Leap Wireless

(LEAP)

shares dropped by a third Friday after the company warned of a big sales shortfall and said it must restate more than three years of financials.

The San Diego flat-rate mobile phone service says it misbooked about $20 million in service revenue and $20 million in operating income from 2004 to the second quarter of this year. Leap, which emerged from bankruptcy in 2004, says a big part of the problem was that it mistakenly recorded revenue from nonexistent customers.

The news came as the company released preliminary results for the third quarter showing sales of about $350 million, 16% below analysts' consensus target of $418 million, according to Yahoo! Finance.

Leap says it also saw high customer defections, pushing its monthly churn rate to 5.2%. The user exits cut into overall subscriber growth in the third quarter, with the company adding a paltry 36,484 net new users.

Earlier this month,

MetroPCS

(PCS)

withdrew its $4.7 billion offer to buy Leap. Among Leap's costs in the third quarter was a $4 million charge to cover expenses related to the hostile offer from MetroPCS and Leap's efforts to solicit other bids.

Looking ahead to the fourth quarter, Leap says it expects its churn rate to improve to between 4.4% and 4.7%. The company expects to add between 70,000 and 130,000 net new subscribers in the fourth quarter.

Leap shares were down $19 to $39.10 in midday trading. MetroPCS dropped $3.80, or 18%, to $17.

Observers say the news hit both stocks because the sales shortfall may be tied to customers hit by the widening credit crunch. The restatement could also reduce the likelihood of a merger, which some investors have seen as inevitable.