AuraSound Inc., a maker of high-end speakers and other audio products that has been of one of Orange County’s fastest-growing public companies in terms of sales over the past few years, filed for Chapter 11 bankruptcy protection last month.
The filing, made in Santa Ana’s federal bankruptcy court on Dec. 21, lists $42.8 million in liabilities and $2.3 million in assets for the company as of the end of November.
AuraSound cited declining sales, unspecified quality issues, and revised terms of payment with its largest supplier in China as key reasons behind the filing.
AuraSound, which moved its headquarters from Santa Fe Springs to Santa Ana in 2011, makes a variety of components for home theater systems and counts Irvine-based flat TV and accessories designer Vizio Inc. as one of its two largest customers, along with Japan-based Hitachi Ltd.
The Business Journal ranked the Bulletin Board-listed company as OC’s second fastest-growing public company last year, based on regulatory filings showing a more than 700% jump in sales between mid-2010 and 2012.
The sales figures have been revised, and the company has acknowledged providing incorrect data to the Securities and Exchange Commission, citing “a lack of adequate internal controls over financial reporting.”
Court filings now show AuraSound with $76.1 million in revenue for the 12-month period ending in June 2011, but just $38.7 million over the following year, compared with a previous claim of $63.1 million.
The revised sales figure would still have placed the company on the list of fastest-growing public companies based here, although the percentage increase of about 400% would have moved it down to the No. 4 spot.
AuraSound also has revised its earnings. The company lost $36.8 million for the year ending June 30, 2012, according to court records. It had reported about $1.6 million in net income in the prior year.
The company counted a market value of less than $1 million as of last week, down from about $4 million in November.
Hong Kong Deal
The company had credited the mid-2010 acquisition of Hong Kong-based ASI Holdings Ltd., which makes components for home theater systems, for much of its revenue gains prior to last year.
That acquisition hasn’t translated into profitability. ASI had a working capital deficit of about $4.6 million at the time of its acquisition, according to court documents.
A shift in terms with its primary supplier and largest creditor, China-based GuoGuang Electric Co., are also partly behind the bankruptcy, according to AuraSound’s court documents.
GuoGuang recently required that all orders for products be prepaid in advance of the start of production, the company said.
AuraSound’s products are made in mainland China, and the company has maintained an office in Hong Kong.
Court filings also noted that AuraSound has “experienced significant product returns/rejections due to non-conforming and quality issues which has adversely impacted sales and profitability.”
Staff Shake-up
The company’ local operations have seen a big shake-up of late, including the relocation of its headquarters to a smaller office in Santa Ana.
It is trying to get out of its lease for its former headquarters, a nearly 14,000-square-foot location on Red Hill Avenue, according to court documents.
The company now counts a staff of just seven employees, down from more than 70 as of a year ago.
AuraSound said it plans to hire a new chief restructuring officer, Brian Weiss of Newport Beach-based BSW & Associates, to run the company during its stay in bankruptcy.
Weiss previously acted as a financial adviser to the official creditors’ committee of Crystal Cathedral Ministries during its 2011 bankruptcy, and was the chief restructuring officer of Irvine-based Bacchus Development during the real estate company’s stay in bankruptcy, which ended in 2010.
Newport Beach-based Winthrop Couchot Professional Corp., a law firm that specializes in bankruptcy proceedings, is representing AuraSound in the bankruptcy case.
