Posts Tagged ‘Fabrice Hamaide’

Kit Digital Announces $6 Million Settlement of Securities Lawsuits

Broadcast technology vendor financials, SEC Filings | Posted by Joe Zaller
Jul 02 2013

One-time high flying online video delivery leader Kit Digital has signed a memorandum of understanding to settle a series of federal securities lawsuits filed against the company and some of its KIT’s current and former officers and directors.

KIT, which was delisted from the Nasdaq stock exchange in December 2012, and filed for Chapter 11 bankruptcy protection in April 2013, said the execution of this agreement is “an important milestone as KIT continues to build momentum for a successful future.”

A total of four lawsuits are subject to this agreement.  They were filed separately in the US District Court for the Southern District of New York on behalf of all persons who purchased or otherwise acquired KIT stock during the period between May 19, 2009 and November 21, 2012.

The court combined these separate actions into a single Class Action lawsuit.

At issue was conduct that was alleged to have occurred between 2008 and 2011, and alleged violations of federal securities law arising from, among other things, alleged accounting issues, material weaknesses in the internal controls and financial reporting at KIT, certain acquisition transactions that KIT consummated during 2008-2011, and other events from that time period.

Under the terms of the deal, KIT’s insurers will pay approximately $6m to settle all claims of the Class, and all parties will execute mutual releases. KIT and the other defendants will have no obligation to fund any part of the settlement, and any fee award to plaintiffs’ counsel will be paid from the settlement.

KIT digital Interim CEO, Peter Heiland said: “The federal securities lawsuits, which concerned conduct under KIT’s prior management, have been a significant distraction to the business, hindering its ability to attract capital and grow according to its real capability. Resolving these lawsuits signifies our continued progress towards putting the company back on its feet and freeing the company to focus solely on delivering the best in cutting-edge video software and services.

Along with the chapter 11 Plan of Reorganization that’s progressing in a way that we’re confident will satisfy creditors — as well as shareholders keen to invest in the reorganized KIT business, Piksel — the signing of this MOU is yet a further indication that I think we’re finally seeing blue sky ahead.”

KIT added that its entry into the MOU is not an admission of any fault, wrongdoing, or liability for the claims and damages asserted in the Consolidated Action.

The settlement embodied in the MOU is subject to execution of all necessary documents, including a formal stipulation of settlement, as well as all necessary court approvals.

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Related Content:

Press Release: Kit Digital Announces Settlement of Securities Lawsuits

KIT Digital Files For Chapter 11 Bankruptcy, Plans to Re-Emerge as “Healthier, Focused Company” by IBC 2013

KIT Digital: Chapter 11 Plan of Reorganization

KIT Digital: Voluntary Petition for Chapter 11 & List of 30 Largest Unsecured Creditors

KIT Digital: Declaration of Fabrice Hamaide in Support of Debtor’s Chapter 11 Petition

KIT Digital Delisted by NASDAQ, Will Not Appeal

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KIT Digital Files For Chapter 11 Bankruptcy, Plans to Re-Emerge as “Healthier, Focused Company” by IBC 2013

Broadcast technology vendor financials, SEC Filings | Posted by Joe Zaller
Apr 29 2013

One-time high flying online video delivery leader Kit Digital announced that it has filed a voluntary petition for reorganization under chapter 11 of the United States Bankruptcy Code.

The KIT story has been interesting to watch, and judging by what the company appears to be planning, things are going to a lot more interesting.

According to documents filed with the court, KIT has reached an agreement with three of its largest shareholders, Prescott Group Capital Management, JEC Capital Partners, and Ratio Capital Partners; who are collectively referred to as the “plan sponsor group.”

Under its reorganization plan, KIT will go into bankruptcy, be recapitalized by the “plan sponsor group,” and emerge as profitable, debt-free business with more than 800 employees focused on multi-screen video deployments.

The company plans to shed its loss-making businesses, while retaining four of its profitable subsidiaries, Ioko 365, Polymedia, KIT digital France and KIT digital – Americas. These four businesses will be consolidated into a new company to be Piksel.

According to court filings, these businesses generated aggregate revenues of approximately $134.5 million in 2012.

However, the company said it anticipates that another eight of its subsidiaries “will still need to be wound-down or divested through this chapter 11 case.”

