On the 363 Auction Block: Imperial Toy LLC

Imperial Toy LLC has filed for chapter 11 protection in the Northern District of California. The company intends to run a sale process with a stalking horse offer in hand for $13 million from competitor Ja-Ru, Inc. (also providing $5.75 million in DIP financing). The goal? An expedited auction process with a proposed bid deadline of December 12th and a closing before year end. Have cash? Imperial Toy is seeking approval of a $650,000 breakup fee for Ja-Ru and overbids of $100,000, with an initial required overbid of $13.750 million.

Company Overview

Imperial Toy is a California-based manufacturer of bubbles, novelty toys and other children’s products.  Its brands include Blitz, Super Miracle Bubbles, KiddyUp, Zooma, Splat X, and KAOS with sub-brands such as Life-Like and Googly. The company has licensed products with Disney, Marvel, DC Comics, Little Tikes, Thomas the Train and Teenage Mutant Ninja Turtles. 

Imperial Toy has facilities in five locations globally, including its headquarters in North Hills, CA; a San Diego distribution facility; a sales office in Bentonville, AK; and two manufacturing and packaging facilities in Tijuana. Its subsidiary, Imperial Entertainment International, also has a facility in Hong Kong focused on product development and supply chain management. More than 60% of Imperial Toy’s materials are sourced from the subsidiary.

Imperial generated approximately $106.7 million in revenue in 2018, roughly $78.4 million of which is domestic, and $28.2 million generated in Hong Kong.

The Slippery Slide into Bankruptcy

Various external market factors contributed to Imperial Toy’s struggles. In particular, an unusually wet spring delayed the start of its peak sales period and triggered a sharp decline in revenue. And threats of trade tariffs prompted both an inventory accumulation to protect profit margins and a drop in orders as retailers sought to limit their exposure to price increases. These trends “combined to push [Imperial Toy] into an operating loss during the time of year when it should have been profitable and drove a steeper than usual investment in working capital.”

The situation likely wasn’t helped by the fact that Imperial Toy not only took on significant indebtedness to fund growth of the business, but in February of 2018 it entered into an agreements to redeem from the Hirsch Trust 40% of the equity interests in the company. According to the debtor:

“The obligations to the Hirsch Trust originated in February 2018, when the Debtor entered into a series of redemption, loan, security and related agreements with the trust to repurchase and redeem from the Hirsch Trust 40% of the then outstanding equity of the Debtor. The Hirsch Trust received a number of promissory notes from the Debtor and Path Global Ltd., a Hong Kong entity. The Hirsch Trust began to receive cash payments from the Debtor and Path Global relating to the redemption in July 2019 [?] and such payments from the Debtor and IEI continued through the remainder of 2018. . . . The loan obligations are secured (but subordinated) . . . .

Interesting….

/Mette K.

On the 363 Auction Block: Nuvectra Corporation

nuvectra1

Nuvectra Corporation has filed for chapter 11 protection in the Bankruptcy Court for the Eastern District of Texas with the hope of selling substantially all of its assets.

Nuvectra is a Plano, Texas-based neurostimulation medical device company whose core product is Algovita, a spinal cord stimulation system used to treat certain forms of chronic pain. Product performance issues, competitive pressures, and a general slowdown in the spinal cord stimulation market lead to declining sales, erosion in confidence among physicians, loss of sales personnel, and ultimately, the suspension of product sales of Algovita. According to a press release, the company says it is committed to supporting existing patients using Algovita, but it is suspending support of future implants “until the Company’s path forward is determined.”

Piper Jaffray began a marketing process in August, contacting 50 potential parties with respect to a sale or merger of the company as a whole, or Algovita or Virtis (its neurostimulation technology platform currently in an FDA approval process), on a standalone basis. Nuvectra has indicated it plans to conduct a post-petition marketing and 363 sales process over the next several weeks. Nuvectra has not yet filed a motion to approve sales procedures or set bidding deadlines.

Neuvetra’s SEC filings are available for download, and information about is bankruptcy filing is available free of charge on KCC’s website.

Mette Kurth

On the Auction Block: iPic-Gold Class Entertainment, Inc.

iPic-Gold Class Entertainment, Inc. (IPIC) has filed a Chapter 11 case in Delaware to sell its business through a “363” bankruptcy auction.

iPic’s Rise… and Fall

IMG_7496.jpgiPic is a Florida-based, publicly traded movie theater and restaurant company with 16 locations in 9 states that provide a “luxurious movie-going experience at an affordable price.” iPic touts its high-quality, chef-driven culinary and mixology offerings in unique destinations that include premium movie theaters, restaurants and lounges. The debtors’ restaurant concepts include: (1) The Tuck Room, a “drinking and dining den” with locations in Florida, New York, and Texas; (2) The Tuck Room Tavern, which serves “Craveable American Cuisine” in Los Angeles; (3) Tanzy Restaurant, offering modern Italian dining in Florida and Arizona; and (4) City Perch Kitchen + Bar, with seasonal American dining in Maryland, New Jersey and New York.

