Systematic Audio - Chapter 11 Case Summary

Business Description

Headquartered in Knoxville, TN, Systematic Audio, LLC (the "Company" or "Debtor"), operating under the Sundown Audio brand, is a leading designer, manufacturer, and distributor of high-performance audio systems for automobiles, including subwoofers, amplifiers, speakers, midrange drivers, and related accessories such as wiring and RCA cables.

• The Company has cultivated a loyal, worldwide customer base, a reputation for product quality among enthusiast and competition communities, and productive vendor and supplier relationships.
• A Tennessee limited liability company, the Company primarily operates out of its Newton, North Carolina location.

The Company's mission is to deliver premium sound solutions that empower enthusiasts to experience music the way it was meant to be heard: crisp, powerful, and uncompromising. Its diverse lineup ranges from high-output subwoofers built for SPL competitions to compact systems engineered for audiophile clarity, designed for daily-driven vehicles and competition-level applications alike.

• The Company's product lines include, among others, the Z-Series, LCS, X-Series, Nightshade, NeoPro, and VEX speaker lines, as well as the SALT and Team amplifier lines.
• The Company maintains more than 225 SKUs for products sold under the Sundown Audio brand worldwide.

In fiscal year 2025, the Company reported approximately $18 million in revenue and approximately $3.4 million in EBITDA. In about three years since acquiring the operating assets, the Company and its management team have transformed what was a negative $2 million EBITDA business into one that generates nearly $4 million of positive EBITDA annually, and the Company intends to continue that growth trajectory into additional markets in the very near term.

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Corporate History

Founded in 2006 in North Carolina, the Company has developed a respected reputation in the high-performance car audio industry, serving both daily-driven and competition applications.

• Systematic Audio, LLC was formed in the State of Tennessee on November 11, 2022, in connection with the acquisition of the operating assets that comprise Sundown Audio.

Corporate Structure

• XS Investment Intermediate, LLC is the sole member of Systematic Audio, LLC.
• Systematic Audio, LLC owns 100% of the membership interests of SVJ Holdings, LLC, a non-debtor affiliate.
• The Company is the only entity that has commenced a chapter 11 case. No petition has been filed by or on behalf of any non-debtor affiliate, including XS Investment Intermediate, LLC, SVJ Holdings, LLC, or any other entity in the corporate family.

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Operations Overview

The Company manufactures and distributes audio systems, primarily amplifiers, subwoofers, and speakers, and maintains an inventory of finished goods, components, and raw materials necessary for production.

Operational Footprint

• Newton, North Carolina: The Company's primary operating facility, which it owns, is a 180,000 square foot commercial property where the Debtor designs, manufactures, assembles, warehouses, and otherwise manages the majority of its inventory and products. Most of the Debtor's employees operate out of this location.
• Las Vegas, Nevada: A leased distribution center used primarily to service west coast customers.
• Knoxville, Tennessee: The Debtor's corporate office.

• The Debtor is actively expanding further into Canada near Toronto.

Sales Channels

• The Company primarily sells its products through a network of authorized brick-and-mortar dealers located across the United States and internationally.
• The Company also sells its products through authorized online dealers and operates a robust direct-to-consumer e-commerce platform on its website.

Workforce

• The Company employs approximately 30 active employees that handle design, manufacturing, assembly, other production, shipping, sales, customer service, administrative, accounting, data, management, and operational functions essential to the Debtor's continued operations.
• The employees are primarily located at the Newton, North Carolina operating facility, with others located at the Company's distribution center in Las Vegas, Nevada and corporate office in Knoxville, Tennessee. In addition, certain employees of non-debtor affiliates may perform services for the benefit of the Debtor from time to time.

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Prepetition Obligations

As of the Petition Date, the Debtor faced asserted claims of approximately $25 million from two separate secured lenders, in addition to asserted unsecured litigation claims. The Company's prepetition obligations are summarized below:

Secured Debt

• Prepetition Credit Facility (First Lien): KeyBank, as first lien lender, holds approximately $19 million of claims and has a recorded mortgage on the Debtor's Newton, North Carolina real property.
  • Substantially all of the Debtor's cash constitutes cash collateral of KeyBank under the Prepetition Credit Facility, and that cash is held at KeyBank.
• Second Lien Debt: Medallion Capital, as second lien lender, holds approximately $6 million of claims.

Unsecured Claims

• The Soleymani Litigation Plaintiffs, an unsecured litigation claimant, hold asserted claims of not less than approximately $21.5 million.

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Events Leading to Bankruptcy

A Viable Going Concern Under Creditor Pressure

The Debtor did not commence this chapter 11 case because its business is failing. The Debtor remains a viable going concern with a recognized brand, a loyal customer base, productive vendor relationships, and a skilled workforce. However, in the period preceding the Petition Date, the Debtor faced a combination of financial and operational pressures that ultimately necessitated the protection of chapter 11. The Debtor needed an opportunity to leverage the "breathing space" Congress has made available to companies facing imminent and existential creditor threats to their businesses, and commencing this chapter 11 case—thereby unlocking the automatic stay—was the only viable path to preserve and maximize going-concern value for the benefit of all parties in interest. That became clear in a three-week span leading up to the Petition Date.