KIT says that at the end of the reorganization process, it expects to emerge as “a healthier, focused company that is poised to take advantage of the burgeoning demand in its industry and to generate significant cash flows after obtaining a financial ‘fresh start.’”

The company also says that this plan will enable it to be in a position to pay all employees, vendors and suppliers for their valid pre-petition claims.

During the time of the reorganization, the company will continue to operate its business as a “debtor-in-possession” under the jurisdiction of the court.

KIT says it plans to be out of reorganization in about 90 days, just in time to launch Piksel at the IBC Show in September.

 

Court filings detail rise and fall

The documents KIT has filed with the court provide insight into what was happening at the company, and ultimately what led to the decision to file for Chapter 11.  It’s fascinating reading.

Selected excerpts follow from the Declaration of Fabrice Hamaide in Support of Debtor’s Chapter 11 Petition

 

The Debtor’s proposed restructuring is the result of an extensive marketing process that began over a year ago after the Debt or suffered a number of significant setbacks that impacted its operations. First, in early 2012, the Debtor accepted the resignation of its then-CEO amid an SEC investigation into certain of his trading practices with respect to the Debtor’s stock. Thereafter, the Debtor’s audit committee uncovered financial irregularities and the Debtor announced that it would need to restate historical financials from 2009 onward, sparking a flurry of securities lawsuits and derivative claims along with attendant litigation costs. Contemporaneously, the company was incurring extensive losses from unprofitable acquisitions made over the prior twenty-four (24) months. While the Debtor’s core businesses were (and remain) profitable and strong, mounting legal expenses and the costs of divesting and liquidating the unprofitable non-core businesses caused the Debtor to experience a near-term liquidity crunch. The crunch became more acute when the Debtor’s prepetition lender, without forewarning, swept the Debtor’s operating account and withdrew approximately $1.1 million.

Recognizing it had a short runway and no audited financials, the Debtor redirected the efforts of its investment banker, Deutsche Bank (“DB”), to assist the company with possible financing or sale alternatives. DB conducted an extensive marketing process over the past year canvassing a wide range of over fifty-six (56) financial and strategic players, as well as possible stand-alone financing options to accompany the Debtor in a chapter 11 process. In addition to DB, the Debtor also retained financing brokers to look into the availability of third-party financing. Although the Debtor engaged in extensive negotiations on non-binding terms with at least two parties, the negotiations ultimately failed to culminate in a binding term sheet either because of the need to provide audited financials or because of extensive requirements for due diligence that represented a substantial execution risk.

In March 2013, the Debtor was approached by a group of shareholders with the terms of a restructuring plan. The Debtor (through a special committee of its independent board of directors) negotiated with the shareholder group, which ultimately included the Debtor’s largest shareholders, Prescott Group Capital Management, JEC Capital Partners (an affiliate of the current CEO), and Ratio Capital Partners (collectively, the “ Plan Sponsor Group ”), on the terms of a restructuring to be backstopped by the Plan Sponsor Group. The special committee’s negotiations culminated in a plan support agreement (the “Plan Support Agreement”), which provides the Debtor with the resources necessary to fund this chapter 11 case and a reorganization plan that is expected to pay allowed unsecured claims in full while also providing a meaningful recovery to the Debtor’s equity holders in the form of the opportunity to participate in the reorganized company. A copy of the Plan Support Agreement is attached hereto as Exhibit A. 7. The Debtor believes the contemplated re organization pursuant to the Plan Support Agreement marks the best opportunity for the Debt or to preserve its global operations and the jobs of its over 800 employees world-wide. It is economically the best proposal the Debtor received through the prepetition marketing process, even including bids conditioned on due diligence. The Plan Support Agreement, however, requires the Debtor to emerge from chapter 11 within ninety-five (95) days of the filing date. Accordingly, to meet the required tight timeframe, contemporaneously herewith, the Debtor has filed a chapter 11 plan with the hope that confirmation of such plan can occur within 90 days of the date hereof

Under the management of its former CEO, the Debtor spent much of the last few years acquiring other companies in an effort to increase its market share in the video technology market. Since late 2008, the Company made 22 acquisitions, taking its revenue from less than $30 million to slightly over $200 million in 2011.  While certain of these acquired businesses have enhanced the Debtor’s operations, others have struggled or posed integration and  operational problems. In total, since May 2008 , the Debtor has paid,  in both cash and common  stock, more than $320 million in connection with acquisitions on its way to becoming an online  video technology powerhouse.  

