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NeoScale's Up for Grabs

It's well known by now that encryption appliance startup NeoScale Systems has ceased operations. But its demise may point to deeper problems than the accounts receivable shortfalls that reportedly sunk the firm. And instead of being sold to EMC, HP, or another big supplier, the remaining assets of NeoScale may be auctioned off by top creditor Hercules Technology Growth Capital.

At least one former NeoScale employee, who spoke on condition of anonymity, says NeoScale closed shop on November 26, following weeks of ongoing layoffs and frantic attempts to salvage the key elements of the business. In the end, the company was in such bad shape that some employees were still owed expenses, an HR person was working pro bono, and all product support had ceased. According to the employee, the reason the company's Website remains up is that no one can pay to have it taken down.

NeoScale execs, including CEO Barbara Nelson, continue to ignore or refuse to comment on the status of NeoScale. Contacted on October 29, when Byte and Switch first heard rumblings of trouble, then-SVP of marketing and business development James Yu stated: "The situation will be clearer quite soon, but we won't be able to comment before then." On December 7, VP of marketing Dore Rosemblum replied to questions on the company's demise: "We still have no comment."

NeoScale board member Barry Eggars, founding partner of Lightspeed Venture Partners, insists there is "misinformation" in published reports, but declines to clarify. He says the board is intact and that NeoScale isn't being run by its bankers. "Obviously, I can't comment on the sale of the company until it is public," he wrote in an email on December 7.

Who will buy? Despite reports of interest from EMC, HP, and others, only one firm, encryption software maker nCipher, has acknowledged looking seriously at NeoScale. "I can acknowledge there's been interest, but I don't know the status beyond that," said an nCipher spokesman.

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