees this month as part of its realignment, and cut 90 jobs at its MatchLogic subsidiary. These cuts follow announced workforce reductions in January and April.