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Solavei Presidential Director Staci Wallace, center, celebrates the keys to her new Mercedes.

Solavei, the Seattle area startup that employs multi-level marketing tactics to win customers for its mobile phone service, announced a plan to merge with Netherlands-based Aspider as it emerges from bankruptcy proceedings.

Ryan Wuerch
Ryan Wuerch

Solavei arrived on the scene three years ago with a high-profile list of investorscelebrity endorsers and an ambitious business model that relied on customers to spread the word about the company’s cellular phone service, earning cash along the way.

But the company — led by former Motricity CEO Ryan Weurch — stumbled last summer when it filed for Chapter 11 bankruptcy protection, listing liabilities in the range of $50 million to $100 million.

As part of the merger, Wuerch will remain as CEO and Chairman of Solavei. Solavei said that it will operate normally, and that it will continue “to grow its social commerce network to fulfill its vision of positively impacting millions of people’s lives.” It boasts about 400,000 members, though just 35,000 have built networks large enough that qualify them for commissions, according to court records.

“This partnership offers tremendous value to both companies,” said Wuerch in a release. “For Solavei, it will provide the opportunity to leverage ASPIDER direct connections with global mobile operators, and technology resources to enhance and expand mobile services for our members, and broaden Solavei’s reach to enable us to rapidly expand the Solavei brand around the world.”

Last month, in the midst of the bankruptcy proceedings, the company welcomed Solavei Presidential Director Staci Wallace — Wuerch’s sister — into its “Solavei Mercedes Club.” You can watch the ceremony below in which Wuerch says the new Mercedes represents the “tens of thousands of people’s lives that have been positively impacted.”

“Let every mile represent another 1,000 lives being impacted positively because of Solavei,” Wuerch said before handing over the keys to Wallace.

Meanwhile, here is the bankruptcy trustee’s financial report on Solavei for February, showing total assets of $4.2 million and continued losses.

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And here’s more on how Solavei operates from the bankruptcy filings this week. The filing notes that many in the Solavei network have annual incomes of less than $45,000, making the company’s referral system “meaningful” income. The report also notes that T-Mobile — which provided the back-end network for Solavei — holds a $21.6 million prepetition claim tied to unpaid services. The bankruptcy filing notes how Solavei fell on tough times:

Due to the unique and innovative social referral distribution model, the Debtor struggled with structuring the appropriate member commission model. The amount of commission payments owed to members for referrals and network building activities exceeded initial expectations. The Debtor had initially targeted and agreed to pay 50 percent of its gross profit to members in the form of commissions. However, as members found ways to maximize their commissions in ways not anticipated under the commission plan, the company was actually paying some 83 percent or more of its gross profits to members. The Debtor substantially revised the commission plan in March 2013 and again in January 2014, to bring its overall payout closer to the sustainable 50 percent level.

The combination of these issues stressed the company’s working capital and liquidity as it worked to recover from initial vendor costs and member commission structures that proved unsustainably high. As a result of this stress on working capital and liquidity, the company found it necessary to file its Chapter 11 bankruptcy with the intention of restructuring its existing liabilities and growing its business.

Read more here:

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