Sotera Wireless last month filed for Chapter 11 bankruptcy protection, saying it owes its creditors, Silicon Valley Bank and Oxford Finance, roughly $13.1 million and doesn’t have the scratch to make good.
The San Diego-based company, developed the ViSi wireless wearable patient monitor, reported raising about $20.7 million back in April 2014. Last year, Sotera acquired sensor developer Reflectance Medical for an undisclosed amount.
Filings in the U.S. Bankruptcy Court for Southern California show that Sotera has just more than $2.4 million in cash, or enough to sustain operations at a reduced level for about 3 months. Although the company began commercializing its ViSi wearable ICU monitor in the 2nd half of 2014, “technical and performance issues … required Sotera to redirect resources and resulted in delays of new product features and enhancements and ultimately in the reduction of revenue.”
Sotera raised another $13.6 million during 2015 and early 2016, according to the filings, “but this amount was not sufficient for either Sotera’s long-term needs or to obtain refinancing of the [SVB and Oxford] loans.”
“Concurrently in 2015 and early 2016, Sotera began to incur significant legal costs associated with a civil lawsuit in which Masimo (NSDQ:MASI) alleged that Sotera, 1 current employee and 1 former employee misappropriated trade secrets. At this time, Masimo has not quantified its claim for damages. The increased legal costs, now aggregating over $3 million, have accelerated the cash consumption of Sotera,” according to the filings.
Beginning in November 2015, Sotera began making monthly principal payments on the loans of about $630,000 a month. The company tapped Piper Jaffray to solicit either a buyer or a new lender to refinance the loans, the filings show.
“The efforts of Piper Jaffray to identify either a potential buyer or potential new lender to refinance the [SVB and Oxford loans] have resulted in the submission of 2 term sheets for the acquisition of all of Sotera’s assets for consideration of up to $30-52 million, depending upon the level of contingent payouts,” according to the filings. “Nevertheless, Sotera does not believe it will be able to conclude negotiations with either of these 2 potential buyers or other potentially interested parties and needs the ‘breathing spell’ of Chapter 11 to do so.
“Maintaining certain minimum levels of the Sotera’s operations are necessary to provide on-going support and supplies to the current customer base and insure that operations of the ViSi in over 45 hospitals are not adversely impacted or interrupted. The filing of these Chapter 11 Cases will provide Sotera relief from interest and debt repayments on the [loans] and will halt or significantly reduce legal costs associated with the Masimo litigation (which will subject to the stay), and provide Sotera sufficient time to consummate a transaction,” the company said in the filings.
Sotera said it wants to keep paying CEO Thomas Watlington and CFO Mark Spring annual salaries of $275,000 (which would be a voluntary reduction of $50,000 for Watlington) while the bankruptcy proceeds.
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