Posts Tagged ‘Kit Digital’

Report: KIT Digital Founder Arrested, Charged With Accounting Fraud

broadcast technology market research | Posted by Joe Zaller
Sep 10 2015

An interesting side note on the first day of the 2015 IBC Show….

The Wall Street Journal reported that Kaleil Isaza Tuzman, the founder of KIT Digital was arrested in Monday, and “charged with market manipulation and accounting fraud related to a later company he founded, KIT Digital.”Kalil

The KIT Digital story is long and complex.

The company, which acquired a large number of online video technology properties eventually filed for voluntary bankruptcy protection in April 2013 “to cleanse itself of legacy issues, including financial, legal and regulatory matters.”

At that time, the company filed a Reorganization Plan with the Court under which it would go into bankruptcy, be recapitalized by a “plan sponsor group” of investors, and emerge as profitable, debt-free business.

According to the Reorganization Plan, the company entered Chapter 11 with the intention of closing at least eight loss-making subsidiaries, while retaining four of its profitable subsidiaries: Ioko 365, Polymedia, KIT digital France and KIT digital Americas.  In its filings with the Court, Kit disclosed that the aggregate revenue generated in 2012 by these four remaining business was approximately $134.5 million.

KIT Digital emerged from Chapter 11 in 2013, and rebranded the remaining assets of the business as Piksel, which remains a leader in on-line video technology..

 

Here is the text from the WSJ article:

Star of “Startup.com” Charged With Accounting Fraud

Kaleil Isaza Tuzman, star of the 2001 documentary “Startup.com” that chronicled the rise and fall of his company govWorks Inc., was arrested in Colombia on Monday, charged with market manipulation and accounting fraud related to a later company he founded, KIT Digital.

The charges against Mr. Tuzman were announced on Tuesday by Manhattan U.S. Attorney Preet Bharara. KIT Digital’s former chief financial officer, Robin Smyth, was also charged with accounting fraud and was arrested in Australia. Messrs. Tuzman and Smyth are both being held pending extradition proceedings. Both were also sued by the Securities and Exchange Commission.

A call to Mr. Tuzman’s cell phone was answered by a woman identifying herself only as “Amanda,” who claimed to be his lawyer, but who declined to comment. Mr. Smyth couldn’t immediately be reached for comment.

The indictment alleges that Mr. Tuzman engaged in a scheme with an outside hedge fund to artificially inflate the share price and trading volume of KIT Digital shares. It also alleges that both Messrs. Tuzman and Smyth falsely inflated KIT’s sales by recognizing revenue for products the company hadn’t fully delivered and by using the company’s own cash to pay off customer invoices that were uncollectible.

KIT Digital, its name derived from the initials of its founder, sought to become an online video technology powerhouse by rapidly acquiring 19 companies. It raised more than $250 million via stock sales to help fund the deals and enjoyed positive recommendations from some Wall Street analysts whose firms also sponsored those stock sales.

The Wall Street Journal first raised questions about KIT Digital in November 2011, noting a rapid increase in accounts receivable that suggested customers weren’t paying their bills. The story also noted a run-in Mr. Tuzman had with Dubai police after getting into a fight with a lawyer there.

Mr. Tuzman stepped down in March 2012 and a subsequent Wall Street Journal story noted additional troubles facing the company and quoted his successor, Barak Bar-Cohen, saying he would like to “control-alt-delete the past.” KIT Digital filed for bankruptcy in 2013.

Mr. Tuzman now runs an investment firm called KIT Capital that focuses on asset sales, growth equity and real estate. He has been seeking investors for his latest project, a resort in Cartegena that hopes to be “Colombia’s 1st 6-star hotel,” according to the project’s website. The resort has its own Instagram account, @cartagenaviceroy, and Mr. Tuzman posed for a group photo in a hard hat last week.

Mr. Tuzman recently sent an invitation to the “7th Annual Colombia Celebration” sponsored by KIT Capital, which is leading the resort project, according to an Aug. 25 email reviewed by the Journal. The 10-day event in Cartagena and Medellin in November “straddles local independent day celebrations, island trips, world-class parties and the Miss Colombia coronation,” according to the invite. “We hope you will think of KIT Capital as your Colombian ‘connection.’”

Mr. Tuzman gained fame during the tech boom and bust for being featured in Startup.com, which is considered by some to be the quintessential eye-witness account of dot-com mania. Mr. Tuzman, who is Harvard educated, left a banking job at Goldman Sachs to become CEO of GovWorks, which struggled after raising large amounts of venture capital.

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Related Content:

WSJ Article: Star of “Startup.com” Charged With Accounting Fraud

Bankruptcy Court Approves Kit Digital Restructuring, Company to Rebrand as “Piksel” Before IBC 2013

KIT Digital SEC Filing: Heiland Takes Over CEO Role from Barak Bar-Cohen

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

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

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Streaming Media.Com Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

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© 2009-2015 Devoncroft Partners.  All Rights Reserved.

