Just last year, he was on top of the world when he walked across a beam between two hot-air balloons hovering at 10,000 feet for a stunt that helped him win the "Rebel Billionaire" reality TV contest.
Now, his Salt Lake City-based company, its franchising arm and two affiliates have filed for Chapter 11 bankruptcy. Thirty of the largest unsecured claims for goods and services total $3.2 million.
Nelson had won $1 million on Fox's "The Rebel Billionaire: Branson's Quest for the Best," beating out 16 other contestants on the reality TV show after dancing with African tribesmen and rappelling down London's tallest buildings. He said he would spend the money on trips to Disneyland and his company, which would earn the top spot on Mountain West Capital Network's Utah 100 list of top performing companies for 2005.
Nelson also won an apprenticeship under the tutelage of British billionaire and entrepreneur Sir Richard Branson, head of the Group of Companies, including Virgin Records and Virgin Airlines. In the afterglow of Nelson's TV win, there was talk among LoveSac executives of forming some kind of partnership with Branson. Nothing, however, materialized.
On Wednesday, neither Nelson, other company officials nor attorneys returned telephone calls and e-mails asking for comment.
LoveSac, incorporated in 1998, grew from a tiny downtown Salt Lake City office specializing in frameless furniture inspired by the bean bags of the 1970s to a company with more than 60 stores in the United States, Canada and Australia.
The idea came to the 18-year-old Nelson in 1995 when the wunderkind experimented with foam that molded around a person's body, held its shape and had more cushion than the plastic foam peanuts used decades ago. He stitched his first creation on his mother's home sewing machine.
Nelson said that he began by cobbling together $55,000 in financing, along with $8,000 in loans from family and friends, to buy a forklift.
He founded the company, became its CEO, branched out to similar modular sofas and last year won a U.S. patent for packaged furniture assembly. If everything went as planned, Nelson had said, he would double the $25 million in sales for 2004 to $50 million in 2005.
On Wednesday, a grimmer reality set in when Bankruptcy Judge Mary Walrath ordered the consolidation of cases of LoveSac Corp. and three of its subsidiaries and affiliates.
Eight Utah companies are listed among the top 30 creditors holding the largest unsecured claims. The Utah firms and other unpaid companies in California, Pennsylvania, Washington, Minnesota, Colorado, Texas, New York and Shanghai, China, provided materials, assembly, fuel and shipping services.
It is unclear what the immediate effect of the bankruptcy filing will be on LoveSac's retail outlets.
Financially troubled companies file Chapter 11 bankruptcy to ease their debt, come up with a reorganization plan and a chance to start fresh. Unlike a Chapter 7 bankruptcy, companies are not required to sell off all assets to pay creditors. Typically, businesses that file under Chapter 11 of the U.S. bankruptcy code don't repay all their debt. Unsecured creditors usually get about 40 cents on the dollar.
This is not the first time LoveSac has been involved with the courts.
Last March, a lawsuit by a former employee who claimed the company discriminated against him because he was not a member of The Church of Jesus Christ of Latter-day Saints was settled out of court.
The suit, filed in U.S. District Court for Utah, contended that company officials never told Daniel Alix of his right to health coverage after he was fired last June. He also alleged that Nelson humiliated him in front of staffers for drinking on a company trip. Terms of the settlement were confidential.
And last month LoveSac filed a patent suit in Utah federal court, alleging that a California competitor, Elite Products, had violated its registered trademarks, including one specifically claiming sole possession of the "SAC" brand name.
dawn@sltrib.com
