While the renewed sense of optimism in the IT industry is welcome news for many, there are still some sectors that are finding life tough. The news that WLAN chipset startup Magis Networks Inc filed for Chapter 11 in late December, and is now looking to auction off its assets to pay creditors, despite raising $62m in funding, is a timely reminder that many companies are not out of the woods yet.
Magis Networks had been trying to stave off insolvency for several months now, but in late December it finally succumbed to Chapter 11. In April last year, it laid off a number of employees and replaced its chief executive, co-founder Clarence Bruckner, although he remained on the board. In July, Magis hired a consulting firm to help it attract additional investments or find a buyer. It also independently contacted dozens of venture capital firms looking for a cash infusion, all to no avail.
By September Magis Networks was facing limited financing alternatives and rapidly declining cash reserves and began planning for potential insolvency, whilst making a last-ditch effort to turn the company around. It also retained bankruptcy attorneys and a consulting firm that specializes in restructuring troubled companies. In December Magis Networks laid off the bulk of its remaining employees in two rounds, reducing its headcount to nine employees. The remaining employees are key technical people, without whose knowledge, a sale of the intellectual property might be less attractive.
All the company’s assets are now to be sold at auction January 21, and the sale includes the company’s wireless chip technology, patents and trademarks, work in progress, raw materials, equipment, inventory and contracts. The minimum bid was set at $1m, a terrible return on investment for the company’s backers. All proceeds will be used to pay off the company’s creditors, who have $9m in claims against the company.
Since it was founded back in 1999, Magis Networks sustained losses of $42m, despite raising a total of $62m in funding.
ComputerWire tracked Magis receiving $40m back in April 2002 from AOL Time Warner Ventures, Hitachi, Motorola, Panasonic, and SANYO, and $3m in an add-on Series B funding round on 24 January 2003 from ViewSonic. Despite this, it is understood the company had only enough cash to continue operations until the end of January 2004.
The San Diego, California-based firm had been hoping to offer chipsets for wireless links between high-performance video/audio consumer electronic products. The chipsets would have enabled consumers to connect all their home electronic devices, part of the digital home wave touted by large corporations such as Intel Corp and Microsoft Corp.
This article is based on material originally produced by ComputerWire.