Laguna Niguel-based Power Balance LLC—which markets wristbands, pendants and other products for athletes—is seeking a bankruptcy-driven sale to a Southern California company with ties to its supplier in Hong Kong.
Power’s product line has been hurt by lawsuits and customer complaints during the past year. The company said in court filings last week it has agreed to a $6 million takeover by Hanyang LLC in La Cañada Flintridge.
The deal is subject to higher bids being filed, according to records in U.S. Bankruptcy Court in Santa Ana.
Hanyang’s owners have ties to Contec Corp., the exclusive manufacturer of Power Balance’s products since last year.
Power Balance owed Contec $6.6 million as of June.
If the deal with Hanyang closes, a $6 million sale price would appear to represent a huge decline in value over the past year for Power Balance, which was founded in September 2009 and counts about 40 local employees.
Power Balance had an $11.4 million profit in 2010, according to court records.
Endorsements
Sales topped $52 million last year, as the company used a long list of athletes to market its products. Celebrities endorsing Power Balance products have included current and former Los Angeles Laker stars Kobe Bryant, Shaquille O’Neal and Lamar Odom, as well as Los Angeles Clipper standout Blake Griffin.
Power Balance bracelets also are endorsed by New Orleans Saints quarterback Drew Brees, golfer Ian Poulter and Anaheim Duck star Teemu Selanne.
In its most notable marketing deal, Power Balance struck a five-year agreement in January for naming rights for the arena that is the home for the National Basketball Association’s Sacramento Kings.
Terms of that deal, which saw the arena renamed the Power Balance Pavilion, weren’t disclosed.
The Sacramento Business Journal recently reported that the arrangement is expected to remain intact.
The company has seen a run of bad news since lining up the Sacramento Kings deal.
Chapter 11
The Chapter 11 bankruptcy filing, made on Nov. 18, came just as the company was rumored to be nearing a settlement on a domestic, class-action lawsuit pertaining to the benefits of its rubber hologram wristbands.
Entertainment website tmz.com last week reported a $57 million class-action settlement was close to being signed in the case.
Power Balance denied the report, and court filings made no mention of a settlement that size in the class-action case.
Early this year, the Australian government required the company to run a corrective advertisement acknowledging that there is no scientific evidence its products improve strength, balance and flexibility, contrary to the company’s original claims.
Power Balance cited a distributor’s “unauthorized, inappropriate marketing claims” for the troubles in Australia, and noted in court filings last week that “negative publicity” of late has had a big hit on sales, here and overseas.
Sales through October of this year were just $20 million. Foreign sales, which made up nearly 60% of Power Balance’s sales in 2010, plummeted to a little under $8 million during that time.
$9.1M Loss
The company reported a loss of $9.1 million for the first 10 months of 2011.
In June, Power Balance brought on Henry G. Adamany Jr. as its new chief executive, and began marketing itself for sale around the same time.
The company has enough cash on hand to operate only through the end of the year, according to court filings.
Newport Beach-based law firm Winthrop Couchot Professional Corp. is handling the company’s bankruptcy.
The bankruptcy petition lists assets of less than $10 million for the company, while its liabilities run from $10 million to $50 million.
Contec appears to be Power Balance’s largest secured creditor, according to court filings.
The company is also one of the lesser-known creditors in the case, which counts a number of athletes among those Power Balance owes money to.
Creditors
A business unit of Laker star and Newport Coast resident Kobe Bryant is the second-largest unsecured creditor in the case, and is owed $400,000, according to records.
The Los Angeles Kings hockey team is the third-largest unsecured creditor and is owed another $250,000.
The company owes $100,000 to the Sacramento Kings, according to filings.
Power Balance last week said it has no intention of closing its doors.
The bankruptcy “will allow Power Balance to focus on the design and development of new performance technology products and will put the company on better ground,” the company said.
The company said it has a new line of protective mouth guards it’s introducing through the end of 2011 and into 2012.