The time and expense associated with the Debtor’s “buying binge” took a significant toll on the Debtor. Indeed, the acquired businesses that could not be successfully integrated became a significant cash drain on the entire KDI corporate group. Out of a total of $389 million paid-in-capital, $320 million was spent on acquisitions and approximately $60 million was spent operating and then liquidating or winding down unprofitable Subsidiaries. The Debtor anticipates 8 of its Subsidiaries will still need to be wound-down or divested through this chapter 11 case.

In the beginning of 2012, the Company experienced a protracted  period  of upheaval. In April 2012, Mr. Tuzman, the Debtor’s then-CEO, resigned as chairman and CEO after the Debtor’s receipt of subpoenas from the SEC related to certain 2010 transactions purportedly undertaken by Mr. Tuzman in the Debtor’s common stock. Several other Board members and officers of the Debtor, some of which were affiliated with Mr. Tuzman, had also resigned by this time. A securities class action lawsuit, two shareholder derivative lawsuits, as well as other similar litigations were initiated against the Debtor, diverting management time and expense at a critical time for the company.

To address the leadership void left after Mr. Tuzman’s exit, the Debtor made significant changes to the composition of its Board of Directors and its management team. On June 28, 2012, two independent directors, Bill Russell and Greg Petersen, were elected to the Board, and in July 2012, I was brought in as Chief Financial Officer. The following month two shareholder representatives were elected to the Board, Seth Hamot and K. Peter Heiland. Thereafter, K. Peter Heiland was also appointed as the Debtor’s interim Chief Executive Officer, a position he holds today.

The Debtor’s new management team took proactive steps to begin to focus the Debtor’s operations on its core strengths, while cutting costs. Ultimately, management was successful in reducing operating losses from an average consolidated monthly loss of -$7.0 million to -$1.0 million by October 2012. During the same time period, however, the audit committee (the “Audit Committee”) of the Debtor’s Board, after an extensive investigation, uncovered certain accounting errors and irregularities related to recognition of revenue  for certain perpetual software license agreements entered into by the prior management team in 2010 and 2011. The Audit Committee also determined that certain transactions the Debtor entered into under the prior management team during fiscal years ended December 31, 2008 through 2011 were related party transactions and additional disclosure with respect to those transactions should have been included in the footnotes to the relevant financial statements. As a result, the Audit Committee concluded on November 15, 2012, that the Debtor’s financial statements for the years ended December 31, 2009, 2010 and 2011 and each of the three quarters in 2009, 2010 and 2011 would need to be restated.  Because of the need to restate prior periods, the financial statements for the quarters ended March 31, 2012 and June 30, 2012 also had to be amended.

The public announcement of the need to restate the Debtor’s historical financials resulted in a significant decline in the trading price for the Debtor’s stock. Additional litigations were initiated against the Debtor, further diverting management time and expense. In addition, an event of default was triggered under the WTI Loans for breach of a financial representation therein, and on November 21, 2012, WTI, without advance notice to the Debtor, swept approximately $1.1 million from the Debtor’s cash collateral account.

Without reliable financials, the Debtor’s ability to “borrow” out of its near-term liquidity crisis by accessing the capital markets was foreclosed. In addition, the Subsidiaries, although profitable on a consolidated basis, could not continue to fund the Debtor’s mounting legal expenses and regulatory costs.

In February 2012, the Debtor engaged DB to assist the company in identifying sale alternatives. DB conducted an extensive search of financial and strategic players, aggressively canvassing the marketplace to locate potential financial or strategic partners to purchase the Debtor. Although DB contacted fifty-six (56) potential buyers (twenty-five (25) strategic and thirty-one (31) financial), no firm interest in the purchase of the Debtor resulted. Following the conclusion that its financials would have to be restated and the resulting short term liquidity constraints, the Debtor, to preserve its Business, redirected the efforts of DB to find stand-alone rescue financing or potential chapter 11 stalking horse bidders. In addition to DB’s efforts, the Debtor also reached out to specialized financing brokers who contacted over twenty-five (25) potential financing sources for stand-alone financing options. While several parties provided draft term sheets, the Debtor could not move forward with such proposals either because of the need to provide audited financials or because of extensive requirements for due diligence that represented a substantial execution risk. Moreover, despite advancing work fees to two interested parties, the Debtor still failed to obtain a binding commitment from either of those parties that could serve as a basis for a successful restructuring.

