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Amateur Inventor Platform, Quirky Inc., files for Chapter 11 Bankruptcy Protection

Author: Joel R. Glucksman

Date: October 21, 2015

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On Sept. 22, Quirky Inc., the start-up amateur inventor platform, known for developing smartphones and mobile device products to control household appliances, announced that it had filed for Chapter 11 bankruptcy protection. According to the Wall Street Journal, the company plans to sell all of its assets for its home business, Wink, for $15 million as part of the filing.

Quirky spirals into massive debt since August

Founded originally as an invention platform in 2009 after it raised approximately $170 million in venture capital, Quirky found itself in turmoil in recent months, according to MarketWatch. After it generated over $100 million in revenues in 2014 and was recognized in CNBC’s Disruptor 50 report, Quirky’s founder and CEO, Ben Kaufman, was replaced in August. Quirky then went through a massive round of layoffs, shedding 159 employees, which reduced the Quirky workforce to 90 personnel. This marked a turbulent year for Quirky as it also dealt with financial problems, product malfunctions, sales drops and a security bug in the Wink Hub device.

Quirky’s decision to file for bankruptcy protection was prompted by the October 2015 maturity date for its $19.9 million revolving line of credit. However, according to bankruptcy documents, the company also cited the fact that it owed $8 million in deferred payments after it acquired Undercurrent LLC in March 2014.

The Wall Street Journal reported that the company listed assets between $10 million and $50 million and debts between $50 million and $100 million. These debts included a $9.3 million secured term loan, $36.8 million in unsecured bond debt and an additional $28 million owed to trade creditors. Flextronics International USA Inc. is its largest unsecured creditor at $18.69 million, while Undercurrent LLC is still owed more than $14 million, UPS is owed over $1.3 million, and former CEO Kaufman is owed $300,000.

In August, Kaufman explained that Quirky was insolvent as it only had approximately $12 million in remaining cash on hand. Therefore, Quirky officials cited in court papers that an auction sale of part of the business – specifically Wink – through the bankruptcy period is the only way to maintain operations for the company as a whole.

The company’s reorganization plan

Quirky has agreed to sell off its remaining assets in an auction. As part of its bankruptcy filing, Flextronics submitted an early bid for $15 million, which establishes the minimum amount of the sale. If there are no competing offers, Quirky’s Wink assets will be sold to Flextronics within 60 days.

While Quirky has reached this sale agreement for Wink, it is still in the process of finding a buyer for its remaining assets. The sale of the rest of Quirky’s assets is crucial because the company cited that it intends to lay off 100 more employees between Wink and Quirky by December. However, the company also stated that it hopes to maintain its daily operations for Wink and Quirky, although selling off certain assets seems like the likeliest scenario in order to maintain the existing business model.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

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