Kasten Chase Goes Belly Up

Kasten Chase, a pioneer in data security, announced Wednesday that it is filing for bankruptcy and ceasing operations.

The company was attempting to transition from a secure modem business to storage security, but the storage business didn’t ramp up fast enough. In the first quarter of 2006, Kasten Chase reported sales of $100,000 and a net loss of $1.1 million. At the end of the quarter, the company had $600,000 in cash. In the year earlier quarter, the company had sales of $700,000 and a net loss of $2 million.

The 30-year-old Toronto-based company appeared to be well positioned last year after lost data tapes and database breaches pushed the issue of storage security to the forefront, but on the company’s last conference call in March, CEO Michael Milligan expressed disappointment at how slowly the storage security market had developed.

“The company started when storage security sales were extremely tough and never built the direct sales or OEM momentum to sustain operations,” said Jon Oltsik, senior analyst for information security at Enterprise Strategy Group. “Great folks who will be missed.”

Greg Schulz, founder and senior analyst at StorageIO, said the storage security market is in its “infancy.”

“The market is there, it’s just a matter of time before it ramps up and the real demand and buying starts to kick in,” said Schulz. “Regarding Kasten Chase, it will be interesting to see who picks up their intellectual property in the liquidation sale.”

Schulz noted that the storage security market still has a number of specialty vendors, such as CipherOptics, Innovation Data Processing, Luminex, Maxxan, NeoScale and Vormetric, and a number of big-name vendors have also gotten in on the act.

And not all storage security vendors are suffering. Network Appliance, which acquired Decru last year, had about $9 million in storage security sales in its most recent quarter, and storage security revenues are growing at a much faster rate than the company’s overall business.

Kasten Chase said in a statement that it had been “engaged in discussions with a number of parties over many months in an effort to rectify the company’s financial situation and improve its long-term business prospects. … The Board and management have now concluded it is unlikely any such transaction beneficial to the company or its stakeholders could be completed on a timely or profitable basis. Accordingly, the Board has determined it is in the best interests of the company to discontinue operations immediately.”

Trading in Kasten Chase shares was halted on the Toronto Stock Exchange. The stock, which traded as high as $14 six years ago, last changed hands at 8.5 cents.

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