Letters of credit (L/Cs) could have prevented the fall from grace of a US software company that less than a year ago was one of Wall Street's favourite technology stocks.

Last October, Quovadx announced it had signed a US$7.6 million software deal that should have accounted for more than 20 per cent of the Colorado-based company's third-quarter revenues but instead led to a financial and legal catastrophe.

Software deals

The company's largest customer did not pay for two software deals, including the US$7.6 million contract and a second order for US$6.5 million. This resulted in the company reporting full-year restated losses in 2003 of US$15 million. Securities regulators are investigating the company.

It is not certain that the money will ever be paid by the customer, a consortium of 15 information technology companies in India known as Infotech Network Group. It agreed to buy Quovadx's software with a view to marketing it in India and Africa.

Sources close to the company and the audit committee established by its new management point to a catalogue of management errors that legal and accounting experts say could lead to one of the first cases in Colorado to test corporate-criminality legislation passed in 2002.

No L/Cs

The sources allege that Quovadx executives recorded US$4.6 million of dealings with Infotech as revenue in the third quarter of 2003, even though the Indian consortium had not established the L/Cs to cover the deal.

Other alleged errors made by the company's former management include payments sent by Quovadx to Infotech totalling US$2.9 million, even though the Indian consortium did not pay the Colorado company for any software.

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