Former Chairman And CEO Kaleil Isaza Tuzman Sends Letter To KIT Digital Board Of Directors
Nov. 23, 2012 /PRNewswire/ --
Board of DirectorsKIT digital, Inc.26 West 17th Street, 2nd Floor
New York, NY10011
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:
Contact: Jonathan Cutler JCUTLER MEDIA GROUP JC@jcutlermedia.com
SOURCE Kaleil Isaza Tuzman
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