Downsizing DataPlay
Prospective bidder has a much smaller operation in mind
By Janet Forgrieve, Rocky Mountain News
December 30, 2002
If DPHI Acquisitions Inc. succeeds in its bid to buy bankrupt DataPlay Inc.'s assets for $1.5 million, it's likely the revamped company wouldn't look much like its predecessor.
"The size of the company we envision is something smaller, more nimble and efficient," said Bill Almon Jr.
Almon's Boulder-based investment firm Almon Ventures, along with DataPlay investor Hexagon Investments, created DPHI specifically to do the deal, Almon said.
Almon and his father and partner, Bill Almon Sr., have spent decades in the data-storage arena, Almon said, including stints at IBM and Boulder-based Ecrix Corp., now part of Exabyte Corp.
Under DPHI, Boulder-based DataPlay would operate more conservatively and outsource its manufacturing instead of owning overseas factories as it had done, Almon said.
It would hire back some of its former employees, especially engineers, Almon said. But the size of the operation wouldn't come close to DataPlay at its peak, when it employed 240.
Also, while the group is negotiating with landlord Flat Irons North LLC to take over DataPlay's two 50,000-square-foot East Boulder buildings, the new company likely would be able to get by with one-fourth that amount of space, Almon said.
DataPlay burned through more than $120 million on its four-year quest to create the next new thing in storing and playing music, movies, pictures and other data.
Part of that investment included buying interests in two Asian manufacturing facilities. Those interests are being liquidated, with sales expected to bring about $600,000. Half of that would go toward paying back wages and benefits to former employees.
DPHI's bid still must obtain approval from Federal Bankruptcy Court Judge Donald D. Cordova, and it's possible that other bidders may top its offer.
IRiver Inc. was the first to incorporate DataPlay's tiny disk drives into pocket-size players, which retailed for $349 when they debuted this past summer.
Since DataPlay's October Chapter 11 filing, iRiver has been selling off inventory amid uncertainty about DataPlay's future. Because DataPlay ran out of money before it could intensively market the new devices, there are still quite a few players in stock, said iRiver marketing director Jonathan Sasse.
IRiver recently dropped the retail price to $199, he said.
"It's brought the value more in line with people shopping for competitive flash memory players," said Sasse.
If the drives, and the tiny plastic encased disks that play on them, are to survive, the company must quickly move forward with new applications that convince consumers to invest in new electronic devices, Sasse said.
That's the plan, said Almon.
"From our standpoint, we're really concentrating in a focus and execute strategy, said Almon. "We want to simplify things and get back to the core business of providing versatile portable storage applications."
According to the terms of DPHI's proposed acquisition, previous investors who also participated in a $15 million interim or "bridge" loan will receive 8 percent equity in the company.
If the bid is successful, DPHI expects to raise between $10 million and $15 million in operating capital, Almon said.
DataPlay's downfall has been blamed on delays in getting the product to market; lack of support by a floundering music industry; the high cost of manufacturing; and an economic downturn that all but killed venture-capital investing.
Bankruptcy court records indicate that big spending in certain areas and dot-com-era executive pay may have contributed.
Recently filed documents show that the startup's net losses of $37.6 million between Jan. 1, 2002, and the Oct. 18 bankruptcy filing far outweighed its $7.9 million in sales for the same period.
Founder Steve Volk, who owned almost 18 percent of the company, was chairman and CEO until shortly after the bankruptcy filing. Records filed with the bankruptcy court showed the company paid him $261,250 in salary during the 12 months before the filing.
Four other executives were paid more than $200,000 during that time, and at least two others made almost that much, records show. During the same period, the company was desperately searching for investors to keep it afloat and was beginning to be unable to pay vendors.
In July, it cut its 240-member staff in half.
DataPlay, the third data-storage startup entrepreneur Volk had a hand in, is also the third to go bankrupt. If the $1.5 million bid closes, it'll be the cheapest fire sale of the three.
In the early 1990s, Conner Peripherals Inc. paid $18 million for 2.5-inch disk drive technology from bankrupt PrairieTek Inc., the first company Volk co-founded.
Volk had already left to start Integral Peripherals. Less than a decade later, that company also filed for Chapter 11 and eventually sold its 1.8-inch drive technology for $5.5 million.
While espousing his vision of a trimmed down DataPlay, Almon declined to cite causes for the company's downfall.
"I wasn't there, so it's hard to comment when you weren't there," Almon said. "And really, our focus is more on the go-forward."
forgrievej@RockyMountainNews.com or (303) 892-5191
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