KIT Digital Article © Wall Street Journal.

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Bankruptcy Court Approves Kit Digital Restructuring, Company to Rebrand as “Piksel” Before IBC 2013

broadcast industry technology trends, Broadcast technology vendor financials, SEC Filings | Posted by Joe Zaller
Aug 06 2013

After more than a year of rumor, speculation, management changes, and shareholder lawsuits, it appears that the Kit Digital roller coaster ride is finally coming to an end – with a successful outcome for company management.

The one-time high-flying online video delivery provider announced that its Plan of Reorganization under Chapter 11 will be confirmed by the U.S. Bankruptcy Court for the Southern District of New York.

KIT digital filed for voluntary bankruptcy protection in April 2013 “to cleanse itself of legacy issues, including financial, legal and regulatory matters.”

At that time, the company filed a Reorganization Plan with the Court under which it would go into bankruptcy, be recapitalized by a “plan sponsor group” of investors, and emerge as profitable, debt-free business.

According to the Reorganization Plan, the company entered Chapter 11 with the intention of closing at least eight loss-making subsidiaries, while retaining four of its profitable subsidiaries: Ioko 365, Polymedia, KIT digital France and KIT digital Americas.  In its filings with the Court, Kit disclosed that the aggregate revenue generated in 2012 by these four remaining business was approximately $134.5 million.

With the new announcement, it appears the company’s Reorganization Plan has now been approved by the Bankruptcy Court.

Kit says that once it emerges from Chapter 11, it will change its name to “Piksel,” and re-brand in time for the IBC trade show in September 2013.

If the company can overcome the “legacy baggage” of Kit Digital, Piksel may turn out to be a formidable player in the broadcast industry once it is fully up and running later this year.

According to Court documents, Piksel will have more 800 employees and revenues in excess of $100m, making it one of the largest players in the industry broadcast industry, where the majority of its business comes from.  After emerging from Chapter 11, it’s also likely that the company will have little debt.

More importantly, Piksel will operate in an area where broadcasters and media companies are increasingly focusing their attention, the management and delivery of multi-screen video services.  Not only does the new company have core technical expertise in this area, it also boasts a large professional services organization capable of specifying and implementing complex multi-screen deployments, and a 24×7 network monitoring operation, which is offered as a service to clients who do not want to build their own multi-platform NOC.

It remains to be seen how well the company will fare once it comes out of Chapter 11, but Peter Heiland, who became interim CEO of Kit Digital in August 2012, provide a few clues in his upbeat statement about the company’s future. “Piksel is set to emerge as a healthy, dynamic company with a great mix of talented employees, market-leading customers, profitable assets, and sufficient liquidity for operations and investments,” he said.

Heiland went on to say that the new company will “leverage its solutions expertise; the flexibility of which will be driven by a suite of software applications, industry partnerships, and world-class professional and managed services.”  He also acknowledged the people who helped the company through what was presumably a traumatic period, saying “I would like to thank all of those who dedicated so much time and effort, including our employees and advisors, to helping us complete our restructuring.”

KIT digital will officially rebrand as Piksel on August 29, 2013.

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Related Content:

Press Release: KIT digital Restructuring Approved; Prepares to Exit Bankruptcy and Change Name to Piksel

Kit Digital Announces $6 Million 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

Activist Investor Heiland Becomes CEO at KIT Digital

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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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Ranking Broadcast Technology Vendors Part 2 – The 2013 BBS Net Change of Overall Brand Opinion League Table

broadcast industry technology trends, broadcast technology market research, Broadcast Vendor Brand Research, market research, Top Broadcast Vendor Brands | Posted by Joe Zaller
Aug 05 2013

This is the sixth in a series of articles about some of the findings from Devoncroft’s 2013 Big Broadcast Survey (BBS), a global study of broadcast industry trends, technology purchasing plans, and benchmarking of broadcast technology vendor brands. Nearly 10,000 broadcast professionals in 100+ countries took part in the 2013 BBS, making it the largest and most comprehensive market study ever conducted in the broadcast industry. 

 

Previous articles about the 2013 BBS discussed the most important broadcast industry trends, how the relative commercial importance of broadcast industry trends have changed over time, where money is currently being spent in the broadcast industry, broadcast technology products being evaluated for purchase in 2013 and 2014, and the 2013 BBS Overall Brand Opinion League Table.

 

This is the second in a series of posts about how broadcast technology vendors were ranked and benchmarked on a variety of metrics by the respondents to the 2013 BBS.

The first post in this series described the 2013 BBS Overall Brand Opinion League Table, which shows how 2013 BBS respondents ranked broadcast vendor brands.

This post looks at how the global sample of broadcast professionals who participated in the 2013 BBS ranked their Net Change of Overall Opinion of the 151 broadcast technology vendors we covered in the study.

