Bak USA, the tablet maker that abruptly closed in November, owes more than $39 million to its creditors – including $25.5 million to billionaire investor and former Sabres' owner B. Thomas Golisano.
The company's recent filing for Chapter 7 bankruptcy liquidation shows Bak USA has $39.4 million in debts and just $147,000 in assets.
The creditors include Golisano, its largest shareholder; its landlord, McGuire Development Co., which seeks $9.8 million; the head of a large Rochester-area construction firm; numerous vendors and contractors; and 34 former employees.
"I was not expecting that much – $40 million worth of debt. So I think we are not going to get enough money, because there's like ($150,000) here remaining?" said Kidane Zigta, whose brother's Ethiopia-based consulting company claims it is owed $400,000. "Maybe $100 or $200? I don't know. We'll see."
Bak USA opened with fanfare in January 2015 with the vision of manufacturing low-cost tablet and laptop computers in the United States. Founded by J.P. and Ulla Bak, it billed itself as a social enterprise and often hired technicians from Buffalo's refugee community.
By 2018, The Buffalo News reported on several occasions about signs of financial troubles, including rounds of layoffs and a week of missed paychecks for salaried workers. In announcing the closing, which put 77 people out of work, J.P. Bak blamed tariffs that increased the cost of imported component parts.
Christian Bak, J.P.'s son and a company officer and shareholder, said he didn't know about the bankruptcy because the board majority made that and most other recent company decisions.
"It is obviously a catastrophic outcome for a business that bucked the industry trend to offshore manufacturing of electronics, sold over 40,000 devices worldwide and trained over 130 people, many of whom had never worked in the tech industry before," Christian Bak said in an email.
The privately held company had released little financial information, so the March 29 Chapter 7 filing provides the fullest picture of its operations to date.
Bak USA reported generating $6.76 million in revenue in 2017 and $6.8 million last year. But, as with many startups, Bak relied on raising capital to fund operations and expand.
"Very competitive world – were not able to extract the profit margins they needed to survive," Golisano said in an interview conducted before the bankruptcy filing.
Starting in 2015, Golisano made three investments totaling $30 million in Bak USA and took a seat on the company’s board, The News previously reported.
He received 4 million shares of preferred stock in the company, or 67 percent of its voting equity, according to the Chapter 7 filing. That ownership stake can't be recovered.
But a good part of his investment came in the form of a loan, or debt instrument, to try to keep the company afloat and that's the $25.5 million note he's owed, said Bak USA's bankruptcy attorney, Arthur G. Baumeister Jr.
Similarly, an irrevocable trust in the name of R. Wayne LeChase, chairman of LeChase Construction Services, is owed $2.1 million loaned to the company, Baumeister said. Both investments came through Fishers Asset Management of Pittsford.
Aside from Golisano, McGuire Development has the largest claim of $9.8 million.
That's the remaining rent on Bak USA's 20-year lease, in the Compass East building that formerly housed Sheehan Memorial Hospital, originally signed in 2014 and updated in 2016. James F. Dentinger, McGuire's president, said Bak USA was up to date in its payments through its shutdown.
"That's a standard claim," Dentinger said. "We doubt that we'll ever recover anything close to that."
There are no secured creditors. The largest creditors are nonpriority creditors. They include Elitegroup Computer Systems, a San Francisco-based contractor that is owed an $893,000 judgment; the Commercial Bank of Ethiopia, which is owed $455,000 in a contract; and GeoSAS Consulting Services, a vendor owed $400,000.
Zigta, a refugee from Eritrea and Ethiopia who moved to Buffalo, connected his brother's GeoSAS online mapping company with Bak USA. Zigta said GeoSAS performed consulting work and helped the company win a large order of laptop computers from the Ethiopian government.
But Zigta said Bak USA never paid GeoSAS a promised finder's fee or for other services.
"We tried everything, but there was no communication at all," he said.
Priority unsecured creditors include employees who had too much money withdrawn from their paychecks for their share of their health insurance costs, Baumeister said.
"It was an inadvertent error," he said. Given the small amounts owed to the employees and their priority status, they can expect to receive reimbursement.
Bak USA doesn't have much to repay the larger creditors. The bulk of its remaining assets are in the form of state tax credits.
The company also reported having intellectual property – such as patents, licenses, copyrights and internet domain names – but its value was listed as unknown.
Creditors could attempt to claw back a $40,000 loan repayment made to Ulla Bak last June, because it came within 12 months of the bankruptcy filing, Baumeister said.
An auction held in January by Cash Realty and Auctions raised $100,049 from people who bought electronic equipment, office furniture and other items. The $82,830 left over after expenses and fees was paid to employees, Baumeister said.
A court-appointed trustee will oversee the liquidation of the company's assets and direct the payments to creditors.