Zoom Management Inc.’s only outside funder says that without another significant cash infusion, the company is on the verge of death, according to a complaint filed in Multnomah County Circuit Court on Monday.
But leaders of Zoom won a small victory in court on Tuesday, when a judge rejected Endeavour’s application for a temporary restraining order to limit Zoom’s ability to make major management changes until its request to put the company into receivership is reviewed. A next hearing is tentatively scheduled for in Multnomah County Circuit Court for Oct. 4 – after the company is expected to run out of money.
An attorney for Endeavour argued that the restraining order was necessary to bolster Zoom’s likelihood of survival, citing a “poison pill” threat made by one of the company’s founders to sabotage the business.
Zoom’s biggest funders – founders Dave Sanders and Albert DiPiero inside the company, and Endeavour Capital managing director Stephen Babson on the outside – present starkly different views of the related health care companies that operate under the Zoom name.
Zoom Management Inc. operates 35 neighborhood clinics in Portland and Seattle through two subsidiaries that both use the brand name Zoom+Care. A sister company, Zoom Health, previously offered health insurance but has been put into receivership by Oregon insurance regulators.
At Tuesday’s hearing, lawyers for both Zoom and Endeavour agreed that Zoom Management is in dire financial straits. Without funding, it may not be able to pay employees or cover its bills after this coming Friday, an attorney for Endeavour said, calling Zoom insolvent.
Chris Kaiser, an attorney for DiPiero, rejected that characterization, though he did agree that Zoom faces a liquidity crunch, which suggests the company is out of cash. Kaiser said that liquidity is frequently a challenge for startups, a category in which he placed the 12-year old Zoom.
But Thomas Johnson, attorney for Endeavour Capital, said things are more dire, and that a receiver is necessary to help run the company, which, he said, is lead by a deadlocked four-person board of directors.
“We are asking that they take no actions out of the course of business, that they can’t fire senior management – are things the receiver will need in place if he or she is appointed, in order to preserve that access,” Johnson said.
If the court appoints a receiver to take over the reins of the remaining business, Endeavour Capital, its only outside investor, intends to continue plowing more money into the company, Stephen Babson, managing director, told The Lund Report Tuesday before the hearing.
A receiver would have ultimate authority over the company, with court supervision, and would assume the responsibilities of Zoom’s board, of which Babson is a member. Endeavour owns 41 percent of Zoom’s stock holdings.
Unless that happens, Zoom will be unable to make its next payroll in early October. The company has also suspended its employee 401K sharing program, reduced compensation for many of its current employees and is operating without adequate staff, the complaint seeking receivership asserts.
Zoom’s financial picture began to decelerate in March. Since then, Endeavour has pumped $8.6 million in promissory notes to keep the company afloat.
Zoom’s finances took a downward spiral following its aggressive expansion which placed a substantial strain on the company. “The company ramped up overhead faster than it grew,” Babson said. “That’s why they’ve been short in cash.”
After opening two clinics in Seattle earlier this year, Zoom called off other expansion plans, according to an inside source.
Without any cash on hand, Zoom will have difficulty settling with the state of Oregon over the failure to fund a $3 million surplus from its now defunct health insurance arm, Babson said.
On September 22, 2017, Zoom Management lacked enough money to meets its immediate accounts payable obligations, many of which were past due, and many vendors have stopped providing goods and services to Zoom’s clinics, the complaint states.
Eight employees lost their jobs recently who worked in medical billing, and the creative and technology departments at Zoom+Care, leaving Steve McCallion, its creative director and vice president, without any back-up staff
“We’ve been in a deadlock position where the board has been unable to act,” said Babson, who tried unsuccessfully to convince Dave Sanders and Albert DiPiero, the co-founders, to add a fifth member to the board so the company could agree on a new investment strategy and remain successful. Endeavour holds two seats on that board.
“It’s important to get a remedy here; it’s not just about shareholders failing to reach resolution,” he said. “The other constituencies deserve a seat at the table – the employees, the managers, the providers, the patients.”
Babson declined to comment on Sanders’s performance as president of Zoom Management
“Zoom is in insolvency, it’s in a deadlocked position but that can be remedied by an infusion of capital if it happens quickly,” Babson said. “We’ve not been able to reach agreement over the last five and a half months. It’s a pretty dire4 situation and some remedy is required, I’m prepared to put more capital into the company but want to have governance structure that’s appropriate for company that’s growing and continues to grow and expand its investment base.”
He called Zoom a wonderful company, and said its providers deliver quality service, while patient counts continue to increase year after year.
“But this is an urgent situation, and we simply can’t keep negotiating while the company suffers.”
In a written statement, Sanders responded to the lawsuit and Babson’s statements by expressing surprise and disappointment.
“Just last Friday, we were finalizing the terms of Endeavour’s next round of investment and had whittled down to three ‘open issues’ dividing the parties,” Sanders said, calling Endeavour’s statements about its finances a mischaracterization.
“We’re particularly surprised and disappointed in Babson’s misleading statements because Endeavour pushed for more aggressive spending on expansion, marketing and corporate costs,” despite his and DiPiero’s objections, Sanders said in the statement.
