With widening third quarter losses, dwindling revenues and a depressed stock price, Alley design shop K2 Digital, Inc. was badly in need of a fresh infusion of capital to keep operations afloat.
On Tuesday, Chicago-based investment fund Fusion Capital emerged as K2 Digital’s white knight, immediately injecting $6 million in a two-part equity financing deal valued at $12 million. The company said the funds would be used for general corporate purposes, acquisitions, and other business opportunities.
But, accompanying the funding news was a separate announcement that K2’s chief financial officer Seth Bressman was quitting at the end of December “to pursue an opportunity outside the industry.”
K2 Digital said COO Gary Brown would assume the additional responsibilities of chief financial officer. Company officials declined further comment on Bressman’s departure.
Shares in K2 Digital, down almost 90 percent from the year-high of $10.68, took a big jump in today’s early going as news of the funding deal with Fusion Capital made the rounds. The stock was priced at $1.25, up 18 percent from last night’s close of $1.06.
Under the terms of the agreement, Fusion Capital has agreed to purchase $12 million of K2’s common stock in two separate, identical transactions worth $6 million each.
“… Each month, K2 will have the right to sell to Fusion Capital $250,000 of its common stock. The price of those shares is based upon the market price of K2’s common stock on the date of each sale, without any fixed discount to the market price,” the company explained in a statement.
“At K2’s sole option, Fusion Capital can be required to purchase lesser or greater amounts of common stock each month up to $12 million in the aggregate. The company has the right to control the timing and the amount of stock sold to Fusion Capital. By contract, Fusion Capital has agreed not to engage in any direct or indirect short selling or hedging of the common stock in any manner whatsoever. K2 also has the right to terminate the agreement at any time without any additional cost,” it added.
The deal comes less than a month after K2 reported its third quarter net revenues of $1.1 million was 10 percent less than the $1.2 million raked in during last year’s third quarter. The net loss was reported at $697,000, up from $266,000 in losses reported during the third quarter of 1999.
Earlier this year, K2 Design announced plans to form a joint venture with partner Unwired Ventures I and SilverCube, Inc., a professional services firm specializing in wireless content delivery. The joint venture, called SilverCube, Inc., operates as a stand-alone entity with offices in New York, Detroit, Philadelphia and Silicon Valley.
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