TurboWorx has recently filed for Chapter 11 bankruptcy protection and the company's board of directors and senior executives have resigned, BioInform has learned.
The company is still operational, according to ex-CEO Srini Chari, who told BioInform this week that he and other former TurboWorx officials are working with the firm's debt-holders to ensure that some of its "strategic" operations will go forward following a "restructuring."
The company has secured an undisclosed amount of interim funding from Oasis Capital to support its short-term operations, Chari said. While he noted that it is still too early in the process to discuss detailed plans for the restructuring, he said that company officials hoped to retain some "key" partnerships, clients, and developers.
The bankruptcy filing follows a series of attempts by TurboWorx over the last year to shore up its dwindling cash position amid falling revenues.
In February 2005, TurboWorx and National Scientific Corporation, a wireless sensor developer that trades on the Over-the-Counter Bulletin Board, signed a technology-development and securities-exchange agreement in which TurboWorx gave NSC 360,000 shares 5 percent of its common stock and $240,000 in exchange for around 7 million shares of NSC stock [BioInform 02-14-05].
The bankruptcy filing follows on a series of attempts by the firm over the last year to shore up its dwindling cash position amid falling revenues.
Four months later, TurboWorx filed a registration statement with the US Securities and Exchange Commission to distribute 180,000 of these shares to NSC shareholders. TurboWorx said in the registration statement that spinning off its stock would have given it around 875 new shareholders.
"This is a desirable goal because in our view the more widely held our stock, the better for our stockholders in providing liquidity for their TurboWorx shares," the company said in the filing. "As a result of the distribution, our common stock may be publicly traded, and we believe that this will improve our access to the capital markets for additional growth capital."
But on May 2 this year, TurboWorx decided to abandon the effort and withdrew the statement, noting in its withdrawal request only that it had "determined not to proceed with the public registration and sale of its common stock at this time."
TurboWorx, originally founded in 2000 as TurboGenomics, has maintained a focus on IT infrastructure for life science computing, although its business model has evolved over the years. The firm's first product, TurboBlast, was a distributed version of the Blast search algorithm. In 2003, the company moved into the biocluster-management market with the acquisition of Argentys, formerly Blackstone Computing. More recently, the company shifted gears to address the growing workflow sector with the launch of TurboWorx Enterprise, a platform that combines both cluster and workflow management.
According to an amended registration statement that the company filed in October, the firm's revenues have been in decline over the past year and a half, and despite several cash infusions from a series of investors, total cash holdings as of Sept. 30, 2005, stood at $38,000.
As of the October filing, TurboWorx planned to augment this cash by raising up to $600,000 in bridge funding by issuing short-term convertible promissory notes. TurboWorx expected to close a debenture transaction worth $1.75 million with DKR Soundshore Oasis Holding Fund by the end of 2005 that it would have used to pay off the notes. Less other expenses and fees related to the debenture transaction, TurboWorx expected to have $900,000 cash on hand at the end of 2005.
Chari told BioInform this week that these transactions did not take place, however, placing the company in a precarious position.
TurboWorx said in the statement that if the bridge financing and debenture had proceeded as planned, the company still would have required $1.1 million in revenue to remain operational through August 2006.
According to the statement, TurboWorx posted revenues of $426,406 in 2004, $507,841 in 2003, and $459,158 in 2002. Net losses were $4.4 million in 2004, $5.3 million in 2003, and $1.9 million in 2002.
For the six-month period ended June 30, 2005, TurboWorx generated revenues of $152,864, compared to $282,764 in the corresponding period of 2004.
The Best-Laid Plans
According to the registration statement, TurboWorx's acquisition of bankrupt Argentys in 2003 seemed like a steal at the time, but the purchase appears to be one of the primary reasons behind TurboWorx' financial difficulties in the past few years.
At the time of the acquisition, Argentys was generating more than $1 million per year in revenue, and TurboWorx acquired the firm in an all-stock transaction valued at $925,600, "well below the apparent combined value of Argentys' revenue stream, technology, and products," TurboWorx said in the registration statement.
TurboWorx believed that Blackstone/Argentys' PowerCloud cluster-management technology "offered unique resource-management capabilities that complemented our own technologies and products." In addition, the Argentys customer base included several large biotech or pharmaceutical companies, and TurboWorx was confident "that we would be able to retain most of them and would be able to both grow the Argentys business and sell our own products to a number of the Argentys customers."
Over the next year, the company's spending ballooned in an effort to assimilate Argentys, grow the combined business, and integrate the PowerCloud technology platform into its own tools. "As we did so," TurboWorx said in the registration statement, "we found that much of the PowerCloud product set made use of third-party technology that was complex, difficult to use and maintain, and incompatible with some of the technologies used in our own products."
As a result, the company hired a number of ex-Blackstone staffers, increasing its headcount from 15 to 25, and opened offices in Burlington, Mass., where a number of these employees were located, as well as in the UK, in order to service a number of PowerCloud customers located in Europe.
"By the third quarter of 2003, we recognized that the Blackstone bankruptcy … had had a greater impact on the Blackstone/Argentys customer base than we had anticipated," TurboWorx said in the filing. By the end of 2003, the company had lost all but two of the former Argentys customers. In addition, "We also determined that we would have to completely rewrite the PowerCloud software in order to increase its reliability and make it more compatible with our workflow technologies and software."
In order to cut costs, TurboWorx cut its staff back down to 14, closed its Massachusetts and UK offices, and began to reduce expenditures.
But despite the belt-tightening, the firm's loss for the first six months of 2005 widened to $3.6 million from $2.2 million in the first six months of 2004.
"The larger overall net loss in the 2005 period is more than accounted for by differences in costs associated with raising capital in the periods," the company said in the filing.
Bernadette Toner ([email protected])