TALES OF THE TAPE: Ants Software.com On Wild Ride >ANTS
2/2/0 14:0 (New York)
By Sean Davis
NEW YORK (Dow Jones)--On the speculative fringe of the stock
market, fortunes rise and fall - and rise and fall again - with
breathtaking speed.
Take Ants Software.com (ANTS). The tiny company, which says
it has a hot new technology to make computers run faster, was
flying high in December. But Ants took a number of missteps, and
its market value dropped more than 50%.
As recently as Tuesday, Ants was on the rise again, its shares
climbing 22% to 40 1/8, apparently on the strength of a company
press release saying it had a successful demonstration of its
technology. At Tuesday's closing price, Ants had a market value
of $493.5 million. But the stock, whose shares list on the over-the-counter
bulletin board, was down 28% in early trading Wednesday after
the company said Dr. Peter C. Patton resigned from the board without
giving a reason.
As with all speculative investments, questions abound about
Ants. For one thing, Ants may be long on promise, as its fans
say, but until recently, it was short on capital. The company
has never booked a sale, and on Oct. 31 its current liabilities
exceeded its current assets, a condition that forced the Burlingame,
Calif., company, like many other development-stage companies,
to include a "going concern" warning in its filings with the Securities
and Exchange Commission. Since Oct. 31, Ants has announced private
placements totaling $6.4 million, and Chairman Frederick D. Pettit
told Dow Jones Newswires the company currently has about $5 million
in cash on hand.
Ants For Server Farms
Ants claims its technology, which it calls asynchronous non-preemptive
tasks, or ANTs, can make computer servers work much faster by
permitting them to do many tasks at once. It envisions the emergence
of "server farms" that provide number-crunching and data storage
to companies on an outsourced basis. These server farms will need
ANTs to make sure they can run at 100% capacity all the time,
maximizing their revenues, the company says.
Ants changed its name and business strategy last year. Its
precursor, Sullivan Computer, was incorporated in Delaware in
1979. It went public in 1986 through a reverse merger with Chopp
Computer Corp. of Canada, whose name it adopted, and the new company
publicized plans to build a supercomputer to compete with Cray
Research.
Chopp was briefly one of the stars of the Vancouver Stock Exchange,
where its shares went from C$7 in 1985 to more than C$120 in early
1986. Then it became the target of an illegal short-selling scheme,
Ants recounted in a 1999 filing with the SEC. Chopp sued the short
sellers and won a $48 million judgment in 1990. But the stock
didn't recover, and was trading for pennies by 1987. "The victory
saved the reputation of the company," Ants said in the SEC filing,
"but legal fees ate up everything recovered to date."
Last year, shares of Ants began to climb from less than a dollar,
reaching 52 3/4 at the close of trading Dec. 23, a day after it
announced a 2-for-1 stock split.
As do many small stocks that attain lofty valuations, Ants
won its share of fans and detractors. Some of these have been
jousting on Internet message boards such as Raging Bull, www.ragingbull.com,
where there are more than 20,500 posts about the company.
On Dec. 24, someone using the alias KingofJustice said Elias
Argyropoulos, a public-relations specialist working for Ants,
was a former stockbroker barred from the industry for manipulations
and deceptive practices. The NASD did bar an Elias G. Argyropolous
from the industry in 1995, in part for making unauthorized trades.
Argyropoulos didn't return a telephone call seeking comment. In
late January, Ants said it stopped using Argyropoulos's firm,
Prima Capital, as its PR representative.
Two days later, an Ants defender using the alias Recondobondo
warned on the Raging Bull message board that speculators were
selling Ants short, a bet that the stock would go down, and said
that they were resorting to "scare tactics."
Pettit said Ants is aware of the battle over his stock on the
Internet, and the company is trying to cultivate investors who
don't rely on message boards for information about stocks. "Whenever
we take a look at those boards, we see activities that are savage
in nature," he said. "We don't think you can win in that kind
of environment."
Series Of Missteps
On Dec. 27, shares of Ants began to slide, and by the close
of trading Dec. 30 the company's market value had shrunk to $172.2
million from $648.8 million on Dec. 24.
Meanwhile, Ants made one public-relations misstep after another.
The company said on Dec. 28 it completed a private placement of
restricted stock totaling $4.8 million, but it didn't disclose
how many shares it sold. It was later reported, first on Raging
Bull, then by a news organization, that Ants sold about 500,000
shares for about $9.60 each, less than half the price of the stock
on the open market.
Pettit declined to provide details about the private placement,
saying Ants would disclose more information in its next quarterly
report. But he cautioned against drawing unfavorable conclusions
from a private placement of restricted stock at below-market prices.
"To make a comparison between the market price of freely tradable
stock and restricted stock is per se misleading," he said. "If
anyone can give me an example where restricted stock sold at market
or better, I would be very glad to see that. I don't known any
example in history."
On Dec. 31, Ants said it hired the husband of one of its employees
to supervise its benchmark testing program, despite having said
in November it would hire an independent third party to conduct
the testing. On Jan. 3, Ants issued another press release clarifying
that the employee's husband, Stanford University computer-science
professor Thomas O. Binford, would arrange for the tests, not
conduct them himself. "What I asked him to do is ensure the company
observes the highest standards of objectivity in its testing programs,"
Pettit said.
Also on Jan. 3, the company's outside auditor, Jaak Olesk,
resigned. He told Dow Jones Newswires he stepped down for two
reasons: Ants re-used his audited financial reports without his
consent, and it identified Chairman Donald R. Hutton as a certified
public accountant, which he wasn't. Hutton had been a chartered
accountant, Canada's version of a CPA, but the Institute of Chartered
Accountants of British Columbia expelled him in 1968 for unlawfully
taking money and securities that belonged to a customer, a spokesman
said. Hutton didn't return telephone calls seeking comment.
Ants attributed the mistake on the SEC filing to a clerical
error, and withdrew it on Jan. 5. The same day, Hutton resigned,
and Pettit, who was president and chief executive, added the post
of chairman. Lawyers from the SEC and the National Association
of Securities Dealers queried Olesk in the wake of these events,
Olesk told Dow Jones Newswires. Ants has since hired a new outside
auditor, Farber & Hass LLP.
"Our (former) chairman did not misrepresent himself," Pettit
said, explaining that although Hutton crossed out the letters
"CPA" and inserted the abbreviation "Acct.," for accountant, this
change was inadvertently left out of the documents filed with
the SEC.
In yet another setback, Ants said on Jan. 7 it was postponing
a planned 2-for-1 stock split because shareholders hadn't approved
it or authorized the necessary increase in shares. Pettit told
Dow Jones Newswires the company had believed it would easily be
able to obtain the necessary approval because historically its
stock was concentrated in a few stable holdings. "When we went
to count the votes, we found that substantial holders no longer
had stock in their own hands, but in repositories without the
authority to vote the stock," Pettit said. Ants, worried that
a proxy solicitation could open up a public controversy over the
planned stock split, decided to admit it didn't have the votes
and put the split on hold, Pettit said.
-Sean Davis, Dow Jones Newswires; 201-938-5294 |
