I will go into a little more detail than Rob did but he's 100% correct in everything he says. The story is interesting once all the pieces get put together.
The unofficial mythology here is all about the rivalry between Krahn and Smith. Smith built Smith Lord Creations, Krahn expressed interest in being SLC's American distributor through The Fans Strike Back, but before anything happened there, Smith decided he was done with the business and offered to sell it outright to Krahn. Krahn accepted happily.
Krahn began cranking out SLC product through TFSB. He began preselling Banthas and "the 13." At the same time, Smith had second thoughts or misgivings about selling his company and started a new one doing the same thing called Stan Solo. He went back to his old Chinese factory contacts to do this, and so both Stan Solo and SLC figures were made at the same factory.
Krahn did not appreciate this very direct competition from the guy who had sold the company to him. Smith alleges Krahn leaked shipping information to authorities about "bootleg toys" to get Smith's product seized when imported to England. If that was his strategy it backfired horribly on him because soon after a shipment of SLC Stormtroopers was seized by American customs. Krahn blamed the Chinese factory and tried to force them to replace the seized figures, but the factory refused. As the argument escalated, the factory simply stopped responding and ceased working with both SLC and Stan Solo( which accounts for why Smith stopped making astromech droid variations at that time, he lost access to all of his mold inventory.)
Smith picked up by moving on to a new factory and producing new figures and new molds, starting over for essentially the third time. He continues to thrive in his niche.
Krahn was hurting because the seized Stormtroopers were allegedly a presell that he could not fulfill until he found a new factory, made new molds, and got them produced again. This is where it looks like money started going from one thing to cover another ( though that could have been going on the whole time with him.) The worst result was he didn't have established contacts in China and when he did get back into production it was with inferior quality. The Slave Leia figure he put out is all the example you need for this.
As SLC had lost the money invested in the molds for the "13" when they lost the original factory (who, lo and behold, did in fact at least partially produce the whole run of 13 figures) it then became a problem of Krahn never having the ability to catch up enough financially to get that process started again. Losing the original factory also cost SLC the ability to make the Bantha for all the same reasons.
In the end the most damning part of the process was that, as it started to unravel, Krahn repeatedly lied and tried to spin his way out of issues with customers. He was never able to catch up with what he'd spent and lost, his reputation tanked, and TFSB and SLC effectively disappeared.
