Privately-held Quirky and its affiliates, Wink, Inc. and Undercurrent Acquisition, LLC, filed for Chapter 11 protection in the Southern District of New York on September 22, 2015.
The startup, offers inventors a forum for social product development and its customers an opportunity to acquire the innovative end-result products. Established in 2009, Quirky rapidly expanded its operations with a roster of 150 diverse products, but “was unable to attain manufacturing and distribution scale, and sustained significant losses on many of these products,” the Company said in court documents. Last year, Quirky sold a total of 4 million units on its website and at big box retailers like Target and Home Depot, generating over $50 million in revenue from its retail and consulting businesses. The petition indicates total assets from $10 to $50 million and debt in the $50 to $100 million range.
In a declaration filled with the Court, general counsel, C.A.O. and secretary of Quirky, Charles Kwalwasser, said that upon carefully examining alternatives, this petition for relief under chapter 11 of the Bankruptcy Code provides the most effective and efficient process to facilitate the sale of substantially all of the Company’s assets.
Earlier this year the Company decided to cease its product development and distribution business and focus on strategic partnerships and its business-to-business consulting through the Powered by Quirky initiative. In this effort, on March 25, 2015 the Company acquired Undercurrent, a leading boutique management consulting services provider, for a cash payment of $1.5 million, $5.3 million in convertible unsecured notes, and $8 million in aggregate deferred payments due in December 2015 and March 2016.
Spearheaded by Ben Kaufman, Quirky’s founder, the Company sought additional debt or equity capital through this transitional phase in an out-of-court restructuring, specifically marketing the Wink business as a stand-alone investment or acquisition. Despite much expressed interest, these efforts were unsuccessful.
The Company elected to temporarily discontinue Quirky’s operations and conducted a significant reduction in force. At this time Ed Kremer, the Company’s C.F.O., replaced Ben Kaufman as C.E.O., and Charles Kwalwasser was elevated to C.A.O.
Wink is a software platform that allows consumers to control a host of smart-home appliances and services through their intent connected devices. Through partnerships with General Electric, Honeywell, Nest, Phillips and others, over 60 Wink-enabled products are available in the marketplace with many more in development.
Court-filed documents explain that with respect to the sale of certain assets related to Wink, the Company has entered into an agreement with Flextronics International USA Inc. (the design and manufacturing company that provides hardware for Wink) for a purchase price of $15 million and a break-up fee of $450,000, as naturally throughout the proceedings, the Company will look to conduct an auction for higher bids. The Company’s blog insures customers that the bankruptcy filing will not impact the Wink experience and platform, and how they interact with their smart home.
Quirky is working with interested parties to establish a stalking horse bidder for certain of its assets, including assets related to the Quirky online community, comprised of over 1 million registered members, and the Quirky name. The Company is hopeful that the ultimate successful purchaser will restart the product evaluation and development projects, that they were forced to temporarily suspend.
The Company’s largest unsecured creditors are Flex Sales & Marketing North Asia with an $18.69 million trade debt claim and Undercurrent LLC with a 14.1 million convertible note deferred payment claim. Quirky’s largest equity interests are owned by Norwest Venture Partners XI, L.P. with 19.95% in preferred stock and Mitchell Lowe with 37.21% in common stock. Cooley LLP and Klestadt Winters Jureller Southard & Stevens, LLP have been retained as counsel, and FTI Consulting as restructuring advisors. Centerview Partners LLC will serve as investment banker with respect to the Wink assets, and Hilco Streambank as investment banker with respect to the Quirky assets.
See who else has filed for bankruptcy protection.