When lenders pulled the plug on Kiddie Kandids last month, it had only $1.2 million in assets and $39.3 million in debts, bankruptcy records show.

On Jan. 11, Kiddie Kandids, based in Sandy, failed to open 184 outlets across the nation where it sold photo portraits of children, saying its financing had been pulled. The closure of the 35-year-old company left about 1,345 employees out of a job, without health insurance and owed more than $1.3 million in wages and commissions.

The company filed for bankruptcy that same week, seeking to liquidate its assets.

A statement of its financial affairs filed this week in bankruptcy court in Salt Lake City shows that lenders were owed almost $29 million when they stopped financing the company that was wholly owned by Sorenson Capital of Lehi, a private equity firm.

CapitalSource Finance, of Chevy Chase, Md., appears to have been the leading source of financing for the company, with participation from Zions First National Bank of Salt Lake City and Sargas CLO I of Chicago. Those entities are owed $29.8 million.

The three companies declined to answer questions about their involvement. But the financial statement shows that they stripped all of the cash out of Kiddie Kandids' bank accounts on Jan. 10, apparently trying to recover as much of their money as possible as they sent it into bankruptcy.

That decision followed three years of escalating losses at the company that operated in malls and Babies 'R' Us stores, selling photos of children that included some packages that cost as much as $400.

The demise appears to be a combination of overexpansion, the current economic recession and the growing use of digital photography.

Sorenson Capital also declined a request for an interview about Kiddie Kandids.

In May of 2005, the two companies announced that Sorenson Capital had become an investment partner in Kiddie Kandids that would allow the photo company to open 150 new locations over the next five years.

"There's a great demand for our service in the marketplace," Scott Adams, co-CEO of Kiddie Kandids, said in a news release at the time, "and we want to accelerate our growth to accommodate new customers."

But court records show Kiddie Kandids lost $4.6 million in 2007, $19.5 million in 2008 and $20.5 million last year as it grew from 100 outlets in 2005 to 184 when it closed.

"They were losing money hand over fist," said Duane Gillman, the Salt Lake City attorney appointed to act as the company's bankruptcy trustee. "Their net losses for 2007, '08 and '09 were $44 million. Nobody can bleed that long."

In a statement after the closure of Kiddie Kandids, Sorenson Capital said it "received no profits from Kiddie Kandids, and lost its entire multimillion-dollar investment."

Sorenson Capital blamed the demise of the company on the economic downturn and the availability of inexpensive, user-friendly digital photography.

Gillman is shopping the company around to potential buyers and he said there have been expressions of interest.

"There's a lot of pretty girls around but none have asked to take me to the dance," he said. He's asked the court to appoint an auctioneer in case the assets are put up for auction.

Gillman also asked the court to appoint a privacy ombudsman to act as advocate for customers who paid for photos that are now in the company's computers or awaiting pickup at locked stores.

"This is a difficult case because there are very important interests involved," he said. "You're storing pictures of children who are very young. They're precious to their parents and grandparents."

Gillman said he has been flooded with calls from former customers to whom he has to explain what is being done to get their photos to them.

tharvey@sltrib.com