Delaware
|
11-3447894
|
|
(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
|
26 West 17th Street, 2nd Floor, New York, New York
|
10011
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
Large accelerated Filer o
|
Accelerated filer x
|
Non-accelerated filer o
|
Smaller reporting company o
|
(Do not check if a smaller reporting company)
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Page
|
||||
PART I - FINANCIAL INFORMATION
|
||||
Item 1.
|
Financial Statements
|
2
|
||
Consolidated Balance Sheets - As of September 30, 2011 (unaudited) and December 31, 2010
|
2
|
|||
Consolidated Statements of Operations and Comprehensive Loss - For the three and nine months ended September 30, 2011 and 2010 (unaudited)
|
3
|
|||
Consolidated Statements of Stockholders’ Equity - For the nine months ended September 30, 2011 (unaudited)
|
4
|
|||
Consolidated Statements of Cash Flows - For the nine months ended September 30, 2011 and 2010 (unaudited)
|
5
|
|||
Notes to Consolidated Financial Statements (unaudited)
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7
|
|||
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
|||
Quantitative and Qualitative Disclosures About Market Risk
|
29
|
|||
Controls and Procedures
|
29
|
|||
PART II - OTHER INFORMATION
|
|
|||
Legal Proceedings
|
30
|
|||
Risk Factors
|
30 | |||
Unregistered Sales of Equity Securities and Use of Proceeds
|
30
|
|||
Defaults Upon Senior Securities
|
30
|
|||
Removed and Reserved
|
30
|
|||
Other Information
|
30
|
|||
Exhibits
|
30
|
|||
31
|
|
|
September 30, 2011
|
|
|
December 31, 2010 (A)
|
|
||
(Unaudited)
|
||||||||
Assets:
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
60,047
|
$
|
141,233
|
||||
Restricted cash
|
595
|
2,000
|
||||||
Investment
|
1,709
|
1,050
|
||||||
Accounts receivable, net
|
66,069
|
29,349
|
||||||
Unbilled revenue
|
12,174
|
537
|
||||||
Inventory, net
|
449
|
301
|
||||||
Loan receivable, current portion
|
3,641
|
2,486
|
||||||
Other current assets
|
12,797
|
5,104
|
||||||
Total current assets
|
157,481
|
182,060
|
||||||
Property and equipment, net
|
10,841
|
5,987
|
||||||
Loan receivable, net of current
|
6,328
|
8,361
|
||||||
Deferred tax assets
|
448
|
-
|
||||||
Intangible assets, net
|
35,489
|
13,248
|
||||||
Goodwill
|
244,781
|
89,004
|
||||||
Total assets
|
$
|
455,368
|
$
|
298,660
|
||||
Liabilities and Stockholders' Equity:
|
||||||||
Current liabilities:
|
||||||||
Capital lease and other obligations, current portion
|
$
|
504
|
$
|
608
|
||||
Secured notes payable, net of debt discount, current portion
|
5,035
|
1,709
|
||||||
Accounts payable
|
17,857
|
12,740
|
||||||
Accrued expenses
|
12,752
|
6,411
|
||||||
Deferred revenue
|
4,439
|
4,223
|
||||||
Income tax payable
|
4,457
|
858
|
||||||
Deferred tax liability
|
11,454
|
682
|
||||||
Acquisition liabilities, current portion
|
8,359
|
2,115
|
||||||
Derivative liability
|
565
|
6,096
|
||||||
Other current liabilities
|
12,478
|
2,887
|
||||||
Total current liabilities
|
77,900
|
38,329
|
||||||
Capital lease and other obligations, net of current
|
266
|
175
|
||||||
Secured notes payable, net of current
|
13,658
|
4,127
|
||||||
Acquisition liabilities, net of current
|
11,977
|
10,405
|
||||||
Total liabilities
|
103,801
|
53,036
|
||||||
Stockholders' Equity:
|
||||||||
Common stock, $0.0001 par value: authorized 80,000,000 shares; issued and outstanding 46,156,204 and 33,196,952, respectively
|
5
|
3
|
||||||
Additional paid-in capital
|
510,518
|
375,578
|
||||||
Accumulated deficit
|
(156,719
|
)
|
(129,203
|
)
|
||||
Accumulated other comprehensive loss
|
(2,237
|
)
|
(754
|
)
|
||||
Total stockholders' equity
|
351,567
|
245,624
|
||||||
Total liabilities and stockholders' equity
|
$
|
455,368
|
$
|
298,660
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenue
|
$ | 62,276 | $ | 27,746 | $ | 144,914 | $ | 68,165 | ||||||||
Variable and direct third party costs:
|
||||||||||||||||
Cost of goods and services (exclusive of depreciation shown separately below)
|
10,210 | 11,472 | 33,300 | 22,190 | ||||||||||||
Hosting, delivery and reporting
|
3,058 | 671 | 6,655 | 3,035 | ||||||||||||
Content costs
|
142 | 262 | 580 | 746 | ||||||||||||
Direct third party creative production costs
|
655 | 1,074 | 1,337 | 2,620 | ||||||||||||
Total variable and direct third party costs
|
14,065 | 13,479 | 41,872 | 28,591 | ||||||||||||
Gross profit
|
48,211 | 14,267 | 103,042 | 39,574 | ||||||||||||
General and administrative expenses:
|
||||||||||||||||
Compensation, travel and associated costs (including non-cash stock-based compensation of $5,546, $1,273, $11,957 and $2,910, respectively)
|
33,740 | 7,359 | 68,198 | 21,545 | ||||||||||||
Legal, accounting, audit and other professional service fees
|
736 | 425 | 2,251 | 1,645 | ||||||||||||
Office, marketing and other corporate costs
|
5,009 | 3,341 | 13,635 | 7,718 | ||||||||||||
Merger and acquisition and investor relations expenses
|
498 | 1,306 | 16,664 | 3,411 | ||||||||||||
Depreciation and amortization
|
3,015 | 2,407 | 8,624 | 6,110 | ||||||||||||
Restructuring charges
|
- | (93 | ) | 3,352 | 3,481 | |||||||||||
Integration expenses
|
2,624 | 4,535 | 21,022 | 10,834 | ||||||||||||
Total general and administrative expenses
|
45,622 | 19,280 | 133,746 | 54,744 | ||||||||||||
Income (loss) from operations
|
2,589 | (5,013 | ) | (30,704 | ) | (15,170 | ) | |||||||||
Interest income
|
34 | 5 | 175 | 33 | ||||||||||||
Interest expense
|
(682 | ) | (223 | ) | (1,342 | ) | (563 | ) | ||||||||
Amortization of deferred financing costs and debt discount
|
(104 | ) | (19 | ) | (198 | ) | (33 | ) | ||||||||
Derivative income (expense)
|
628 | (1,451 | ) | 3,670 | (10,526 | ) | ||||||||||
Other (expense) income
|
1,535 | (1,263 | ) | 1,009 | (475 | ) | ||||||||||
Net income (loss) before income taxes
|
4,000 | (7,964 | ) | (27,390 | ) | (26,734 | ) | |||||||||
Income tax benefit (expense)
|
788 | (10 | ) | (126 | ) | (24 | ) | |||||||||
