Zango last week closed up shop after trying to stall the inevitable as it racked up more than $44 million in debt, owing that amount to a consortium of institutions such as KeyBank, Silicon Valley Bank and Comerica Bank, according to a Smith bankruptcy filing.
In mid March, things turned south for the adware company and the banks wanted their money back.
“[The banks] have a first-position secured interest in all of Zango's assets, have formally declared Zango's debt in default and in a demand letter dated March 10 informed Zango that they will not provide any further financing or extend their voluntary forbearance unless they are paid in full or there is a firm purchase and sale commitment in place for Zango's assets on terms acceptable to the them within the next couple of days,” according to Smith in a filing.
And that wasn’t all.
Zango’s co-founders were trying to find funds for a $4.6 million judgment found against them in January brought on by former employee Michael Lockhart.
Smith and Todd arranged with Lockhart to post a $1 million bond during an appeal. But then their banks barred them from posting the bond, and they didn't have enough personal collateral for a bond company, according to one of Smith’s declarations to bankruptcy court.
“This move by Zango's lenders was unexpected and resulted in Mr. Lockhart beginning his collection efforts against me as soon as he was able,” Smith said in the declaration.
“[G]iven my financial condition which I believe is accurately reflected in my bankruptcy petition and schedules, I was left no choice but to file for bankruptcy protection. The same can be said for Daniel Todd whose case was filed on the same day as mine and is pending before Judge Steiner.”
The bankruptcy filings by Smith offer a candid view just how much trouble Zango was in even before Lockhart sued.
Smith said a sale of the company “would generate substantially less than the principal loan amount due to the banks, leaving nothing to satisfy the Lockhart judgment.”
A sale of some of Zango’s assets did occur last week. Blinkx, a San Francisco-based video search engine, purchased about 10 percent of the Bellevue, Wash.-based company’s assets, according to a Blinkx spokesman.
XBIZ was unable to reach both Smith and Todd by post time.