Thereafter, the Debtor was approached by a group of shareholders led by JEC, the private equity firm affiliate of KDI’s CEO, with the terms of a restructuring alternative. As a result, and to remove any conflicts of interest in the Debtor’s decision-making, the Board constituted a special committee of its independent directors to consider the shareholder proposal. Among other things, the special committee was charged with overseeing the sales and/or restructuring process from then forward, including the decision to file for chapter 11.

The special committee met numerous times to consider the Debtor’s alternatives. From the outset, the special committee, in an effort to achieve the highest and best result for the Debtor’s stakeholders, pursued restructuring on a dual-track, negotiating with the shareholder group and its then-proposed third-party DIP lender, on one hand, while having DB continue to canvas interested third-parties, on the other. All the while, the special committee was mindful of the Debtor’s dwindling cash position, which I advised them on regularly.

Discussions with the shareholder group stalled in early April 2013, when the group’s proposed DIP lender could not come to terms with the special committee on a path forward for the financing necessary to fund a chapter 11 process. Thereafter, the Debtor, unable to upstream sufficient funds from its Subsidiaries, failed to make a scheduled payment in respect of the WTI Loans on April 1, 2013, triggering an 8-K obligation to disclose the event of default. The special committee faced and prepared for the possibility of having to file chapter 11 without a restructuring plan in place, thereby risking the Debtor’s customer relationships and putting the Debtor’s chances of restructuring in peril. Indeed, if a filing would have happened at that time, the Debtor had sufficient cash in its corporate group to operate in chapter 11 for only several weeks. The Debtor was, put simply, at the end of its rope by early April 2013.

Ultimately, the shareholder group reconstituted itself into the Plan Sponsor Group and proposed terms for restructuring the Debtor, which included a debtor-in-possession financing from an affiliate of JEC sufficient to fund the chapter 11 case.

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Related Content:

Press Release: KIT digital, Inc. Files Previously Announced Plan of Reorganization

KIT Digital: Chapter 11 Plan of Reorganization

KIT Digital: Voluntary Petition for Chapter 11 & List of 30 Largest Unsecured Creditors

KIT Digital: Declaration of Fabrice Hamaide in Support of Debtor’s Chapter 11 Petition

KIT Digital Delisted by NASDAQ, Will Not Appeal

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KIT Digital Delisted by NASDAQ, Will Not Appeal

Broadcast technology vendor financials, SEC Filings | Posted by Joe Zaller
Dec 19 2012

KIT Digital said in a regulatory filing that it received notification NASDAQ OMX that its common stock would be delisted from The NASDAQ Stock Market effective at the opening of business on December 21, 2012.

The company said it “does not intend to request an appeal hearing regarding NASDAQ’s delisting determination.”

The delisting of KIT Digital’s common stock is being precipitated by the Company’s failure to make timely payment of certain listing fees, as required by NASDAQ Listing Rules 5250(f) and 5910(b)(1).

KIT said it made the determination not to pay the fee “based on its current circumstances and outlook, which include: (1) the previously disclosed listing violation, (2) likely delisting in early 2013 due to its failure to hold a 2012 annual meeting, and (3) the possible failure to become compliant in SEC reporting in sufficient time to avoid delisting.”

The company says it intends to submit an application in order its common stock to be listed on the OTC Pink Sheets/OTC Pink Marketplace, including submission of a Financial Industry Regulatory Authority (“FINRA”) Form 211.

KIT said its common stock would begin trading on the OTC Pink Sheets/OTC Pink Marketplace following approval by FINRA’s OTC Compliance Unit of the Company’s Form 211 and at least one market maker deciding to quote the Company’s common stock.

 

Dismissal of Accounting Firm

KIT also disclosed that on December 17, 2012, it dismissed Grant Thornton LLP as the company’s independent registered public accounting firm.

KIT said that the previously issued report of Grant Thornton on KIT Digital’s financial statements for each of the years ended December 31, 2011 and December 31, 2010, respectively, did not contain an adverse opinion or a disclaimer of opinion and neither was qualified or modified as to uncertainty, audit scope or accounting principles.