Net income (loss) available to common shareholders
|
$ | 4,788 | $ | (7,974 | ) | $ | (27,516 | ) | $ | (26,758 | ) | |||||
Basic and diluted net income (loss) per common share
|
$ | 0.11 | $ | (0.34 | ) | $ | (0.74 | ) | $ | (1.37 | ) | |||||
Basic weighted average common shares outstanding
|
42,553,768 | 23,355,298 | 36,978,752 | 19,581,084 | ||||||||||||
Diluted weighted average common shares outstanding
|
43,434,416 | 23,355,298 | 36,978,752 | 19,581,084 | ||||||||||||
Comprehensive income (loss):
|
||||||||||||||||
Net income (loss)
|
$ | 4,788 | $ | (7,974 | ) | $ | (27,516 | ) | $ | (26,758 | ) | |||||
Foreign currency translation
|
(1,416 | ) | 3,022 | (1,492 | ) | 971 | ||||||||||
Change in unrealized gain (loss) on investments, net
|
(46 | ) | 75 | 9 | 91 | |||||||||||
Comprehensive income (loss):
|
$ | 3,326 | $ | (4,877 | ) | $ | (28,999 | ) | $ | (25,696 | ) |
Common
Stock
|
Common
Stock
Par Value
|
Additional
Paid-in
Capital
|
||||||||||
Balance – December 31, 2010
|
33,196,952
|
$
|
3
|
$
|
375,578
|
|||||||
Issue of stock in public offering
|
3,680,000
|
1
|
32,104
|
|||||||||
Issue of stock for exercise of stock options
|
182,622
|
—
|
1,366
|
|||||||||
Issue of stock for exercise of warrants
|
485,630
|
—
|
4,860
|
|||||||||
Issue of stock for acquisitions
|
8,398,648
|
1
|
84,121
|
|||||||||
Debt discount on notes
|
—
|
—
|
1,081
|
|||||||||
Issue of stock for services
|
186,929
|
—
|
2,213
|
|||||||||
Issue of warrants for services
|
—
|
—
|
1,697
|
|||||||||
Stock-based compensation
|
25,423
|
—
|
7,498
|
|||||||||
Foreign currency translation adjustment
|
—
|
—
|
—
|
|||||||||
Fair market value adjustment for available for sale securities
|
—
|
—
|
—
|
|||||||||
Net loss
|
—
|
—
|
—
|
|||||||||
Balance – September 30, 2011
|
46,156,204
|
$
|
5
|
$
|
510,518
|
Accumulated
(Deficit)
|
Accumulated Other
Comprehensive Income (Loss)
|
Total
Shareholders’
Equity
|
||||||||||
Balance – December 31, 2010
|
$
|
(129,203
|
)
|
$
|
(754
|
)
|
$
|
245,624
|
||||
Issue of stock in public offering
|
—
|
—
|
32,105
|
|||||||||
Issue of stock for exercise of stock options
|
—
|
—
|
1,366
|
|||||||||
Issue of stock for exercise of warrants
|
—
|
—
|
4,860
|
|||||||||
Issue of stock for acquisitions
|
—
|
—
|
84,122
|
|||||||||
Debt discount on notes
|
—
|
—
|
1,081
|
|||||||||
Issue of stock for services
|
—
|
—
|
2,213
|
|||||||||
Issue of warrants for services
|
—
|
—
|
1,697
|
|||||||||
Stock-based compensation
|
—
|
—
|
7,498
|
|||||||||
Foreign currency translation adjustment
|
(1,492
|
)
|
(1,492
|
)
|
||||||||
Fair market value adjustment for available for sale securities
|
—
|
9
|
9
|
|||||||||
Net loss
|
(27,516
|
)
|
—
|
(27,516
|
)
|
|||||||
Balance – September 30, 2011
|
$
|
(156,719
|
)
|
$
|
(2,237
|
)
|
$
|
351,567
|
Nine months ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Operating Activities:
|
||||||||
Net loss
|
$ | (27,516 | ) | $ | (26,758 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities:
|
||||||||
Provision for doubtful accounts
|
223 | 358 | ||||||
Depreciation
|
3,646 | 3,243 | ||||||
Amortization of intangible assets
|
4,860 | 2,867 | ||||||
Amortization of deferred financing costs and debt discount
|
196 | 33 | ||||||
Loss on disposal of property and equipment
|
- | 111 | ||||||
Derivative expense (income)
|
(3,670 | ) | 10,526 | |||||
Less: merger and acquisition expenses
|
6,738 | 1,387 | ||||||
Non-cash stock based compensation
|
11,957 | 2,909 | ||||||
Non-cash warrants for services
|
1,697 | 840 | ||||||
Non-cash stock for services
|
267 | 412 | ||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
(10,952 | ) | (13,926 | ) | ||||
Unbilled revenue
|
(720 | ) | 930 | |||||
Inventory
|
(152 | ) | (579 | ) | ||||
Other assets
|
(3,473 | ) | (716 | ) | ||||
Accounts payable
|
1,390 | 2,268 | ||||||
Accrued expenses
|
333 | (1,084 | ) | |||||
Income tax payable
|
(853 | ) | (9 | ) | ||||
Other liabilities
|
(4,248 | ) | (280 | ) | ||||
Total adjustments
|
7,239 | 9,290 | ||||||
Net cash used by operating activities - forward
|
(20,277 | ) | (17,468 | ) | ||||
Investing Activities:
|
||||||||
Cash paid into restricted cash
|
3,518 | (2,035 | ) | |||||
Cash paid into investment
|
(307 | ) | (700 | ) | ||||
Cash paid in acquisitions
|
(122,210 | ) | (26,338 | ) | ||||
Cash received in acquisitions
|
16,860 | 6,581 | ||||||
Receipt of payment on notes receivable
|
877 | - | ||||||
Proceeds from sale of equipment
|
162 | - | ||||||
Merger and acquisition expenses
|
(6,738 | ) | (1,387 | ) | ||||
Purchase of equipment
|
(3,869 | ) | (1,272 | ) | ||||
Purchase of software
|
(1,900 | ) | - | |||||
Net cash used by investing activities - forward
|
$ | (113,607 | ) | $ | (25,151 | ) |
Nine months ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Net cash used by operating activities - forwarded
|
$ | (20,277 | ) | $ | (17,468 | ) | ||
Net cash used by investing activities - forwarded
|
(113,607 | ) | (25,151 | ) | ||||
Financing Activities:
|
||||||||
Proceeds from public offering, net
|
32,105 | 106,615 | ||||||
Proceeds from exercise of stock options
|
1,366 | 74 | ||||||
Proceeds from exercise of warrants
|
2,999 | 3,030 | ||||||
Payments for warrant buybacks
|
- | (24,054 | ) | |||||
Bank overdraft and other obligations
|
- | 209 | ||||||
Proceeds from issuance of secured notes
|
15,000 | 5,762 | ||||||
Payments of secured notes
|
(1,254 | ) | (1,020 | ) | ||||
Repayments of notes payable
|
- | (4,500 | ) | |||||
Payment on capital leases
|
(360 | ) | (794 | ) | ||||
Net cash provided by financing activities
|
49,856 | 85,322 | ||||||
Effect of exchange rate changes on cash
|
2,842 | 558 | ||||||
Net increase (decrease) in cash and cash equivalents
|
(81,186 | ) | 43,261 | |||||
Cash and cash equivalents - beginning of period
|
141,233 | 6,791 | ||||||
Cash and cash equivalents - end of period
|
$ | 60,047 | $ | 50,052 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Income taxes
