Krell Moves to new location

The probate courts are making no effort to preserve "Goodwill", which is a significant component of corporate valuation. Seizing expensive equipment in for repair, holding it for many months, then going radio silent, is not a way to preserve corporate value.

It’s not even clear if there are any employees currently working for Krell. The physical whereabouts of the to-be-repaired equipment is unknown, and there does not appear to be any timetable to return the equipment to its owners. But is it even on-site any more? Has it been sold at an estate sale? Where is it?

By way of background, I worked at Audionics as an assembly person, repair jock, and then, as a full-fledged audio designer. Let me walk you through what happens in a small-scale audio company.

There’s typically only one repair person at even a medium-scale audio company. More often, in smaller companies, the most skilled tech takes time off assembling equipment to do the occasional repair. This is for a simple reason: you don’t pay the bills from repairs. You pay the bills by assembling new products, putting them in boxes, and shipping them. Repairs are more like janitorial work ... you gotta do it, but it doesn’t pay the bills.

The repair guy is not going to do several repairs at once, unless units are stacked up waiting for hard-to-get parts. This makes a huge mess, creates chaos in the tech area, and the tech will do everything they can to avoid a situation with multiple half-disassembled units all over the place. Big mess, very undesirable.

So in a normally operating factory, there’s usually only one unit getting repaired at one time, with others stacked up in a queue awaiting work. But ... I said in a normally operating factory. If the bills aren’t getting paid, vendors figure it out pretty quick, and parts are then hard to get, since word gets around amongst the parts vendors (they talk each other). Very hard to repair anything if the vendors won’t sell you parts because you don’t pay your bills. Even worse if the parts are exotic and hard to find.

Things get truly chaotic once the bills get past the 60 and 90-day mark. The assembly line shuts down, you get a huge pile of partly assembled units and you need to find space to park them without getting damaged, and repairs stop completely.

The most skilled tech, the repair guy, stops showing up at work once he or she misses their second paycheck, or if the checks bounce the second or third time. Once incoming parts are past the 60-day payment due date, and staff paychecks bounce more than once, the end is near.

The front office staff are usually the last to leave, again, due to missed paychecks. The lights get turned off when the last employee leaves ... by then, the place is stripped bare by the departing employees. Very hard to prevent the aggrieved techs from taking partially assembled electronics that are just lying around in random piles.

By the time the electricity and water is turned off, anything not tied down is gone. From personal experience, I should have taken my handbuilt prototypes home, because they are now lost and gone, leaving only a few scattered notes I took with me. This is how knowledge gets dispersed and lost.

Sorry to report the grim details, but I lived through this not just once, but several times at Audionics. I finally escaped to Tektronix after a few of these episodes.

I know this sounds gruesome. I can assure you, it is a lot worse when it happens to you, in a company you’ve worked at for several years. It takes several of these cycles in the tech industry before you learn how to read the signs and get out fast before the roof falls in.

The yardstick(s) is simple: do they have any techs who are getting paid? If not, are the repaired or awaiting-repair units stored somewhere, and if so, where? After the hoped-for restructuring, who has detailed knowledge of the product line? (Not marketing knowledge, but build and repair experience.)

The rest is legal window-dressing related to restructuring and rearranging liabilities and assets (if any). The techs who have relevant product knowledge (how to build, how to repair, how the gizmos work, etc.) are probably no longer in town and have moved on (you can’t pay rent, buy food, and buy gas with promises).

Most of the genuine assets of any tech corporation is the knowledge in the worker’s heads. Most assembly and repair procedures are never written down. Disperse the workforce, particularly the techs, and a restart is more like starting from scratch, a much harder job. This is why re-creating a Saturn V rocket, or building a LEM, is impossible.

I had a summer job at NASA in 1969, during the Apollo landings. Sorry about the acronym, it means Lunar Expeditionary Module, the little machine that actually landed on the Moon. I used NASA tech as an example of lost technology, since President Nixon made the decision to shut down the Apollo program in the summer of 1970.

There are plenty of blueprints still around, but tech projects are far more complex than blueprints and circuit schematics. The real, detailed, knowledge is in the minds of the technology group members. When a project is terminated and the group is dispersed, much knowledge is lost forever, and it has to be re-created from scratch if the project is re-animated. "The Project" can be anything from the vast Apollo program to something as simple as a power amplifier.

The folks in the "front office" are the CEO, several marketers/salesmen, and the folks in accounting who juggle the books, paying the creditors in the right order and keeping the Tax Man happy. They are not technology people; they work in the back, along with the assembly staff.

Surprisingly, even though a hifi company may have several marketers on staff, they may not have a full time designer/engineer. The designer/engineers are often "guns for hire" who work at several different companies without credit or recognition. They even sign NDA’s (non-disclosure agreements) so their identities are hidden.

Many high-profile hifi companies, to some extent, are a "false front" and largely a PR operation. The people in back who design, prototype, build, and repair the gear are anonymous and often fired at whim, or if business falls off a little.

You can see why this puts the "brand name" in a different light. The real engineers are an anonymous cast of rotating designers, hidden behind unbreakable NDA’s, while the folks who stay-the-same are the CEO and the PR team. They provide the brand identity, but it is really a mirage in terms what’s inside the product. So if the "front office" folks go away, nothing is left except a memory in the minds of the customers. In legal terms, that memory is called "Goodwill" and has a monetary value.

That's good news; I hate to see knowledge dispersed and lost.

Srace1 can probably chime in here, but if memory serves, the order of payoff when a company is dissolved is:

1. Back pay for former employees. This is a matter of state, not Federal, law, and state attorneys pursue this matter on behalf of the employees. Some states (like California) are quite aggressive on behalf of former employees, others aren’t.

2. Federal, then state, then local taxes, in that order. Pursued by the IRS and state attorneys.

3. Banks, then other stakeholders, including customers with equipment in for repair. Owners of equipment in for repair might pursue a class action lawsuit; this is easy in some states, and quite difficult in others. Depends on state law. And yes, the reason class action lawsuits are rare is that lawsuits are often (much) more expensive than any potential gain. It’s the duty of an ethical lawyer to warn their clients of the potential costs of a lawsuit.

4. Bond and stock holders are paid last. The value is usually zero at this point.