Xybernaut Corp. will auction patents that can wirelessly transmit advertising, direct mail and information to targeted mobile phones and devices at specific locations, a company executive told TechWeb.
The company intends to use the proceeds to emerge from Chapter 11 and successfully reorganize. Xybernaut president and chief executive officer Perry Nolan said the patents will go up for auction in Washington, D.C. on May 17, with a minimum bid of $3.9 million for the three U.S. patents, one pending known as "WayPoint."
Xybernaut filed for Chapter 11 federal bankruptcy protection last July in the U.S. Bankruptcy Court for the Eastern District of Virginia. The company, which sells wearable computer equipment, received court approval this week to sell the group of patents. "We need capital to get us out of Chapter 11 and reorganize," Nolan said. "My primary goal is to get through the auction, generate the revenue, paying off the creditors, and get out of Chapter 11 as quick as we can."
The WayPoint patents help to push information or advertisements to cellular phones equipped with global positioning system (GPS). The technology relies on wireless companies, such as Cingular or Verizon, to transmit information based longitude and latitude. The telecommunication carriers would install server-based units at their main stations and allow the information to transmit to disperse geographically from a central location.
Xybernaut's WayPoint patents provide similar technology the free Wi-Fi service Google Inc. and Earthlink Inc. announced earlier this month. The two Internet companies proposed building an infrastructure to provide free Wi-Fi service in San Francisco, targeting users with advertising based on their location to pay for the plan.
The company has reduced 70 percent of its operating costs since Nolan stepped in last year by terminating about 75 of the 115 employees, closed offices that had never been productive, terminated unnecessary contracts with suppliers and put restrictions on travel. "The company was loosing $19 million a year," Nolan said.
Xybernaut new business strategy will target markets and technologies in radio frequency identification (RFID), wireless, Wi-Fi and asset tagging, for example. The company will do this through the remaining patent groups: Family (duel flat-panel displays), Wearable, and Transferable core (a computing environment the size of a PCMCA card, for example, containing processor, data, music or video that can plug into multiple devices to power-up)
"We want to reform the company into a mobile solutions provider, rather than mobile and wearable hardware provider," said John Moynahan, executive vice president and chief financial officer, who joined Xybernaut as employee No. 5 and co-invented four U.S. patents, including the transferable core. Moynahan also took the company public in 1996.
Companies enter Chapter 11 to protect assets from creditors because they are deeply in dept with little chance to recover. Not the case for Xybernaut, Nolan said. "Our debt was low, about $1.5 million," he said. "We chose Chapter 11 because class action lawsuits were filed."
A whistle blower in early 2005 disclosed to the board of directors "inappropriate actions" taken by the company chairman, chief executive officer and president at the time. The executives were released after the findings were proved accurate. Shareholders hit Xybernaut with nine class action lawsuits.
Nolan stepped in April 2005 on request of the board, replacing Xybernaut chairman and CEO Edward Newman, and president Steve Newman. "I couldn't afford to be distracted by the smoke associated with class action lawsuits, so I chose Chapter 11," Nolan said. "It gives me time to look at the company to restructure and cut the burn rate and costs."