Secured Lender Defaults and Liquidity Pressure

• On June 3, 2026, KeyBank, the Debtor's first lien lender with approximately $19 million of claims, noticed certain events of default in relation to financial covenants and leverage ratios. Although constructive, good faith discussions occurred prepetition, the Debtor and KeyBank were unable to reach agreement on a mutually acceptable forbearance by the Petition Date.
• On June 9, 2026, Medallion Capital, the Debtor's second lien lender with approximately $6 million of claims, noticed certain events of default in relation to the Soleymani Litigation and restricted distributions, and declared default interest due and payable.

As a result, the Debtor's continued access to liquidity was at risk based on the asserted events of default by its first lien lender. As of the Petition Date, the Debtor's available cash was approximately $55,000.

The Soleymani Litigation

The Debtor also faced significant uncertainty from the Soleymani Litigation, styled as Blue Building, LLC, et al. vs. Sundown Audio LLC, et al., Case No. 23CVS001091-170, pending in the Superior Court Division of Catawba County, North Carolina. The Soleymani Litigation Plaintiffs—David Soleymani, Joshua Soleymani, Daniel Soleymani, and Krubim 26 International, Inc. d/b/a WoofersEtc, a competitor of the Debtor—commenced the lawsuit on May 4, 2023 and subsequently named the Company and certain co-defendants.

• The plaintiffs asserted claims including, among other things, allegations of tortious interference, fraud, and unfair and deceptive trade practices.
• Trial commenced on or about April 27, 2026. On May 15, 2026, the jury returned a verdict awarding compensatory damages of $5,369,297.50, and on May 18, 2026, the jury returned a verdict awarding punitive damages of $16,107,897.50.
• Judgment has not yet been entered against any of the Defendants, including the Debtor and its Chief Executive Officer.
• On June 12, 2026, the Soleymani Litigation Plaintiffs filed a motion for relief from the automatic stay [Dkt. No. 10] to allow, among other things, the state court judge presiding over the Soleymani Litigation to enter judgment against the Debtor and its Chief Executive Officer and to decide post-trial motions, including the plaintiffs' request for an award of attorneys' fees and costs. The Debtor opposes the relief requested and will respond in accordance with applicable law and court procedures.

In considering its alternatives, the Debtor was mindful that, under North Carolina law, the entry of a judgment would trigger an automatic, springing lien on any real estate owned by the defendant in the county where the underlying litigation was pending. The Soleymani Litigation is pending in Catawba County, North Carolina—the same county where the Debtor owns the 180,000 square foot commercial property that is the primary operating unit for its business.

• It would be hugely value destructive if a creditor were to exercise remedies against—e.g., foreclose upon—such real property, to the detriment of the Debtor and all of its other stakeholders.
• The Debtor was also mindful that, through inaction, it could potentially elevate what was then an unsecured creditor to become a secured creditor, with negative consequences for other creditors of the Debtor.

Chapter 11 Filing and Go-Forward Strategy

Facing no access to its purportedly overdrawn line of credit, default notices from two separate secured lenders holding asserted claims of approximately $25 million, and imminent enforcement actions from an unsecured litigation claimant holding asserted claims of not less than approximately $21.5 million—nearly double the quantum of liabilities the Debtor faced immediately before the jury verdicts—the Debtor made the difficult choice to commence this chapter 11 case in the U.S. Bankruptcy Court for the Western District of North Carolina, Statesville Division. Through the case, the Debtor intends to use the tools Congress has made available to successfully reorganize as follows:

• Breathing Space: Section 362 of the Bankruptcy Code enables the Debtor and its management team to focus on stabilizing, preserving, and maximizing the value of its business and maintaining customer and vendor relationships, while also addressing litigation claims in a fair and orderly manner.
• Reliable Access to Interim Liquidity: The Debtor requires access to cash collateral and/or debtor-in-possession financing to fund payroll, customs, taxes, utilities, suppliers, customer programs, and other ordinary-course operating expenses necessary to preserve the going-concern value of the business. Sections 363 and 364 of the Bankruptcy Code provide viable paths to fund the business, including through consensual use of cash collateral and/or debtor-in-possession financing.
• Exit Financing / Sale / Reorganization: The Debtor intends to reorganize the business with a value-maximizing restructuring, which may include exit financing, one or more sale transactions, a chapter 11 plan of reorganization, and/or such other transaction or combination of transactions that will maximize value for the benefit of the Debtor's estate and its creditors. The Newton, North Carolina real property will likely play a critical role in any such value-maximizing path forward.