KIT said in November that “because of errors and irregularities identified in certain of its historical financial statements, the financial statements for the years ended December 31, 2009, 2010 and 2011 will be restated and should no longer be relied upon.”

 

The text of the filing is shown below:

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standards; Transfer of Listings.

On December 12, 2012, KIT digital, Inc. (the “Company”) received a notification letter from the Listing Qualifications Department of The NASDAQ OMX Group (“NASDAQ”) stating that the Company’s common stock would be delisted from The NASDAQ Stock Market effective at the opening of business on December 21, 2012 upon NASDAQ filing a Form 25-NSE Notification of Delisting with the Securities and Exchange Commission (“SEC”).  Trading of the Company’s common stock is currently subject to a trading halt, which the Company does not expect to be lifted prior to the delisting of the common stock.

The delisting of the Company’s common stock is being precipitated by the Company’s failure to make timely payment of certain listing fees, as required by NASDAQ Listing Rules 5250(f) and 5910(b)(1).  The Company made the determination not to pay the fee based on its current circumstances and outlook, which include: (1) the previously disclosed listing violation (described below), (2) likely delisting in early 2013 due to its failure to hold a 2012 annual meeting, and (3) the possible failure to become compliant in SEC reporting in sufficient time to avoid delisting.  The Company does not intend to request an appeal hearing regarding NASDAQ’s delisting determination.

As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on December 10, 2012, the Company received a deficiency notice from NASDAQ informing the Company that it was no longer in compliance with NASDAQ Listing Rule 5250(c)(1) due to the Company’s inability to timely file its Form 10-Q for the period ended September 30, 2012 (the “3rd Quarter Form 10-Q”). The Company’s inability to file the 3rd Quarter Form 10-Q within the prescribed time period was because of the Company’s previously announced restatement of certain historical financial statements.

The Company previously disclosed that it intended to submit a plan to regain compliance with NASDAQ’s requirements for continued listing. In light of the delisting notification and the Company’s decision not to appeal the delisting, the Company will not submit a plan of compliance to the NASDAQ.

The Company currently intends to submit an application in order for the Company’s common stock to be listed on the OTC Pink Sheets/OTC Pink Marketplace, including submission of a Financial Industry Regulatory Authority (“FINRA”) Form 211. The Company’s common stock would begin trading on the OTC Pink Sheets/OTC Pink Marketplace following approval by FINRA’s OTC Compliance Unit of the Company’s Form 211 and at least one market maker deciding to quote the Company¹s common stock.  The OTC Pink Sheets/OTC Pink Marketplace is a market tier operated by the OTC Market Group Inc. for over-the-counter traded companies.  The delisting and transition to the OTC Pink Sheets/OTC Pink Marketplace does not change the Company’s obligations to file periodic and other reports with the SEC under applicable federal securities laws.  There is no assurance that the OTC Compliance Unit will approve the Company’s Form 211 in view of the pending restatement of the Company’s financial statements or that any market maker will decide to quote the Company’s common stock following delisting by NASDAQ or at all, and thus there is no assurance that the Company’s common stock will become eligible to trade on the OTC Pink Sheets/OTC Pink Marketplace.

 

 Item 4.01 Changes in Registrant’s Certifying Accountants.

On December 17, 2012, the Audit Committee dismissed Grant Thornton LLP (“Grant Thornton”) as the Company’s independent registered public accounting firm.

The previously issued report of Grant Thornton on the Company’s financial statements for each of the years ended December 31, 2011 and December 31, 2010, respectively, did not contain an adverse opinion or a disclaimer of opinion and neither was qualified or modified as to uncertainty, audit scope or accounting principles.

As previously reported in the Company’s Current Report on Form 8-K filed with the SEC on November 21, 2012, the Audit Committee concluded that, because of errors and irregularities identified in certain of its historical financial statements, the financial statements for the years ended December 31, 2009, 2010 and 2011 will be restated and should no longer be relied upon.

During the fiscal years ended December 31, 2011 and December 31, 2010, and during the period from January 1, 2012 through the date of this report, the Company had: (i) no disagreements with Grant Thornton within the meaning of Item 304(a)(1)(iv) of Regulation S-K on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, any of which that, if not resolved to Grant Thornton’s satisfaction, would have caused it to make reference to the subject matter of any such disagreement in connection with its reports for such years and interim periods; and (ii) except as disclosed herein, no reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K.

