Cash crunch pushed SoVo owner to shutdown

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imageTop executives with the parent companies of Southern Voice and David struggled to keep the publications operating in the days leading up to last month’s collapse, but ran out of cash to keep the doors open.

And as the financial picture worsened for Window Media and Unite, one of its two top executives was also working for a competitor in Florida who wanted to buy two of the failing publications and later hired several former Window and Unite employees.

Those new details and others emerged Tuesday during a bankruptcy hearing in downtown Atlanta. The session before Jeffrey Kerr, an accountant appointed as the trustee to oversee the bankruptcy petitions and eventual liquidation of Window Media and Unite, lasted about 20 minutes but provided additional details about the final days of the nation’s largest publisher of LGBT newspapers and nightlife publications.

The hearing marked the first public gathering of the trustee, former company officials and employers and creditors since the bankruptcy petitions were filed Nov. 20, four days after the company collapsed. It was also the first time the co-presidents of the two companies, Steve Myers (top photo) and Mike Kitchens, spoke at length about the corporate demise and why the publications weren’t sold ahead of the bankruptcy filings.

Several reports since the Window and Unite collapse indicated potential buyers existed for at least some of the publications, which included SoVo, David, Washington Blade, South Florida Blade and 411 magazine. But Kitchens and Myers have declined to talk publicly about the final days of the companies.

On Tuesday, they told Kerr that the debt-ridden Window and Unite struggled to find cash to operate while they pursued additional funding from M&T Bank, a New York firm that is one of two secured creditors in the bankruptcy process; Avalon, which owned the companies; and other sources. Window and Unite experienced a staggering drop in revenue in 2009 and were losing more than $195,000 a month, according to filings in the bankruptcy case.

Kitchens said the financial picture of the two companies was also pressured by $254,250 owed to local, state and federal agencies for unpaid payroll taxes and other fees. The original bankruptcy filings for Window and Unite put that total figure at $1.04 million, a figure that included $475,627 owed to the IRS for payroll taxes twice.

imageThose fundraising efforts failed as M&T and the Small Business Administration, which held the companies in federal receivership, refused to sell any piece, in part over concerns that any buyer would have difficulty obtaining a clear title to the business, Kitchens and Myers said. The pair, who ran the day-to-day operations of Window and Unite, also said they didn’t learn of the federal receivership until December 2008, more than three months after it took place.

“When it came down to the offers, the bank and receiver couldn’t see how they would wok with the buyers obtaining a clear title,” Kitchens said Tuesday.

The co-presidents also investigated Chapter 11 bankruptcy, which would allow the companies to remain open as they reorganized. But without cash to operate during the process, their attorney advised them to shut down the companies and file Chapter 7 bankruptcy, a move that leads to the liquidation of assets.

“The funds to operate the business had run out,” Myers said. “We had tried a few additional ways to obtain funds, including a bridge loan and through the owners. Those funds never came through.”

So the companies abruptly closed over the weekend of Nov. 14 under the weight of more than $11 million in debt owed to more than 400 creditors. Employees at Southern Voice and David began to hear about the closing Nov. 15, though some arrived for work the next day to find locked doors and a note that said the company had shut down.

“We had no more answers. We had Chapter 11, which the company couldn’t cover and no one would pay for, and Chapter 7,” Kitchens said.

Window executive worked for Fla. competitor at same time



But the rapid shutdown of the companies without any notice left some employees questioning how the process was handled. Employees were left without a month of salary or any health benefits and a handful appeared at the hearing Tuesday. Laura Douglas-Brown, editor of Southern Voice before it closed, questioned Kitchens about the shutdown.

imageDouglas-Brown (bottom photo) pointed to an article published in the Florida Agenda that reports Kitchens told the owners of Fort Lauderdale-based Multimedia Platforms about the Window and Unite bankruptcy days before it was filed and well ahead of any employees at the gay publications losing their jobs.

[Bobby Blair, Managing Partner and Founder of Multimedia Platforms] had just received a phone call from South Florida Blade and 411 Magazine Publisher Mike Kitchens informing him that parent company Window/Unite Media was going to file Chapter 7 Bankruptcy and close down all of their national publications. The sixteen people in the Wilton Manors office of 411/Blade were left unemployed.

Blair said he received a phone call from Kitchens days before, warning him of the upcoming plan to file bankruptcy.

“It’s time for you to put the transition in place if you are going to move forward with your plan,” Blair remembers Kitchens telling him over the phone.

Executives from Multimedia and Mark’s List offered to purchase the South Florida Blade and 411 in August for $175,000, according to the report. That offer was rebuffed and the companies launched the Florida Agenda and Mark’s List Magazine days after Window and Unite collapsed.

But Kitchens is listed as a managing member of Multimedia in the company’s Articles of Organization filed Sept. 11 with the Florida Department of State. At the time, he was also co-president of Window and Unite and based in their Fort Lauderdale office. Multimedia amended its corporate registration to remove Kitchens Nov. 16, the day Window and Unite ceased operations.

On Tuesday, Douglas-Brown questioned Kitchens about the apparent conflict of interest in working at the same time for Window/Unite and Multimedia, which had a pending offer to purchase the Florida assets of the troubled publisher. She also questioned why executives at Multimedia received advanced notice of the coming bankruptcy filing, when Window and Unite employees in other cities did not.

“I’m not aware of what they are talking about,” Kitchens said in response to Douglas-Brown’s questions about the Florida Agenda report. Kitchens told Kerr that he “stepped out of that process” with Multimedia and resigned Nov. 5 when he realized there would be a conflict.

Mark’s List Magazine and Florida Agenda hired many of the former employees of 411 and South Florida Blade. In Washington, several former employees of the Blade launched D.C. Agenda in the days after the bankruptcy. In Atlanta, most former employees of SoVo and David remain unemployed. Douglas-Brown and Chris Cash, who founded SoVo in 1988, are among several groups investigating launching new publications in Atlanta.

The liquidation of Window and Unite is expected to take more than a year to complete. A handful of potential buyers have shown interest in some company assets in Atlanta. The two companies could be sold together, individually or the publications could be grouped by their city and then sold.

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