Paper Zone LLC, which operates 12 retail stores and 2 online stores under the name of “Paper Zone” and “Memories”, filed for Chapter 11 bankruptcy protection in the Western District of Washington U.S. Bankruptcy Court on April 2nd, 2007.
Paper Zone LLC is headquartered in Seattle, and in 2005 it bought the 16-store Memories chain from Memories & More, Inc. in an attempt at nationwide expansion. That did not go as well as planned and the company has since closed most of the stores that it acquired from Memories, with the exception of two in Utah. The remaining Paper Zone stores are 7 stores in Washington and 3 in Oregon. In bankruptcy filings, Paper Zone management blames the declining scrapbook market segment, difficulty converting the Memories stores to the Paper Zone information technology system, and the unsuccessful attempted conversion of some Memories stores to the Paper Zone format for the failure of the acquisition.
The company’s public statements to customers and vendors, issued by Vice President/General Merchandise Manager Jim Nystrom on April 2nd and April 3rd, explain Paper Zone is only seeking reorganization and court help in voiding leases at vacated locations.
According to the original petition for Chapter 11 protection filed April 2nd, Paper Zone LLC owes about $5.4 million to various creditors but only has total assets of about $3.2 million. That puts their books about $2.2 million out of balance. The company reports that it currently has $441,000 of liquid cash, but is forecasting a balance of only $15,000 cash on June 3rd as its forecast cash balance fluctuates greatly over the coming weeks due to the timing of anticipated expenses versus expected income.
A crucial element in the plan for Paper Zone’s future is the rejecting of the unexpired leases on properties where the company closed stores. The U.S. Bankruptcy Court Judge for the case issued an order on April 4th granting the company’s request to close out 19 unexpired leases. But The Official Unsecured Creditors Committee appointed for the company has already filed notice with the court that at an April 23rd hearing it may possibly appeal that ruling on the three longest of those leases.
Another important part of Paper Zone’s cash flow forecast is their plan to substantially reduce in the next 13 weeks the amount that they spend each week for new inventory purchases, while trying to only marginally decrease their anticipated sales numbers for the same periods.
According to bankruptcy laws, the secured creditors of the company get paid first. In the filing paperwork, Paper Zone lists two types of secured creditors. The first is tax liens: Paper Zone LLC owes small amounts to various tax entities that are secured by personal property liens against the company. The largest amounts, however, are listed as owed to Intracorp Capital, LLC and Intracorp Funding Invest., LLC, both of Seattle. Those two companies are owed a total of $2.2 million in secured loans by Paper Zone LLC.
Intracorp Capital is the company that bought Paper Zone in 2002 amid much fanfare of plans to expand the chain to 50 stores in four to five years. The same man, Gordon McFadden, is the president of Intracorp Capital, and also the chairman of Paper Zone LLC. By buying Paper Zone through a holding company, Paper Zone Holdings, LLC, of which Intracorp owns 70.3%, Intracorp has ensured that they will get their money back out first as a secured creditor.
In bankruptcy, the unsecured creditors divide up the remainder after the secured creditors are paid. This means quite possibly accepting only a percentage of what their debt is worth, as is common in bankruptcy cases.
According to the bankruptcy filing, Paper Zone has a lot of unsecured creditors, over 400, who are owed a total of $3.1 million. Some of the listed debts appear to be expenses such as rent and utilities in association with the closed locations. But many of the debts, some in the tens of thousands of dollars to individual creditors, are to inventory vendors. In the scrapbook industry alone, some of the major creditors are:
My Minds Eye $48,050.72
Making Memories $44,451.57
Enthusiast Media LLC $39,147.22
QuicKutz $36,916.70
ProvoCraft $30,493.99
EK Success $27,943.87
Doodlebug Design $24,930.99
SEI $24,477.43
Basic Grey $14,093.46
DG Inventive/Mari-Mi $13,631.62
American Crafts $12.582.77
Bazzill Basics $11,939.59
Scrapbook Trends $11,387.28
Several dozen other scrapbook companies are owed amounts less than $10,000, including Prima, Sandylion, Autumn Leaves/Westrim, Advantus, Mrs. Grossman’s, Karen Foster Design, Fiskars, and We R Memory Keepers.
Given the number of companies owed large amounts of money, many people will be watching with great interest in the progress of the bankruptcy proceedings. On April 3rd, the United States Trustee in the Paper Zone bankruptcy appointed a five-member committee to represent the interests of the unsecured creditors in the case. The 5 members were selected from among the 7 largest unsecured creditors of Paper Zone, and are owed between $59,000 and $129,000 each. One (R&J Puyallup) was the landlord for a former store and the rest are representatives of product vendors (Leader Paper Products, Notes & Queries, West Coast Paper, Astro Converters).
What most of the observers will want to know of course is when they might get their bills paid by Paper Zone or be able to collect on their receivables insurance. An emergency court order was signed on April 4th allowing Paper Zone to use their existing cash to continue to run the company’s day-to-day operations. A final hearing on making that order permanent is scheduled for April 23rd. These orders for use of the company’s “cash collateral” do not include any payments to creditors listed in the bankruptcy application, but only payments to allow for the ongoing operation of the business such as utilities and payroll. The “First Meeting of Creditors Business” to address the longer-term debt is scheduled for May 9th at 1:30pm at the U.S. Courthouse in Seattle.
