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Riverstone Branded 'E' by Nasdaq

Riverstone Networks Inc.'s (Nasdaq: RSTNE) stock symbol yesterday was branded with Nasdaq’s scarlet letter E after failing to file its 10-K with the Securities and Exchange Commission (SEC) on time.

The E will remain tacked onto the end of Riverstone’s ticker symbol until the matter is resolved, indicating to shareholders that the company is in violation of one of the Nasdaq’s rules and faces a possible delisting. On Friday, the company announced in its first-quarter 2004 earnings press release that the Nasdaq had warned it of the delisting (see Riverstone Posts Loss, Faces Delisting).

The SEC has been informally reviewing Riverstone for the past several months (see Accounting for Riverstone's Problems). But earlier this month it upped the ante and launched a formal inquiry into the company’s accounting practices. Back in May, Riverstone issued a press release stating that it would be late filing the 10-K, while it conducted its own internal investigation (see Riverstone Delays 10-K).

Riverstone now has until July 1st to request a hearing before Nasdaq officials regarding its listing status, says Peter Ruzicka, a spokesman for the company. Then Nasdaq has up to 45 days to grant Riverstone a hearing.

It’s difficult to predict the eventual outcome, but if Riverstone ends up being delisted it will only intensify its problems.

“The company already has limited access to capital,” says Reginal King, an analyst with W.R. Hambrecht & Co. “This will make it even harder for them.

King dropped coverage of Riverstone on June 6th after the company pre-announced disappointing earnings for its first fiscal quarter of 2004 (see Riverstone Ailing in Asia). He says he dropped coverage because he was concerned about Riverstone’s lack of North American and European service provider wins.

Alex Henderson, an analyst with Salomon Smith Barney, is recommending “investors stay on the sidelines” for now. In a note published on Friday after the company’s earnings call, he reiterated his Underweight rating on the stock and left his $0.50 price target intact.

Using the SEC investigation of Enterasys Networks Inc. (NYSE: ETS) as a reference, Henderson says he is not surprised by the SEC’s formal inquiry or Nasdaq’s recent actions. The LAN switching company, which, like Riverstone, was spun out of Cabletron Communications, was dragged through the mud during a nine-month investigation by the SEC. Eventually, the company settled with the SEC without admitting any wrongdoing, but not before its stock plunged, most of its upper management left, and it restated financial filings to show losses that were much larger than it first reported.

Even though analysts are not keen on Riverstone’s stock, they are not convinced the company will be going away anytime soon. It still has $196 million in cash, or about $1.50 per share. But it’s been burning through that cash. In its first quarter its total cash dwindled more than $25.6 million, some $10 million of which was consumed by repurchasing outstanding debt.

Erik Suppiger, an analyst with Pacific Growth Equities Inc., said in his research note that the company needs to earn between $40 million and $50 million in revenue each quarter to reach breakeven. Currently, the company is generating revenue in the $12 million to $15 million range, and Suppiger says he doesn’t believe it will achieve more than $40 million in revenues for the whole year. He reiterated his Underweight rating.

Yesterday, Riverstone’s stock fell $0.10 (7.6%) to $1.21. Today, it inched up slightly, gaining $0.03 (2.48%) to $1.24.

— Marguerite Reardon, Senior Editor, Light Reading

netwrkfollower 12/4/2012 | 11:51:37 PM
re: Riverstone Branded 'E' by Nasdaq riverstone is dead and their equipment is crap. any questions?
wired28 12/4/2012 | 11:51:27 PM
re: Riverstone Branded 'E' by Nasdaq you are probably right but why would the Pentagon
or Telefonica order shitty gear?
What about the the Sonus partnership?
Maybe Marguerite can shed some light here
Iipoed 12/4/2012 | 11:51:21 PM
re: Riverstone Branded 'E' by Nasdaq The only sales that Riverstoned ever makes are when they buy the business. Cabletron model, buy the business, try to make up no margin business on service. Only thing worthwhile about RSTN is that they somehow are still makeing payroll and in the technology marketplace this is important. Unfortunately this will not continue much longer.
literight 12/4/2012 | 11:51:10 PM
re: Riverstone Branded 'E' by Nasdaq No they are T O A S T.

consider: they cross-dressed revenue from enterasys.
consider: they cross-dressed revenue from aprisma.
consider: platforms are feeble at best, for each s/w feature need to either upgrade h/w or bring down a few customers- alright a few '000s of them so if the shareholders can live with the downtime, no big deal. Shareholders what do ya think?
net_raver 12/4/2012 | 11:51:05 PM
re: Riverstone Branded 'E' by Nasdaq I have some insight about Telefonica. It was a fairly thorough eval. RSTN seemed to have the requested features running, which others had on Powerpoint.
materialgirl 12/4/2012 | 11:51:02 PM
re: Riverstone Branded 'E' by Nasdaq With all that cash, perhaps RSTN will make a tasty morsel for someone with even less up-to-date technology. But then, I keep asking the same thing about cash-rich AVCI and nothing happens. Perhaps when interest rates go negative we will see some action.
netwrkfollower 12/4/2012 | 11:50:58 PM
re: Riverstone Branded 'E' by Nasdaq >> But then, I keep asking the same thing about cash-rich AVCI

avci is hardly anything but cash rich.
literight 12/4/2012 | 11:50:54 PM
re: Riverstone Branded 'E' by Nasdaq >I have some insight about Telefonica. It was a >fairly thorough eval. RSTN seemed to have the >requested features running, which others had on >Powerpoint.

Ummm wrong! Read the local Spanish newspapers, last Friday the EBA- Telefonica de Espana was down for 4 hours thanks to stoned.
optical_man 12/4/2012 | 11:50:54 PM
re: Riverstone Branded 'E' by Nasdaq Author: wired28 Number: 2
Subject: dead Date: 6/25/2003 8:33:42 AM
you are probably right but why would the Pentagon
or Telefonica order shitty gear?
What about the the Sonus partnership?
Maybe Marguerite can shed some light here

wired:
partnership with whom? You just answered your own question. Re-read your post 3 times, and you'll see part of Riverstones (granted, many) problems.
o_m
net_raver 12/4/2012 | 11:50:39 PM
re: Riverstone Branded 'E' by Nasdaq literight,

As a user of a cisco powered network I am used to this type and even longer outages.
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