LV firm’s stock on rollercoaster

David Strow

Friday, Nov. 30, 2001 | 10:36 a.m.

PurchasePro Inc.'s stock went on a rollercoaster ride the past two days, following a string of announcements from the beleaguered Las Vegas e-commerce company.

An announcement that two of the company's top executives would begin purchasing large chunks of stock sent the stock soaring higher in Thursday trading. But it began retreating today, following the announcement that its independent auditor, Arthur Andersen LLP, resigned Nov. 21. Soon after, the company said two directors had been replaced on its board.

As a result of the Andersen resignation, PurchasePro said it is delaying its annual shareholders' meeting, previously scheduled for Dec. 10.

"While the timing of the Andersen resignation is unfortunate, as it has caused a delay in the filing of our proxy materials, it allows current management to select a new independent auditor and close the book on all those matters affecting our credibility with our shareholders," said Richard Clemmer, chief executive of PurchasePro.

But Dave Ehlers, chairman of Las Vegas Investment Advisors, took a different view of the announcements.

"Arthur Andersen is probably the top-notch accounting firm in the world," Ehlers said. "You've got items here that spell trouble with big, red letters."

"Andersen has noted what they considered to be deficiencies in the design and operation of the company's internal controls," said a form filed by PurchasePro with the Securities and Exchange Commission. "Through the implementation of new internal controls and recent changes in management, the company believes it has adequately addressed Andersen's concerns."

The document didn't state if these "deficiencies" caused Andersen to resign, or if the two sides clashed over the company's financial reporting or accounting practices. But it did include Andersen's response letter to the SEC.

"With respect (to the deficiencies), we cannot comment on the adequacy of new internal control procedures and recent changes in management in addressing the deficiencies in internal controls, which we previously noted," the Andersen letter stated.

Within hours of the Andersen press release, PurchasePro came out with a second press release, announcing two new directors had been nominated to its board.

One nominee is W. Donald Bell, chairman and chief executive of Bell Microproducts Inc., a San Jose, Calif.-based manufacturer of computer storage and memory products. The other was James Schraith, senior advisor to Quantum Technology Ventures, a Silicon Valley venture capital fund.

"I have known them both for many years and believe very strongly that they will help to guide PurchasePro through its current challenging transition period and to the achievement of its objectives," Clemmer said.

Unexplained were the reasons for the departures of directors John Chiles and Michael O'Brien. The terms of both directors were coming to an end in December, but the release didn't say why either man was not standing for re-election.

Chiles is a managing director in the corporate finance department of Jeffries & Co.; O'Brien is president of Zoomtown.com, the high-speed Internet subsidiary of Cincinnati Bell. Neither man could be reached for comment -- however, Bloomberg News reported that Chiles filed Wednesday with the SEC to sell 123,000 shares of stock.

PurchasePro traded at 74 cents this morning, down 5 cents -- a 6.3 percent decline. Trading was very heavy.

The downturn came after a surge in PurchasePro's stock price Thursday, following an announcement by the company that Clemmer and Chief Financial Officer Mark Donachie would step up their stock purchasing activity.

The Wall Street Journal had reported that a number of individual shareholders in the Las Vegas e-commerce company had proposed a plan that would require Clemmer to purchase and hold more than 1 million shares of stock in the company. The chief financial officer and chief operating officer of PurchasePro would be required to purchase more than 350,000 shares each.

The shareholders are arguing that such purchases would help restore investor confidence in the company, and back up bullish statements made by executives on conference calls.

PurchasePro's financial performance has not been positive. In the quarter ending Sept. 30, the company reported a loss including special items of $106.4 million, or $1.46 per share, on revenues of just $3.6 million. In the year-ago quarter the company lost $8.2 million on revenues of $17.3 million.

PurchasePro has taken no position on the shareholder proposal, and has not even said if it will be voted on at the annual meeting. But well before the market closed Thursday, PurchasePro announced Clemmer planned to acquire 100,000 shares within two weeks, adding to his 35,000-share holdings. CFO Mark Donachie will spend 10 perecnt of his annual base salary on stock, the company said.

"Because of my strong confidence in PurchasePro, as well as in response to the voice of our shareholder base, I am accelerating my previously stated plans to purchase stock in the company on the open market," Clemmer said.

Clemmer hinted at additional stock purchases in the future, saying the 100,000-share purchase plan represented initial plans.

At current prices, though, Ehlers was not impressed.

"That's $50,000 ... there are guys that spend more than that on dinner," Ehlers said.

PurchasePro stock had been trading at about 67 cents, down 3 cents on the day, when the announcement crossed the wires. Within minutes it had spiked up to 90 cents per share -- a sudden gain of 34 percent -- as blocks of about 350,000 shares, 200,000 shares and 100,000 shares changed hands.

The stock quickly retreated from these levels, but closed Thursday at 79 cents, gaining nearly 13 percent on the day. More than 4 million shares were traded, four and a half times above normal volume.