Information for Creditors of Nextsport, Inc.
Case Number 22-40569 in the United States Bankruptcy Court for the Northern District of California
DEBTOR IS A GROWING TOY COMPANY
Nextsport, Inc., styled by the company in all caps as NEXTSPORT, describes itself as a “toy and action sports company” that ships its toys and sports products to the United States, Canada, United Kingdom, Europe, and Australia. The company specializes in scooters, skateboards, and other unique wheeled toys and sporting goods.
The Debtor company was founded in 2006 by Edward Dua and Julio Deulofou. According to a declaration filed by David Lee, the Company’s CEO and CFO, Nextsport was founded to focus specifically on new product innovation designed with the consumer in mind. In the declaration, Lee states that Nextsport hoped to create “products with unique design and play patterns that match performance with value, designed to deliver fun and smartly priced products.”
To that end, the Debtor has created four unique brands of products: Fusion Z Pro Scooters & Fusion X Scooters; Arcade; GOMO; and City Glide. Products under these brands are sold across the globe in Walmart, Target, BIG 5, Smyths Toys, and Sam’s Club, as well as directly to consumers through Shopify and Amazon. Demand for Nextsport products has been growing and they continue to innovate. This year, they plan to launch their new Spinner Sharks products.
THE COVID PANDEMIC WAS ALMOST TOO MUCH
Although the products designed by Nextsport are popular, the company had no choice but to file for bankruptcy to get some time to get its affairs back in order. Like so many other companies, the Debtor is coping with the after-effects of the COVID-19 pandemic.
In 2020, Nextsport was profitable and made over $23 million in gross revenues. In 2021, however, its total income went down to just under $20 million, and its profits were negative. While Nextsport was able to survive and even thrive during the beginning of the pandemic, when its effects began to be felt more widely, the Debtor’s business suffered.
The Nextsport brands of products are manufactured in China and then shipped worldwide. In 2021, Nextsport’s freight costs increased by as much as 5 times, going from $4,000 in 2020 to $20,000 in 2021. On top of the shipping increases, Nextsport was hit with product and material cost increases of between 15% and 20%. The company was locked into various contracts with distributors that could not be adjusted to account for these price increases. Then, on top of everything else, supply chain slowdowns meant that a lot of Nextsport products were not delivered in time for the holiday shopping season at the end of 2021. This cost Nextsport millions in potential sales.
HOW CAN UNSECURED CREDITORS SUCCEED?
The good news for creditors of Nextsport is that the company plans to use the bankruptcy process to reorganize its debts, launch a new product line – Spinner Sharks – and get its excess 2021 inventory distributed. With these things accomplished, the Debtor intends to emerge from bankruptcy and continue the growth it had been enjoying before the COVID-19 pandemic derailed everything.
A company that is reorganizing often has more opportunity to potentially repay its creditors because it can use not only its existing assets, but also revenues of continuing operations, to make payments. Both Nextsport’s history of growing operations and its dedication to continuing that growth by launching new products are good signs for its existing creditors.
Organizing a committee of unsecured creditors is often the best and most productive way for creditors to improve their treatment in a bankruptcy case. While the Debtor is in control of the bankruptcy in many ways, creditors are also entitled to a say in how things turn out. A Committee can advocate for all unsecured creditors with a powerful voice, often at no out-of-pocket cost to committee members. If you have questions about the Nextsport bankruptcy or committees generally, please contact PRLT for a no obligation consultation.
PRLT does not represent Nextsport, Inc. or any of its affiliates. The content on this page is provided for informational purposes only. Nothing on this page or this website creates an attorney/client relationship between you and PRLT. Nothing on this page is legal advice. If you have any questions about the Nextsport bankruptcy case or anything discussed on this page, please contact us.