|
739 | $ | - | |||||
Interest
|
1,342 | $ | 563 | |||||
Non-cash investing and financing activities:
|
||||||||
Non-cash issuances of stock for acquisitions (8,398,648 and 2,460,959 shares issued, respectively)
|
84,122 | $ | 25,964 |
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income (loss)
|
$ | 4,788 | $ | (7,974 | ) | $ | (27,516 | ) | $ | (26,758 | ) | |||||
Denominator:
|
||||||||||||||||
Denominator for basic net income (loss) per common share
|
42,553,768 | 23,355,298 | 36,978,752 | 19,581,084 | ||||||||||||
Effect of dilutive securities:
|
||||||||||||||||
Stock options
|
611,918 | - | - | - | ||||||||||||
Warrants
|
149,221 | - | - | - | ||||||||||||
RSUs
|
119,509 | - | - | - | ||||||||||||
Denominator for diluted net income (loss) per common share
|
43,434,416 | 23,355,298 | 36,978,752 | 19,581,084 | ||||||||||||
Basic net income (loss) per common share
|
$ | 0.11 | $ | (0.34 | ) | $ | (0.74 | ) | $ | (1.37 | ) | |||||
Diluted net income (loss) per common share
|
$ | 0.11 | $ | (0.34 | ) | $ | (0.74 | ) | $ | (1.37 | ) |
Goodwill
|
||||
Balance as of December 31, 2010
|
$
|
89,004
|
||
Acquisitions
|
155,777
|
|||
Balance as of September 30, 2011
|
$
|
244,781
|
September 30, 2011
|
||||||||||||||||
Weighted Average Remaining Amortization Period (Years)
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
|||||||||||||
Intangible assets with determinable lives:
|
||||||||||||||||
Software
|
4.25 | $ | 12,447 | $ | (5,370 | ) | $ | 7,077 | ||||||||
Customer list
|
5.5 | 36,507 | (8,275 | ) | 28,232 | |||||||||||
Trademarks
|
4.5 | 133 | (60 | ) | 73 | |||||||||||
Other
|
1.25 | 376 | (269 | ) | 107 | |||||||||||
Total
|
$ | 49,463 | $ | (13,974 | ) | $ | 35,489 |
December 31, 2010 | |||||||||||||||
Weighted
Average
Remaining
Amortization
Period (Years)
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
||||||||||||
Intangible assets with determinable lives:
|
|||||||||||||||
Software
|
3.25
|
$
|
6,747
|
$
|
(4,057
|
)
|
$
|
2,690
|
|||||||
Customer list
|
5.5
|
15,106
|
(4,944
|
)
|
10,162
|
||||||||||
Trademarks
|
4.5
|
133
|
(35
|
)
|
98
|
||||||||||
Other
|
1.5
|
376
|
(78
|
)
|
298
|
||||||||||
Total
|
$
|
22,362
|
$
|
(9,114
|
)
|
$
|
13,248
|
Software
|
Customer
List
|
Trademarks
|
Other
|
Total
|
||||||||||||||||
2011
|
$
|
456
|
$
|
1,420
|
$
|
3
|
$
|
50
|
$
|
1,929
|
||||||||||
2012
|
1,826
|
5,546
|
17
|
33
|
7,422
|
|||||||||||||||
2013
|
1,624
|
5,426
|
17
|
24
|
7,091
|
|||||||||||||||
2014
|
1,338
|
5,400
|
17
|
-
|
6,755
|
|||||||||||||||
2015
|
1,090
|
5,259
|
17
|
-
|
6,366
|
|||||||||||||||
Thereafter
|
743
|
5,181
|
2
|
-
|
5,926
|
|||||||||||||||
Totals
|
$
|
7,077
|
$
|
28,232
|
$
|
73
|
$
|
107
|
$
|
35,489
|
Current assets
|
$
|
4,241
|
||
Property and equipment
|
1,126
|
|||
Intangible assets – customer list
|
2,900
|
|||
Intangible assets – noncompete
|
100
|
|||
Goodwill
|
8,940
|
|||
Total assets acquired
|
17,307
|
|||
Deferred tax liability
|
(654
|
)
|
||
Current liabilities and assumed debt
|
(3,027
|
)
|
||
Net assets acquired
|
$
|
13,626
|
Current assets
|
$
|
2,023
|
||
Property and equipment
|
1,326
|
|||
Intangible assets –developed software
|
500
|
|||
Intangible assets – customer list
|
2,500
|
|||
Goodwill
|
30,296
|
|||
Total assets acquired
|
36,645
|
|||
Deferred tax liability
|
(1,050
|
)
|
||
Current liabilities
|
(2,760
|
)
|
||
Net assets acquired
|
$
|
32,835
|
Current assets
|
$
|
131
|
||
Property and equipment
|
71
|
|||
Intangible assets – developed software
|
400
|
|||
Intangible assets – customer list
|
1,000
|
|||
Goodwill
|
5,294
|
|||
Total assets acquired
|
7,562
|
|||
Deferred tax liability
|
(490
|
)
|
||
Current liabilities
|
(98
|
)
|
||
Net assets acquired
|
$
|
6,974
|
Current assets
|
$
|
10,064
|
||
Property and equipment
|
388
|
|||
Intangible assets – developed software
|
500
|
|||
Intangible assets – customer list
|
2,000
|
|||
Goodwill
|
21,950
|
|||
Total assets acquired
|
34,902
|
|||
Deferred tax liability
|
(775
|
)
|
||
Current liabilities
|
(6,210
|
)
|
||
Net assets acquired
|
$
|
27,917
|
Current assets
|
$
|
89
|
||
Goodwill
|
6,595
|
|||
Total assets acquired
|
6,684
|
|||
Current liabilities
|
-
|
|||
Net assets acquired
|
$
|
6,684
|
Current assets
|
$
|
36,271
|
||
Property and equipment
|
1,983
|
|||
Intangible assets – customer list
|
10,000
|
|||
Goodwill
|
59,050
|
|||
Total assets acquired
|
107,304
|
|||
Deferred tax liability
|
(2,500
|
)
|
||
Current liabilities and assumed debt
|
(14,288
|
)
|
||
Net assets acquired
|
$
|
90,516
|
Current assets
|
$
|
11,649
|
||
Property and equipment
|
1,068
|
|||
Intangible assets – customer list
|
6,000
|
|||
Goodwill
|
31,523
|
|||
Total assets acquired
|
50,240
|
|||
Deferred tax liability
|
(1,884
|
)
|
||
Current liabilities and assumed debt
|
(6,687
|
)
|
||
Net assets acquired
|
$
|
41,669
|
Current assets
|
$
|
-
|
||
Intangible assets – developed software
|
400
|
|||
Goodwill
|
1,099
|
|||
Total assets acquired
|
1,499
|
|||
Current liabilities
|
-
|
|||
Net assets acquired
|
$
|
1,499
|
Total revenue
|
$
|
158,277
|
||
Net loss
|
$
|
(35,079
|
)
|
Total revenue
|
$
|
180,197
|
||
Net loss
|
$
|
(23,701
|
)
|
September 30, 2011
|
December 31, 2010
|
|||||||
Dec 2010 Loan receivable on sale of subsidiary
|
$ | 9,969 | $ | 10,847 | ||||
Less current
|
(3,641 | ) | (2,486 | ) | ||||
Loan receivable, net of current
|
$ | 6,328 | $ | 8,361 |
September 30, 2011
|
December 31, 2010
|
|||||||
April 2010 secured note payable for $5,000
|
$ | 3,809 | $ | 4,858 | ||||
June 2010 secured note payable for $1,000
|
823 | 978 | ||||||
May 2011 secured note payable for $15,000
|
14,061 | - | ||||||
18,693 | 5,836 | |||||||
Less current
|
(5,035 | ) | (1,709 | ) | ||||
Secured notes payable, net of current
|
13,658 | 4,127 |
September 30,
2011
|
December 31,
2010
|
|||||||
Acquisition liabilities, current portion
|
||||||||
Benchmark
|
$
|
1,608
|
$
|
2,115
|
||||
Kyte
|
1,000
|
-
|
||||||
WWB
