MicroStrategy To Withdraw Stock Sale As Lawsuits Mount

Data-mining software developer MicroStrategy Inc. has filed a request with the Securities and Exchange Commission (SEC) to withdraw its follow-on stock offering, as its share price takes a licking on Wall Street and its legal department gears up for an onslaught of lawsuits.

MicroStrategy filed its RW (request for withdrawal) with the SEC earlier today.

When company officials filed for the follow-on offering with the SEC at the end of February, they said they would offer 6.5 million shares of MicroStrategy's Class A common stock. Of those shares, 4 million would have come from the company, while the rest would have been offered by selling stockholders, MicroStrategy said. The company would not have received any cash from the selling stockholders participating in the sale.

At the time, the value of the offering was estimated to be about $1 billion. But with the company's stock trading at $88 per share at 1:15 PM EST today -- up $15.688 or 21.7 percent from Tuesday's close -- the follow-on offering's value would have been $572 million.

MicroStrategy expected to use the net proceeds for working capital and general corporate purposes. The company also planned to invest at least $100 million in infrastructure and marketing to support the buildout of Strategy.com's Personal Intelligence Network.

MicroStrategy spokespeople were not immediately available for comment.

The company's problems don't end there. Law firms are seemingly lining up to sue just two days after it said it would restate its revenues and earnings -- a move that had resulted in the free-fall of the company's stock price, until today.

At least nine lawsuits as of 9:30 AM EST today had been filed against MicroStrategy. Most of the actions, including the famed Milberg Weiss Bershad Hynes & Lerach LLP, which has made such lawsuits one of its main areas of practice, allege that the company and its top officers made materially false and misleading statements concerning MicroStrategy's financial statements, revenues and earnings per share.

Besides the company and its officers, at least one of the lawsuits also names MicroStrategy's auditor, PricewaterhouseCoopers LLP, as a co-defendant. Wolf Haldenstein Adler Freeman & Herz LLP, in a statement, accuses PricewaterhouseCoopers "with participating and acquiescing in the presentation by its audit client of false and misleading financial information to the investing public which inadequately and improperly accounted for the company's revenues."

On Monday, MicroStrategy said it would massively revise its 1999 and 1998 revenue and operating results, in an effort to conform to Securities and Exchange (SEC) and accounting guidelines regarding revenue recognition in the software industry.

The data-mining software maker said it will reduce its 1999 results to a loss of between 43 cents and 51 cents a share from previously reported operating income of 15 cents a diluted share. MicroStrategy also will restate 1999 revenue to between about $150 million and $155 million from $205.3 million.

MicroStrategy also said it expects its first quarter reports this year to fall below First Call estimates, at $0.01 per diluted share.

In a statement released early this morning, though, MicroStrategy clarified its earlier statements on exactly why it was revising its financials.

MicroStrategy had said the revisions were made "to conform to the most recent statements of the Securities and Exchange Commission and the accounting profession regarding revenue recognition in the software industry, and to Statement of Position 97-2." The company also said the the revisions were "the product of a recent detailed review of MicroStrategy's significant contracts and future business strategy and the related accounting under the revenue recognition rules, including the recently issued SEC Staff Accounting Bulletin 101."

But today, MicroStrategy said the principle decision behind the revisions "was the need to do so under existing accounting principles articulated in Statement of Position 97-2. The company's previously reported revenues and operating results were not revised principally to conform with Staff Accounting Bulletin 101 in advance of its required implementation by March 31, 2000."

After the company made its Monday announcement, MicroStrategy shares plummeted $140 or almost 62 percent to close at $86.75 apiece. Then on Tuesday, MicroStrategy was down again -- an additional 16 percent to close at $72.313 per share.

In a separate press statement issued early this morning, MicroStrategy acknowledged what it called the filing of a "a number of lawsuits purporting to be class actions...naming the company and certain of its officers and directors as defendants alleging violations of various securities laws in connection with the company's previously announced revision of its 1999 and 1998 revenues and operating results."

The two-sentence statement added that MicroStrategy "has not yet had the opportunity to review the complaints."

Reported by Washtech.com, http://www.washtech.com