Excite@Home's financial problems are growing with the company's auditors warning that the high-speed Internet company could be headed for bankruptcy court.
Excite@Home revealed in a SEC filing that accounting firm Ernst & Young has pulled its previously-clean opinion of the company's financial situation, saying financial decay raises "substantial doubt about the company's ability to continue as a going concern." Those are deadly words in accounting speak and come just after Excite@Home moved to dump Ernst & Young, with Pricewaterhousecoopers taking over by September.
Controlling shareholder AT&T Corp. is showing no signs of stepping in to prevent a collapse and is expected by analysts to jump in after any Chapter 11 filing. Excite@Home's financial position is no secret, with the company starting to raise warning flags last spring as Chairman George Bell was squeezed out. Internet ad spending has dropped dramatically. Internet portal Excite, acquired to be the salvation of the capital intensive @Home, has become a big dog. Ad revenues dropped 64% during the second quarter, dropping from $74.7 million to $28.6 million.
Meanwhile high-speed Internet access service increase 70% to $89.7 million. However, that could end quickly because, ase the auditors noted, major MSO customers Comcast, Cox and even AT&T will no longer use the company as an exclusive Internet provider. Worse, the company's low stock price and slinding capital base means the company is likely to be delisted.
That means investors who bought $100 million in convertible bonds just two months ago can demand their money back. Excite@Home said that the SEC filing was triggered by a requirement to register those bonds and that there hasn't been any changes in the company's finances since its July 24 earnings report. - John M. Higgins