|
1,126
|
-
|
||||||
ioko
|
1,798
|
-
|
||||||
Polymedia
|
2,827
|
-
|
||||||
$
|
8,359
|
$
|
2,115
|
|||||
Acquisition liabilities, net of current
|
||||||||
Benchmark
|
$
|
5,621
|
$
|
7,382
|
||||
Brickbox
|
-
|
3,023
|
||||||
WWB
|
3,379
|
-
|
||||||
ioko
|
1,563
|
-
|
||||||
Polymedia
|
1,414
|
-
|
||||||
$
|
11,977
|
$
|
10,405
|
September 30,
2011
|
December 31,
2010
|
Re-measurement
date January 1,
2009
|
||||||||||
Fair value of warrants with anti-dilution provisions
|
$
|
(565
|
)
|
$
|
(6,096
|
)
|
$
|
(15,736
|
)
|
|||
Significant assumptions (or ranges):
|
||||||||||||
Trading market values (1)
|
$
|
8.40
|
$
|
16.04
|
5.25
|
|||||||
Term (years)
|
1.61
|
2.35
|
$
|
4.35 to 5.00
|
||||||||
Volatility (1)
|
54.44
|
%
|
57.73
|
%
|
101.98
|
%
|
||||||
Risk-free rate (2)
|
0.25
|
%
|
0.61
|
%
|
1.55
|
%
|
||||||
Effective Exercise price (3)
|
$
|
7.00
|
$
|
7.00
|
$
|
5.92
|
(1)
|
Level 1 inputs are quoted prices in active markets for identical assets and liabilities, or derived there from. Our trading market values and the volatilities that are calculated thereupon are level 1 inputs.
|
(2)
|
Level 2 inputs are inputs other than quoted prices that are observable. We use the current published yields for zero-coupon US Treasury Securities, with terms nearest the remaining term of the warrants for our risk free rate.
|
(3)
|
Level 3 inputs are unobservable inputs. Inputs for which any parts are level 3 inputs are classified as level 3 in their entirety. The remaining term used equals the remaining contractual term as our best estimate of the expected term and the effective exercise price which is based on the stated exercise price adjusted for anti-dilution provisions.
|
Nine Months
Ended
September 30,
2011
|
Nine Months
Ended
September 30,
2010
|
|||||||
Expected life (in years)
|
4.00
|
3.85
|
||||||
Risk-free interest rate
|
1.52
|
%
|
1.08
|
%
|
||||
Volatility
|
79.40
|
%
|
50.69
|
%
|
||||
Dividend yield
|
0
|
0
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
Intrinsic
Value
|
|||||||||||||
Outstanding at December 31, 2010
|
3,903,424
|
10.54
|
||||||||||||||
Granted
|
3,339,759
|
12.15
|
||||||||||||||
Exercised
|
(182,622
|
)
|
9.84
|
|||||||||||||
Cancelled, expired, or forfeited
|
(1,178,930
|
)
|
12.52
|
|||||||||||||
Outstanding at September 30, 2011
|
5,881,631
|
11.17
|
3.98
|
$
|
0
|
|||||||||||
Exercisable at September 30, 2011
|
1,946,911
|
10.38
|
3.48
|
$
|
0
|
Employee
Termination
Costs
|
Contract
Settlements
|
Facility
Closing Costs
|
Total
|
|||||||||||||
Balance as of December 31, 2010
|
$
|
1,212
|
$
|
13
|
$
|
518
|
$
|
1,743
|
||||||||
Additions
|
-
|
-
|
34
|
34
|
||||||||||||
Reversal
|
(654
|
)
|
-
|
-
|
(654
|
)
|
||||||||||
Cash payments
|
(558
|
)
|
(4
|
)
|
(229
|
)
|
(791
|
)
|
||||||||
Balance as of June 30 , 2011
|
$
|
-
|
$
|
9
|
$
|
323
|
$
|
332
|
||||||||
Cash payments
|
-
|
(2
|
)
|
(54
|
)
|
(56
|
)
|
|||||||||
Balance as of September 30, 2011
|
$
|
-
|
$
|
7
|
$
|
269
|
$
|
276
|
Employee
Termination
Costs
|
Contract
Settlements
|
Facility
Closing Costs
|
Total
|
|||||||||||||
Balance as of December 31, 2010
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Additions
|
3,973
|
-
|
-
|
3,973
|
||||||||||||
Cash payments
|
(1,736
|
)
|
-
|
-
|
(1,736
|
)
|
||||||||||
Balance as of June 30 , 2011
|
$
|
2,237
|
$
|
-
|
$
|
-
|
$
|
2,237
|
||||||||
Cash payments
|
(1,975
|
)
|
-
|
-
|
(1,975
|
)
|
||||||||||
Balance as of September 30, 2011
|
$
|
262
|
$
|
-
|
$
|
-
|
$
|
262
|
|
|
Three months ended September 30, 2011
|
|
|
Three months ended September 30, 2010
|
|
|
Nine months ended
September 30, 2011
|
|
|
Nine months ended
September 30, 2010
|
|
||||
Employee termination costs
|
$
|
-
|
$
|
(66
|
)
|
$
|
3,318
|
$
|
2,566
|
|||||||
Contract settlements
|
-
|
-
|
-
|
67
|
||||||||||||
Facility closing costs
|
-
|
(27
|
)
|
34
|
848
|
|||||||||||
Total restructuring charges
|
$
|
-
|
$
|
(93
|
)
|
$
|
3,352
|
$
|
3,481
|
Exhibit No.
|
Description
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
KIT DIGITAL, INC.
|
|||
Dated: November 9, 2011
|
By:
|
/s/ Kaleil Isaza Tuzman
|
|
Kaleil Isaza Tuzman
|
|||
Chairman and Chief Executive Officer
(principal executive officer)
|
Dated: November 9, 2011
|
By:
|
/s/ Robin Smyth
|
|
Robin Smyth
|
|||
Chief Financial Officer
(principal financial and accounting officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of KIT digital, Inc.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: November 9, 2011
|
|
/s/ Kaleil Isaza Tuzman
|
|
Kaleil Isaza Tuzman
|
|||
Chairman and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of KIT digital, Inc.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
5.
|
a)
|
b)
|
Dated: November 9, 2011
|
|
/s/ Robin Smyth
|
|
Robin Smyth
|
|||
Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 9, 2011
|
|
/s/ Kaleil Isaza Tuzman
|
|
Kaleil Isaza Tuzman
|
|||
Chairman and Chief Executive Officer
|
(3)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(4)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 9, 2011
|
|
/s/ Robin Smyth
|
|
Robin Smyth
|
|||
Chief Financial Officer
|
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 | |||
---|---|---|---|---|---|
Common stock, par value | $ 0.0001 | $ 0.0001 | [1] | ||
Common stock, authorized | 80,000,000 | 80,000,000 | [1] | ||
Common stock, issued | 46,156,204 | 33,196,952 | [1] | ||
Common stock, outstanding | 46,156,204 | 33,196,952 | [1] | ||
|
Stock Issuances | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Stock Issuances |
(16) Stock
Issuances
During the
quarter ended March 31, 2011, we issued 4,744,467 shares of common
stock. Of this amount, we issued 189,348 shares for the acquisition
of Kyte, 1,411,704 shares for the acquisition of Kewego, 3,010,296
shares for the acquisition of KickApps, 23,514 shares for the
acquisition of WWB, 57,251 shares for the exercise of warrants,
52,354 shares for the exercise of options with proceeds of
$390.
