Laguna Hills Firm Under Fire : Marketer of Diet Patch Files for Reorganization

A Laguna Hills firm under fire for marketing a controversial skin-patch diet aid has filed for protection from creditors in bankruptcy court in Santa Ana, and company officials said Thursday that the Le Patch product line has been sold to an Arizona company.

David Sterns, president of New Source Ltd., said the firm filed for protection under Chapter 11 of the U.S. Bankruptcy Code on Dec. 16 “so we could reorganize the company in a systematic and rhythmic fashion without outside disruption from creditors and regulatory agencies.”

Several governmental agencies, including the Food and Drug Administration and the state attorney general’s office, have investigated New Source and its skin-patch product.

The attorney general’s office filed a complaint in October against New Source and its parent company, Omni Source, alleging that the companies and their officers “misrepresented that the Le Patch product could legally be sold.”

The complaint resulted in a November court order demanding that the companies stop selling and promoting the patch as a treatment approved by the FDA.

The FDA has not approved the non-prescription sale of skin-patch technology. “No manufacturer or distributor has presented evidence that any non-prescription skin patch for any use is safe and effective,” the agency said in a report released earlier this year.

But Sterns said Thursday that New Source sold its patch business July 15 to a Phoenix company called V&T.; No such company was listed in Phoenix telephone directories.

“New Source . . . has been besieged by regulatory agencies, because they don’t believe we sold it,” Sterns said.

Officials from the FDA and the attorney general’s office could not be reached for comment late Thursday.

Le Patch was marketed by New Source earlier this year as an FDA-approved device that would help users lose weight by merely applying it to the skin, according to the complaint filed by the attorney general’s office. The patches were treated with a proprietary formula called Cephatrex that supposedly helps suppress the appetite.

According to Sterns, New Source sold the patch product line for $400,000. He said V&T; also agreed to assume $1.8 million in debt owed to distributors who had paid for patches that were never delivered.

“We never delivered a patch nor accepted an order after July 15,” Sterns said. “We never delivered one patch. We sold (to V&T;) the obligation to either refund the people or deliver the patches.”

According to records filed with the bankruptcy court in Santa Ana, New Source has $4.1 million in assets and $3.6 million in debt. The company’s major creditor is Fountain Industries of Laguna Hills, which Sterns said loaned his firm $2.2 million.

New Source also owes Northridge Labs of Chatsworth $216,000, records show. And it is that debt that led to the bankruptcy filing, Sterns said.

“We ordered $240,000 worth of Triet diet aid tablets and we paid them a $40,000 deposit,” Sterns said. “They were insisting on payment in full before they shipped any (of the product). They attached New Source’s bank account about 30 days ago. That precluded New Source from operating normally.”

Northridge Labs officials could not be reached for comment.

Since New Source has divested its line of diet patch products, the company markets six varieties of health and diet products, Sterns said.

Times staff writer Eric Lichtblau contributed to this story.