Earthlink Issues Warning, Then Reversal, on Cash Flow

Trading in shares of Earthlink Network Inc. was halted by regulators Wednesday after an unusual situation in which the company filed a document warning it was running out of cash, then said the filing was in error.

In its quarterly filing with the Securities and Exchange Commission, the Pasadena company said its management “does not believe available cash will be sufficient to meet the company’s operating expenses and capital requirements through the end of the year.”

That was enough to prompt Nasdaq regulators to halt trading in the company’s stock, which dropped 38 cents to close at $11.63 per share.

But Sky Dayton, chairman of Earthlink, said the warning was placed in the document by mistake and that the company, one of the nation’s largest Internet service providers, would correct the error by filing a new document.

Garry Betty, chief executive of Earthlink, said the erroneous paragraph was lifted from the company’s prospectus and inserted in its quarterly earnings statement because the company wanted to inform investors that it plans to raise additional financing.

“Earthlink has never been in better shape,” Betty said, adding that the company has enough cash to operate through the end of the year.

Earthlink hopes to raise about $10 million through a private stock placement still being planned, Betty said. The company raised $27 million in an initial public stock offering in January.

Analysts and government officials said Earthlink’s retraction is very unusual and could prompt an SEC inquiry.

Earthlink has grown from about 30,000 subscribers in 1995 to 328,000 as of June 30. Through the first six months of 1997, the company reported a loss of $16.1 million on sales of $34.6 million.