As disclosed in the report of Grant Thornton for the fiscal year ended December 31, 2011, the Company has not maintained effective internal control over financial reporting as of December 31, 2011 due to a material weakness in its internal control over financial reporting related to the lack of finance personnel with understanding of US GAAP to ensure that all transactions were reported in accordance with US GAAP on a timely basis.  The material weakness was disclosed in Items 8 and 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and in Item 4 of the Quarterly Reports on Form 10- Q for the quarters ended March 31, 2012 and June 30, 2012 and is disclosed therein. As of December 17, 2012, the Company’s remediation efforts with respect to this material weakness were not complete. The Company has authorized Grant Thornton to respond fully to inquiries from successor accountants concerning these matters.

The Company has provided Grant Thornton with a copy of the above disclosures, and, as required by the SEC’s rules, the Company has requested that Grant Thornton furnish the Company with a letter addressed to the SEC stating whether or not it agrees with the statements made above.

 

Item 7.01 Regulation FD Disclosure.

As previously reported, the Audit Committee initiated an investigation of certain transactions that gave rise to impairments taken by the Company during the quarter ended June 30, 2012. The investigation, conducted by independent legal and professional advisors under the direction of the Audit Committee, and in consultation with Grant Thornton, identified certain errors and irregularities in the Company’s historical financial statements. The Audit Committee’s investigation with respect to these matters has concluded; however, the Company continues to review these matters in connection with the previously announced financial statement restatement.

The accounting errors and irregularities identified during the Audit Committee investigation relate primarily to recognition of revenue related to certain perpetual software license agreements entered into by prior management in 2010 and 2011. The investigation concluded that the Company improperly recognized revenue in 2010 and 2011 for perpetual software licenses where delivery of software and/or required software customization was not completed prior to recognition of revenue; license payments had not been made on several of the licenses; and/or the companies involved in the transactions and the circumstances of certain payments made by these companies were questionable. The timing and circumstances of these transactions also raised questions as to whether certain of the transactions were designed to assist the Company in reporting earnings consistent with analysts’ expectations.

The Audit Committee also concluded that certain transactions entered into by the Company during fiscal years ended December 31, 2008 through December 31, 2011, were related party transactions. With respect to the related party issues, the Audit Committee concluded that the Company’s investments with at least three entities – Enable Invest Ltd., Maiden Capital LLC, and MNA Partners Ltd. – should have been disclosed as related party transactions at the time the investments were made. The Company recognized a loss on the impairment of the Enable investment of $2.1 million for the year ended December 31, 2011 and recorded a $1.2 million charge related to the investment in Maiden Capital. The Company intends to review these transactions in more detail in connection with the restatement.

The Company is engaged in an ongoing review of the transactions that were the subject of the Audit Committee investigation as well as other similar transactions. It is possible that the Company may conclude that additional revenue in prior periods was not recognized appropriately, including with respect to the identified related party transactions. The Audit Committee’s conclusions relate to prior historical financial statements and are not related to any actions taken by current directors or current officers of the Company.

 

Important Caution Regarding Forward-Looking Statements

This report contains certain “forward-looking statements.” These statements can be identified by the use of words or phrases such as “believes,” “estimates,” “expects,” “intends,” “anticipates,” “projects,” “plans” and variations of these words or similar words. Important risks, uncertainties and other important factors that could cause actual results to differ materially include, among others: the risk that additional information may become available in preparing and auditing the financial statements that would require the Company to make additional corrections, the time and effort required to complete the restatement of the financial statements, the ramifications of the Company’s potential inability to timely file periodic and other reports with the SEC, risk that the Company’s common stock will not be eligible to trade on the OTC Pink Sheets/OTC Pink Marketplace or that the Company determines not to seek to make the shares of common stock eligible to trade on the OTC Pink Sheets/OTC Pink Marketplace, the risk of engaging a new audit firm and the terms thereof, and the risk of litigation or governmental investigations or proceedings relating to these matters. Certain risks and uncertainties related to the Company’s business are or will be described in greater detail in the Company’s filings with the SEC. Except as required by applicable law, the Company is not under obligation to (and expressly disclaims any such obligation to) update its forward-looking statements whether as a result of new information, future events or otherwise.