During the
quarter ended June 30, 2011, we issued 3,462,165 shares of common
stock. Of this amount, we issued 1,509,804 shares for the
acquisition of ioko, 1,178,381 shares for the acquisition of
Polymedia, 265,262 shares for the settlement of the contingent
acquisition liabilities of Brickbox, 10,611 shares for Peerset
acquisition, 25,423 shares for restricted stock, 425,945 shares for
the exercise of warrants with proceeds of $2,982, and 63,603 shares
for the exercise of options with proceeds of
$447.
On
September 20, 2011, we completed an underwritten public offering of
3,200,000 shares of our common stock, pursuant to our shelf
registration statement on Form S-3 (No. 333-169918), which was
originally filed and declared effective in October 2010, and
related prospectus supplement dated September 15, 2011. We
simultaneously sold 480,000 additional shares of common stock
pursuant to an underwriters’ over-allotment option. We sold
these shares at a price of $9.50 per share and received $34,960 in
gross proceeds and approximately $32,105 in net proceeds, after
deducting underwriting discounts, commissions, legal fees and other
estimated offering expenses.
During the
quarter ended September 30, 2011, we issued 4,752,620 shares of
common stock. Of this amount, we issued 3,680,000 shares for
the public offering, 816,592 shares for the payment of the
Benchmark Acquisition liability, 186,929 shares for services, 2,434
shares for the exercise of warrants with proceeds of $17 and 66,665
shares for the exercise of options with proceeds of
$529.
As of
September 30, 2011, the outstanding warrants (excluding the
warrants included in the derivative liability of 251,021 and
stock-based compensation of 34,286) were 1,361,935 with a weighted
average exercise price of $24.21. As of December 31, 2010, the
outstanding warrants (excluding the warrants included in the
derivative liability of 679,400 and stock-based compensation of
34,286) were 781,737 with a weighted average exercise price of
$39.28.
|
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 08, 2011 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | KITD | |
Entity Registrant Name | KIT DIGITAL, INC. | |
Entity Central Index Key | 0001076700 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 46,156,204 |
Segment Reporting | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Segment Reporting |
(19)
Segment Reporting
We have presented
operating segments in the past for Digital Media Solutions and
Professional Services but since Professional services represents
less than 10% of total assets and total revenues and this segment
continues to decrease, we are not presenting financial information
for operating segments.
|
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Cash and Cash Equivalents | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Cash and Cash Equivalents |
(4) Cash and Cash Equivalents
We
consider all highly liquid investments with original maturities of
ninety days or less when purchased to be cash and cash equivalents.
As of September 30, 2011 and December 31, 2010, the Company had
$2,095 and $2,068, respectively, of cash equivalents in an account
that pays interest at LIBOR plus 150 basis points. This account is
guaranteed and backed by liquid collateral instruments, and can be
redeemed with 14 days prior written notice.
|
Related Party Transactions | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Related Party Transactions |
(20)
Related Party Transactions
In
December 2007, we entered into an agreement with KIT Capital, Ltd.
(“KIT Capital”), a company wholly owned by Kaleil
Isaza Tuzman, our Chairman and Chief Executive Officer, which
includes the managerial services of Mr. Isaza Tuzman and two other
junior employees. The total amount paid to KIT Capital and included
in our results of operations in the nine months ended September 30,
2011 and 2010 were $259 and $330, respectively.
Effective
August 31, 2011, Kaleil Isaza Tuzman, Gavin Campion and Robin Smyth
entered into employment agreements with the Company, superseding
their prior employment agreements with the Company or, in the case
of Mr. Isaza Tuzman, the agreement that is described above.
Pursuant to these employment agreements, Mr. Isaza Tuzman, Campion
and Smyth have agreed to continue to devote substantially all of
their professional time and attention to the Company as its
Chairman and Chief Executive Officer, its President and its Chief
Financial Officer, respectively. Mr. Isaza Tuzman will continue to
report to the Company’s board of directors, Mr. Campion will
report to Mr. Isaza Tuzman, and Mr. Smyth will report to Mr. Isaza
Tuzman.
The
employment agreements provide that Messrs. Isaza Tuzman, Campion
and Smyth will receive a base salary at an annual rate of $315,
$290, and $254 (inclusive of transportation and housing allowance),
respectively, for services rendered in such positions. In addition,
each executive may be entitled to receive, at the sole discretion
of the Company’s board of directors or compensation
committee, annual performance bonuses based on achieving targeted
corporate objectives for such year in accordance with the
year’s operating or incentive plan. Each of Messrs. Isaza
Tuzman, Campion and Smyth are also entitled to participate in the
Company’s recently-adopted performance-contingent restricted
stock unit program and, concurrently with entering into the
employment agreements, they received 636,000, 306,000 and 306,000
performance-contingent restricted stock units,
respectively.
See Note
14, “Derivative Liabilities” for a description of
warrant repurchases from KIT Media and
Wellington.
|
Integration Expenses | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Integration Expenses |
(18)
Integration Expenses
The
Company has recorded integration charges related to the cost
overlap due to the reorganization and integration of acquisitions
of $2,624 and $21,022 for the three and nine months ended September
30, 2011, respectively. Integration expenses include
one‐time
expenses for integrating acquired businesses together and
eliminating duplication and inefficiencies. This includes
rationalizing hosting and delivery infrastructure (data center
consolidation, related hardware purchases, trunk T1 and T3
purchases and combinations, etc.) to merging software platforms and
physical plant/office combination. These expenses include directly
allocable staff time, travel and associated charges related to
executing these integration initiatives. These expenses are almost
without exception cash‐based.
The
Company has recorded integration charges related to the redundancy
in staff and consultants for the transition of technology
infrastructure during reorganization due to the centralizing of
resources in Prague of $4,535 and $10,834 for the three and nine
months ended September 30, 2010, respectively.
|
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Goodwill and Intangible Assets |
(9)
Goodwill and Intangible Assets
The change
in the carrying amount of goodwill is as
follows:
Intangible
assets include the following:
Amortization expense
on intangible assets for the three months ended September 30, 2011
and 2010 were $1,815 and $1,348 respectively. Amortization expense
on intangible assets for the nine months ended September 30, 2011
and 2010 were $4,860 and $2,865 respectively.
