Suppliers Move From Pink to Public

Vendor goes public without selling a single product

December 11, 2004

3 Min Read
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When a company goes public, it usually has a strong product portfolio, revenue growth, financial backing, and profitability. Then theres iStorage Networks Inc. (Pink Sheets: IOGN.PK), which became a public company without any of those things (see iStorage Goes Public).

The Gilford, N.H.-based company began trading as a public company through the over-the-counter Pink Sheets electronic stock quote service Thursday. iStorage Networks got listed after failing to line up venture capital, but CEO Tom Makmann says he still hopes to raise around $3 million in equity funding.

iStorage Networks’ stock began trading at $0.02 Thursday, and the price closed today at $0.65 after 5,100 transactions.

Storage companies usually go public only after raising millions through VC or angel funding. It’s not unprecedented for the move to happen sooner, though. For example, storage services provider BluePoint Data Storage Inc. (Toronto: BLP; Pink Sheets: BLPDF) has traded through the Toronto Exchange and Pink Sheets for years, and today it completed a round of private placement funding (see BluePoint Completes Private Placement).

iStorage Networks went public through a reverse merger with a company previously called Camryn Information Services. In a reverse merger, a private company merges with a public company that often has no assets or liabilities. This allows the private company to go public faster and with less cost than with an IPO.“As the company starts to grow, we can take it to a bigger exchange,” Makmann says. “This offers us more control over our destiny. The advantage is, I get my company in position where investors have a vehicle for exiting [through selling shares]. The disadvantage is, we have to make some things public.”

iStorage Network identifies itself as a provider of iSCSI systems for SMBs, but it doesn’t have any IP SAN products yet. Its Website lists three IP SAN devices and a SATA RAID drive. Makmann says the hardware will come from an OEM deal with white box supplier Xtore Extreme Storage, which isn't yet completed. Eventually, iStorage plans to develop software for its iSCSI devices.

Don’t expect anything soon, though: iStorage has one developer on its staff of four. The CEO says he has deals with unnamed partners to sell NAS and RAID systems, but so far no sales.

According to the disclosure statement iStorage filed to get listed, the company has $205,761 worth of expenses and $62,500 in cash from a loan. So it faces a tough battle. And Makmann didn’t have a lot of success with his previous company, NAS startup Network Storage Solutions (see NSS Names CEO). He brokered a deal to sell NSS to IQ Biometrix in 2003, but the potential buyer pulled out (see IQ Biometrix to Buy NSS). NSS went into Chapter 11, and Network Storage Corp. (NSC) bought its assets in May 2004. Before NSS, Makmann had an eight-month job heading up nStor Technologies Inc. (Amex: NSO), which he left in the midst of a particularly bleak period (see nStor President Is nGone).

Does Makmann's new company have a chance? The odds are against it. But it's not impossible. Consider the plight of BluePoint Data Storage. BluePoint started trading on the Toronto Exchange soon after its 2001 inception as Storage Access and began trading through Pink Sheets in 2002. Today it completed a private placement worth just under $500,000.BluePoint plans to use the funding to support new customers through early 2005 as it tries to reach the goal CEO Paul Sachse set in June: namely, becoming cash-flow positive by the end of the year. The company lost $259,356 last quarter, nearly cutting its losses in half from the same period last year. Perhaps it will make it into the black after years in the red and pink.

— Dave Raffo, Senior Editor, Byte and Switch

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