The United States Armed Forces uses five states of alert or Defence Readiness Conditions, from DEFCON 5 (least severe) to DEFCON 1 (most severe), each prescribing the required level of military preparedness in response to threats.

Similarly for enterprises too, it’s always been a good risk management practice to closely monitor their technology vendor’s long term viability and in this accounting scandal season, KIT Digital customers would do well to get a handle on the goings on at the company.

Video technology vendor KIT Digital’s Video Platform product is evaluated in our Broadcast and Media Asset Management software report. It’s not a MAM solution but the Video Platform is of interest to broadcasters and media companies as a video streaming/hosting solution.

In our reports, highlighting the recent tumult (attrition, losses, layoffs) at KIT Digital, we advised customers “to proceed with serious caution,” perhaps a DEFCON 4. Now, a new corporate governance cloud hangs over KIT Digital, and we’re raising our alert to DEFCON 3.

Here are the details of the “veni, vidi, vicious” at KIT Digital. The current management told the US Securities Exchange Commission that

• They will restate the financial statements from 2009 onwards because of accounting errors and irregularities by the previous management
• They don’t have much cash and so may default on their loans, lay-off more people, cut down development spending
• They’re figuring out how to tide over this and are considering selling all / parts of the company.

The previous CEO has rejected the allegations of accounting irregularities and has made his own counterclaims, including:

• That current management is trying to make him a “scapegoat” for bad performance, talk the stock price down and buy back at a low price in a “sweetheart deal”
• That they’re neglecting the operational aspects - not visiting clients, losing sales people, disrupting engineering talent, not improving product, and many others essentially suggesting that they don’t “get it”
• That he has offered to rescue the company by buying it back, with the help of private equity backers

While we should read these claims and counterclaims with a certain degree of skepticism (and let the authorities weigh in on any accounting malafides), there’s no doubt that it’s been a year of turbulence at KIT Digital -- a musical chair of three CEOs, retrenchment, restructuring, and minimal R&D investments.

Importantly, now with a “barbarians at the gates” scenario of a company buy-out as part of the picture, there does not seem to be an end in near-sight. Hence, our DEFCON 3.

Customers, is now the time to start proactively making alternate plans to deal with the uncertainty, or will you simply play the waiting game until the storm blows over? Tell us what you think...