Paper Zone’s Vice President, Jim Nystrom, referred all questions about the company’s pre-bankruptcy debts to the company’s bankruptcy attorney for legal reasons. EK Success, one of Paper Zone’s major creditors, also declined comment for this story when contacted through their representative.
Another one of Paper Zone’s major creditors, QuicKutz, issued the following statement through their representative, Melanie Kirry: “That obviously is a matter of significant concern for us, but we simply need to give them the time that the law allows to develop that plan. We sincerely hope they will be able to quickly resolve their current financial difficulties.”
Scrapbook Update will continue to follow this story and post follow-ups as court filings warrant them.
WOW!!! Thank you for this information…it’s very informative and helpful to understanding exactly what goes one with this kind of thing.
Loves to you!
K
Interesting. And sad. Thanks for keeping us updated!
As a former employee of Paper Zone I have some insight on their recent bankruptcy filing.
I am the former Director of Information Systems for Paper Zone and was originally employed with Memories & Memories in Centerville, Utah. It was my job to oversee all information technology used for Paper Zone, specifically the point of sale system at the corporate office and at each store.
In 2005 when Paper Zone purchased Memories & More it was decided by the owners that the Memories stores would upgrade their existing point of sale software to the latest version. It was also decided that Paper Zone would eliminate their out-dated point of sale system and convert to the same system that Memories was using. The software was basically the same and Memories employees knew how to use it. Paper Zone stores were using computers that were ten to twelve years old and paying for support on software that was no longer being developed. Forty new computers and one server were purchased to accommodate this large conversion. On January 31, 2006, Paper Zone stores and corporate office went live using their new point of sale system on new equipment. Due to lack of training, the Paper Zone branded stores struggled with the change.
To most people, comments concerning their former employer would be considered revengeful for the way they were treated or how their employment ended. Mine is the opposite. It breaks my heart to see how Paper Zone and Memories have struggled and closed stores.
I resigned my position with Paper Zone because I could “see the writing on the wall,” knowing that bankruptcy would likely occur very soon. During my nine years of employment with Memories/Paper Zone, I’ve seen one common thread the past 14 months. All blame for failure was placed on the acquisition of Memories & More, a company that operated without debt for two and a half years before they were purchased by Paper Zone.
It is clear that Paper Zone had significant problems converting to the Memories stores information-technology system.
Paper Zone stores file Chapter 11
Paper Zone LLC, which operates 12 retail stores and 2 online stores under the name of “Paper Zone” and “Memories”, filed for Chapter 11 bankruptcy protection in the Western District of Washington U.S. Bankruptcy Court on April 2nd, 2007. See
Paper Zone stores file Chapter 11
Paper Zone LLC, which operates 12 retail stores and 2 online stores under the name of “Paper Zone” and “Memories”, filed for Chapter 11 bankruptcy protection in the Western District of Washington U.S. Bankruptcy Court on April 2nd, 2007. See
Paper Zone stores file Chapter 11
Paper Zone LLC, which operates 12 retail stores and 2 online stores under the name of “Paper Zone” and “Memories”, filed for Chapter 11 bankruptcy protection in the Western District of Washington U.S. Bankruptcy Court on April 2nd, 2007. See
Paper Zone stores file Chapter 11
Paper Zone LLC, which operates 12 retail stores and 2 online stores under the name of “Paper Zone” and “Memories”, filed for Chapter 11 bankruptcy protection in the Western District of Washington U.S. Bankruptcy Court on April 2nd, 2007. See
Paper Zone stores file Chapter 11
Paper Zone LLC, which operates 12 retail stores and 2 online stores under the name of “Paper Zone” and “Memories”, filed for Chapter 11 bankruptcy protection in the Western District of Washington U.S. Bankruptcy Court on April 2nd, 2007. See
Sound like it was less a “scrapbooking industry” problem, than an IT problem. There have been MANY stores that when it came to IT to include POS terminals and software, it “killed” the entire operation. Thank-you to “Former PZ Employee” for direct insight on the problems that occured.
What is of interest, or ought to be, to fellow scrapers and crafters is the state of the large debt holders. Some companies can weather it, and others, I fear are going to be less able to “weather it out.”
I am a former employee of The Paper Zone. I worked for them for almost 9 years. I can tell you that the problem with the Paper Zone is Intracorp, the executives they put in place and the bonuses they took. The focus shifted away from the customer to the pockets of the people in charge. Memories was just an acquisition made by the new president in order to get a nice bonus. There was never any intent on being experts in scrapbooking or crafting or any real concern for the customer.
Intracorp fired employees right away and put their own stamp on the company. I quit as soon as I met the new president. After doing a little research I learned that he had ran another company into bankruptcy just a few years before coming to the Paper Zone. My boss quit the company and pulled me aside one day in 2005 and told me that I should probably look for a new job too. I took my bosses advice. You have to listen to the person in charge of the books.
Memories and IT problems are just an excuse being used by the Paper Zone. The real problem is the management, their bloated salaries and the greedy owners.
Bankruptcy? No duh…. I could have told you this was coming two and half years ago…. Intracorp did this to the Paper Zone, but they will never have the backbone to admit their own mistakes.