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Apologies if previously posted, not been watching forum but can't find it via search.
Anyway, this seems to back up the rumour that there were dodgy dealings at the top of the company.
[url= http://nsmb.com/4287-race-faces-demise/ ]http://nsmb.com/4287-race-faces-demise/[/url]
Respect is due to NSMB for checking and running the story, looks sound to me as all the serious allegations would have been easily verifiable through ex-employees.
Sad story.
😯
So if Pollack declined to comment does that mean he doesn't have a 'better' version of the story? It also sounded from the article as though by dropping his own salary to a mere $12500 (canadian ones that is) a month he could have salvaged the company, but he won't get out of bed for that. 😕
Yes, surprising to see that he intends to stay in the bike industry after this has gone public.
Perhaps if he throws enough advertising at it and prices the products well enough, he will do ok anyway. I would be tempted to try a different sport at least though!
Horrendous, especially for that Taiwanese employee...
I have to admit that this is one reason I really like all the micro brands, the really tiny one man in shed/couple of passionate people setups. As long as they don't try to grow too much and stay small, local and core, they aren't likely to explode and exploit their employees or customers like this.
Looks like corporate greed at top level was their downfall then. Helllloooo RBS....
How strange that you'd secure a loan on inventory, presumably then you can't sell it, so it becomes old/even more worthless but you can't sell it anyhow etc. etc.
considerin the character asassination in that article i reckon the biking interweb will prevent any future businesses he starts
Care to redress the balance with positives then kimbers?
well redundant employees slagging off ex boss is not surprising
but he does sound like a git to me
Wow. So sad.
I presume the security on inventory is supposed to be a rolling inventory. It means that you must keep whatever value of stock stipulated by the loan, so that if the worst happens the bank can at least carry on selling your stuff for a while to recover some money.
Good point.
Questions that the story leaves open are...
Who originally over-valued stock? It sort of insinuates that it wasn't the CEO.
If claims are true, has the CEO actually done anything illegal? (any Canadian accountants in the house?)
Who actually owns/owned the company?
From the details posted, I would guess that no one necessarily or deliberately over-valued the stock. It's more likely that the stock diminished in value, as a headset instruction sheet would over time. That being the case, what should have happened is that the stock inventory should have been restricted to items currently being sold, so that no value was attached to old stock.
Mind you, the story doesn't seem quite right in that it looks like the mistake was discovered, the bank where told and then the bank have asked for their money back and wound the company up as a result. I can't imagine many people in a similar position would have told the bank. The prudent course of action would have been to keep quiet and to build the inventory up over time, which would have allowed the company to sort the problem out in their own time, rather than risking the bank pulling the plug.
But, there's a fundamental problem with that funding model as it means that to avoid the over-valuation problem you would need to design your new part, then make a thousand of them to hold in stock, while you sold 1000 of the old ones, before selling the new ones. In effect you'd have to delay taking new products to market because of the banking covenant. If you didn't do that you would either have to hold more stock than required by the bank, or you would breach the covenant every time you replace one product with a new one.
There's plenty of things in that story that would add weight to a theory that the CEO took a course of action that would lead to them maximising their financial position from a failing company. While that would be pure speculation based on the facts presented I think that we don't have the complete picture here.
The valuation of stock should follow an accounting convention such as cost less an annual depreciation rate. It would be board / auditors responsibility to ensure this method is suitable, in this case it clearly was not but such issues rarely go to court.
The Bank should revue the above and apply its own sensitivity such as valuing only stock of a certain age and deduct a margin i.e. stock <2 years old at 50% and base this as the value for security.
Both parties here share blame, the board for not doing the first point and the Bank for not doing the second.
As for owners bleeding business before the fold, this is pretty common and it’s the Bank that needs to be close enough to see it and act early.
As often its failures all round at boards / bank level, and the little man suffers.
Stock valuation principles are normally really simple -
"lower of cost or net realisable value".
You review stock holding annually (when you're preparing the accounts) and revalue anything that's old at what you might realistically get for it.