Critical Path Stock Drops 60%

Shares of Critical Path Inc. took a nose dive and trading was halted Friday after the Internet messaging service provider said it may have misstated earnings.

Shares plunged by more than 60% to less than $4 in pre-market trading before Nasdaq ceased trading at 9:09 a.m. EDT. The stock had closed Thursday at $10.06.

The San Francisco-based company said it discovered “a number of transactions that put into question” its fourth-quarter results that were announced Jan. 18. The quarterly revenue of $52 million and operating loss of $11.5 million, or 16 cents a share, may have been “materially misstated,” the company said.

The company has set up a special committee to investigate its revenue recognition practices. The board also has placed David Thatcher, company president, and William Rinehart, vice president of worldwide sales, on administrative leave.

Nasdaq said it has asked for additional information, and trading will remain frozen until the company has fully satisfied the market’s request.

Critical Path provides e-mail hosting services and software for more than 2,000 business customers, including online brokerage ETrade and Internet service provider CompuServe.

The company’s fourth-quarter results widely missed Wall Street projections of a one-cent profit.

The company at that time blamed part of the wider-than-expected loss on a $7-million software license sales accounting deferment. The company had originally expected to include the $7 million in its bottom line but said it would instead defer the revenue until later because of “complex and evolving rules governing revenue recognition for software license arrangements.”

The company also lowered its 2001 projections, citing macroeconomic reasons, including foreign currency effects.

Calls to Critical Path for additional comment were not returned.