Small Company Update: 5 Questions about KITDilution
Oh shit, Money McBags has been forced to come out of temporary and semi-retirement (though he still tweets, facebooks, and guesses NSFW muffs on a nightly basis) as his inbox (though he would prefer to be in this box) has been overflowing with questions on what the fuck KITD is doing by raising equity once again in a move that on (and below) the surface is more confusing than Obama’s jobs plan (because, um, just a few short weeks ago we couldn’t raise the debt ceiling one bit and we were going clamp down on spending, and now, well, now spend a-fucking way again), word puzzles, and intelligent design (because if we were so intelligently designed, wouldn’t our tongues be two feet longer?).
As most of you know, Money McBags has pimped KITD here on the award winning When Genius Prevailed as if it were an out on her ass Ashley Dupre and you, the readers, were a self-righteous fuckbag. And while Money McBags has always defended the stock despite all of it’s strangeness and past equity raises (shit, Money McBags termed CEO Kaleil Tuzman “The Great Diluter” way back in 2010, and spewed such witticisms as “You can’t spell dilution without KITD,” and “the only time he knows KITD is going to dilute is when Kaleil Tuzman’s lips are moving”), he no longer can do so as he just doesn’t get it this time, especially after Kaleil previously said he has no need to raise more equity and will be focusing on just running the company and generating cash from operations (and as Kaleil is not a doctor, Money McBags hopes this isn’t the operation that will be generating cash for KITD).
Look, Money McBags still believes that KITD is at the intersection of a huge and ongoing trend (even bigger than the new interest in reading outdoors. And note to the education system, book clubs like that might finally help with this country’s dwindling SAT verbal scores, so look in to it) with the movement of video from digital to IP and while he still believes KITD may be uniquely positioned to capitalize on it, there is finally just too much weird shit going on for him to feel comfortable and this hurts Money McBags in places he didn’t even know he had (like a heart), because he enjoyed his back and forths with Kaleil (and if Money McBags worked for CNBC or some other spineless media service, he would still be pimping this just to continue those back and forths forever).
So in good conscience, Money McBags has to step away from KITD and simply doesn’t know what to tell you to do because he just has no fucking clue why a company with a strong balance sheet and about to generate a fuckload of cash would once again be hitting the equity markets like Amy Winehouse hit a crack pipe. While Money McBags respects Kaleil’s out of the box thinking (and to use a similar pun from a few paragraphs ago, if it is out of this box, then he really respects it) by going against the grain and trying to maximize the number of shares in the equation price x shares = market cap (whereas most CEOs, and by most, Money McBags means every other one) try to maximize price in that equation, Money McBags just doesn’t know what to believe here. In the past three years while Kaleil has managed to cobble together what should be a valuable company, he has added exactly zero shareholder value over that time and as a shareholder, that is not how Money McBags wants to roll. The stock price is the same today as it was 3 years ago despite a doubling of the market cap, so um, neat trick (much neater than pulling Money McBags’ finger), but hmmmm.
That said Money McBags feels it is his fiduciary duty (whereas this is his findthedoucheiary duty) to provide you with the information he can given the amount of anger that hit his inbox (and really, he has not received that kind of outright pissed-offedness in his email since the aforementioned muff guessing website was down for a couple of weeks last year).
And here are just a few snippets from emails he received to give you all the gist:
A pity that WGPs last days were dedicated to KITD.
In any other case this is just a fraud and their receivables are not cashing and they need the money. Fuck.
I am more pissed than you, what a f’ken crook
You are x10 times more experienced than I am so why the fuck do they
raise more stock when they said they’re turning FCF positive in
In any case I wonder who would be willing to buy shares??? Really…
I honestly don’t know how to read this situation, unless he lied about positive cash flow and increasing revs. More capital for customer acquisitions? That doesn’t smell right.
The test came back positive, so the kid is in fact yours, and it has herpes (ok, not all the angry emails were about KITD’s equity raise, but whatever).
So while Kaleil will be hosting a conference call on Tuesday to speak with the investing community (none of who understand this, and yes Money McBags has heard second hand from two of the top 20 holders of the stock), below are the 5 questions Money McBags would like answered (and long shot that Kaleil comes back to the award winning When Genius Prevailed to answer them himself as apparently he is a bit peeved by Money McBags calling him a liar in personal emails as his skin is seems to be thinner than Bernie Madoff’s alibi, but it is what it is. Though in response, Money McBags did tell him, “sticks and stones may break your bones, but losing money for shareholders will always hurt them”):
1. You have $20M net cash on the balance sheet and in theory (if you are a real company as you say you are) are generating north of $10MM in EBITDA a Q and are FCF positive. Money McBags doesn’t think you make hardware or anything capital intensive, rather you just have some smelly guys in India and Czech writing a bunch of fucking code. So why the fuck would you need $50MM net cash on the balance sheet for that? Are you planning on hiring this chick at $31k a month to peel back your Fortran? Makes no sense.