 

Net Change of Overall Opinion

While it’s good news for any vendor to achieve a good “overall opinion” ranking, this metric is somewhat one-sided because it relies solely on the positive opinions of respondents.

In order to get a better understanding of how broadcast technology vendor brands are perceived, it is necessary to look at both the positive and negative opinions of brands. It is also necessary to take into account how these opinions have changed over time.

Once this information has been collected, we use it to create the Net Change of Overall Opinion Ranking, a metric that demonstrates which brands are perceived as getting better, and which are in decline, on an overall basis. Net Change in Overall Opinion provides a more balanced view each brand because it takes into account both the positive and negative perceptions of brands, along with how these opinions have changed over time.

An explanation of how these results were calculated can be found at the end of this article.

The complete list of vendor brands covered in the 2013 BBS is here.

 

The Net Change in Overall Opinion findings from the 2013 BBS are shown below in two ways:

  • An overall industry “league table” that shows the 30 highest ranked vendors for the metric “Net Change of Overall Opinion.”  The data in this chart is broken out globally and regionally.

 

  • An analysis of the “frequency” of appearance of each vendor in the Net Change of Overall Opinion league table

 

The top 30 ranked brands for Net Change of Overall Opinion are shown below for both the global sample of all respondents as well as for all respondents in each of the geographic regions.

When reading these results, please keep the following in mind.

 

Both audio and video brands are included in these rankings, and all response data shown herein is from the global sample of from all 2013 BBS participants, regardless of organization type, size, geographic location, or size of budget; and that actual results in the BBS Brand report may be different.

Please note that inclusion of any brand in any cut of the data shown the tables in this article is dependent on available sample size.  The minimum sample size for inclusion in these charts is 30 respondents per cut of the data. Therefore it is possible that a highly regarded brand was excluded from these findings based on sample size.

In all cases, these results are shown in alphabetical order, NOT in the order in which they were ranked by respondents to the study.


The 2013 BBS Net Change in Overall Opinion League Table:

2013 BBS -- 2013 BBS Net Change of Overall Opinion

 

 

A total of 53 broadcast technology vendor brands are included in this table (versus 59 in 2012 and 51 in 2011), illustrating the geographic variation of opinion. Analysis of these results shows that are some clear market leaders on a global basis, while others are strong on a regional basis.

It’s useful to understand how often each brand appears in the 2013 BBS Net Change in Overall Opinion League Table.

This is shown below, along with the equivalent data from both 2012 and 2011 for comparison.

 

Frequency of appearance of brands in the 2013 BBS Net Change in Overall Opinion League Table:

  • 10 brands appear four times (compared to 9 brands in 2012 and 13 brands in 2011), meaning they were ranked in the top 30 globally and in each geographic region

 

  • 13 brands appear three times (compared to 13 brands in 2012 and 10 brands in 2011)

 

  • 11 brands appear two times (compared to 11 brands in 2012 and 9 brands in 2011)

 

  • 19 brands appear one time (compared to 26 brands in 2102 and 19 brands in 2011).  This illustrates a fragmentation of opinion  about many brands based on geography

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Brands appearing four times in the 2013 BBS Net Change of Overall Opinion League Table:

 

  • 2013 BBS: Adobe, Aja Video, Autodesk, Blackmagic Design, Canon, Evertz, Panasonic, Riedel, Rohde & Schwarz, Sennheiser

 

  • 2012 BBS: Adobe, Avid, Blackmagic Design, Canon, Harmonic, Panasonic, Riedel, Sennheiser, Sony

 

  • 2011 BBS: Adobe, Aja Video, Apple, Blackmagic Design, Canon, Cisco, Genelec, Omneon, Panasonic, Riedel, Sennheiser, Sony, Tektronix

 

 

Brands appearing three times in the 2013 BBS Net Change of Overall Opinion League Table:

  • 2013 BBS: AmberFin, Angenieux, ateme, Cisco, Elemental Technologies, EVS, Harmonic, NewTek, Ross Video, Sony, Telestream, Vizrt, Wide Orbit

 

  • 2012 BBS: Aja Video, Apple, Autodesk, Digital Rapids, EVS, Front Porch Digital, NewTek, Omneon, Phabrix, Rhozet, Ross Video, Vizrt

 

  • 2011 BBS: Ateme,  Evertz, EVS, Harmonic, Net Insight, Rhozet, Rohde & Schwarz, Ross Video, Shure, Vizrt

 

 

Brands appearing two times in the 2013 BBS Net Change of Overall Opinion League Table:

 

  • 2013 BBS: Adam, Ensemble, Front Porch Digital, Lawo, Net Insight, Neumann, Nevion, Phabrix, Screen Service, Snell, Solid State Logic

 

  • 2012 BBS: AmberFin, ateme, brightcove, Cisco, Gigawave, Net Insight, Rohde & Schwarz, Screen Service, Tektronix, Telecast, Wohler

