LoveSac Files for Bankruptcy

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    By Elizabeth Stitt

    A year after Shawn Nelson won the TV reality show “The Rebel Billionaire” for his company The LoveSac, Corp., Nelson”s reality is bankruptcy.

    The popular “Oversized” beanbag company now has oversized unsecured claims from creditors. Nelson filed Chapter 11 bankruptcy for LoveSac, its franchise company and its two affiliates Monday.

    The Jan. 30, 2006 bankruptcy filing listed the 30 largest creditors LoveSac owes, totaling more than $3.2 million dollars in debts.

    Although the company expected to top $30 million in sales for 2005, Nelson said on his “Rebel” blog the past Christmas season was not as good as expected, which was something no one could have foreseen. Nelson told the public he was sorry for what was happening with the company”s bankruptcy.

    “Now we endeavor to reconstruct, in order to preserve some value for those who may be owed,” Nelson wrote in his blog. “There was simply no other option. There was just nothing left. That”s all there is to it.”

    To many, Nelson”s business was booming as he won $1 million last January in “The Rebel Billionaire”. He said he turned the money over to his chief financial officer to build the company. Nelson also won Utah”s Top 100 award in October for being one of Utah”s fastest-growing companies.

    But Nelson now seeks protection from his creditors to save his business. Among the creditors is SCT Limited, an agent between LoveSac and outsourcing factories in Shanghai China.

    Tauni Schmirler, manager of SCT”s U.S. offices and daughter of the SCT president, said Nelson was a friend of the Schmirlers before his company started, and the family helped him get the business going with their outsourcing agency.

    “My father, who started this [SCT Limited], … started helping Shawn and helped him build his company financially,” Schmirler said. “When Shawn”s not been able to pay in the past, SCT has personally put their neck on the line. He has been able to pay, but sometimes late.”

    Schmirler said the bankruptcy filing shows LoveSac owes SCT Limited $130,000, but they actually owe more. SCT Limited covers the financial responsibilities between the company and the factories in China. Schmirler said LoveSac owes SCT Limited $1.3 million. After the bankruptcy filing, Schmirler said she doesn”t know if they”ll ever be repaid. The family says their own company is in jeopardy because of him.

    “The factories want to be paid now and this money was owed a while ago,” Schmirler said. “He [Nelson] is already late on the payments. We”re trying to find people to help us in the short term. In the next few months, we”ll know if there”s no way for us to be open and we”ll be in the same situation with Shawn.”

    Schmirler said she hopes LoveSac can stay in business so they can receive at least a fraction of their claims, but SCT Limited will not continue further business with LoveSac.

    “Our reaction now is we”re going to have to fight a war,” Schmirler said, “just like Shawn is going to have to fight a war to salvage his company.”

    Nelson”s blog assured the company would try to repay debts.

    “We are working tirelessly to go forward and build something that we can be proud of and that can somehow, someday repay, one way or another, all of those who have given so much, and who are willing and able to ride out this storm,” Nelson said on his blog. “What else is there to do? To walk away would be to hurt even more people, even more deeply. We will be a stronger, more capable company for this, and, unfortunately, there was no other way.”

    LoveSac has been in the works for more than 10 years. In 1995, Nelson came up with the idea to take a beanbag and oversize it. He originally made one for himself but soon had requests from others. He made the first few on his mother”s sewing machine and stuffed them with foam. When the machine failed, he outsourced the sewing. In October 1998, he started the Salt Lake-based company LoveSac. LoveSac now has more than 70 retail stores in the United States, Australia and Canada. The effect of the bankruptcy filing on retail stores is not clear.

    Filing for Chapter 11 bankruptcy allows the company protection from its creditors while it reorganizes its business affairs and assets.

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