STORAGEAPPS INC, S-1, 2000-11-03

STORAGEAPPS INC
S-1, 2000-11-03

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
STORAGEAPPS INC.
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 7372 22-3374723
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
1001 FRONTIER ROAD
BRIDGEWATER, NJ 08807
(908) 243-8700
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)

HOWARD A. KWON
GENERAL COUNSEL
STORAGEAPPS INC.
1001 FRONTIER ROAD
BRIDGEWATER, NJ 08807
(908) 243-8700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
</TABLE>

Copies to:
WINTHROP B. CONRAD, JR. JOEL S. KLAPERMAN
DAVIS POLK & WARDWELL SHEARMAN & STERLING
450 LEXINGTON AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 450-4000 (212) 848-4000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ] _____________________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

---------------------

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share ......... $115,000,000 $30,360
--------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of
1933.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================

<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS (SUBJECT TO COMPLETION)

ISSUED NOVEMBER 3, 2000

[STORAGEAPPS LOGO]

COMMON STOCK

----------------

STORAGEAPPS INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES.
WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $
AND $ PER SHARE.
----------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "STRG."
----------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
-------------
PRICE $ A SHARE
-------------

UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC COMMISSIONS STORAGEAPPS
--------------- --------------- ---------------
Per Share ......... $ $ $
Total ............. $ $ $

StorageApps Inc. has granted the underwriters the right to purchase up to an
additional shares to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.

----------------

MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
MORGAN KEEGAN & COMPANY, INC.

, 2000

<PAGE>

[INSIDE FRONT COVER ARTWORK DEPICTS THE STORAGEAPPS LOGO AND THE FOLLOWING
PASSAGE: "STORAGEAPPS DELIVERS VALUE-ADDED BENEFITS THROUGH A SUITE OF OPEN,
FLEXIBLE SOLUTIONS THAT OFFER GLOBAL COMPANIES A COMPLETE CHOICE OF SERVER
PLATFORMS, STORAGE DEVICES AND CONNECTIVITY PROTOCOLS. WE CALL OUR PRODUCTS AND
SERVICES A PORTFOLIO OF PROACTIVE NETWORK STORAGE SOLUTIONS(TRADEMARK)
OFFERINGS."]

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ............................ 4
Risk Factors .................................. 9
Special Note About Forward-Looking
Statements ................................. 15
Use of Proceeds ............................... 16
Dividend Policy ............................... 16
Capitalization ................................ 17
Dilution ...................................... 18
Selected Consolidated Financial Data .......... 19
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................. 21

</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business ...................................... 26
Management .................................... 36
Certain Relationships ......................... 41
Principal Stockholders ........................ 43
Description of Capital Stock .................. 45
Shares Eligible for Future Sale ............... 48
Underwriters .................................. 50
Legal Matters ................................. 52
Experts ....................................... 52
Where You Can Find More Information
about StorageApps .......................... 53
Index to Consolidated Financial
Statements ................................. F-1
</TABLE>
----------------

UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

In this prospectus, "StorageApps," "we," "us" and "our" refer to
StorageApps Inc. You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with information
different from that contained in this prospectus. We are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of when this
prospectus is delivered or when any sale of our common stock occurs.

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified by the more detailed information and
financial statements and notes appearing elsewhere in this prospectus.

STORAGEAPPS INC.

We provide a portfolio of Proactive Network Storage Solutions (Trade
Mark) products and services to customers with mission-critical storage
requirements. Our proactive applications bring intelligence to storage
networks, enabling customers to manage their information infrastructures
efficiently and effectively. We believe our solutions provide a superior
combination of functionality, interoperability and management capability
compared to other network storage solutions. Since our management team is
comprised of several former enterprise information technology executives, we
believe we have a unique focus on and understanding of our customers' needs.

Our proprietary solutions, which are delivered either through our SANLink
(Trade Mark) platform or through platforms produced and sold by our original
equipment manufacturer, or OEM, partners, enable:

o Interoperability with a wide range of storage and server products,
allowing for the selection of superior, or best-of-breed, solutions;

o Easy and rapid deployment of storage networks;

o Scalability to accommodate enterprise growth;

o Efficient and cost-effective use of storage resources;

o Simplified, centralized management of storage networks, allowing them to
be operated with minimal training;

o Enhanced information protection and business continuity; and

o Improved control over access to storage network data through enhanced
network security.

We believe the market for network storage management solutions is poised
for rapid growth. Forrester Research estimates that the Global 2500 companies
managed an average of 15,000 gigabytes of data in 1999 and that by 2003 they
will manage an average of 153,000 gigabytes of data representing a 79% compound
annual growth rate. Due to the increasing volume and importance of data and the
complexity of data management, corporate storage-related spending is expected
to rise dramatically. Based on IDC and Dataquest estimates, sales of network
storage technology products are expected to increase from $4.4 billion in 1999
to $19.8 billion in 2004 representing a 34% compound annual growth rate. In
addition, META Group estimates that between 70% and 80% of all information
technology, or IT, spending in 2001 will be storage-related.