Estimated
future annual amortization expense as of September 30, 2011 is as
follows:
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | |
Non-cash issuances of stock for acquisitions, shares issued | 8,398,648 | 2,460,959 |
Receivable | 9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||
Accounts Receivable | |||||||||||||||||||||||||||||||||||||
Receivable |
(6) Accounts Receivable
Trade
accounts receivable are stated net of allowances for doubtful
accounts. Specific customer provisions are made when a review of
significant outstanding amounts, customer creditworthiness and
current economic trends, indicates that collection is doubtful. In
addition, provisions are made at differing amounts, based upon the
balance and age of the receivable and the Company’s
historical collection experience. Trade accounts are charged off
against the allowance for doubtful accounts or expense when it is
probable the accounts will not be recovered. The allowance for
doubtful accounts as of September 30, 2011 and December 31, 2010
was $2,970 and $1,023, respectively.
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Loans Receivable | |||||||||||||||||||||||||||||||||||||
Receivable |
(11) Loan
Receivable
In
December 2010, we lent $10,847 in gross proceeds in relation to the
sale of subsidiary. It matures on January 28, 2015. Commencing
on February 28, 2011, payments are due in forty-eight equal
consecutive payments of $226. The loan is secured by accounts
receivable, cash and other receivables.
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Secured Notes Payable | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Secured Notes Payable |
(12)
Secured Notes Payable
In May
2011, we received $15,000 in gross proceeds from the issuance of a
note to a third party investor, as called for in the negotiated
structure of our acquisition of ioko, as a means of financing the
additional accounts receivable acquired. Interest is payable
monthly in advance at 13.6% per year and matures on July 1,
2014. We paid total interest only of $187 for May and
June 2011 and agreed to pay interest only of $122 per month for the
next seven months. Commencing on February 1, 2012, payments for
principal and interest are due in thirty equal consecutive payments
of $561. A final balloon payment of $1,149 will be due and payable
upon maturity. The note is secured by the Company’s property,
including accounts receivable and inventory. In
conjunction with the borrowing, we issued to the lender a warrant
entitling it to purchase, for $13.29 per share, 141,083 shares of
our common stock with a seven year life through May 15, 2018. A
debt discount of $1,081 was recorded related to these warrants and
is being amortized over the term of the loan.
In June
2010, we received $1,000 in gross proceeds from the issuance of a
note to a third party investor. Interest is payable monthly in
advance at 12.7% per year and matures on September 1, 2013. We paid
interest only of $5 for June 2010 and agreed to pay interest only
of $8 for the next nine months. Commencing on April 1, 2011
payments for principal and interest are due in thirty equal
consecutive payments of $38. A final balloon payment of $108 will
be due and payable upon maturity. The note is secured by the
Company’s property, including accounts receivable and
inventory. In conjunction with the borrowing, we issued to the
lender a warrant entitling it to purchase, for $13.76 per share,
8,480 shares of our common stock with a five year life through June
14, 2015. A debt discount of $27 was recorded related to these
warrants and is being amortized over the term of the
loan.
In April
2010, we received $5,000 in gross proceeds from the issuance of a
note to a third party investor. Interest is payable monthly in
advance at 12.7% per year and matures on July 1, 2013. We paid
interest only of $22 for April 2010 and agreed to pay interest only
of $42 for the next nine months. Commencing on February 1, 2011,
payments for principal and interest are due in thirty equal
consecutive payments of $188. A final balloon payment of $538 will
be due and payable upon maturity. The note is secured by the
Company’s property, including accounts receivable and
inventory. In conjunction with the borrowing, we issued to the
lender a warrant entitling it to purchase, for $14.24 per share,
40,976 shares of our common stock with a five year life through
April 15, 2015. A debt discount of $183 was recorded related to
these warrants and is being amortized over the term of the
loan.
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Concentration of Credit Risk | 9 Months Ended |
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Sep. 30, 2011 | |
Concentration of Credit Risk |
(7)
Concentration of Credit Risk
Financial
instruments which potentially subject us to concentrations of
credit risk consist principally of cash and cash equivalents and
trade accounts receivable. We place our cash and cash equivalents
with high credit quality institutions to limit credit exposure, and
from time to time, obtain collateral for our accounts where
feasible and we deem prudent. As of September 30, 2011, we held
cash and cash equivalents of $14,819 in financial institutions
outside of the United States. We believe no significant
concentration of credit risk exists with respect to these balances.
The amount held in foreign currencies as of September 30, 2011 and
December 30, 2010 was $9,267 and $8,617, respectively. The amount
of cash in excess of FDIC insured amounts as of September 30, 2011
and December 31, 2010, was $57,947 and $139,185,
respectively.
Concentrations of
credit risk with respect to trade accounts receivable are limited
due to the nature of our customers who are dispersed across many
industries and geographic regions. As of September 30, 2011, no
customer accounted for 10% or more of our trade accounts
receivable. As of December 31, 2010, one customer accounted for 11%
of our trade accounts receivable. As of September 30, 2011 and
2010, no customer accounted for 10% or more of the year to date
revenue. As of September 30, 2011, we held accounts receivable of
$55,449 outside of the United States. We routinely assess the
financial strength of customers and, based upon factors concerning
credit risk, establish an allowance for doubtful accounts.
Management believes that accounts receivable credit risk exposure
beyond such allowance is limited.
|
Fair Value of Financial Instruments | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Fair Value of Financial Instruments |
(5) Fair
Value of Financial Instruments
Fair value
is the amount that would be received upon sale of an asset or paid
to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between
market participants on the measurement date. It also establishes a
fair value hierarchy which prioritizes the types of inputs to
valuation techniques that companies may use to measure fair value.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities (Level
1). The next highest priority is given to inputs other than quoted
prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly (Level 2). The lowest
priority is given to unobservable inputs in which there is little
or no market data available and which require the reporting entity
to develop its own assumptions (Level 3).
The assets
and liabilities that are measured at fair value on a recurring
basis and are categorized using the fair value hierarchy are
Investments and Derivative Liabilities. Investments are measured
using net asset value as a practical expedient (Level 2). See
Note 14 for fair value hierarchy on the Derivative
Liabilities.
|
Nature of Business and Nature of Presentation | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Nature of Business and Nature of Presentation |
(1) Nature of Business and Nature of Presentation
KIT
digital, Inc. (“we,” “us,”
“our,” the “Company” or “KIT
digital”), through our operating subsidiaries, provide
enterprise clients an end-to-end technology platform for managing
Internet Protocol (“IP”)-based video assets across
browser environments, mobile and tablet devices and connected
television sets. We also offer creative interface design, marketing
services, content transformation services, systems integration and
broadcast engineering services to complement our KIT Platform
software. Our revenues are comprised primarily of
software-as-a-service (“SaaS”) license and usage fees,
enterprise software license, maintenance and usage fees, and
professional services fees.
The
accompanying interim consolidated financial statements are
unaudited and have been prepared in accordance with accounting
principles generally accepted in the United States of America, or
GAAP, for interim financial information. These financial statements
include the accounts of KIT digital and its wholly-owned
subsidiaries. All intercompany transactions and balances have been
eliminated in the accompanying financial
statements.
Certain
information and footnote disclosures normally included in the
Company’s annual audited consolidated financial statements
and accompanying notes have been condensed or omitted in these
interim financial statements. Accordingly, the unaudited
consolidated financial statements included herein should be read in
conjunction with the audited consolidated financial statements and
accompanying notes included in KIT digital’s annual report on
Form 10-K for the year ended December 31, 2010, filed with the U.S.
