By: Tomas Ronolski - AllPennyStocks.com News

Friday, April 12, 2013

Back in the 1990’s the No Fear brand was flying off shelves in retail stores as a leading brand of edgy fashion donned by some of the most popular extreme sports stars, including Jeremy McGrath and Travis Pastrana. The original company was founded by brothers Mark and Brian Simo who built the brand’s image into a name that was synonymous with energy and passion and differentiating it from other punkish brands that flooded the burgeoning extreme sports business. The small company generated sales of about $140 million in 1995. The Carlsbad, California company, whom coined wildly-popular phrases such as “Losing is not an option,” grew to have 41 retail locations, 325 employees and found itself testing its own mantra…unfortunately to no avail. In February 2011, citing the "state of the economy and the difficult operating environment within our industry," No Fear Retail Stores Inc. filed for bankruptcy protection to reorganize operations under the weight of debt and lawsuits for payment failures.

As most know, the brand did not die. Carlsbad’s Ryderz Compound Retail Stores bought the operating assets of No Fear retail stores, including 32 leases, inventory, company vehicles and more. It rebranded most of the stores under the “XRyderz” name and eventually ended up with 34 retail locations in western U.S. states and Hawaii under the XRyderz or No Fear store banners. The stores sell the namesake brands as well as other popular brands such as Gatorz, Oakley, Fox, Volcom, DC and Etnies, to name a few.

The brands are now leaving Carlsbad and heading down the road to San Diego; the result of Gatorz Inc. (TSX-Venture:GTZ) announcing late Wednesday that it has entered into an agreement to buy privately-held Ryderz. Gatorz currently operates as a designer, manufacturer and distributor of performance eyewear made from 7075 billet aircraft aluminum and premium injection-molded Italian frames.

Per the deal, Gatorz gets all of the common shares of Ryderz for $1.00. Gatorz also gets all of the preference shares of Ryderz via several conditions, including a $500,000 promissory note bearing 10 percent per annum interest due two years after acquisition completion; granting of 150,000 options at 10 cents; a 3-year service and supply agreement with one of the vendors owning preference shares; and a $200,000 payment to a vendor that is owned money by Ryderz as well as a $1 million promissory note to that vendor with a LIBOR interest rate of 1 percent due two years following the completion of the acquisition.

"Ryderz Compound is well positioned in several important states in the West. This acquisition provides the Company with an immediate presence and market share in a key region of the United States," said Robert Reynolds, chief executive of Gatorz. "Ryderz has done a terrific job in servicing the Action Sports market and we look to continue on expounding on the existing offering and growing our retail presence in other key regions."

Reynolds, involved in the action sports industry for his whole career, was appointed the CEO position at Gatorz on April 2, 2013.

Meanwhile, Gatorz said that it has received a $1.5 million loan from Klobler Holdings, LLC which it intends to use to re-brand additional stores to XRyderz, open new stores and for general working capital.

Gatorz is looking to complete the turnaround story of No Fear and XRyderz and get the company operating profitably. In the latest year ended January 31, 2013, Ryderz generated $19.18 million in sales with a gross profit of $320,578. With $3.23 million in selling, general and administrative expenses and another $344,648 in interest and other costs, the company ended the period with a net loss of $3.23 million. On the upside, the last six months showed better operational efficiency with the net loss during that period accounting for only $670,251 of the yearly loss.

At the end of the year, Ryderz had assets of $3.9 million and liabilities of $6.3 million.

This is an interesting turn for Gatorz, a company with a tiny market capitalization of $1.25 million. They snagged a struggling company with a well-recognized brand for what appears to be a reasonable price. The additional revenues will certainly be a plus, but if they can bring the company back into the black, it could prove quite a boon for the valuation of Gatorz compared to today’s level. Proper due diligence is, as always, encouraged.

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