Based on court papers obtained by Sports Executive Weekly, it appears that Blades Board and Skate, the 14-store action sports chain based in New Jersey, filed for Chapter 11 bankruptcy protection on December 4 due to an injunctive order obtained just days before by Blades secured lender, CapitalSource Finance LLC.
In a filing with the court, CapitalSource is objecting to the retailers use of cash collateral to fund ongoing activities, citing that Blades has “no prospect whatsoever of reorganizing”.
CapitalSource contends that Blades filed the bankruptcy after the company and its principals were found by CapitalSource to have “diverted cash receipts and other cash generated from the business” away from an account established under certain financing agreements. The Supreme Court of New York on December 1 entered a judgment in favor of CapitalSource enjoining Blades from further dissipating the capital in the accounts. CapitalSource also filed a complaint in Massachusetts to repossess collateral located in that state.
Blades reportedly owes CapitalSource more than $4.675 million.
In various schedules filed in the case, Blades is listing assets of less than $3.0 million with $2.1 million in inventory — and debts of nearly $7.8 million. Blades has listed $4.4 million in debt to CapitalSource and more than $3.3 million to vendors and others.
Burton will be the biggest loser in the case should CapSource prevail in their efforts to secure all collateral of the debtor. Burton is owed just north of $500k, while Salomon is owed more than $332k and K2 Sports is listed with more than $260k in claims.
CapitalSource is pointing to Blades inability to secure any pre or post petition financing or equity investment as one element to the debtors inability to reorganize. They also cite Blades declining sales over the last few years — down 23.4% from 2000 to 2002 — and EBITDA that has fallen 67.6% over the same period. The debtors own filing shows a $1.4 million net loss in 2001, net income of $76,000 in 2002, and a projected $1.75 million loss for the current year. Blades has not paid any vendors for at least 90 days prior to the filing.
The filing lists Jeff Kabat as the Managing Member of the LLC. He owns approximately 30% of the equity of the company. A Jody Gelfand also owns approximately 30% of the business. COO Joel Silverman, who has been the face of the business for many in the industry, holds no equity in the business.
A creditors committee meeting is currently scheduled for December 31. The committee includes representatives from Burton, Rollerblade (owed $169k), K2 Inc., Sole Technology ($141k), Northwave ($44k), Mervin Manufacturing ($90k) and Bladez Corp. ($39k).
