Sam Hafif, CEO, Concept One Accessories, in a statement denied his company made any “inaccurate representations” prior to the 2017 sale of its team sports bag business to The Northwest Company (TNC). The charge against Concept One was included in court papers related to TNC’s bankruptcy filing.
In an affidavit filed in court, Ross Auerbach, TNC’s president and CEO, stated that the acquired team sports bag business from Concept One was a leading manufacturer of licensed backpacks and accessories sold primarily through Walmart. Auerbach claimed that “challenges with the acquired inventory were discovered shortly after the transaction closed” and the “level of profitability of sales through Walmart was far lower than expected by the Debtors during pre-closing diligence due to inaccurate representations by Concept One.”
Auerbach added, “More significant, quality control issues with Concept One products resulted in lost sales opportunities. The Debtors were not able to assimilate the inventory into their core business as they had projected, and sales were far below what was expected. In the meantime, the licenses associated with the inventory required the Debtors to pay large minimum guarantees to the licensors. The overall disappointing sales volume of this inventory drained cash flow from the Debtors’ core business.”
The charges were included as part of a section detailing the reasons for the bankruptcy filing.
In a statement in response to the SGB article on the bankruptcy, Hafif charged that among other things, the quality control issues that led Walmart to stop purchasing from TNC occurred more than a year after the acquisition, TNC had never complained about “inaccurate representations” before the bankruptcy filing, and TNC never paid the factories that produced the product for them, although they did sell the merchandise. Hafif noted that in December 2019, Concept One filed an arbitration against TNC for the failure to make a payment of $1.3 million to Concept One.
Hafif’s full statement follows:
“The Northwest Company purchased the team sports bag business from Concept One in February of 2016. The quality control issues that led Walmart to stop purchasing from TNC occurred in the Fall of 2017, more than a year after the acquisition, long after TNC had control of the production of the product. Concept One had nothing to do with the quality control issues that TNC claims. Further, TNC never paid the factories that produced the product for them, although they did sell the merchandise.
“In the court papers you refer to TNC claims there were “inaccurate representations” made by Concept One, which caused the profitability of the sales at Walmart. Again, the transaction closed almost 4 years ago, and this is the first time TNC is making those claims. TNC had conducted full diligence with full transparency on the business prior to the acquisition and has never challenged the accuracy of any of the representations that were made relative to the Walmart business.
“In December, Concept One filed an arbitration against TNC for the failure to make a payment of $1.3 million to Concept One as part of the sale of the business to TNC.
“Ross Auerbach blames other parties for the failure of their business, while the facts coming to light in the bankruptcy present a story of dysfunction and dishonesty on the part of the leadership at TNC.”
Photo courtesy Concept One