ADSP--from today's ny times
<< November 27, 1999
Tiny Maker of Modem Part Has Wild Surge in Its Stock
Product Said to Offer Cheap Internet Access
By FLOYD NORRIS
The Ariel Corp., a technology company that was forced only last month to renegotiate its debts, rose more than tenfold this week after it announced that it would begin selling a product to compete with offerings from the much larger Cisco Systems and Lucent Technologies.
Shares of Ariel, which closed Tuesday at $3.56 a share, began to rise on Wednesday after the company put out a statement saying its modem cards had been approved for use in the United States and other countries and would go on sale next month. It said the cards would enable smaller Internet service providers to provide dial-in connections at a lower cost than those who use competing products.
On Wednesday, the stock more than tripled, to $10.75, on volume of 46.8 million shares. Then after the Thanksgiving holiday, it zoomed again Friday, rising $26.25, to $37, on volume of 50.6 million shares. During the hectic day, the price rose as high as $57.
The trading volume was all the more remarkable in that the company has only 9.76 million shares outstanding. During the last two trading sessions, 10 times that many shares were traded, most of them in relatively small lots. Internet chat rooms were filled with talk of the stock.
Some of the enthusiasm was fueled by a comment from Anthony Stoss, an analyst for EarlyBird Capital, an affiliate of GKN Securities, which underwrote Ariel when it went public in 1995 in an offering of one share and one warrant for $4. Stoss was quoted by Bloomberg News as saying Ariel's product "will set the market on fire in terms of price."
Stoss did not return a telephone call Friday. Nor did Dennis Schneider, Ariel's senior vice president for worldwide marketing, who issued the Ariel news release on Wednesday. After trading ended Friday, Ariel released a statement saying there were "no pending announcements that explain this level of activity" in the stock.
The activity was wild in the holiday-shortened trading session. At one point, as orders poured in to buy and sell the stock, the highest bid by an investor or broker trying to buy the stock was more than $2 above the lowest offer price by someone trying to sell the stock. Normally, of course, the bid is always lower than the offer price, and such prices can cross by that much only in the most hectic of markets.
The performance was all the more amazing because there was little new in the Wednesday announcement. Ariel had announced on Oct. 18 that the product would go on sale in early December, and had made the same pricing claims. But that announcement did not attract much investor attention, and the stock price remained in the $3-to-$4 range. The principal new thing in Wednesday's news release was the statement that the product had won approval for connection to telephone lines in a number of countries. The earlier release had not indicated there was any question regarding the ability of the product to connect to such lines.
Ariel's shareholders have had a long and often unpleasant ride since the company went public. The share price rose as high as $18 in May 1996, enabling the company to force the exercise of the warrants that were issued at the original offering in January 1995, which allowed the purchase of shares for $3.50 each.
But results soon proved disappointing, and by summer of this year the share price had fallen below $2. At the end of last year, Ariel was not in compliance with covenants in a loan agreement. As a result, that agreement was renegotiated in May, and then again in October. In May, it committed itself to have working capital of at least $8 million at the end of this year, a figure that was cut to $2 million in the October renegotiation.
For the first nine months of 1999, Ariel reported a loss of $9.3 million on revenue of $8.7 million. >>
nytimes.com
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