A New Ripple for nStor

Last month, the CEO of nStor Technologies Inc. (Amex: NSO) said he was considering selling off its Fibre Channel and SATA array division (see NStor May Go Solo). Now, it looks as if the survival of nStor Corp., the company's storage division, could hinge on such a sale.

According to an SEC filing and a subsequent announcement, nStor Technologies certified public accountants, Swenson Advisors LLP, doubt the company can survive without a cash influx (see nStor Files SEC Disclosure).

NStor, which also owns Stonehouse Technologies Inc., a telecom services company, lost $28 million over the last three years; had negative working capital of $8.4 million at the end of 2003; and hasn’t been able to raise the funding it needs to continue. CEO H. Irwin Levy has already loaned nStor $6.9 million and put up $6.7 million of the $9.8 million in financing that it received since 2002.

When nStor announced its earnings in March, Levy said the company was "exploring” a sale of the storage division, but no decision had been made. Now, it seems that option could be more important than it initially seemed.

NStor did not respond to a call from Byte and Switch at press time.In the SEC filing, nStor’s accountants paint a bleak picture: “The auditors’ reports for our consolidated financial statements for the years [2001-2003] state that given our recurring operating losses and our continued experience of negative cash flows from operations, there is substantial doubt about our ability to continue.” The company’s filing also states: “We have insufficient liquidity to fund our operating needs for the next 12 months.”

NStor lost $6 million for 2003, including $1.6 million in the fourth quarter. That followed losses of $8 million in 2002 and $14 million in 2001.

NStor Corp., the storage division, recently added a SATA platform to go with its Fibre Channel arrays (see nStor Unveils SATA Series). The storage division generates most of nStor's revenue, which came to $12.6 million last year.

Levy claimed a significant increase in orders in March, and said he hoped a reseller agreement with DataCore Software Corp. would give sales a boost (see nStor Resells DataCore Software). He also said customers were waiting for more SATA products to become available before jumping in.

There isn't much time to lose for any company wanting a place on the SATA bandwagon: The SATA market is clearly taking off and has attracted most of the big-name array vendors and component makers (see SATA Suppliers Ready for Onslaught and AMCC Buys More Storage).— Dave Raffo, Senior Editor, Byte and Switch