Sports Zone Elite, a sneaker chain with 11 stores in Washington, DC and Maryland, filed for Chapter 11 bankruptcy protection.
The filing in Maryland listed assets in the range of $500,000 to $1 million and estimated liabilities between $1 million to $10 million.
Sports Zone said its struggles began when a sales decline during the 2008 recession caused the company to be unable to refinance its bank loan with PNC Bank. Michael Syag, the founder and president of Sports Zone, provided a loan to alleviate its credit issues but an attempt to expand operations to increase cash flow failed.
Sports Zone last holiday selling period fell behind on payment to Nike. Sports Zone in February 2017 executed a security agreement with Nike in the principal amount of $3.7 million in order to continue to secure shipments from its largest supplier. Interest payments to Nike caused Sports Zone, however, to fall behind on payments to other vendors.
Eighteen of its stores were closed in September to reduce operating expenses. But Nike in September field a UCC-1 financing statement with the State Corporation Commission of the Commonwealth of Virginia, “in an attempt to perfect its security agreement against the debtor.” And since September, most vendors had cut off shipments to the chain.
Sports Zone has been marketing the chain for sale for a year but has been challenged by Nike’s refusal to ship to the business.
Sports Zone has entered into a letter of intent to sell the company to Halifax of Palisade LLC, a New Jersey apparel wholesaler. Halifax plans to sell similar product lines but “will not need to purchase inventory from Nike.”
Sports Zone and Halifax are currently negotiating an asset purchase agreement and will use the bankruptcy reorganization process to close the sale and settle its debts. Sports Zone also plans to shortly file “an adversary complaint against Nike in order to avoid any security interest it may have as a preferential transfer.”
Among the top unsecured creditors according to court documents are Nike, owed $1.9 million; Adidas, $299,833; and New Balance, $192,506.
Photo courtesy Sports Zone