 

  • 2011 BBS: AKG, Digital Rapids, Dolby, Ensemble,  Front Porch Digital, Lawo, Telestream, TVIPS, Wohler

 

 

Brands appearing once in the 2013 BBS Net Change of Overall Opinion League Table:

  • 2013 BBS: arvato / S4M, Avid, Axon, Digital Rapids, Dolby, Fujinon, Linear Acoustic, On-Air (Oasys), Ooyala, RTW, Shure, Soundcraft, Studer, Tektronix, Telecast, TVIPS, Wheatstone, Xen Data, Yamaha

 

  • 2012 BBS: Aspera, Axon, Calrec, Clear-Com, Dolby, Elemental Technologies, Ensemble, Envivio, Evertz, Genelec, Harris, Isilon Systems / EMC, Kaltura, Kit Digital, Lawo, Neumann, PubliTronic / Grass Valley, RTW, Schoeps, Shure, Snell, Telestream, Wheatstone, Wide Orbit, Wowza, Yamaha

 

  • 2011 BBS: AmberFin, Audio-Technica, Avid, Fujinon, Grass Valley, Harris, Inlet Technologies, Linear, Linear Acoustic, Miranda, MSA Focus, Nevion, Playbox, PubliTronic, Schoeps, Screen Service, Solid State Logic, Telecast, Yamaha

 

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Frequency Analysis of the Brands in the in the 2013 BBS Net Change of Overall Opinion League Table:  

In order to provide a better understanding of which brands were most highly ranked in each geographic region, the data has been provided in the table below, which shows the global and regional performance for each brand in the top 30 ranking of overall opinion.

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2013 BBS -- 2013 BBS Net Change of Overall Opinion -- Frequency Analysis

 

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This frequency analysis chart shows that there are some interesting geographic variations in the data. Here’s a closer look at how brands appeared by geography:

 

Appearing only in the global ranking of the 2013 BBS Net Change of Overall Opinion League Table

Four brands achieved a top 30 ranking in the 2013 BBS Net Change of Overall Opinion league table, despite not being listed in the top 30 of any of the three geographic regions.  This may be a function of sample size.  As discussed above, there is a minimum sample size requirement for inclusion in each cut of the data presented in these chart, and the global ranking, by definition, has the largest overall sample.

  • Ensemble, On-Air Systems, Ooyala, Xen Data

 

Appearing only in one region of the 2013 BBS Net Change of Overall Opinion League Table

The following  brands appear in one regional category of the 2013 BBS Net Change of Overall Opinion League Table, but do not appear in the global ranking:

  • Arvato/S4m, Avid, Digital Rapids, Dolby, Fujinon, Linear Acoustic, RTW, Shure, Soundcraft, Studer, Tektronix, Telecast, T-VIPS, Yamaha

 

Appearing only in the EMEA region in the 2013 BBS Net Change of Overall Opinion League Table

  • Arvato/S4m, Axon, RTW

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Appearing only in the Asia-Pacific region in the 2013 BBS Net Change of Overall Opinion League Table

  • Avid, Digital Rapids, Dolby, Fujinon, Shure, Soundcraft, Studer, Tektronix, Yamaha

 

Appearing only in the Americas region in the 2013 BBS Net Change of Overall Opinion League Table

  • Telecast, T-VIPS, Wheatstone

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How These Results Were Calculated

No company is perfect, and the brands we measured in the 2013 BBS are no different.  All brands in the 2013 BBS had both positive (got better) and negative (got worse) connotations associated with them.  There were also are significant percentage of respondents who said their opinion of a brand had “stayed the same.”

2013 BBS participants were asked to rank their opinion of broadcast technology vendor brands on a scale of 1-10 — with 10 being best in the market, and 1 being worst in the market.

We then asked respondents whether their opinion of these brands has changed over the last few years – specifically whether they feel their opinion of each brand has “improved,” “declined” or “stayed the same.”

The Net Change in Overall Opinion for each brand was then calculated by subtracting the percentage of respondents who said a brand “got worse” from the percentage of respondents who said their opinion of a brand had “got better,” while ignoring the “stayed the same” responses.

This “change of opinion data” provides a more comprehensive view of how each brand is perceived by the market because it takes into account positive and negative perceptions.

 

 

Please note that inclusion of any brand in the tables in this article is dependent on available sample size.  The minimum sample size for inclusion in the tables shown herein is 30 respondents per cut of the data. Therefore it is possible that a highly regarded brand may have been excluded from any or all of the tables in this article due to insufficient sample size.

Also, please keep in mind when reviewing this information that all data these charts are presented in alphabetical order, NOT in the order brands were ranked by respondents to the 2013 BBS.

