Internet company in danger of foreclosure
By John Duchemin
and David Butts
Advertiser Staff Writers
The state yesterday filed a formal complaint to foreclose on $800,000 that Internet translating company WorldPoint owes the government for a loan made in 1996.
The company, which enjoyed a brief international expansion as part of the Internet boom, has struggled this year, reducing staff by 90 percent, losing major contracts and closing most of its offices.
WorldPoint, which has headquarters in the penthouse of the First Hawaiian Tower, now has a week to respond to the state's complaint or the state will move to take possession of its assets, said Myra Kaichi, the deputy attorney general who prepared the complaint.
"I'm not setting out to just shut them down and have a distress sale," Kaichi said. "I hope they can emerge from this in some form."
Company president Massimo Fuchs said yesterday he could not comment on the specifics of the state's action. But in an interview before the filing, Fuchs said he hoped the state would be as lenient as it has been over the past several years.
"I don't think it's in the best interest of the state to destroy companies they fund," Fuchs said. "We're not fraudulent.
"If we were given a two-year moratorium to let us work it out, we may survive. If not, well, they're not going to get much anyway if they try to recover right now."
The state helped finance WorldPoint as part of a drive to build a more vibrant local high-technology industry. The company turns English-language Web sites into foreign-language Web sites, and Fuchs called multi-lingual Hawai'i a perfect place for such a business.
After getting $13 million in convertible-debt financing from Swiss investors, WorldPoint grew to 100 employees last year and had offices in Honolulu, San Francisco, Switzerland and Dallas. WorldPoint's customers have included IBM, Mitsui and Nike, and it was planning to sell stock to the public in the fall of 2000.
But the bottom fell out of the Internet market. WorldPoint lost its IBM and Mitsui contracts, forcing it to close most of its branches and cut its work force to 12.
The company can no longer afford to repay the state debt, which includes $580,000 in principal and more than $200,000 in interest, Fuchs said before the filing. The company is now breaking even, but the revenue stream is shaky about $100,000 per month, he said.
"Business is still trickling in, but every month, or even every week, we have to analyze whether it makes sense to continue," he said.
The state loans are secured by property owned by WorldPoint founders Larry Cross and Robert Peterson, Fuchs said.
Fuchs said that the state bungled an attempt to recover $800,000 in principal and interest last year.
As late as October 2000, the state wanted to convert the unpaid loan balance to stock, and refused to take cash but as the economy slowed and several of WorldPoint's key customers backed out of contracts, the state changed its mind and asked for repayment, Fuchs said.
Kaichi disputed this account, saying that WorldPoint never offered cash and that the state would never refuse cash if offered.
"From Massimo, the communications have been few and far between," Kaichi said.
Kaichi criticized WorldPoint for excessive spending. She called its penthouse office "opulent," with its marble waterfalls and large wall-mounted flat-panel video screens.
Fuchs said that WorldPoint spent $200,000 on computer equipment including the video screens, but that the 25th-floor office at 1132 Bishop St. had already been renovated and decorated by its former tenants, First Hawaiian Bank, when WorldPoint leased the space for about $1.20 per square foot. The offices were the former suites for First Hawaiian chairman Walter Dods and other top bank officials.
Fuchs said the company spent its millions on an expansion that seemed to be founded on solid business reasons.
"We didn't grow just to be grandiose," he said. "We had big contracts, and we had to build out to plan for our customers' needs."
WorldPoint is one of several Hawai'i information technology companies that have cut costs and reduced work force in the last several months. The companies include Axean Pacific, hotU Inc., Ohana Foundation and HighSpeed Communications.