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INKTEC-ZONE AMERICA FILES FOR BANKRUPTCY
On May 20, InkTec Zone America filed for Chapter 7 bankruptcy protection in the U.S. Bankruptcy Court for the District of Massachusetts. According to InkTec Zone America’s website, which is still operational, the company was established in 2004 as a joint venture between South Korea-based InkTec Co., Ltd. and InkTec Zone America President and CEO Bill McKenney to expand the retail inkjet refilling market in North America. The firm marketed the Ink-O-Matic inkjet refilling system and cartridge tester, which were manufactured by InkTec. InkTec Zone America also had a retail store in Cambridge, MA, which has been closed.
The news that InkTec Zone America has filed for Chapter 7 bankruptcy protection, under which businesses are dissolved rather than reorganized as under Chapter 11 bankruptcy protection, is not entirely surprising. The firm has faced a number of difficulties of late, mostly related to the legal activities of one of its chief competitors, TonerHead. About a year ago, TonerHead, owner of Ink-O-Dem, a subsidiary that manufactures a popular retail inkjet cartridge refilling system, filed a patent-infringement lawsuit against rival manufacturers of inkjet refilling equipment and various retailers that carry this equipment (see “TonerHead Sparks Legal Fracas in the Retail Inkjet Refilling Equipment Business”). We will publish an update on this lawsuit later today. TonerHead’s complaint against InkTec Zone America has been automatically stayed, or halted, due to the latter company’s decision to file for bankruptcy protection.
This lawsuit has not only cost InkTec Zone America money to mount a defense, it may also have been behind InkTec’s decision to discontinue manufacturing its refill machine, model RMI 19, which is known as the MagicFill in some markets and as the Ink-O-Matic in the United States. Without a line of retail inkjet refilling systems to sell, it is little wonder that Ink Tec Zone America could no longer continue to operate.
Details of Filing
According to InkTec Zone America’s voluntary petition for bankruptcy protection, the company has a little over $73,000 in assets and more than $3.3 million in liabilities.
More than half of InkTec Zone America’s assets (over $45,000) are accounts receivable. The firm also has three Ink-O-Matic 5000s units worth $15,000 total in sellable condition. The filing notes, however, “There is not really a market left to sell these machines.” The firm also has nine Ink-O-Matic units, valued at $8,600, that are in disrepair and not sellable as some of their parts have been used to service machines already installed. InkTec Zone America notes, “Because of the custom nature of the machines and because so few have been sold, demands for the parts may be extremely low if any.”
We found one line item in the list of unsecured creditors interesting because it shows how costly defending itself in TonerHead’s lawsuit has been so far. Among InkTec Zone America’s creditors is its law firm, Hamilton, Brook, Smith, & Reynolds, to which it owes $81,100.70 in legal fees “for the currently pending patent suit against the debtor.”
InkTec Zone also owes more than half a million dollars in wages, salaries, and commissions to Bill McKenney and Janet McKenney, his wife and the company’s controller. A Mary McKenney also has a claim of over $100,000 for a loan made in August 2004, and Bill McKenney claims he is owed $229,100 for loans issued.
The biggest unsecured creditor, however, is InkTec America Corporation, the U.S. arm of InkTec Co., Ltd. InkTec Zone America says it owes InkTec America over $2.2 million related to the purchase of Ink-O-Matic 5000 units.” Ink Tec America also owns a 60.8 percent stake in InkTec Zone America. It is unclear how many Ink-O-Matic units InkTec Zone America purchased. Obviously, the firm’s placements have been disappointing, and InkTec’s decision to discontinue the line has stripped the units remaining in the firm’s inventory of much of their value.
A list of executor contracts and unexpired leases in the bankruptcy petition provides us with a glimpse of some of the firm’s customers. InkTec Zone America has warranties in place, mostly for parts only, on three Ink-O-Matic cartridge testers at Cartridge World Mexico; another tester at CAD Toner, Mexico; an Ink-O-Matic centrifuge at WINPCS Computadors Mexico; an Ink-O-Matic centrifuge at Inversiones 090802 C.A Venezuela; a Ink-O-Matic refill system placed at Hy-Vee Drugstore in Mt. Pleasant, IA; and a Ink-O-Matic refill system and centrifuge owned by a Marcia Martin in Saskatoon, SK, who apparently operates a business called My Refilling Station in this Canadian province.
Of course, InkTec Zone America may have had other customers not under warranty, but this minuscule list of customers demonstrates why InkTec Zone America may have had trouble staying in business, even if InkTec had not pulled the plug on its line of inkjet refilling systems. InkTec Zone America seems to have made inroads at some operations with a large number of stores, such as Cartridge World and HyVee, which operates 220 retail stores, but it does not appear that more than a test site or two picked up the firm’s equipment, at least as far as we can tell based on the firm’s bankruptcy filings. While RIS can boast of its placements at Costco, Phoenix Ink has numerous units placed at OfficeMax and Jewel-Osco locations, and TonerHead’s Ink-O-Dem subsidiary has equipment placed at Walgreens, ACE Hardware, and Micro Center stores, InkTec Zone America has not been able to replicate its competitors’ success and convince a major retailer to roll out its equipment in hundreds or even thousands of locations. We suspect that InkTec Zone America’s liquidation may prove to be just another example of a market consolidating to include a smaller number of stronger competitors rather than a canary in the coal mine signaling the ill health of an overall industry. Still, it should be noted that most retail inkjet refilling equipment is limited to integrated cartridge designs used primarily in older and low-end inkjet devices, while many of the newest inkjet devices on the market use individual ink tanks that these refilling systems cannot refill.
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