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Peapod Calls Friday's 22% Selloff an Overreaction to Its 10Q Report

Peapod (PPOD) attempted Monday morning to stanch reports that the company is running out of cash. Concerns about Peapod's financial position sent the company's stock price plummeting 22% on Friday.

On Thursday, the Internet grocery service filed its quarterly 10Q report with the Securities and Exchange Commission, stating, "The company anticipates that existing cash and marketable securities may be insufficient to fund the company's operations and capital requirements for the next year and is currently evaluating financing opportunities."

But early Monday, Peapod announced it had in excess of $15 million in cash and marketable securities, "an amount it believes is sufficient to fund its operating needs into the third quarter of next year." At the same time, the company disclosed that it is in talks with potential investors to raise additional financing past 2000, with the investment bank Wasserstein Perella's assistance.

Company officials called Friday's selloff an "overreaction." "The company is currently evaluating a number of financing alternatives, which should position Peapod for a strong future," Bill Malloy, Peapod's new president and chief executive, said in a statement. "We are confident that additional financing will be obtained early next year."

Despite the attempt at reassurance, Peapod's stock fell 8%, or 15/16, to 10 3/4, in Monday morning trading. The company closed down 1 1/4 to 10 5/16.

One analyst shrugged off the news. George Dahlman of U.S. Bancorp Piper Jaffray, said, "On a 10Q, a company gives the most conservative position it can." Because the company is in start-up mode, he characterized the company's cash position as "hardly a surprise." He rates the company a strong buy and his firm has not participated in any underwriting for the company.

Added Ellen Baras of William Blair & Co.: "This is not a surprise. Anyone who saw their earnings last week would have seen that their cash position had dropped." She emphasized, "What's important now is, can they get the money? And at what terms and at what price?" Baras rates the company a hold and her firm was involved in Peapod's initial public offering.

Last Tuesday, Peapod reported disappointing third-quarter financial results, with operating expenses rising more than expected, to $13.8 million from $9.0 million a year earlier. General and administrative expenses increased to $5.0 million from $1.9 million, primarily due to a one-time charge related to the hiring of Malloy at the end of September.

Malloy was previously executive vice president of wireless operations at AT&T (T), and he replaced Andrew Parkinson, a co-founder of Peapod who is now chairman of the company.

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