Securities and Exchange Commission.
The
results of operations presented in this quarterly report on Form
10-Q are not necessarily indicative of the results of operations
that may be expected for any future periods. In the opinion of
management, these unaudited consolidated financial statements
include all adjustments and accruals, consisting only of normal
recurring adjustments, that are necessary for a fair statement of
the results of all interim periods reported
herein.
|
Recent Accounting Pronouncements | 9 Months Ended |
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Sep. 30, 2011 | |
Recent Accounting Pronouncements |
(2) Recent Accounting Pronouncements
In May
2011, the Financial Accounting Standards Board (FASB) issued a new
accounting standard update which amends the fair value measurement
guidance and includes some enhanced disclosure requirements. The
most significant change in disclosures is an expansion of the
information required for Level 3 measurements based on unobservable
inputs. The standard is effective for fiscal years beginning after
December 15, 2011. We will adopt this standard in the first quarter
of 2012 and we do not expect the adoption will have a material
impact on our financial statements and
disclosures.
In June
2011, the FASB issued a new accounting standard which eliminates
the current option to report other comprehensive income and its
components in the statement of stockholders’ equity. Instead,
an entity will be required to present items of net income and other
comprehensive income in one continuous statement or in two
separate, but consecutive, statements. The standard is effective
for fiscal years beginning after December 15, 2011. We will adopt
this standard in the first quarter of 2012.
In
September 2011, the FASB issued a revised accounting standard,
which is intended to reduce the cost and complexity of the annual
goodwill impairment test by providing entities an option to perform
a “qualitative” assessment to determine whether further
impairment testing is necessary. Specifically, an entity has the
option to first assess qualitative factors to determine whether it
is necessary to perform the current two-step test. If an entity
believes, as a result of its qualitative assessment, that it is
more-likely-than-not that the fair value of a reporting unit is
less than its carrying amount, the quantitative impairment test is
required. Otherwise, no further testing is required. This guidance
is effective for interim and annual financial periods beginning
after December 15, 2011, although early adoption is permitted. We
are reviewing the impact of early adoption of this
update.
|
Income Taxes | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Income Taxes |
(21)
Income Taxes
Income
taxes for the interim periods presented have been included in the
accompanying financial statements on the basis of an estimated
annual effective tax rate. Based upon our estimated annual
effective tax rate and discrete items, our tax expense for the nine
months ended September 30, 2011 was approximately $775 less a
release of $160 of deferred tax liabilities relating to the
Benchmark acquisition and refunds of $489 for a total of $126. Our
income tax expense of $615 on our loss before taxes of $27,390
during the nine months ended September 30, 2011 was different than
our statutory income tax rate due primarily to our providing for a
valuation allowance on deferred tax assets in certain
jurisdictions, and foreign tax for the period.
During the
nine months ended September 30, 2011, we had several acquisitions
and established deferred tax liabilities for Kyte, KickApps,
Kewego, ioko and Polymedia for $490, $1,050, $775, $2,500, and
$1,884, respectively. These were recorded as a result of the
temporary differences generated by the differences between the fair
value of assets and liabilities acquired (based on intangible
assets).
As of
September 30, 2010, we recorded a liability of $170 for the accrual
of deficiency interest and penalties, which did not materially
change during the nine months ended September 30, 2011. We filed
U.S. federal, U.S. state, and foreign income tax returns. We are
not currently under examination by any taxing
authorities.
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Acquisitions |
(10)
Acquisitions
Brickbox
Acquisition
On
September 21, 2010, we acquired Brickbox Digital Media s.r.o., a
Czech company engaged in providing digital video asset management
solutions, and its international subsidiaries
(“Brickbox”), in exchange for 339,476 shares of our
common stock valued at a share price of $11.00 with a discount of
$731 due to the restriction on the sale of these shares for 1
year for a total value of $3,003 and approximately $7,600 in
cash at the time of acquisition. Additionally, the cost includes a
fair value for contingent consideration of $3,023 which will is
based on 10 percent of revenue and meeting earnings targets over a
four-year period after closing, which is included in the Balance
Sheet in “Acquisition liability, net of current”. We
have allocated the aggregate cost of the acquisition to
Brickbox’s net tangible and identifiable intangible assets
based on their estimated fair values. The excess of the aggregate
cost of the acquisition over the net estimated fair value of the
tangible and identifiable intangible assets and liabilities assumed
was recorded as goodwill. On May 22, 2011, we signed an amendment
to the securities purchase agreement to issue 265,262 shares valued
at $3,053 for the full settlement of the contingent acquisition
liabilities of Brickbox.
The
following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of
acquisition.
The
results of operations of Brickbox have been included in the
Consolidated Statements of Operations since September 21, 2010.
Revenue and net income after acquisition are not provided as it is
impracticable to distinguish due to the integration of sales,
delivery and overhead into our overall regional and global
operations.
KickApps
Acquisition
On January
28, 2011, we acquired KickApps Corporation, a Delaware corporation
(“KickApps”) and provider of solutions that enable the
creation and management of next generation video-based Web
experiences, in exchange for $4,027 in cash and 3,010,296 shares of
our common stock valued at a price of $13.55 (with a discount of
$11,981 due to the restriction on the sale of these shares), for a
total of $28,808. We are holding 528,507 shares of the merger
consideration in escrow for a period not to exceed 15 months
following the merger to cover any warranty claims related to
undisclosed commercial or tax liabilities or litigation. All of our
common stock issued in exchange for KickApps is subject to
contractual restrictions on transfer, with 60% of such stock being
released from this restriction on the first anniversary of the
merger and the balance on the second anniversary of the merger. We
have allocated the aggregate cost of the acquisition to
KickApps’ net tangible and identifiable intangible assets
based on their estimated fair values. The excess of the aggregate
cost of the acquisition over the net estimated fair value of the
tangible and identifiable intangible assets and liabilities assumed
was recorded as goodwill.
The
following table summarizes the preliminary estimated fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
The
results of operations of KickApps for the period from January 29,
2011 to September 30, 2011 have been included in the Consolidated
Statements of Operations. Revenue and net income after acquisition
are not provided as it is impracticable to distinguish due to the
integration of sales, delivery and overhead into our overall
regional and global operations.
Kyte
Acquisition
On January
25, 2011, we acquired decentraltv Corporation, a Delaware
corporation doing business as Kyte (“Kyte”), a
cloud-based publishing platform that enables companies to deliver
live and on-demand video experiences to websites, mobile devices
and connected TVs, in exchange for $3,605 in cash and 189,348
shares of our common stock at a price of $13.91 (with a discount of
$265 due to the restriction on the sale of these shares for 6
months), for a total of $2,369. Additionally, the cost included
contingent consideration of $1,000 to be paid on the one-year
anniversary of the acquisition in cash and stock to former Kyte
stockholders if specified financial milestones are achieved by that
business, which is included in the Balance Sheet in
“Acquisition Liability, net of current.” We are holding
56,803 shares of the consideration in escrow for a period of one
year to secure certain indemnification obligations. We have
allocated the aggregate cost of the acquisition to Kyte’s net
tangible and identifiable intangible assets based on their
estimated fair values. The excess of the aggregate cost of the
acquisition over the net estimated fair value of the tangible and
identifiable intangible assets and liabilities assumed was recorded
as goodwill.
