Storage VAR SANZ Looks To Bankruptcy Or Sale

Employees of storage solution provider SANZ had little to be thankful for this Thanksgiving as most of them were let go on Friday in the wake of a decision by the company to either sell itself or declare bankruptcy.

SANZ, an Englewood, Colo.-based storage-focused solution provider, and one of the few publicly-listed regional solution providers, said in a Form 8-K filed on November 19 with the Securities and Exchange Commission (SEC) that it is exploring either a sale of its assets or filing with bankruptcy.

A former SANZ employee confirmed that most of its employees were laid off on Friday while executives at the company looked for alternatives to closing its doors.

Several of the company's field staff have been contacting other solution providers about possible employment, said Hope Hayes, president of Alliance Technology Group, a Hanover, Md.-based solution provider.

"We always thought SANZ was a big competitor to us," Hayes said. "We hope the manufacturers who need help closing SANZ deals will give us a call. And we're actively hiring, and would like to hear from former SANZ sales and technical people."

SANZ officials did not respond to requests for further information.

According to the Form 8-K, SANZ purchases over half of its products from Avnet, which holds a security interest in all the company's assets. That security interest is subordinate to the security interest granted to SANZ's banker, Wells Fargo, which had given SANs a revolving credit line of up to $12 million.

SANZ currently owes Avnet $2.9 million. Avnet helped trigger the latest crisis on November 15 with a letter of default to SANZ demanding immediate payment on the $1.3 million considered to be past due and notifying SANZ that it will no longer sell products to SANZ on trade credit terms.

"[SANZ] will be required to find other sources for the goods that it purchased from Avnet, and there is no assurance that we will be successful in finding alternative sources based on [SANZ's] current liquidity position," the company wrote.

An Avnet executive said the company is aware of the SANZ 8-K, but will not make any additional comments about the SANZ situation.

The other trigger was the decision by Sun Capital Partners II, an affiliate of the majority shareholder of SANZ, to cease funding the company.

Prior to this, SANZ had been talking to a number of solution providers about working them to handle the hardware side of new customer business while SANZ handled the services side.

Alliance was one of those, Hayes said. She said that SANZ had contacted Alliance a few months ago and said it would no longer sell Sun products, and that it was looking for other solution providers to be its hardware arm.

"They had had a Sun business, but was no longer a Sun reseller," Hayes said. "They contacted us. We tried to work with them on a couple of deals, where they were the lead, not us. But the deals fell off the map."

Other signs of trouble at SANZ have been frequent as of late. The company in August reported that revenue for the second quarter, which ended June 30, was $11.6 million, down from the $13.5 million it reported during the same quarter last year. The company lost $4.6 million, or 97 cents, per share, compared to a loss of $0.3 million, or 4 cents per share, during the same time.

That month also saw the company sell its EarthWhere division, which developed software to manage geospatial data, for $600,000. The company had invested about $11 million total on that business, according to a Form 424B3 it filed with the SEC on November 1.

In June, SANZ announced a one-for-25 reverse stock split to shore up its sagging share prices.

SANZ, in its present form, was formed by the merger of two other solution providers, Storage Area Networks and Solunet Storage, in early 2003. Both those companies were themselves the products of several earlier mergers.

SANZ is the second publicly-listed storage-focused solution provider to report serious financial trouble. Last month, Tustin, Calif.-based MTI Technology declared Chapter 11 bankruptcy after selling off its European subsidiary.

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