X-Plane

Nicki from Honeycomb Aeronautical the makers of the Alpha yoke, Bravo throttle controls, as well as the unreleased Charlie pedals has posted an open letter regarding their financial and business situation on Reddit.

UPDATE: It appears that the original post has been removed from Reddit. The following is the text of that post.

The long wall of text from Honeycomb

Time to tell everyone what is going on with Honeycomb and the Charlie Rudder Pedals. I am writing this letter to explain the current situation and provide some clarity about what has been going on with Honeycomb and to offer you my sincere apology if you have been caught up in this in any way. I’m not trying to make any excuses or deny my responsibility for what happened. I should have paid more attention to what was going on and acted sooner. I have no one but myself to blame for that.

To fully understand how we have ended up where we are, I need to start at the beginning…

I initially had the idea to start Honeycomb, back in 2012, when working on growing Saitek in the US market. I saw a massive gap in the market, between high-volume gaming grade and low-volume, high-end flight sim equipment.

I built the Honeycomb business plan on utilizing my knowledge and network in both industries, to develop authentic, high-quality products at a price point that a lot more people could afford, by using the mass-production infrastructure of the consumer electronics industry, paired with product fidelity of the flight training industry.

The business plan was finalized in 2012, but even with a solid financial and go-to-market plan, finding an investor and capital to launch the company proved harder than expected. The startup was too small for venture capital, but too big for an angel investor.

In 2016, I finally found a partner to start Honeycomb with. He was a longtime friend whom I trusted, and I had already been working with to help develop the US market for his video game accessories. I had presented the Honeycomb business plan to him several times before, but he wasn't in a financial position to commit to being part of the startup at the time. However, that changed when he was able to provide the funds needed to start Honeycomb together through a finance partner.

We agreed that he would be responsible for the financial side of the business, funding the product development and manufacturing as well as using his existing company in Hong Kong as a service provider to work with our manufacturing partners, to transition the AutoCAD files I provided of my industrial and mechanical designs into a product ready for mass production. Additionally, we agreed that we would use his distribution companies in the US, Europe, and Asia to sell the Honeycomb products, so I could concentrate on product development. In return, he would get a minority ownership stake in Honeycomb. We agreed that he would register the company for us in Hong Kong since it made sense from a development standpoint and the close proximity to our manufacturing partners in Shenzhen.

We had already started the development of the Alpha but finalizing our shareholder agreement and setting up Honeycomb as a company kept getting pushed off by my partner. Finally, when the company was established, I discovered that it was done so with 100% ownership under the corporate umbrella of my business partner. He explained that it was a requirement by his finance partners, who had a lean against his company as security for the loans and wouldn't provide the funding otherwise. He promised we would finalize the shareholder agreement, specifying the ownership percentages, which were to be executed once the loans needed for the production and development were repaid. I would never have agreed to those terms in advance (and still don’t) and although I had reservations about the situation, I wasn’t looking to sell my shares anytime soon, so getting a written agreement in place that protected my rights, became a bigger priority than actually having the shares in my hand. However, despite numerous attempts to get it finalized, no agreement has been signed by him to this date.

During the first two years, I focused almost entirely on product development and during this time, I did not suspect anything wrong when reviewing the monthly and annual financial reports. Sales were great, and I had no expectations that we would be profitable from day one. However, by mid-2022, it became apparent that my business partner was in financial trouble and when Honeycomb ended up with a negative result despite having a record year, I started looking into the financials in detail. Once I started going through the books, every invoice and purchase order, one by one, I discovered that the service fees added to the factory cost (for the services provided in Hong Kong) were significantly higher than what we had agreed. In addition, the sales prices on the invoices to my partner’s distribution companies were lower than agreed. When I confronted my business partner about the findings, he assured me that it was just an accounting error and promised to get the books in order. I accepted the explanation and solution but didn’t push to have it done immediately, not wanting to worsen my partner's financial situation at the time. To further help the cash flow situation, I made the mistake of agreeing to a limited pre-order campaign for the Charlie’s once the production schedule had been confirmed by the factory. However, when production was set to begin, I found out that instead of paying for the components required to manufacture the product, all the money received for the Charlie pre-order had gone elsewhere. The situation escalated in July 2023, shortly after we missed the planned shipping date for the pre-orders when the factory partner contacted me directly to inform me that they had still not received payment for the Charlie production or for the several thousand Alpha and Bravo's they had manufactured and were sitting in their warehouse, which I was completely unaware of existed. Additionally, they had a significant amount of outstanding invoices, including for the injection tooling, required to produce the plastic parts for the Charlie. The extent of the situation caught me completely by surprise.

I flew to Hong Kong as soon as possible, to meet with the factory and my now soon-to-be ex-partner to find out what was really going on. As I suspected, things were bad, but I managed to negotiate a deal between all three parties, where my partner and his companies would no longer handle sales and distribution and I would also handle the factory partner directly. As part of the agreement, I was committing to help the factory recover the outstanding invoices by paying a significant premium on the existing stock as well as on the Charlie production. In exchange, the factory agreed to manufacture the Charlie, despite the outstanding debt, but I had to pay for the injection tooling as well as 50% deposit of the production cost upfront. Last month, all parties finally signed the agreement, and I have been able to find buyers for the majority of the existing inventory already. I used the slim margins left from the inflated cost to make sure that Honeycomb staff, who were also owed money by my partner, were getting paid. Some salary payments are still outstanding, but everyone should be fully up to date by next week. Unfortunately, this has left me unable to pre-pay for the tooling or deposit required to start the production of the Charlie right now. You can argue that the customer comes first and I should have prioritized the Charlie production but in my book, people come first, they have mouths to feed and rent to pay.