 

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The information in this article is based on select findings from the 2013 Big Broadcast Survey (BBS), a global study of broadcast industry trends, technology purchasing plans, and benchmarking of broadcast technology vendor brands. Nearly 10,000 broadcast professionals in 100+ countries took part in the 2013 BBS, making it the largest and most comprehensive market study ever conducted in the broadcast industry. The BBS is published annually by Devoncroft Partners.

Unless otherwise specified, all data in this article measures the responses of all non-vendor participants in the 2013 BBS, regardless of factors such as organization type, organization size, job title, purchasing and geographic location.  Please be aware that responses of individual organization types or geographic locations may be very different. Granular analysis of these results is available as part of various paid-for reports based on the 2013 BBS data set. For more information about this report, please contact Devoncroft Partners.

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Related Content:

The 2013 Big Broadcast Survey (BBS) – overview of available reports, including covered brands and product categories

Largest Ever Study of Broadcast Market Reveals Most Important Industry Trends for 2013

Tracking the Evolution of Broadcast Industry Trends 2012 – 2013

Analyzing Where Money is Being Spent in the Broadcast Industry – The 2013 BBS Broadcast Industry Global Project Index

Broadcast Technology Products Being Evaluated for Purchase in 2013 – 2014

Devoncroft Partners: 2013 Broadcast Industry Market Research Findings

Ranking Broadcast Technology Vendors Part 1 – The 2013 BBS Overall Brand Opinion League Table

Previous Year:  The 2012 BBS Net Change of Overall Brand Opinion League Table

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© Devoncroft Partners. All Rights Reserved.

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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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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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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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Former KIT Digital CEO Blasts Company for “Attempt to Scapegoat Previous Management” and “Recent Record of Deficient Management and Poor Business Execution”

Broadcast technology vendor financials, Broadcast Vendor M&A, SEC Filings | Posted by Joe Zaller
Nov 26 2012

In a letter to the Board of Directors of KIT Digital, former chairman & CEO, Kaleil Isaza Tuzman, strongly criticized the company for “effectively blam[ing] prior management for the Company’s delayed filing of third quarter results and the Company’s intent to restate its financial statements for the 2009-2011 period, among other issues.”

Tuzman, who oversaw an aggressive M&A program at KIT Digital stepped down from the position of CEO as part of a management shake-up, which also involved the resignation of four directors from the company’s board.

Tuzman resigned from the position of chairman in April 2012 after clashing with the board over strategic issues.  In his resignation letter to KIT Digital’s board of directors, Tuzman said: “I have separately discussed my concerns with some of you regarding the manner in which the Company has been viewed by the public market over the years. Based in part on my concerns, I have made a wholly personal decision to step back from a formal role with the Company. As you know, I have not always agreed with other members of the Board of Directors (the “Board”) or, specifically, with all of the decisions or processes followed by the Strategic Transaction Committee of the Board with reference to the current strategic sale process. Although I will no longer be a member of the Board, I intend to stay involved as a shareholder of the Company, and I will also have greater flexibility to independently consider other strategic alternatives for the Company. I also think my departure from a formal role with the Company will give the Company greater flexibility to evolve in its next, post-consolidation stage of development independent of my personality and role as a founder.”

Tuzman was replaced as CEO on an interim basis by Barak Bar-Cohen, but Bar-Cohen’s tenure was short-lived. Bar-Cohen resigned from KIT Digital in August 2012 and was replaced as CEO by  activist investor Peter Heiland of JEC Capital Partners.

In his letter to KIT Digital’s board, Tuzman cites a litany of instances where he says the company’s “current management has shown disregard for the underlying business,” and goes on to provide a list of action items that company management must do immediately in order to “right its ship.”

Tuzman also says he is “prepared to lead a bidding group to buy the Company at a reasonable and substantial cash premium to the current traded price of the Company’s common stock.”

 

The full text of Tuzman’s letter follows:

 

Board of Directors
KIT digital, Inc.
26 West 17th Street, 2nd Floor
New York, NY
10011

Attention: Bill Russell, Chairman

Dear KIT digital Board of Directors,

KIT digital, Inc.’s (“KITD” or the “Company”) November 21, 2012 8-K (the “8-K”) effectively blamed prior management for the Company’s delayed filing of third quarter results and the Company’s intent to restate its financial statements for the 2009-2011 period, among other issues.  The Company’s attempt to attribute its current problems to prior management is spurious.

As one of KITD’s largest shareholders and the Company’s former chairman and CEO, I have kept my opinions on the Company’s trajectory confidential since my departure in April 2012, in deference to the efforts being expended by current management and to avoid unnecessary discord.  However, I can no longer silently abide the Company’s attempt to scapegoat previous management or tolerate the recent record of deficient management and poor business execution.  KITD shareholders deserve to be leveled with on what has occurred at the Company to date, and shown a path forward to success and enhancement of share value, as we have set forth below.

