Fuhu--the children's tablet-maker that Inc. twice named the fastest growing private company in the U.S.--knows well the challenges that come with meteoric growth. But the effects are catching up with the company in a big way.
Three weeks ago, reports surfaced that the company had run into supply issues because of a financial dispute with Foxconn, its Chinese manufacturer and an investor in the company. As a result, Fuhu had begun cancelling tablet shipments to retailers just as the holiday shopping season was getting started.
But the trouble runs deeper. As Reuters first reported Monday morning, Fuhu has filed Chapter 11 bankruptcy protection. According to court filings, Fuhu has made a tentative acquisition deal with Mattel for $9.5 million.
The company says that it was left with too little money to continue operations after one of its lenders, Tennenbaum Capital Partners, began taking cash from its accounts to cover a claimed debt of $6.5 million. Tennenbaum declined to comment.
"This is a transitional period for us. It's a process that will help us ultimately have a bigger opportunity. We will continue shipping our products to retailers through the holiday season--demand isn't going away," said a Fuhu press representative. In a press release, CEO Jim Mitchell said, "We expect to be able to satisfy ongoing obligations to customers, vendors and employees pending the sale and ensure the bright future of the nabi franchise with the proposed acquisition and with the protections afforded by the Bankruptcy Code."
The Mattel offer is known as what's called a "stalking-horse bid," or an initial bid that sets the bar so that a company doesn't receive low-ball offers. Fuhu will have the opportunity to consider competing offers.
Fuhu declined to comment further on the proposed Mattel deal. Mattel did not respond to requests for comment.
The tablet-maker, based in El Segundo, California, sells colorful, rubber-protected Android tablets for children that are loaded with licensed content from most of the major entertainment studios, including Dreamworks and Disney. The company also earns a good chunk of its revenue from an ever-expanding line of accessories, ranging from tablet sleeves and car-charging kits to decals and headphones. Fuhu hit $195.6 million in revenue in 2013, a 158,957 percent uptick from three years prior.
Around the time Fuhu ranked for a second time as the fastest-growing private company in the U.S., sources familiar with the company's plans had revealed that Fuhu was gearing up to go public. The company had begun bulking up its finance department and hired a veteran investment banker as its chief financial officer.
At the same time, the company had already grappled with the challenges that come with fast growth. When I wrote about Fuhu for Inc.'s September 2014 issue, the company was struggling to cope with employee burnout and concerns about micromanagement.
"On the one extreme, you can be called a micromanager. On the other extreme, you let the business get away from you," co-founder and president Robb Fujioka told me last year. "Ultimately, it's a weakness but also a competitive strength. We move product faster than anyone else in this space."