Troubled SBE Pulls a Reverse

All that will be left of SBE if its merger agreement with Neonode goes through will be the name and its IP software -- and neither will likely remain for long. (See SBE, Neonode Merge.)

Publicly traded SBE said today it was entering into a reverse merger with the privately held Swedish mobile phone firm. Perish the thought of SBE's IP software running on Neonode's phone, which includes a touchscreen resembling the Apple iPhone. The deal is a reverse merger, done entirely for bookkeeping purposes. SBE is selling off anything of value to raise its anemic stock price; Neonode's looking to get listed on Nasdaq.

Following the merger, the company will be called SBE and take SBE's stock symbol, but Neonode's management team will run it out of Stockholm. In a reverse merger, a private company sells its shares to a public company in exchange for enough shares of the public company to take control. Also known as a back door listing, a reverse merger is a quicker and cheaper method for a company to sell its shares publicly than to go through an IPO.

"Our stock price has been dismal over the last five or six months," SBE CFO David Brunton says. "We embarked on a mission to increase shareholder value. The best way to do that was to divest certain business units and find partners."

With its share price languishing below $1.00 since last June, Nasdaq notified SBE Jan. 11 that it was subject to delisting. SBE said it would request a hearing and take steps to bring its share price up. The following day, SBE sold its embedded hardware business consisting of network adapter cards to One Stop Systems for $2.2 million. (See SBE Sells Embedded Business.)SBE hopes to complete the Neonode and OneStop deals by the end of March, pending approval of shareholders.

Brunton says most of SBE's 34 employees will be let go, although he and several accountants will stay on in San Ramon, Calif., after the deal closes. Once Neonode assumes SBE's listing on Nasdaq, Brunton expects the firm to change the corporate name to Neonode.

SBE's IP software isn't a good fit for Neonode. Neonode's phones are Windows CE-based, and SBE's iSCSI software is Linux-based. That means the new firm will likely look to sell off or dump the software, which allows companies to build IP SANs using off-the-shelf hardware.

"We are evaluating what to do with that product line," Brunton says. "We're continuing to develop and sell it."

He says SBE has about 17 companies licensing its IP SAN Director software, which is based on iSCSI target software acquired in a merger with PyX Technologies in 2005. (See SBE 'PyX' Its TOEs.) SBE added replication, snapshots, and high availability features last year."Last year we were busy on the development side," Brunton says. "Now we have all that, and the runway's getting a little short."

SBE's main software competition is Wasabi Systems on the Linux side. DataCore, FalconStor, Microsoft, and Rocket Division Software have Windows-based iSCSI target software.

In its last quarterly earnings issued in August, SBE recorded a loss of $7.8 million on sales of $1.6 million for that quarter, and a loss of $13.6 million on sales of $4.8 million for the previous nine months. In its last annual report, SBE reported a loss of $4.2 million on sales of $8.1 million for fiscal 2005.

SBE shares, which closed at $0.34 Friday, hit $0.68 today before closing at $0.56 today for a 64.71 percent gain.

Dave Raffo, News Editor, Byte and Switch