Rene Eringaard - Timeline - 2010

XS2 - Year 2010 - The voluntary liquidation of subsidiary XS2 Europe BV

2010:

In this 14th year Rene Eringaard decides to a voluntary liquidation of subsidiary XS2 Europe BV on November 2nd.

Awards:
XS2 receives the "Intel Channel Partner Premier Member" certificate.

XS2 receives the "Microsoft Gold Certified Partner" certificate.


Global economic crisis continues:
The situation of XS2’s resellers in the year 2010.
XS2 is supplying mostly to resellers on a credit of 30 days. However in the year 2010 most of the resellers are delaying their payments. The economic situation is still to blame for this. Only a few resellers are paying within 30 days. Several large resellers went bankrupt, causing a big loss for XS2. If a reseller goes bankrupt only 80% is insured. Many resellers received goods on XS2's own risk. If such a reseller goes bankrupt, then there is a 100% damage for XS2. An important issue is also the fact that XS2 has to use the collection agency more frequently resulting in a lot of payment arrangements with resellers. These payment arrangements are putting a negative effect on XS2's cash flow.


 
Global economic crisis continues:
The Dutch State and UWV (Employee Insurance Agency)
UWV is an autonomous administrative authority commissioned by the Ministry of Social Affairs and Employment. UWV is responsible for implementing employee insurances.

In June 2010 Mr. Rene Eringaard started to reorganize the company again. This could only be done by laying off employees. However permission to lay off employees was only granted by UWV (Employee Insurance Agency) in September 2010. It means that these employees still have a notice of 1 or 2 months before they are really not employed anymore. This means that cost saving could can only be reached starting November 1st 2010.
In other words: a slow responding Dutch State and it’s autonomous administrative authority UWV.



Global economic crisis continues:
The financing banks ABN-AMRO and ING.
In October 2008, the Dutch State acquired FBN (including ABN AMRO Netherlands) for € 17 billion to prevent a collapse of this bank.
In October 2008, the Dutch bank ING received a capital injection from the Dutch State of €10 billion to prevent a collapse of this bank.

In other words:
Rene Eringaard and XS2 had to deal with tight banking and financing rules in the year 2010. During meetings Mr. Rene Eringaard explains to above banks that XS2 will receive permission from UWV (Employee Insurance Agency) to lay-off people. XS2 will be break-even after these people have been laid off on November 1st 2010. However ABN-AMRO bank decides to cut down XS2's credit line with a significant amount resulting in an immediate cash flow problem. Combined with the fact that most of the resellers did not pay their invoices on time anymore due to the economic situation in Holland, it resulted in a bigger cash flow problem.



Global economic crisis continues:
Trade insurance company Atradius.
(Insurer of credit lines from XS2 to it’s resellers)
XS2 has a yearly contract to insure all outstanding invoices to their resellers. It is a contract between Atradius and XS2’s subsidiary XS2 Europe BV. XS2 used to have an amount of € 7 million insured credit lines to roughly 550 resellers/shops. 
Most of these resellers are located in the Netherlands and Belgium, some of them were located in the UK and Germany. 

In October 2010 Atradius forced a new contract to XS2 in which they did not withdraw any credit lines of these resellers.
Now this seems to be good news….
But Atradius only wanted to continue insuring resellers credit lines with following condition:
XS2 must decrease the total amount of reseller credit lines from € 7 million Euro to € 3 million. 
Which means that XS2 had to cancel or minimize reseller credit lines on her own. 
XS2 was forced by Atradius to reduce and cancel credit lines to resellers in October 2010.
Immediately XS2 started losing customers due to this forced measure of Atradius.


In fact the proposal from Atradius was ridiculous and created a non-workable situation for XS2 and her resellers.
In other words: Atradius collected 15 years huge amounts of insurance money from XS2. 
When the economy collapsed, Atradius immediately lowered insured credit lines thus lowering their risk.



Global economic crisis continues:
The position of the minority shareholders of XS2.
After Rene Eringaard’s capital injection of € 400.000 into XS2 in the year 2008 the indirect control of shares within XS2 became:
Shareholder Rene Eringaard : 80%
Shareholder 2                      : 10%
Shareholder 3                      : 5%
Shareholder 4                      : 5%
The 20% minority shares has been given to 3 employees during establishment of XS2.
In other words:
Rene Eringaard gave these 3 employees during establishment of XS2 the amount of money to be invested, so that they could become a shareholder. In the year 2008 these minority shareholders refused to join a capital injection proposed by Mr.Rene Eringaard in order to make XS2 more healthy.



Description Shareholder 2:
10% indirect minority shareholder and employee of XS2.
In the years 2006, 2007, 2008 this person Mr. W.F.E. has caused a severe € 2.9 million dispute between XS2 and the Dutch tax department.
Rene Eringaard arranged a settlement with the Dutch tax authorities regarding this dispute in the year 2008:
a: XS2 must stop Supreme Court proceedings against the Dutch tax authorities.
b: XS2 will pay € 350.000 to the Dutch tax authorities.
c: XS2 will not receive a € 858.000 VAT Tax refund:
d: XS2 will absorb a total damage of: € 350.000 + € 858.000 = € 1.2 million.

