The news just keeps getting worse for Digiliti Money Group Inc., a small fintech company that provides remote deposit capture software and services for banks and credit unions. On Monday, Digiliti said it is considering “strategic options” that include a sale of the company or a Chapter 11 bankruptcy filing. That news comes after its CEO resigned earlier this month, and the company embarked on a $3 million cost-cutting drive.
Digiliti is now beginning an internal investigation that might lead to it restating its 2016 financial results. On Saturday, Digiliti got word from its independent accounting firm that it should not rely on its financial statements for 2016. Digiliti, whose shares trade on the Nasdaq Capital Market, also is seeking an extension from the Nasdaq to file its financial report for the quarter ended June 30.
Formerly known as Cachet Financial Solutions until an April rebranding, Digiliti has been trying to shore up its capital position for some time. It netted $8.8 million after a common stock offering in March, but was still looking for more investment. Digiliti lost $15.8 million in 2016, according to its current annual report, and $2.83 million in the first quarter. News about the financial statements apparently spooked an unidentified possible investor or lender.
“The company believed it had the opportunity to obtain financing to fund its immediate cash needs, however after disclosing the situation to the potential funder, we believe the financing is no longer certain,” Digiliti said in today’s announcement. “As such, we are actively reviewing strategic options to restructure the company, including the potential sale of the company or potentially filing for Chapter 11 bankruptcy.” This bankruptcy type generally enables a business to reorganize their debts to keep the enterprise afloat while paying creditors over time.
Digiliti said it does not expect to disclose further developments about the investigation until it is completed, a timetable for which was not revealed. A company executive did not respond to a Digital Transactions News inquiry.
The company announced Aug. 4 that president and chief executive Jeffrey Mack had resigned, effective immediately. No reason was given for the resignation, but Digiliti said Mack would serve as a consultant. Executive vice president and chief financial officer Bryan Meier was named interim CEO.
Meier said Digiliti would embark on a $3 million cost-cutting effort to reduce the company’s “cash burn.” Also on Aug. 4, Digiliti said it had established a $1.8 million reserve due to the “unilateral noncontractual termination” by one customer of its contracts with Digiliti. The company said it expected second-quarter revenues of $1.1 million to $1.3 million, down about 40% from $2 million a year earlier.
Digiliti has been trying to expand into other financial services such as prepaid card services, but remote deposit capture, including mobile deposit, remains its biggest business. Even though the remote-capture market has a limited number of vendors, Bob Meara, a senior banking analyst at research firm Celent who monitors that market, says Digiliti’s fate, whatever it is, will not change the landscape significantly.
“Digiliti Money’s developments may be eventful to its clients, but won’t pose a game-changing event for the industry,” Meara says by email. “A niche provider, Digiliti Money garnered most of its success in the mobile deposit sub-segment where its greatest market share, as a percentage of institution clients, is among mid-tier institutions.”
By Jim Daly
This article first appeared in Digital Transactions on August 14, 2017.