Once the world's second-largest Linux distributor, Red Flag Software has shuttered reportedly due to mismanagement and after owing employees months in unpaid wages.

China's state-funded answer to global software giants like Microsoft, the Chinese company filed for liquidation over the weekend and terminated all employee contracts. Set up in late-1999 amid the dot-com boom, Red Flag was touted as an alternative to Windows, offering desktop and server OSes built on the open-source Linux platform. It thrived in the early days , inking deals with partners such as Oracle and Dell which products were certified to support and shipped with Red Flag Software.

The Beijing-based vendor was primarily funded by the Chinese Academy of Sciences' Institute of Software Research, and later received additional funding from state-owned Shanghai NewMargin Venture Capital and the Ministry of Information Industry's VC arm, CCIDNET Investment.

Signs that Red Flag was in financial trouble surfaced in April 2013 when employees were told they would not be paid their wages, and the company's headquarters in Haidian district was forced to close in December over unpaid rent and utilities, reported TechWeb.

The company's 150 employees reportedly are now seeking to reclaim some 15 million yuan (US$2.46 million) in unpaid wages from the Chinese Academy of Sciences. They alleged the academy did not fork out 40 million (US$6.56 million) in grants, as pledged, to support the software vendor, resulting in its demise. The Chinese academy refuted the claims, saying Red Flag's team had mismanaged the company and pulled out of a project that would have brought in the promised funds.

"A lack of brand awareness and sustained investments, coupled with the rise of rivals including Red Hat Enterprise Linux and SUSE Linux Enterprise, led to its downfall," Eric Peng, Beijing-based research manager with IDC, said in a report by South China Morning Post.

Peng noted that, during its heydays, Red Flag had enjoyed high adoption among government agencies, state-owned organizations, and schools.

The Chinese vendor in December 2003 was part of the Asianux consortium , comprising members such as Japan's Miracle Linux, Sri Lanka's Enterprise Technology, and South Krea's HaanSoft, which offered a Linux distribution that could be separately customized and marketed its members.

The Chinese government has launched several of its own operating systems, including Ubuntu Kylin which has been downloaded over 1 million times since its launch last year, as well as a the China Operating System (COS), a mobile platform developed to compete against Google Android and Apple iOS.