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ARCHIVED  June 18, 1999

ACT creditors line up in court

FORT COLLINS — Signals that once high-flying computer manufacturer Applied Computer Technology Inc. is faltering are stacked on shelves in the Larimer County District Court record vault.

Lawsuits — two dozen of them — tell stories of a company that quite quickly ran out of cash. By early this month, judgments against ACT topped $1.7 million. A flurry of new court actions by creditors could drive that figure beyond $2 million before the summer is out.

The biggest question facing creditors and the lawyers who helped them win judgments: Where is the money?

Some may be in the offing, as ACT may soon close a deal to sell its only asset, Internet service provider WebAccess. Applied Computer president and CEO Wiley E. “Bud” Prentice told The Northern Colorado Business Report in late May that “WebAccess is being purchased,” adding that it would bring a “substantial amount.”

He said at the time that the sale could become final in the next 30 days, indicating a late June time frame. Prentice did not return phone calls inquiring about the status of the WebAccess sale.

Creditors want to know more.

“We really are just trying to get our hands around this,´ said Denver lawyer Jacques Machol III, who represents three ACT creditors.

“The thing we don’t have a handle on is the sale price and whatever other assets may be available. I would hope that what we’re hearing is accurate, and that a potential sale might realize at least something on the dollar for creditors.”

ACT just two years ago was on a roll: Fat contracts with universities and government agencies had the firm knocking out walls and hiring new workers, and sent ACT’s stock soaring on the Nasdaq exchange.

News of a huge contract with the National Institutes of Health in September 1997 had Applied Computer managers looking forward to sales growth of $10 million to $20 million annually, and tripled the firm’s stock price — from $2.63 to $8.13 — in a single day. ACT early this week was trading at 28 cents a share.

Also in 1997, Applied Computer won a contract to provide personal computers to the University of Oklahoma faculty, staff and students, expected to reap $3 million a year.

Ironically, court case files show that the company’s troubles began in 1997, with bounced checks to firms that sold electronic components, leased equipment or shipped products for ACT.

Because Colorado law provides for triple damages in bad-check cases, the judgment amounts far exceeded the original debts. A May 13 judgment awarded Greenleaf Distributing Inc., an Illinois-based electronic parts wholesaler, $281,824.11 in damages on an original debt of $93,941.37.

Of the 25 cases filed in Larimer County District Court, 19 are closed, with judgments against ACT totaling $1.74 million.

The five most recent filings would add $313,686.35 to that amount. Another case was closed with a settlement.

One of the most recent suits, filed June 1 by Federal Express Corp., typifies the claims against ACT.

Included in the file are copies of 12 checks totaling $46,994, each marked “Insufficient funds.” The Denver law firm representing Federal Express will amend the suit soon to reflect another $11,000 in bad check debts.

“These people were willing to build their products and ship them all over the world on Federal Express’ nickel,´ said Scotti Heiser, who is investigating Applied Computer for Denver lawyer Irvin Borenstein.

“This was a thriving company. They shipped to IBM, to the Defense Department. So why aren’t they paying their bills? It’s poor business management, pure and simple, in the long run.”

Also among the creditors, though not represented in the District Court filings, is the Fort Collins law firm that represented Applied Computer in most of the earlier actions.

Most of the case files are replete with motions by Timothy Goddard, a lawyer with Hasler, Fonfara and Maxwell, to withdraw from his role as ACT’s defender, citing nonpayment of attorney’s fees.

Still bound by attorney-client privilege, Goddard would not discuss details of the cases. But he did describe the business climate that led to ACT’s troubles.

“I know there was an emergence of increasing competition from foreign companies, and that reduced profit margins,” Goddard said. “There were certainly some contracts that were entered into that just did not work out the way that they would have hoped.”

Machol, whose clients have two breach-of-contract judgments against ACT and another case pending, said June 9 he was preparing to seek financial statements from ACT that would show the value of WebAccess and any other of the firm’s assets.WebAccess’ subscribers number approximately 2,500.

A document filed in April with the Securities and Exchange Commission says ACT’s liabilities “ranged between $4 million and $5 million” and that WebAccess, a wholly owned subsidiary, remained its sole asset.

“You’re entitled, once you have a judgment, to examine financial filings whether they are in or out of bankruptcy court,” Machol said. “These are the things we’ll be looking for.”

While Applied Computer shut down its manufacturing operations in November, the company has so far been staving off bankruptcy — an action that would bring ACT and all its creditors into court to sort out the debts and assets. Heiser said the time had come to press the issue, regardless of what ACT’s plans may be.

“Somebody, somewhere ought to force them into involuntary Chapter 11,” she said. “Then we might get some answers. Where’s the money? Is it going into your account? Are you paying off your mortgage with it? These are the questions I would be asking in court.”

FORT COLLINS — Signals that once high-flying computer manufacturer Applied Computer Technology Inc. is faltering are stacked on shelves in the Larimer County District Court record vault.

Lawsuits — two dozen of them — tell stories of a company that quite quickly ran out of cash. By early this month, judgments against ACT topped $1.7 million. A flurry of new court actions by creditors could drive that figure beyond $2 million before the summer is out.

The biggest question facing creditors and the lawyers who helped them win judgments: Where is the money?

Some may be in the offing, as ACT may soon…

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