Zango, Smith and Todd arranged with Lockhart to post a $1 million bond during the appeal. But then their banks barred them from posting the bond, and they didn't have enough collateral for a bond company, Smith said in a March 20 declaration to the bankrupty court.

"The bank's action is not all that hard to understand as Zango is in default on debt to ... the banks (a consortium comprised of KeyBank, Silicon Valley Bank, and Comerica Bank) in excess of $44 millon,'' he said in the filing. "They have a first-position secured interest in all of Zango's assets, have formally declared Zango's debt in default and in a demand letter dated March 10th informed Zango that they will not provide any further financing or extend their voluntary forbearance unless they are paid in full or there is a firm purchase and sale commitment in place for Zango's assets on terms acceptable to the them within the next couple of days."

Smith said a sale "would generate substantially less than the principal loan amount due to the banks, leaving nothing to satisfy the Lockhart judgment."

The sale did happen last week, sort of. The banks foreclosed on Zango and sold about 10 percent of the assets -- such as servers -- to Blinkx, a San Francisco-based video search engine, according to Blinkx spokesman Tim Turpin.

Asked about employees, Turpin forwarded a statement from Blinkx:

"As Zango was insolvent, we believe all the employees were laid off."

A person claiming to be a former employee told The Seattle Times that 50 were let go last week and 40 remained.

Spokespersons for Zango didn't return calls for comment. One of Smith's bankruptcy lawyers referred me to another, who couldn't be reached.

On Wednesday, Zango's Web site continued to say it employs more than 200 in Bellevue, New York, Las Vegas, Montreal, London and Tel Aviv. It also said the company "has maintained a positive operating profit every quarter since the fourth-quarter of 2001."

Smith disclosed in bankruptcy filings that he made $11 million selling "a significant portion" of his Zango stake to a private investor in 2004. He spent about $6.3 million of that buying and remodeling a house in Bellevue and a vacation home at Lake Kachess.

When Zango needed a cash infusion in 2006 and 2007, Smith took out loans secured by his homes and put $3.1 million back into the company, "in the form of
subordinated loans and preferred stock,'' according to a March declaration he made to the court.