THE SECOND WAVE of Failures Begins to Show Up - Y2K Concerns Cause Bankruptcy For Computer Training Firm

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The following is from my hometown paper. This company was once the 57th fastest growing comapny in the U.S, according to Inc. Magazine. The implications of this *early* casuality are numerous to ponder.

------------------------------------ St a n d a r d N E T w w w . s t a n d a r d . n e t ---------------------------------------------------------------------- StandardNET. ---------------------------------------------------------------------- Vitrex ceases its operations Y2K concerns harmed company, which plans to enter bankruptcy

Monday, January 03, 2000

By BRYAN CORLISS Standard-Examiner staff

OGDEN -- Vitrex has ceased operations and plans to begin bankruptcy proceedings, the company's chief executive officer said in a letter to investors last week.

The company -- once one of America's fastest-growing -- was an indirect victim of the Y2K bug, CEO Jerry Ropelato wrote.

"Recently, most of Vitrex's major customers announced immediate cutbacks due to Y2K concerns," said his letter, a copy of which was obtained by the Standard-Examiner.

Most of those cutbacks were intended to be temporary, Ropelato wrote. But Vitrex "was devastated by these unforeseen circumstances."

The company responded with immediate layoffs and office clo sures, Ropelato said. "Even with these actions, our cash flow position suffered irrecoverably. I am saddened to announce we have ceased operations. In the very near future we will begin bankruptcy proceedings."

The full story can be found at:

http://www1.standard.net/stories/businews/01-2000/FTP0201@businews@03vitrex@Ogden.asp

-- Jennifer Bunker (Salt Lake CIty, Utah) (jen@bunkergroup.com), January 04, 2000

Answers

I should have added that if Y2K was "unforseen" to them .... that's like claiming you can't see the big grey elephant sitting on your bed.

-- Jennifer Bunker (jen@bunkergroup.com), January 04, 2000.

Shrug. Bummer for those employees, but their salaries got given to someone else. It's still money going around inside the economy, it's not actually lost. This stuff does happen all the time, 1999 was a record year for business failures in the USA.

Still waiting for evidence of genuine loss of production. Oh, I think it'll come, but that's not it.

-- Servant (public_service@yahoo.com), January 05, 2000.


It's reassuring to know that Y2K is expected to be a small factor in the success of small businesses. About 50% of small businesses fail within three years of startup without any Y2K help whatsoever. Since the percent predicted to fail as a result of Y2K is less than 10% (estimates vary from 2-6%), and many of these will be the same businesses who would have failed for other reasons anyway, it's unlikely we'll see a noticeable bulge in small business bankruptcies whose sole cause was Y2K. The people who work for small business startups must know there's risk involved, and I imagine that they expect the rewards to outweight the risk, and believe they can land on their feet somewhere else, or it wouldn't be appropriate to take the risk in the first place. I'm more concerned that medium-sized businesses (with more jobs at stake) may not have made adequate investments in Y2K compliance efforts, and may not have the financial wherewithal (or business partner support) to weather the difficulties. I've yet to see any of these, but I think the economic impact of medium-size business failures due to Y2K has a greater probability of being noticeable than the impact of small business failures. However, I also believe it's still a small probability.

Let's not forget that a business is supposed to run with adequate reserves to deal with foreseeable problems, and that's what this is. Most businesses will experience at least one Y2K problem, and simply deal with it, more often than not without their customers' even noticing. It's the marginally-profitable businesses in commodity industries who may not have the resources to make it (and may have been declining anyway); their end will be hastened. The unfortunate part about the Y2K impact is that it will be (in economic terms) almost simultaneous across all these companies (perhaps within the first half of the year), so that the chances of finding and setting up a friendly buyer or merger will be much lower, and bankruptcy will be the more common result. The strong companies will get stronger (and expand), and the weak ones will die off. The employees of one will likely be hired by another, as long as consumer confidence remains intact. That is why it's important to maintain a perspective on all these events; once consumer confidence erodes significantly, the stock market, employment rates, and housing prices tend to go with it.

-- Jack Appelmans (jack.appelmans@state.ma.us), January 07, 2000.


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