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Group Led By Former Chairman And CEO Kaleil Isaza Tuzman Extends Revised Acquisition Offer To KIT Digital Board Of Directors

NEW YORK, Dec. 5, 2012 /PRNewswire/ --

Attention: Bill Russell, Chairman

Dear KIT digital Board of Directors,

On November 23, 2012, we sent you a detailed letter describing our disappointment in the performance of KIT digital Inc.'s ("KITD" or the "Company") current management team in both administering the business and capitalizing on strategic opportunities that could have generated significant value for the Company's shareholders (the "Initial Letter").  In our Initial Letter, we also outlined our own turnaround plan for KITD and urged you to immediately engage with us regarding a provisional offer to acquire the Company.

Since sending the Initial Letter additional information has come to our attention that paints an even more troubling state of affairs within the Company than we originally believed. We believe management is confused at the current crossroads and that the Company is severely limited in its options—a situation that will likely deteriorate with time.

Your demonstrated lack of urgency regarding alternatives to create value for shareholders is particularly unacceptable given that:

  • KITD has a very low cash balance (less than $7 million of unrestricted cash available to fund operating activities) and we believe the Company is operating at a significant cash burn in the near-term — providing an extremely short runway to solve its manifold issues;
  • The Company requires additional capital but the recent, dramatic downward share price movement and lack of audited financials will make it very difficult to raise additional financing at anything but terribly dilutive terms–in fact we believe the Company failed in a desperate attempt to close a financing even prior to its announcement that it was restating historical financials and delaying third quarter results;
  • The Company appears to have misrepresented the reason for the delayed release of its 10-Q for the period ending September 30, 2012, and inappropriately utilized the filing extension granted to companies due to Hurricane Sandy in an attempt to obfuscate the underlying liquidity issues and accounting issues afflicting the Company;
  • KITD is in material, technical default under its senior secured note issued to Western Technology Investment ("WTI") due to the Company's restatement of its historical financials, enabling WTI to pursue all rights available to it under the secured note agreement to remedy this default—including foreclosure on all of KITD's assets and intellectual property globally;
  • Based on the current price of KITD common stock, the terms of the Share Purchase Agreement entered into between KITD and Hyro Limited ("Hyro") on April 21, 2012 obligate the Company to issue nearly twenty (20) million new shares to Hyro shareholders within the next 30 days; and
  • KITD's current share price and its lack of audited financials puts the Company at serious risk of running afoul of the NASDAQ continued listing requirements.

We have also received numerous unsolicited accounts of announcements and comments made by KITD management last week to employees, vendors and customers that call into question management's grasp of the Company's challenges or their ability to navigate the Company out of its dire straits. We believe these communications included claims that (a) acquisition offers received by the Company in the past have been too low to be considered; (b) the Company will pursue a standalone path and will not entertain future acquisition offers; (c) the Company has not and will not consider filing for bankruptcy protection; and (d) the Company has enough cash to weather this period and will be breakeven by January or February. Although we appreciate management's desire to calm the Company's various constituencies, reckless statements like these undermine credibility, encourage complacency and prevent the Company from successfully addressing its myriad challenges.

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