Phoenix Subsidiary Files for Chapter 11 Protection : Bankruptcy: Those familiar with Netcom Research, which said it had a contract to sell computers to the Soviet Union, were not surprised.
A subsidiary of the Phoenix Group International, which announced 14 months ago that it had a contract to sell millions of computers to the Soviet Union, has filed for protection from creditors under federal bankruptcy law.
Netcom Research Inc., an operating subsidiary that makes diskless workstations for computer networks, listed $1.65 million in liabilities and unspecified assets in a Chapter 11 petition filed Monday in U.S. Bankruptcy Court in Santa Ana.
The subsidiary filed the petition to obtain relief from creditors’ claims while it attempts to secure additional financing, said Mark C. Tow, Netcom’s bankruptcy attorney in Newport Beach. He said the company would file a list of its assets later.
“It is our intent to reorganize the company,” he said. “I think the company can turn around and function as a viable entity.”
The five largest unsecured creditors include Phoenix Group International, which is owed $663,910; a partnership including Phoenix Chairman Charles W. Missler, owed $372,352; Oracom Data Systems Ltd. in Hong Kong, owed $142,606; Schweber Electronics, a London-based computer distributor, owed $141,858; and Bell Microproducts in Milpitas, owed $61,568.
Missler, a controversial figure who describes himself as a turnaround artist, did not respond to requests for comment.
The bankruptcy filing came as no surprise to those familiar with the Phoenix Group.
Warren Halperin, a trade consultant in Mission Viejo and former adviser to the Phoenix Group, said he believed that the filing was inevitable.
“I knew the (Soviet) contract was not dated and not properly executed,” said Halperin, who ended his association with the company in February. “I accepted Missler’s statements on good faith, but I discovered that they used aggressive accounting techniques and were always desperate for cash to meet payroll.”
Oak Technology Inc., a Sunnyvale firm that supplied graphics chips for Netcom computers, shipped 500 chips to the company in October but never received payment for the $8,647 bill, said Thomas Zades, controller.
“We’re not really surprised,” Zades said.
The Phoenix Group surprised the personal computer industry when it announced in September, 1989, that it had beaten 16 competitors to win a contract to supply up to 6 million PCs to schools and businesses in the Soviet Union.
But skepticism about the deal emerged quickly in the international trade community. Critics questioned why the Soviet negotiators had chosen a little-known company with virtually no experience in building personal computers.
International trade specialists said Wednesday that Netcom’s bankruptcy filing, brought on by financial difficulties of the subsidiary and its parent company, is expected to kill the Soviet deal.
In December, signs of problems with the deal surfaced with the departure of two top Phoenix executives, Peter C.M.S. von Braun and St. George Tucker Grinnan III. Von Braun, former vice chairman and chief executive of the Phoenix Group, was a key architect of the Soviet deal.
In court documents filed in Superior Court in Santa Ana late last year in conjunction with a former employee’s lawsuit against Phoenix, the president of a separate Phoenix subsidiary said the company did not have a formal contract to sell PCs in the Soviet Union.
The Phoenix Group said in January that it had received its first confirmed order from the Soviet Union to ship 770 computers. But former employees said at the time that the deal was in jeopardy and noted that the company had trouble making its payroll.
Phoenix subsequently explored subcontracting manufacture of the computers to Asian firms, including TriGem Corp., South Korea’s largest computer maker and maker of Epson computers. But no deal was ever signed.
During the summer, Phoenix Group’s stock was dropped from trading on the American Stock Exchange, and the company moved out of its headquarters at Park Place in Irvine.
Tow said Wednesday that he did not know if Netcom actually manufactured any computers sold to the Soviets.
Tow said Netcom has a new president but declined to identify him.
“Netcom stands alone and should not be tied to Phoenix,” said Tow, though he acknowledged that Phoenix owns Netcom.
