Reorganized DAK Industries Will Be Shadow of Former Self : Mail order: Consumer electronics catalogue firm hopes to submit plan in June to emerge from bankruptcy. Negotiations with creditors continue.
DAK Industries Inc. hopes to submit a reorganization plan in June, allowing it to emerge from bankruptcy two years after the mail-order firm filed Chapter 11 to protect itself from creditors.
But the Canoga Park company, one of the nation’s largest consumer electronics catalogue marketers, will only be a shadow of its former self. Once a thriving firm with a loyal following of customers blithely referred to as “Dakonians,” DAK’s sales soared to $236 million in the 12 months ended in June, 1991, just one year prior to its June, 1992, bankruptcy filing.
The company’s popularity derived in part from its low prices and wide offering of electronics gear including computers, compact-disc players, bread makers and radar detectors. DAK sells the products for low prices by cutting deals with manufacturers who want to unload excess inventory.
By 1993, however, sales had fallen to between $60 million and $70 million, said DAK President Drew Kaplan. The firm now has about 150 workers, down from 400 before entering bankruptcy.
A self-described gadget freak who started DAK in 1964 out of his UCLA dormitory room, Kaplan remains characteristically upbeat.
“I think things are going fairly well,” he said. “We’ve paid the bank down significantly. We have a new catalogue. We are working very hard to be a new company based on a much more limited credit line.”
When DAK filed the bankruptcy petition in Los Angeles federal court, it cited a lack of financing and the sluggish economy as reasons for its financial problems. At the time, it showed $50 million in assets against $48 million in debt.
Its biggest creditor, Tokai Bank of Japan, was owed $18.5 million at the time of the bankruptcy filing in 1992. DAK has since cut that debt by more than half, to $8.75 million.
But despite DAK’s optimism that it would quickly climb out of bankruptcy, the firm apparently has still failed to come to terms with Tokai.
In court documents filed earlier this month, DAK said it was “unable to propose a plan of reorganization thus far that is both feasible and acceptable” to Tokai and the committee for DAK’s unsecured creditors.
Thomsen Young, an attorney representing DAK’s unsecured creditors committee, said, “We’re substantially in agreement on most terms,” although he added that the unsecured creditors “certainly won’t get 100 cents on the dollar” of the money they are owed.
In court documents, DAK has said that its “fundamental dispute” with Tokai Bank is Tokai’s insistence that DAK’s collateral for its loan is worth far less than DAK’s valuation.
Steven N. Bloom, an attorney for Tokai, said DAK and Tokai are continuing to negotiate, but that DAK’s earlier reorganization proposals weren’t acceptable to Tokai because the bank doubted DAK’s ability to meet certain financial projections--and thus, repay its loan.
Lately, DAK’s negotiations with Tokai have centered on an agreement for DAK to continue using its cash to run the business through May 31, instead of paying off debt. It was the fifth time that Tokai has agreed to such a request from DAK.
When the current agreement ends, DAK said in court documents, it would make a debt payment to Tokai of all of its cash on hand, estimated at more than $1.5 million.
“I wouldn’t say there’s anything that’s a holdup to the process” of DAK emerging from bankruptcy, Bloom said. DAK is trying to fashion a plan that will “give the company the ability to operate after the bankruptcy is concluded.”
Kaplan said one problem is that he must continue to slash prices so he can liquidate older inventory to keep the business running. “I generate cash, which generates new products in the catalogue, which keeps the customers happy,” he said. “But liquidating inventory is not necessarily profitable.”
Kaplan, the sole owner of the company, personally tests the products, and writes long, chatty reports on every item for the mail-order catalogues. He also nicknames the products--a paper shredder advertised in a recent catalogue was dubbed a “snooper stomper.”
In a recent catalogue advertising products sold at DAK’s outlet store next to its corporate office, Kaplan wrote “I NEED CASH RIGHT NOW!!!” in big red letters. The company was overloaded with merchandise returned after Christmas, he explained. Plus, he said, operations were halted for about a week after the Northridge earthquake in January.
So Kaplan slashed prices and pleaded with customers to help reduce his inventory. “That way I can get the cash I need to launch my next big catalogue,” he wrote.
