StoreAge Parent Disbanding

IIS Intelligent Information Systems Ltd. (Nasdaq: IISL), the company that launched virtualization software supplier StoreAge Networking Technologies Ltd., is going out of business.

Statements filed by IIS with the Securities and Exchange Commission (SEC) this week say its board plans a voluntary liquidation, pending a meeting July 29, 2004 (see IIS Going Out).

As IIS disbands, it's making no bones about its wish to see StoreAge turn up in an acquisition or merger that helps the IIS shareholders make good; and that in turn is fueling rumors of a possible bid by one of StoreAge's many partners, which include Brocade Communications Systems Inc. (Nasdaq: BRCD) and McData Corp. (Nasdaq: MCDTA) -- both of which have OEM'd StoreAge virtualization software (see Report: Switch Is Best for Virtualization) -- or one of its investors, such as Cisco Systems Inc. (Nasdaq: CSCO).

"We are like every other private investor looking at a startup that's doing well and... looking for an exit strategy," says Jacob Herbst, a cofounder and shareholder of IIS who is now CEO and cofounder of FilesX Inc. (see FilesX Founder Counts Blessings). Beyond that, though, he won't speculate about who might bid for StoreAge.

"We have potential candidates, some very large companies, and I've gotten two or three phone calls already from additional, smaller companies since our [liquidation] statement went out," says Robi Hartman, IIS's chairman and CEO. "Now we have time to sit and wait for the right proposal."Fine, but how could a company whose sole focus since 1999 has been on hot SAN areas like virtualization wind up sold for parts anyway?

The easy answer appears to be that IIS, based in Ramat Gan, Israel, outlived its usefulness. Started nearly twenty years ago, IIS originally sold data communications peripherals for mainframe environments. In 1999, management rededicated the firm to SANs and began a cycle of wheeling and dealing in the Israeli tech sector that culminated in the founding of StoreAge and one other company, an obscure iSCSI software supplier, Enargis Storage Solutions Ltd.

By 2001, in order to raise money for StoreAge, IIS relinquished its status as parent and made StoreAge an affiliate, helping draw a $25 million round for StoreAge from an impressive array of investors, including Cisco, CDC Holdings Ltd., Morgan Keegan Entities, Genesis Partners, Koonras Technologies Ltd., The Challenge Fund, and Ophir Tech Ltd.

IIS was now a holding company, with a 38.9 percent share of StoreAge and a 25 percent share of Enargis, which had been sold in March 2003 to Hartman and Danny Shavit, IIS's ex-CTO. Trouble was, it was also a public company -- with all the attendant expense. After years of losses, IIS realized no revenue in 2003 and decided to close up shop.

Clearly, IIS's proposed liquidation could put pressure on StoreAge to land a partner with a proposal, though it may take awhile for the right one to materialize. Hartman says StoreAge has talked to possible suitors in the past, with no offers produced. By putting IIS to rest, the directors who originally launched StoreAge will be financially freer to wait for something to come along, and they won't face further dilution of their investment if more funding has to be sought in the meantime.Mary Jander, Site Editor, Byte and Switch