After achieving double-digit growth supported by its unique offerings and market position, new market entrants and competitive pricing slowed iPic’s growth.  Although demand for shares following iPic’s 2018 IPO was “strong,” the situation was compounded when institutional investors could not fund their commitment to the offering, with the total capital raised of $17 million insufficient to fund continuing development. But the company believes that its underlying business model remains strong, “bolstered by positive guest experience and loyalty.”

A Fast, “Naked” Auction

iPic is going forward with a “naked” auction at this time, with no stalking-horse bidder in hand.  If a stalking-horse offer (e.g., opening bid) is presented before the auction, it appears that it may be possible to negotiate for typical stalking-horse protections such as expense reimbursements and break-up fees. iPic is seeking approval of a 90-day marketing process, with a proposed bid deadline of October 11, 2019 and a sale closing by the first week of November. No minimum bid has been established. The company reports store-level EBITDA of $15.06 million for the year ended December 31, 2018, and roughly $160 million in assets at book value.

The iPic Bankruptcy Docket

iPic’s claims agent is maintaining a public website with information about the case.

Additional Information

Fox Rothschild is monitoring the situation.  If you are interested in more information about the auction and the bid process, we are available to assist.

Mette H. Kurth

On the Auction Block: NovaSom, Inc.

NovaSom, Inc. has filed a Chapter 11 case in Delaware in order to sell its business through a “363” bankruptcy auction. NovaSom joins other recent healthcare industry filings by companies such as True Health, Avadel Pharma, Argos Therapeutics,

NovaSom’s Business

NovaSom is a Maryland-based home sleep testing company. In 2010-2012, it developed a device, AccuSom, that sends sleep data wirelessly rather than requiring patients to return a device to a lab to download data. It is the only in-home sleep test available in the marketplace that provides patient support and next-day test results. Additional information is available at: https://www.novasom.com/

bed-bedroom-cute-545016.jpgBetween 2013 and 2017, orders for AccuSom grew 500%. The average sales price, however, dropped by nearly 30% due to market conditions and the general availability of home sleep testing providers. The company’s filings indicate that the significant cost of growing sales has thus far prevented NovaSom from reaching profitability.

The Auction Process

At present, one entity, VirtuOx, has expressed interested in buying NovaSom’s assets for an estimated $5.3 million. The bid deadline for competing bidders is September 19, 2019 at 4:00 p.m.  (Certain qualifications must be met to qualify as a bidder).  If the company receives qualified, competing bids, the auction will be held on September 23, 2019 in Philadelphia, PA.  The sale hearing will be held two days later.

The NovaSom Bankruptcy Docket

NovaSom’s claims agent is maintaining a public website with information about the case.

Additional Information

Fox Rothschild is monitoring the situation.  If you are interested in more information about the auction and the bid process, we are available to assist.

Mette H. Kurth

On the Auction Block: True Health Group

THG Holdings, better known as True Health Group and True Health Diagnostics, a Texas-based laboratory management and diagnostics services provider for the healthcare industry, has filed for bankruptcy protection in Delaware.

Concerns, Investigations & a Liquidity Crisis

The filing follows a severe liquidity crisis triggered when the Centers for Medicare and Medicaid Services instituted a 100% hold on all Medicare payments. The suspensions came amid concerns raised by CMS and multiple investigations by the U.S. Department of Justice.  True Health says that this is all old news.

Between June 23, 2017 and the end of May 2019, the Debtors took substantial steps to address the claims asserted and the concerns raised by CMS and the United States Department of Justice. . . . . [They] negotiated a comprehensive settlement with DOJ, including a new corporate integrity agreement [that] was on the verge of being consummated when CMS and DOJ advised the Debtors of a second investigation and CMS imposed a second 100 percent hold on all Medicare payments to THD. The Debtors believe that this most recent suspension is based on the very same conduct that [was addressed in the settlement and corporate integrity agreement].

–Clifford A. Zucker, Chief Restructuring Officer

A Naked Bankruptcy Auction

In the aftermath of the suspension, True Health has engaged SSG Advisors to run a “naked” bankruptcy auction process with no buyer in hand and a proposed sale closing by the end of September. If you are interested in making an offer, that means that “stalking horse” protections (e.g., breakup fees and expense reimbursements) are still up for grabs. The proposed bid deadline is September 13th.

True Health’s Operations

Founded in 2014, True Health is one of the largest independent providers of lab management and diagnostic services in the US.  The company operates full-service clinical laboratories offering, among others, comprehensive testing for biomarkers that can indicate risk for cardiovascular disease, diabetes, autoimmune disorders, cancer and other diseases. In total, True Health offers more than 400 tests and has handled more than 1.5 million patient samples.

Currently, True Health runs about 1,370 samples per day through two facilities – a 109,000 square foot facility in Richmond, Va., and a 7,000 square foot facility in Frisco, Texas. The company serves 1,250 physician offices spanning 46 states and Washington, D.C. It claims its advanced testing provides a “far broader and deeper picture of patient health than traditional testing.” True Health also offers an online patient portal that provides interactive reports, live coaching help, patient engagement videos and lifestyle tracking tools.

Long-Term & Trade Debt

True Health entered bankruptcy with over $174 million of debt obligations, including long-term debt of $150 million and $14 million in trade debt.

Mette K.