First, some clarifications concerning some implications contained in the Company’s recent 8-K.  During my tenure at the Company, all revenue recognition decisions were made in consultation with and approved by the Company’s independent accounting firm, and approved by your audit committee. We have no reason to believe any of those decisions were improper.  Since my departure, it is possible that your new audit committee members have elected, in consultation with the firm’s outside auditors, to apply different revenue recognition policies. That is not prior management’s responsibility, and a change in revenue recognition policies and application may reflect your recently insinuated decision to further separate the “software” and “services” lines of the Company’s business.  As shareholders, we cannot yet opine on the merit of your decision, since your 8-K lacked details on the matter.

Similarly, the 8K’s vague reference to a lack of disclosure concerning certain undisclosed “related party transactions” is misleading and inappropriate.  During my tenure with KITD, all related party transactions were vetted by KITD’s outside counsel and relevant disclosures in KITD financial statements were reviewed and approved by the Company’s independent accounting firm.  For instance, as you know, my affiliate investment companies, KIT Media and KIT Capital, supported the Company by investing on four different occasions between 2008 and 2011 in public share issuances alongside other public shareholders.  These transactions were “related party transactions” in nature and were disclosed in great detail in press releases and Company financial statements at the time.  The transactions were very positive for the Company (and included two successfully completed financings during the depth of the 2008-2009 financial crisis) and were broadly lauded by KITD’s shareholder base at the time as demonstrating management’s “skin in the game.”  In addition, stock options and restricted stock grants over time to me or KIT Capital for services rendered were also described in detail in the Company’s public filings.  Accordingly, these transactions were all appropriately disclosed and benefited the Company and its shareholders—and, in fact, neither myself nor KIT Capital has ever exercised or sold any of these stock grants or options, nor have I received a single dollar or share in severance.

By comparison, you granted former CEO Barak Bar-Cohen a $250,000 “success bonus” for an extremely dilutive, death-spiral financing concluded after my departure and JEC Capital (the New York hedge fund which currently controls the Company and for which current KITD CEO Peter Heiland serves as Managing Director) recently lent $2.5 million to the Company without a concomitant press release—and the mention of this related party transaction received only cursory mention in an indirectly related SEC filing.

Given the 8-K’s emphasis on the dire current liquidity situation of the Company, it appears to us that you, in conjunction with the Company’s senior creditors, may be conspiring to artificially decrease the Company’s stock price so as to acquire the Company at a fire sale price that is unfair to shareholders.  Indeed, the 8-K’s disclosure regarding covenant breaches of current lender agreements could be interpreted as a lead-in to a pre-arranged, sweetheart deal with the Company’s  lenders.

Previous management presided over a period between December 2007 and March 2012 during which monthly revenues expanded over 20x, operating results went from huge losses to small gains, and the Company’s shares appreciated from $2.90 to over $9.00. Despite your attempt to blame past management for your current results, those close to the Company report that current management has shown disregard for the underlying business—including key clients, employees and vendors. Most startlingly, you seem to have presided over the Company burning more cash from operations in the seven months since I left than the Company had burned from operations in the prior two fiscal years.

Adding to KITD’s problems, the Company’s current management has:

  • failed to visit many, if not most key clients
  • failed to visit more than a handful of Company field locations
  • lost many, if not most, of the Company’s key salespeople
  • disassembled the Company’s core engineering team
  • demonstrated a lack of sufficient understanding of the Company’s core technology, products and capabilities, and failed to make material progress in product development
  • moved the Company headquarters from its low-cost European center of Prague to a high-cost NYC office—despite over 50% of the Company’s revenues being European in origin
  • incurred ballooning operating losses
  • poorly executed on an ill-conceived idea of stripping down and selling individual pieces of the Company—without sufficient comprehension of how software and services units complement each other in serving clients
  • failed to attract significant new talent to the business
  • failed to add material new client contracts
  • failed to communicate a coherent vision for the future to staff, clients and industry observers
  • left an impression with staff, clients, vendors and competitors alike that KITD is under “temporary”, “hedge fund”, “Wall Street-focused” management.

 

Ignoring these poor managerial decisions, the Company instead seeks to scapegoat prior management in describing its current condition.  It is time to redress this situation.

I originally resigned from my post as CEO of KITD in March 2012 (and subsequently resigned from his role as Chairman in April, 2012) because I had come to irreconcilable differences with the Board at the time concerning strategic decisions and the future of the Company.  As a major shareholder, I ultimately felt I could make a greater positive impact on the Company’s development from the outside than from within, especially considering that the Board formed a Special Strategic Committee (the “Special Committee”) in January 2012 which had effectively taken control of all CEO-level decisions.

