The object lesson of HealthSpot continued its sad revelations in a Columbus, Ohio Federal bankruptcy court Thursday (10 March) with the confirmation of liquidation under Chapter 7 rather than reorganization under Chapter 11. According to the report in MedCityNews, the bankruptcy trustee is now accepting offers for the assets valued by HealthSpot at $5.1 million. The bulk of these assets–$3.5 million–consist of 191 telemedicine kiosks of which 54 had been deployed with customers such as Rite Aid and Cleveland Clinic. The trustee has been permitted by the court to list these assets on a website. Whether there is any market for the hardware, or the intellectual property of HealthSpot, is a very open question indeed.
Some digging by this Editor has revealed a possible precipitating event to the company’s shutdown, and an obvious, non-recoupable drain on the time and funds of a teetering company. A District Court order issued 4 December on the patent infringement legal action by Nevada-based Computerized Screening [TTA 8 Jan] is now available online. It appears to have been conceded by Computerized Screening as “non-infringement on the basis of the absence of the limitation of “controller”” which is technically a win for HealthSpot. But HealthSpot then sought in September to collect attorney’s fees of a stunning $829,500 from Computerized Screening on the basis of a frivolous claim and other circumstances including pre-suit investigation. The December court decision denied it. The timing is interesting as the shutdown occurred at the end of December. But with the favorable ruling, and the investment backing of Xerox, Cox Communications and other investors–what else happened to precipitate a ‘no confidence’ in the company?
One last object lesson from this company is about the salaries paid to its management team adding to the expense burn.
Columbus Business First, their local business paper, revealed that according to the bankruptcy filing, seven senior officers of HealthSpot were paid a collective $1.46 million in wages in 2015, including a $296,000 salary to founder/CEO Steve Cashman. The company had revenue of $1.1 million in revenue in the past three years, with $600,000 of it in 2015. This is not unusual, and the company had raised $44 million since 2011 from investors who were making a big future bet. [TTA 19 Jan]. While the argument can be made that substantial salaries must be paid to top talent, the article examines whether this was a disincentive towards a profitable exit. Mr Cashman may still be on the hook for $575,000 in promissory notes used toward additional shares in the company. Still, startup executives who survive on wilted lettuce and tuna fish on sale cannot be blamed for a frisson of schadenfreude.