Vann’s Inc. is in negotiations with an investor with outdoor
industry connections and financial resources to acquire BigSkyCountry.com as a
going concern, Vann’s CEO Gerald J. McConnell told The B.O.S.S. Report last
week.

“We are working with a buyer and he has the financial
resources to do it and great connections in that industry, which of course we
did not have,” said McConnell, a turnaround specialist hired by Vann’s June 15
just days before it learn GE Finance was terminating its line of credit. “We
have signed a non-disclosure agreement.”

Missoula-MT-based Vann’s Inc. filed a Chapter 11 bankruptcy
petition Aug. 5, the last day of the Outdoor Retailer Winter Market. Its
BigSkyCountry.com store, which launched in 2010, has continued to operate since
then, but has put a hold on as many of its fall/winter orders as it could
pending negotiations with potential buyers, including liquidators.

On Friday, the company’s lead buyer was selectively marking
down apparel by as much as 40 percent as part of a summer clearance sale.

When they learned Vann’s planned to launch BigSkyCountry.com
in 2010, several outdoor specialty retailers in Montana urged outdoor brands
not to sell to the company, arguing the state was already adequately served.

“Why would any group of sensible vendors go off the deep end
or be interested in opening a completely inexperienced new retailer, web based
or not,” wrote Todd Frank, owner of the Trail Head of Missoula in an open
letter addressed to vendors. The web based world is even better covered and
more competitive than our brick and mortar to the point of absurd.”

McConnell said one of BigSkyCountry.com’s biggest assets is
its URL and its location in Montana, which is one of just four states that
don’t levy a statewide sales tax.

The biggest challenge to selling the business is that Vann’s
never segregated it from its legacy home electronics and appliance business.
Selling BigSkyCountry.com will require extracting its inventory, warehousing,
customer information and IT infrastructure for a new buyer, said McConnell.

If McConnnell can’t find a buyer for BigSkyCountry.com,
Vann’s will liquidate the site’s inventory. He has already gotten bids from
liquidators and described the site’s inventory as “pretty fresh.” He did say
that there is “some hang over from last winter in a few high-cost items
including snowboards.”

In an affidavit filed to support Vann’s Chapter 11 petition,
McConnell attributed Vann’s financial problems to its decision in 2010 to
diversify away from selling home appliances and electronics by starting up a
home building venture and BigSkyCountry.com.

“Vann’s has suffered losses as a result of expanding beyond
its core business of selling quality appliances and consumer electronics
through its online and retail locations, on which its reputation and customer
relationships were built,” reads the affidavit. For example, in 2010, Vann’s
expanded into the business of selling outdoor and recreational clothing and
gear at www.bigskycountry.com. This endeavor diverted the investment of
financial and staff resources at a critical time for the core business and did
not take advantage of Vann’s experience or reputation in its traditional
product line.”

In its bankruptcy petition, Vann’s listed $17.6 million in
assets and $14.4 million in liabilities. No outdoor vendors appear on its list
of 20 largest creditors, but the company paid out nearly $400,000 to outdoor
vendors in the three quarters ended July 31. Based on that list, some of its larger
vendors appear to have been Columbia Sportswear, Marmot Mountain LLC, Mountain
Hardwear and Outdoor Research.

Vann’s, which is owned by an ESOP, generated
$100.8 million in sales in 2011 and $45.4 million year-to-date through Aug. 5,
according to its bankruptcy filing. Most of that came from the sale of home
appliances and electronics from five brick-and-mortar Vann’s stores, and two
online electronics stores.

In his affidavit, McConnell said he quickly learned that
Vann’s comingled inventory and funds between its legacy appliance business and
its new online ventures, including BigSkyCountry.com.

It became clear that Vann’s and the Subsidiaries operated as
a single business and that, despite instances where contracts may have been
signed by Subsidiaries, Vann’s stakeholders ultimately were relying on the
credit of Vann’s,” reads the affidavit. “In order to align the companies’
corporate structure with reality, on July 26, 2012, each of the subsidiaries
was merged into Vann’s and ceased to exist as separate entities.”

Within days of hiring McConnell, Vann’s received a letter
from GE Finance informing the retailer of its intent to terminate its line of
credit effective July 19. GE Finance declared the company in default July 30
and Vann’s is working with its other major lender, FIB, to arrange debtor in
possession financing.