By way of background, in December 2011, my core management team had recommended to the Board that the Company complete a major restructuring and consolidation of operations (a plan that you finally began to implement about two months ago).  We also recommended to the Board at such time that the Company pursue two competing strategic transactions, each with the potential to be a homerun for shareholders (one a private equity buy-out and the other a merger-of-equals).  Instead, the Board rejected management’s suggested approach and formed the Special Committee with a broad mandate to oversee “any and all strategic decisions” at the Company.  The Special Committee was comprised of two board members—Wayne R. Walker and Santo Politi—and immediately shut down or irreparably delayed the discussions with the strategic transaction counterparties.  KITD’s management-by-special-committee was predictably dysfunctional.  After months of wrestling with the Special Committee to no avail, myself and several members of the core management team eventually resigned.

In connection with my resignation I issued a letter—which was publicly filed by the Company as an 8-K at the time—stating that I intended to independently consider strategic alternatives for the Company.  After my resignation, a bidding group (led by a large private equity firm which I had introduced to the Company), endeavored to obtain approval from the Special Committee to share information with me so that I could participate in connection with a potential offer for KITD.  Unfortunately, the Special Committee refused this request, to the detriment of all shareholders.

Since that time, KIT Capital and other prospective bidders have been repeatedly delayed or stonewalled in our continued efforts to create shareholder value, while the indecision and delay of new management and board continues to result in value destruction.  For example, although KITD’s current management and board finally adopted the staff reduction and office consolidation plan prior management first put forward almost a year ago, the delay has caused KITD to effectively run out of money and may put the Company into the pockets of its lenders.

KITD must right its ship. From an operational perspective, KITD management must immediately:

  • Articulate a vision of the “new” KIT digital, with the focus being on clients, employees and vendors—and away from capital markets
  • Halve executive management costs
  • Tour the top 30 clients globally to ensure contract compliance and renewal
  • Implement a program to re-invigorate the core team of top 50-performing employees globally
  • Complete our original cost reduction and office consolidation plan—including keeping headquarters in Prague, consolidating engineering team into two locations, consolidating New York and Atlanta office into one location and shutting down six other locations globally (including Dubai), while expanding sales and business development staff by one-third
  • Cease the “divide-and-sell” approach to assets
  • Clearly articulate a balance sheet-fortification strategy, centered on a significant private equity minority investment and concomitant restructuring of existing debt, while conducting an open and transparent auction of the Company (engaging both private equity and strategic buyer prospects), with a publicly announced minimum price of $3.75 per share.

 

We do not believe that current management is capable of the actions listed in this letter.  As a result, we are prepared to lead a bidding group to buy the Company at a reasonable and substantial cash premium to the current traded price of the Company’s common stock.  Since May 2012, we have repeatedly requested that the board engage with us and certain other private equity firms regarding a strategic transaction for the Company.  In light of KITD’s mismanagement and the Company’s current circumstances, the Board can no longer afford to ignore these overtures.

Based on our analysis of publicly available information, and subject to due diligence and the execution of a mutually acceptable definitive agreement, we are prepared to lead a bidding group to buy the Company at $3.75 per share in cash, which represents an 81% premium to the closing price of KITD common stock on Wednesday, November 21, 2012 (and an approximately 750% premium to the reported after-market trading price of KITD common stock on that date).  We have reviewed this transaction with two large private equity groups who are interested in participating with us, and believe we have the backing of the Company’s prior and current executives, salespeople and senior engineers who would be key to execute on our plan to right the KITD ship.   We believe we can finalize financing and business terms with respect to this acquisition very quickly if the Board responds forthwith.

For the benefit of all the shareholders, we ask that you to cease and desist from defamatory and inaccurate descriptions of KITD’s prior management and immediately engage in an open dialogue with us on this offer.

Regards,

Kaleil Isaza Tuzman

On behalf of:
KIT Capital, LLC

 

 

Related Content:

Press Release: Former Chairman and CEO Kaleil Isaza Tuzman Sends Letter to KIT digital Board of Directors

KIT Digital to Restate Historical Financial Statements Due to “Errors and Irregularities”

Reuters: TIMELINE-Management woes roil Kit Digital    http://dcft.co/10BEkdZ

KIT Digital To Cut 300 Jobs in Effort to Right Size Operations

Former KIT Digital CEO Bar-Cohen Resigns After Activist Investor Takes Control

KIT Digital SEC Filing: Heiland Takes Over CEO Role from Barak Bar-Cohen

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

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

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Streaming Media.Com Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

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© Devoncroft Partners. All Rights Reserved.

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KIT Digital to Restate Historical Financial Statements Due to “Errors and Irregularities”

Broadcast technology vendor financials, Quarterly Results, SEC Filings | Posted by Joe Zaller
Nov 25 2012

KIT digital said that “because of errors and irregularities identified by the Company in its historical financial statements, the financial statements for (1) the years ended December 31, 2009, 2010 and 2011 and (2) each of the three quarters in 2009, 2010 and 2011 will be restated.”

This decision was reached after discussions with the Company’s senior management and outside advisors. The Audit Committee discussed the matters described in this report with Grant Thornton LLP, the Company’s independent registered public accounting firm.