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 KIT DIGITAL, INC.  

 

By: /s/ Fabrice Hamaide

Fabrice Hamaide

Chief Financial Officer and Secretary

Date: December 18, 2012

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Related Content:

KIT Digital 8-K Filing with SEC

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KIT Digital Posts $102.6 Million GAAP Loss in Q2 2012, Sells Sezmi and Content Solutions Businesses at Steep Loss

Broadcast technology vendor financials | Posted by Joe Zaller
Aug 15 2012

KIT digital, who last week announced that it had signed a standstill agreement with two activist shareholders in exchange for seats on the company’s board of directors, reported that its revenue for the second quarter of 2012 was $51.1m, up 14% versus the same period a year ago, and down 9% versus the previous quarter.  

The company attributed the sequential sales decline to lower revenue from its broadcast systems integration business, which was down approximately $3.6m versus the previous quarter.  Revenue from large scale broadband media deployments was $28.1m in the quarter, up 9% sequentially.

KITs Q2 results exclude revenue from the company’s “content solutions business,” and the assets of Sezmi Corporation, both of which were divested at the end of the quarter (see below).  KIT took a $55.7m impairment charge as a result of these actions, and is now treating these businesses as discontinued operations.

The GAAP net loss from continuing operations for the quarter was $102.6m or $1.99 per share, compared GAAP los of $19.8m or $0.47 per share last year, and a GAAP net loss $21.5m, or  $0.46 per share last quarter. The GAAP net loss includes the $55.7m impairment charge mentioned above, along with restructuring charges, a reversal in M&A expenses, and other expenses.

The company’s non-GAAP operating loss for the quarter was $18.2m, compared to a non-GAAP operating loss of $4.8m in the preceding quarter and positive non-GAAP operating income of $8.7m in the second quarter of 2011. The non-GAAP operating loss includes $6.5m in bad-debt expense and approximately $3.8m from legal and other professional fees.

Free cash flow the quarter was negative $14.7m, comprised of negative $10m for continuing operations, and negative $4.7m from discontinued operations.

The company ended the quarter with an order backlog of approximately $74.6m, and $35.9m in cash, equivalents, and restricted cash.  KIT’s cash balance increased by about $10.6m since the end of the previous  quarter thanks to the sale of 7 million shares of stock, which netted the company $27.2m after expenses.

 

Assets of Sezmi and “Content Solutions Business” Sold for Steep Losses

During the quarter, KIT sold off the assets of Sezmi Corporation, for $2.9m.  KIT acquired Sezmi at the beginning of 2012 for approximately $27m.  At that time, KIT management said that it expected Sezmi contribute revenue of at least $20m, and earnings of approximately $4m in 2012, and be “immediately accretive on a revenue, cash flow, and cash earnings basis.”  Instead, less than 8 months after closing the Sezmi acquisition, KIT has sold off the business at a loss of $28.6m.  

When pressed for an explanation on the company’s conference call with equity analysts, KIT’s new CFO Fabrice Hamaide said that the forecast for Sezmi “did not turn out the way previous management had believed Sezmi customers and the Sezmi platform would be able to actually deliver.”

The company also said that it sold its “content solutions business” for $1m in cash. The loss associated with the transaction was $15.5m million.

 

“Despite reporting lower sequential revenue, the quality of our revenue mix continues to improve quarter over quarter,” said KIT Digital CEO Barak Bar-Cohen. “Revenue from large scale broadband media deployments, including Cosmos software license fees and professional and managed services, increased during the second quarter on both an absolute and percentage basis, and we anticipate that trend will continue.”

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Related Content:

Press Release: KIT Digital Reports Q2 2012 Results, Improved Revenue Mix, and Strategic, Operational Progress

KIT digital Q2 2012 Earnings Conference Call Transcript

Previous Quarter: KIT Digital Posts GAAP Loss of $24.9 Million in Q1 2012, Issues Updated Guidance

Previous Year: Kit Digital Reports Wider Losses as Revenue Doubles in Q2 2011  

Activist Investors Claim Board Seats at KIT Digital, Will Refrain From Adverse Actions Against KIT Digital’s Board

Text of Standstill Agreement Between KIT Digital, JEC Capital Partners, and Costa Brava

KIT Digital Exploring Strategic Options for Company Sale, Fails to Reach Agreement with JEC Capital

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