2. You keep claiming you are the market leader and really the only enterprise solution for VAMS or OTT or “lens to lens” or whatever you want to change it to next week, and yet in the almost Reg FD violating email you sent to investors, you say you need the cash to win bigger deals. Ummm, not to be logical, but WHO THE FUCK ARE YOU GOING TO LOSE A DEAL TO IF YOU ARE THE ONLY GAME IN FUCKING TOWN? Seriously, what company is saying “KITD has a shitty balance sheet (even though you have $20MM net cash and if you are a real company are spitting out more EBITDA than Taylor Rain is in Gag Factor 14) so instead we’ll take our 8 figure deal to the EVEN SMALLER SHITTIER BALANCE SHEETED competitor that doesn’t have an enterprise solution” (and yes Money McBags just made up the word balance sheeted). And if you really need to show access to cash, why not just take down a $30MM or $50MM revolver from a bank and not fuck over your equity holders? Are you worried about a bank coming in and doing due diligence? It makes no sense.
3. Why the fuck did you need to sell stock at these fucking levels? What is the rush (unless Mr. Ponzi is knocking at your door)? Put up the good fucking Q3, watch the stock hit at least $14, and then you can assrape your investors. Again, if Money McBags were running a fraudulent company, what you did is exactly what he would have done. It makes no sense.
4. Why do you have no IR person or experienced member of management to just sit back and say “really?” You are killing yourself here, killing yourself. You just can’t treat a public company like a lemonade stand run with your friends or a goofy dotcom in the internet boom (and at one point Money McBags was the highest paid foosball player in the country when he worked for an even goofier dotcom than Govworks, so he gets that era and doesn’t give a shit about how people looked back then). Why has no one told you (other than your stock price and the >25% shares that are short) that you can’t just keep going back to the shareholder ATM because shareholders don’t like being the giver in the ATM relationship. Where is your CFO and why is a man named Robin? It makes no sense.
5. This one is the most important one, so Money McBags will try to make it clear with out the use of ad hominem (or bad homonym, like cock and kok) attacks. After each equity raise in the past you pretty much said “this is the last one” and at just about every conference since the last equity raise and with every investor, you have said you have no intention to raise equity again and that you are going to focus on running the core business and putting up clean quarters. So um, WTF? Sure, sure, you say it’s different this time, this isn’t the same, daddy still loves you baby, he’d never hit you again, yadda yadda yadda. Unfortunately, none of that matters because as far as Money McBags is concerned you have lost any credibility you may have had before this (and apparently Money McBags was the last person on the buy side to think you had any).
And you see, this is the central fucking problem with all of this as even if you have brilliant answers to the first four questions (and Money McBags does not doubt that you will have reasons that on paper make sense), how can anyone believe them? Credibility is a slippery slope and unfortunately you have pissed all over that slope causing shareholders to fall faster than Carmen Luvana‘s pants in Tailgunners. How can anyone buy KITD today and be assured that two months from now their ownership won’t be diluted by another 10% for some new strategic reason???????? How can they in their right mind buy KITD and say “the next three years won’t be value destroying like the first three?” So far not one equity raise in the past two years has added any shareholder value, so why is this raise a good thing and why won’t it be repeated? Makes no sense.
Anyway, Money McBags has not talked with anyone on the buy side, the sell side, the front side, or the back side, who understands this raise. Not one fucking person. So until the questions above are answered, Money McBags doesn’t know what to say here (except for the ~1,800 words he has already dropped as even when at a loss for words, Money McBags is very verbose). Of course the problem is (and Money McBags tried to lay this out in question 5, and has been trying to lay this out since question 5). even if Kaleil answers the questions above, why should anyone believe him? If an experienced CEO were running this company, Money McBags believes KITD would be worth $19 tomorrow, of course an experienced CEO may not have aggressively pushed KITD to where it is, so sometimes you’re stuck dancing with the girl you brought.
Money McBags hopes Kaleil can provide sufficient answers to the above questions for all of you to make intelligent decisions because at this point, all Money McBags can do is provide you with information as he can no longer in good faith analyze this company. He apologizes to all of you who have lost money by investing in this on his recommendation (including himself). He still thinks there is a ton of value here, but he can’t support this kind of treatment of shareholders, because really, what is to stop Kaleil from diluting us all again in a month? His word or his track record?
****HUGE DISCLAIMER: Despite Money McBags’ near evisceration of KITD above, he still owns his shares. Yep, he has not yet sold because if the numbers are real, KITD still has value as long as they don’t fuck any more shit up and as long as the answers to the above questions seem reasonable. Money McBags thinks this stock is worth somewhere between $0 and $35 and he is taking a moderate risk by holding on to this highly speculative investment. He is LIVID over this last capital raise and is sure his anger comes out in this post. That said, he is not throwing in the towel yet (though he would love to throw in this towel) and hopes a clean Q3 and Q4 (fingers crossed) can right this ship. He hopes you all do your own due diligence here and not follow Money McBags because he honestly is questioning himself right now.
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