The
following table summarizes the preliminary estimated fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
The
results of operations of Kyte for the period from January 26, 2011
to September 30, 2011 have been included in the Consolidated
Statements of Operations. Revenue and net income after acquisition
are not provided as it is impracticable to distinguish due to the
integration of sales, delivery and overhead into our overall
regional and global operations.
Kewego
Acquisition
On January
26, 2011, we acquired Kewego S.A., a société anonyme
organized under the laws of France (“Kewego”), a
provider of professional IP-based, multi-screen video asset
management solutions for IP connected devices, including PCs,
mobile phones, iPads, connected TVs and gaming consoles, in
exchange for $11,965 in cash and 1,411,704 shares of our common
stock valued at a price of $14.36 (with a discount of $4,320 due to
the restriction on the sale of these shares for 1 year), for a
total of $15,952. We have allocated the aggregate cost of the
acquisition to Kewego’s net tangible and identifiable
intangible assets based on their estimated fair values. The excess
of the aggregate cost of the acquisition over the net estimated
fair value of the tangible and identifiable intangible assets and
liabilities assumed was recorded as goodwill.
The
following table summarizes the preliminary estimated fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
The
results of operations of Kewego for the period from January 27,
2011 to September 30, 2011 have been included in the Consolidated
Statements of Operations. Revenue and net income after acquisition
are not provided as it is impracticable to distinguish due to the
integration of sales, delivery and overhead into our overall
regional and global operations.
WWB
Acquisition
On
February 21, 2011, we acquired the assets of Worldwide Broadcast
Systems Inc. (“WWB”), a United States-based company
engaged in providing broadcast video systems integration to
customers in South and Central America, in exchange for $1,900 in
cash and 23,514 shares of our common stock valued at a price of
$13.25 (with a discount of $33 due to the restriction on the sale
of these shares for 6 months), for a total of $279. Additionally,
the cost includes a fair value for contingent consideration of
$4,505, which will be based on a percentage of revenue over a
three-year period after closing, which is included in the Balance
Sheet in “Acquisition Liability, net of
current.”.We have
allocated the aggregate cost of the acquisition to WWB’s net
tangible and identifiable intangible assets based on their
estimated fair values. The excess of the aggregate cost of the
acquisition over the net estimated fair value of the tangible and
identifiable intangible assets and liabilities assumed was recorded
as goodwill.
The
following table summarizes the preliminary estimated fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
The
results of operations of WWB for the period from February 22, 2011
to September 30, 2011 have been included in the Consolidated
Statements of Operations. Revenue and net income after acquisition
are not provided as it is impracticable to distinguish due to the
integration of sales, delivery and overhead into our overall
regional and global operations.
ioko
Acquisition
On May 2,
2011, we acquired ioko365 Ltd. ("ioko") a private company
incorporated in England and Wales with principal offices in San
Diego, California and London, England and York, England. ioko
provides end-to-end managed cloud-based platform solutions for
multi-screen video delivery over connected Internet Protocol ("IP")
devices to tier-one telecommunications, cable, media and
entertainment companies around the world. Total consideration was
$74,478 in cash and 1,509,804 of our common stock valued at a price
of $10.88 (with a discount of $3,750 due to the restriction on the
sale of these shares) for a total value of $12,676. In addition,
the cost includes a fair value of contingent consideration of
$3,362 based on meeting revenue and earnings targets during the
twelve month periods ending March 31, 2012 and March 31, 2013. We
are holding $9,000 of the cash and 232,378 shares of the merger
consideration in escrow for a period not to exceed 18 months
following the merger. Included in this agreement is an employee
incentive plan for a total potential payment of our common stock of
$7,500 upon meeting specified performance targets during the twelve
month periods ending March 31, 2012 and March 31, 2013 and the six
month period ended September 30, 2013. We have allocated the
aggregate cost of the acquisition to ioko’s net tangible and
identifiable intangible assets based on their estimated fair
values. The excess of the aggregate cost of the acquisition over
the net estimated fair value of the tangible and identifiable
intangible assets and liabilities assumed was recorded as
goodwill.
The
following table summarizes the preliminary estimated fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
The
results of operations of ioko for the period from May 2, 2011 to
September 30, 2011 have been included in the Consolidated
Statements of Operations. Revenue and net income after acquisition
are not provided as it is impracticable to distinguish due to the
integration of sales, delivery and overhead into our overall
regional and global operations.
Polymedia
Acquisition
On May 17,
2011 we acquired Polymedia S.P.A. (“Polymedia”) a
company incorporated in Italy with its principal office in Milan.
Polymedia was the IP video platform-provisioning subsidiary of TXT
e-solutions, a public company listed on the Italian Stock Exchange.
Total consideration was $24,283 in cash and 1,178,381 of our common
stock valued at a price of $11.89 (with a discount of $864 due to
the restriction on the sale of the shares in escrow) for a total of
$13,146. In addition, the cost includes a fair value of contingent
consideration of $4,240 based on meeting specified revenue and
gross margin targets during the 12-month periods ending May 31,
2012 and May 31, 2013.We are holding 354,286 shares of the merger
consideration in escrow for a period of up to 12 months following
the closing date. We have allocated the aggregate cost of the
acquisition to Polymedia’s net tangible and identifiable
intangible assets based on their estimated fair values. The excess
of the aggregate cost of the acquisition over the net estimated
fair value of the tangible and identifiable intangible assets and
liabilities assumed was recorded as goodwill.
The
following table summarizes the preliminary estimated fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
The
results of operations of Polymedia for the period from May 17, 2011
to September 30, 2011 have been included in the Consolidated
Statement of Operations. Revenue and net income after acquisition
are not provided as it is impracticable to distinguish due to the
integration of sales, delivery and overhead into our overall
regional and global operations.
Peerset
Acquisition
On June 9,
2011, we acquired the assets of Peerset, Inc.
(“Peerset”), a Canadian based company engaged in
developing technology to provide content recommendation services,
in exchange for 10,611 shares of our common stock valued at a price
of $11.71 for a total of $124 and cash of $1,375. The Peerset
acquisition was primarily a purchase of intellectual property and a
dedicated research and development team related to content
recommendation technology, and the company was generating virtually
no reported revenue at the time of purchase. We have allocated the
aggregate cost of the acquisition to Peerset’s net tangible
and identifiable intangible assets based on their estimated fair
values. The excess of the aggregate cost of the acquisition over
the net estimated fair value of the tangible and identifiable
intangible assets and liabilities assumed was recorded as
goodwill.
The
following table summarizes the preliminary estimated fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
Selected
unaudited pro forma combined results of operations for the nine
months ended September 30, 2010, assuming the Multicast, Benchmark,
Brickbox, Accela, Megahertz, Kyte, Kewego, Kickapps, WWB, ioko, and
Polymedia acquisitions occurred on January 1, 2010 using actual
unaudited figures from each entity prior to acquisition, are
presented as follows:
Selected
unaudited pro forma combined results of operations for the nine
months ended September 30, 2011, assuming the Kyte, Kewego,
Kickapps, WWB, ioko, and Polymedia acquisitions occurred on January
1, 2011 using actual unaudited figures from each entity prior to
acquisition, are presented as follows:
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