The company said that investors should no longer rely on KIT’s previously issued financial statements for these periods, any earnings releases or other communications relating to these periods, or projections or estimates for any future periods.

As a result, the Company will not timely file its Quarterly Report on Form 10-Q for the three months ended September 30, 2012 and will not issue an earnings release or host an earnings conference call. The company also cancelled its 2012 Annual Meeting of Stockholders.

According to a KIT Digital filing with the SEC, “the accounting errors and irregularities relate primarily to recognition of revenue related to certain perpetual software license agreements entered into by the prior management team in 2010 and 2011. These errors and irregularities were discovered in connection with the Audit Committee’s previously disclosed investigation of certain transactions that resulted in impairment charges. The Audit Committee has also determined that certain transactions entered into by the Company under the prior management team during fiscal years ended December 31, 2008 through 2011 were related party transactions and that additional disclosure with respect to those transactions should have been included in the footnotes to the relevant financial statements.  Because of the timing of the completion of the Audit Committee investigation and the Company’s ongoing review and investigation of certain transactions, the Company requires additional time to complete an analysis of the accounting treatment for the software licenses and to determine the extent of the corrections that may be required to its historical financial statements. Other effects on previous financial statements are also possible. Accordingly, the Company cannot currently quantify the potential impact of the restatement.

KIT also reiterated it has “experienced substantial losses this year, including costs related to previously disclosed litigations and restructuring expenses and will also incur additional costs related to the restatement discussed above. As a result of these circumstances, and based on the Company’s forecast, the Company expects to continue to incur significant cash expenditures.”

As a result of its ongoing turmoil, KIT said that it is “considering a broad set of strategic alternatives including financing transactions as well as other strategic transactions including a sale of the company or its assets.”

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Related Content:

Press Release: KIT digital, Inc. Announces Restatement of Prior Period Financial Statements and Postponement of Third Quarter 2012 Results

KIT Digital 8K Filing — Restating Financials – November 15 2012

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KIT Digital To Cut 300 Jobs in Effort to Right Size Operations

Broadcast technology vendor financials | Posted by Joe Zaller
Sep 18 2012

KIT Digital has implemented a “significant workforce reduction,” which will result in job losses for approximately 300 employees, or 22% of its current headcount, by the time it is completed.

KIT says these actions will save it approximately $40m on an annualized basis, enabling it to “right size its operation and streamline general corporate functions” while maintaining a high standard of customer service.

The majority of the expense reductions will arise from “non-core areas and general and administrative redundancies.”

This announcement is one of the first public moves by KIT Digital activist investor turned interim CEO Peter Heliand, who took control of the company at the beginning of September, leading to the departure of former CEO Barak Bar-Cohen. Heiland, who was also an activist shareholder in Miranda Technology prior to its sale to Belden, owns approximately 8% of the outstanding shares of KIT digital, primarily through JEC Capital Partners, where he is Managing Director.

“By accelerating the integration of the company, we will be able to enhance our product offerings, improve time-to-market efficiency, and bring the business to a place of financial strength,” said Heiland. “While we have completed some non-core divestures and reduced the non essential support infrastructure, we are preserving all of the strategic initiatives surrounding our core competencies as we believe they will drive significant growth.”

The company said the restructuring plan will take place primarily during the third quarter of 2012 and will be completed by the end of calendar year 2012. The company currently estimates that it will record a restructuring expense in the third quarter of 2012 of approximately $4m consisting primarily of one-time termination benefits of which the majority will be paid prior to the end of calendar year 2012.

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Related Content:

Press Release: KIT digital Restructuring Aligns Expenses With Operations

Former KIT Digital CEO Bar-Cohen Resigns After Activist Investor Takes Control

KIT Digital SEC Filing: Heiland Takes Over CEO Role from Barak Bar-Cohen

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

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

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Streaming Media.Com Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

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Former KIT Digital CEO Bar-Cohen Resigns After Activist Investor Takes Control

SEC Filings | Posted by Joe Zaller
Sep 07 2012

KIT Digital said in an SEC filing that former interim CEO Barak Bar-Cohen left the company on August 29, 2012.

KIT said that after it appointed activist investor, Peter Heiland of JEC Capital Partners, as interim CEO, the company discussed with Bar-Cohen possible continuing roles in the company but were unable to come to a mutually acceptable agreement.

Following the failure to come to an agreement, Bar-Cohen sent a letter notifying the company of the termination of his employment with the Company, as of August 29, 2012.

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Related Content:

Kit Digital SEC Filing: Bar-Cohen Departs KIT Digital

KIT Digital SEC Filing: Heiland Takes Over CEO Role from Barak Bar-Cohen

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

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

KIT Digital Chairman Resigns, Cites Differences With Board of Directors Over Strategic Sales Process

Streaming Media.Com Article: What’s Going on with KIT Digital?

Management and Board Shake Up at KIT Digital Sends Stock Down 22.3 Percent

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