After settlement with the Dutch tax department Rene Eringaard has fired this employee.
However the employee still kept the 10% minority shares.



Description Shareholder 3:
5% indirect minority shareholder and employee of XS2.
This indirect minority shareholder resigned his job in the year 2009 and emigrated to Hungary.
However the employee still kept the 5% minority shares.



Description Shareholder 4:
5% indirect minority shareholder and employee of XS2.
This indirect minority shareholder resigned his job in January 2010
However the employee still kept the 5% minority shares.

In the summer of 2010 these 3 indirect minority shareholders joined each other to sell their shares. After all, they were no employee anymore, so they wanted to collect money for their minority shares.
Mr. Rene Eringaard explained to them that XS2 was experiencing difficult times and that they were making the situation extremely difficult for him and for XS2 and all employees…
However they insisted in selling the shares.
To make this story not too long: XS2’s marketing manager has bought these 20% of indirect shares.



In October 2010 the company structure becomes as following:
XS2 International BV
The shareholders of this company are:
95%  XS2 Holding BV (= Rene Eringaard)
5%    Mr. Yu Shen Lin (= A-Power Technology Co)

XS2 Investments BV
The shareholders of this company are:
80% XS2 International BV
20% Belongs to XS2’s marketing manager

XS2 Europe BV
The shareholders of this company are:
100% XS2 Investments BV



Financial challenges of XS2 in 2010:
1:
Trade insurance company Atradius minimizes its risk by decreasing XS2’s reseller credit lines.
Atradius is forcing XS2 to finance resellers with 100% own risk credit lines

2:
Resellers are not able to pay their invoices within 30 days to XS2.
(Many resellers need payment arrangements)

3:
ING Bank and ABN Amro bank are bailed out or nationalized by the Dutch State.
ING Bank and ABN AMRO bank decrease the credit lines of XS2.

4:
Settlement with Dutch tax authorities has caused severe damage to XS2 in year 2008.

5:
Slow response of the Dutch State to give permission to lay off people.

6:
Ex-employees, but minority shareholders demand cash money for their shares.

7:
Remaining employees expect a salary increase after their co-workers will be fired.



Market challenges of XS2 in 2010 from a technical point of view:
Smart devices are quickly changing the way people find information and entertainment, communicate and get things done. The position of XS2 as importer/distributor of notebooks, computers , components and peripherals becomes questionable.
1:
Apple:
iPhone was introduced in June 2007 with:
2G GSM 2.5G GPRS, 2.75G EDGE data transfer, WiFi, Bluetooth, USB, RISC ARM based CPU, Touchscreen, innovative operating sytem.

iPhone 3G was introduced in June 2008 with:
3G UMTS, 3.5G HSDPA datatransfer, GPS.

iPhone 4 was introduced in June 2010 with:
3,75G HSUPA and PowerVR based GPU for graphics.

iPad was introduced in March 2010 with:
3,5G HSDPA and PowerVR based GPU for graphics

2:
Google:
Introduction of Android Alpha in 2007 and Android 1.0 in September 2008 using ARM based CPU’s and Mali GPU’s.

 

3:
Microsoft:
Introduction of the specialized operating system Azure, a cloud computing platform and infrastructure.
Increasing speed of internet, high-capacity networks, remote Cloud Servers, Cloud Services makes Cloud Computing, Cloud Storage and Hardware Virtualization possible.
Generating lower and scalable costs for companies and consumers.

4:
The lifecycle of desktop and notebook computers becomes longer.
Companies and consumers simply extend the life of computers by upgrading its hardware or operating system, keeping older desktops and notebooks for many years before buying a complete new computer system.

5:
XS2 was selling computers with components and software of:
Intel CPU’s - (Intel Channel Partner Premier)
AMD CPU’s - (AMD Solution Provider Platinum)
Microsoft - (Microsoft Gold Certified Partner)
ATI and nVidia GPU’s

Smartphones and tablets change the way of computing. They even replace computers for daily tasks and soon these devices could be used for gaming and HD video.
These smart devices are:
a: not using Intel CPU’s but they use ARM based RISC CPU’s.
b: not using AMD CPU’s but they use ARM based RISC CPU’s.
c: not using Microsoft’s operating system but using iOS or Android.
d: not using nVidia GPU’s or ATI GPU’s but using Mali or PowerVR GPU’s.
These smart devices combined with increased internet speed and Cloud Computing should have a negative effect on the sales of desktop and notebook computers.


Conclusion:
The IT landscape has been changed significantly.
Importing and distributing Android smartphones and tablets from smaller Chinese manufacturers was no option for XS2. The quality of these Chinese made devices is not good enough. (Especially the batteries) It could result in damage claims against XS2 and/or extremely high RMA rates and costs for XS2.

Assembling and distributing only gaming desktop and notebook computers could be profitable…….
But reorganizing the company and only keeping the department responsible for gaming notebooks and gaming desktops would eventually create extreme high redundancy costs as required by the Dutch law.

Based on above facts Rene Eringaard decides to a voluntary liquidation of his subsidiary XS2 Europe BV on November 2nd 2010.

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© XS2, Sourcing, Factory Audits, Branding, Marketing, Sales Channel Development, Consultancy, Taiwan Republic of China, the Netherlands, Rene Eringaard.

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