Since it is highly unlikely that I will receive the payments for the pre-orders from my ex-partner, I am currently working on several finance deals to be able to start production as soon as possible. How I pay it back is not clear yet, but I am determined that all customers receive the product they paid for, regardless of the financial impact to myself. Ultimately, it is my responsibility that we are in this situation, and I can’t expect anyone to carry the financial burden but myself. I am incredibly sorry to everyone who has been caught in the middle of this and hasn't received their Charlie order as promised. I really appreciate everyone who have stuck around despite the extended delays, but I think it’s my duty to tell you that you might get the product faster if you cancel your order and reorder it from one of the official resellers once they have a confirmed that the shipment is on the way. Funding an order that is tied to an invoice is a lot easier than financing one that I have to pay out of my own pocket and while I will do everything in my power to ship the pre-orders first, I might not be able to do so. If you do cancel your order, you need to be aware that you will have to dispute the charges with your credit card company to get a refund. Shopify will not issue a refund to you. (explanation below). Call your credit card company before you cancel the order, to be sure it will be refunded. For those of you who have already canceled your Charlie order but have not received a refund, you will have to do the same. I am really sorry for the inconvenience, but there is nothing I can do about the matter, I have tried. I will still send a Honeycomb hat to everyone as promised, canceled or not, just have a little patience with me.

The online store, which as mentioned, runs through Shopify and also manages our faulty return process, is controlled by the Honeycomb entity in Hong Kong, which is owned by my former business partner. When Shopify didn’t receive payments for the cancelations, they blocked further refunds and we lost our ability to send out return labels for faulty products and ship new replacement units back. Not that it mattered much, because the warehouse handling the returns had already stopped shipping out replacement products before that, due to, you guessed it, outstanding invoices. You can argue that I should have seen the writing on the wall much sooner, but I kept getting promises, that it would get sorted “next week” and sometimes it did, which restores some faith, but most of the time it didn’t. For the last two months, I have been trying to get units shipped from Europe to replace the faulty products, but my ex-partner has control of the inventory, and I have so far not been able to get him to cooperate on the matter. I am working on a solution with the factory, and they have promised to supply me with the replacement units once I've paid for the tooling on the Charlie, which should be soon.

The one good news is that we have reached an agreement, that he will sell his assets in Honeycomb if I can find a new partner to buy him out. That’s where I’m currently at… I’m talking to several great companies, that not only have the financial means to accelerate Honeycomb's growth but also the technical expertise to help me develop even better products in the future and I’m very optimistic that one of them is going to come through. Honeycomb is a great business opportunity and while there are some housekeeping items to be dealt with, the solutions are easily executable. Deliver the Charlie as promised, replace the faulty products, and make sure that all creditors are paid before the remaining purchase sum is paid out. Once that’s out of the way, we can focus on the future.

I wish that I had gone out earlier and told everyone what was going on, but in the beginning, I expected it to be a small but easily fixable bump in the road, and more recently, I was concerned that it could jeopardize my chances of getting Honeycomb back. But finding a solution is taking longer than expected and I can no longer, in good conscience, let this go on without being truthful to you about the situation. There are a lot of lessons to be learned from this and a lot of things I could have done differently, but hindsight is always 20/20. I feel terrible for everyone who has been affected by this, but Honeycomb is my baby, and I will fight for her to the bitter end, and when I get her back, I will right all the wrongs, that is my promise to you!

I am incredibly proud of what Honeycomb has achieved and the products we have created but devastated about the situation we have ended up in. I still have big dreams for the future, including my non-profit, The Flight Sim Academy, which through an incredible industry support, is still going full steam ahead with opening 30 high school aviation STEM centers in North America (and more beyond), to not only inspire kids to become aviators but also help them achieve that dream. Honeycomb is a key part of that plan and will donate 15 complete flight simulators (Alpha, Bravo, Charlie & Delta’s) to equip all the SIM Labs at the centers. A lot of the new products in development had to be put on hold due to the financial situation, but once I have a new partner in place, we will be able to launch all of those fairly quickly and start the new projects I’ve been planning, which I can’t wait to tell you all about.

I cannot begin to express my gratitude to my team, especially in tech support and social media who despite not being paid on time since things have escalated, have stayed with me while dealing with an incredible amount of stress, not being able to help people, tell them when they will receive their product or the real reason why it hasn’t been shipped. They are the ones who were on the front lines and experienced the (justified) anger of customers, who were waiting for their products. If you contact them, please be kind. They are all dedicated people, who would love to provide you with a first-class customer service but have not been able to do so for a while, to no fault of their own.

I am also very thankful to all of you who have shown your loyalty and support from day one. I hope that once I have regained full control of my company and gotten things back on track, I can earn your loyalty and support once again.

I apologize for the poor communication and understand your frustration. While I wish I could provide you with a specific timeline for resolving the issues, I don't want to make any promises that I can't guarantee. However, moving forward, my team and I will provide you with regular updates until a solution has been found and the one thing, I will promise is that it will be done as fast as humanly possible. Please accept my apologies and thank you for your patience.

Thank you for taking the time to read through this very long letter and let me explain the situation in detail.

Again, my sincere apologies, Nicki (Founder, Honeycomb)

As of this posting their web site is not operational which is not surprising considering the financial failure the company has encountered. https://flyhoneycomb.com

Are you one of the people who pre-ordered the Charlie pedals, what are you planning to do?

This is the link to the original Reddit post:

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