Publicly traded storage security vendor Kasten Chase has discontinued operations and filed for bankruptcy after failing to find a buyer or partner to pull it out of its financial hole. (See Kasten Chase Goes Under.)

According to a statement released yesterday, the firm was engaged in discussions with "a number of parties over many months" in an effort to resolve its financial problems. Earlier this year, for example, the vendor announced a net loss of $8.3 million for 2005 and signed a $1.5 million credit note to continue its operations. (See Kasten Chase Reports Financials.)

Specifically, Kasten Chase was looking for a potential buyer or a reseller agreement "with an established storage vendor," according to the company's statement, but execs confirmed that the firm was unable to clinch a deal in time.

Analysts were not exactly stunned by the news. "Kasten Chase had a unique encryption solution for MVS mainframe environments, but it's really about access to markets, access to channels, and access to customers," says Robert Amatruda, research manager at IDC.

"I wasn't surprised that it happened," adds Jon Oltisk, senior analyst at the Enterprise Strategy Group. "The company struggled financially, they were looking for partners, and I think that the clock just ran out."

Greg Schulz, senior analyst at the StorageIO Group, however, was slightly more taken aback. "I thought that they had good technology -- I am surprised that they are not able to hang on in there and make a go of it," he told Byte and Switch.

But, all the analysts agree on one thing: The marketplace for encryption and key management products for data storage is a difficult one. "It's a rough market, it's still in its infancy," explains Schulz, adding that a lot of the security vendors in this space are still doing, "early missionary work."

Despite a spate of headline-grabbing incidents involving lost tape, many users are still taking a lax approach to tape security, with the technology perceived in some quarters as low priority. (See Tape Security Trips Up Users, A Tale of Lost Tapes, and Iron Mountain Keeps Truckin'.)

Against this backdrop, Kasten Chase also faced stiff competition from the likes of Neoscale and Decru, which was snapped up by Network Appliance for $272 million last year. (See NeoScale Shows Off at SNW and NetApp Buys Decru.) "In an early market like this, it really comes down to relationships -- Decru being acquired by NetApp really helped them," notes Schulz.

Now, however, it will be interesting to see who picks up Kasten Chase's assets and its intellectual property. The vendor specialized in mainframe security, recently announcing a partnership with mainframe connectivity vendor Optica Technologies. (See Kasten Chase, Optica Team Up, and Review: Tape Encryption Devices.)

When Byte and Switch called Toronto-based Kasten Chase earlier today, a recorded message said that the firm's office was closed and that Ernst & Young is now acting as the trustee, "for the benefit of creditors."

— James Rogers, Senior Editor, Byte and Switch. Special to Dark Reading

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