We founded our business in 1995 and became a leading global value added
reseller of redundant array of independent disks, or RAID, storage devices. As
a result of our customer experience and expertise in the data storage area, we
identified the need and opportunity for more comprehensive network storage
solutions. We are utilizing our storage technology expertise, customer
relationships and revenue base to grow our portfolio of Proactive Network
Storage Solutions offerings.

We currently market to global companies with mission-critical storage
requirements through a direct sales force. Our customers include leading
companies such as Morgan Stanley Dean Witter, Merrill Lynch & Co., Brocade
Communications, Enron Broadband and Imation Corp. In the third quarter of 2000,
we started selling our technology through an OEM relationship with Dell
Computer Corporation. We are also pursuing relationships with additional OEMs
and distributors. We believe this strategy will help us increase our customer
base rapidly, generate awareness and acceptance of our technology in the
marketplace and allow us to target potential customers more efficiently.

4
<PAGE>

We intend to become the leading provider of network storage products and
services to customers with mission-critical storage requirements by:

o Leveraging our superior technologies to increase market acceptance of
our solution;

o Enhancing current technology and introducing more advanced applications;

o Pursuing a multi-channel global sales and distribution strategy;

o Maintaining an intense focus on customers; and

o Establishing StorageApps as a leading brand for enterprise storage
solutions.
------------
We were initially incorporated in New Jersey as RAID Power Service, Inc.
on March 25, 1995. We were reincorporated in Delaware on September 11, 1998 and
we changed our name to StorageApps Inc. on February 22, 2000. Our principal
executive offices are located in the StorageApps Global Customer Center at 1001
Frontier Road, Bridgewater, New Jersey 08807, and our telephone number at that
location is (908) 243-8700. We also maintain a web site at www.storageapps.com.
This reference is not an active link to our web site and the information
contained in or connected to our web site shall not be deemed to be
incorporated into this prospectus or the registration statement of which it is
a part.

5
<PAGE>

THE OFFERING

Common stock offered........ shares

Common stock to be
outstanding after
this offering............... shares

Use of proceeds............. We will receive net proceeds from this offering
of approximately $ million. We intend to use
the net proceeds from this offering for general
corporate purposes, including working capital and
capital expenditures relating to the expansion of
our operations.

Dividend policy............. We do not intend to pay dividends on our common
stock. We plan to retain any earnings for use in
the operation of our business and to fund future
growth.

Proposed Nasdaq National
Market symbol............... STRG

The number of shares to be outstanding after this offering is estimated
based on the number of shares outstanding on June 30, 2000 on a pro forma basis
to reflect the conversion of preferred stock outstanding and excludes, as of
November 1, 2000, 11,424,323 shares of common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $3.98 per share and
an additional 1,631,676 shares of common stock reserved for future issuance
under our stock incentive plan.

Except as otherwise indicated, information in the prospectus is based on
the following assumptions:

o the conversion of 106,007 shares of Series A convertible preferred
stock, which was all of the outstanding shares of preferred stock, into
6,115,864 shares (including accrued stock dividends) of common stock on
July 11, 2000; and

o no exercise of the underwriters' over-allotment option.

6
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE
PERIOD
MARCH 22,
1995
(INCEPTION)
TO YEAR ENDED DECEMBER 31,
DECEMBER ------------------------------------------------
31, 1995 1996 1997 1998 1999
------------ --------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ......................................... $ 456 $ 4,873 $ 15,689 $ 24,007 $ 23,322
Cost of goods sold ................................ 153 3,165 10,562 14,347 13,782
-------- ------- -------- -------- --------
Gross profit ..................................... 303 1,708 5,127 9,660 9,540
Operating expenses (exclusive of non-cash
stock compensation expense of $799,000 for
the six months ended June 30, 2000) .............. 227 1,614 3,944 4,910 6,403
Stock compensation expense ........................ -- -- -- -- --
-------- ------- -------- -------- --------
Income (loss) from operations .................... 76 94 1,183 4,750 3,137
Other income (expense)
Interest income .................................. -- -- 89 194 100
Interest expense ................................. 9 77 209 357 81
-------- ------- -------- -------- --------
Net income (loss) before income taxes .......... 67 17 1,063 4,587 3,156
Income tax expense (benefit) ...................... 13 12 496 1,982 1,236
-------- ------- -------- -------- --------
Net income (loss) ................................ $ 54 $ 5 $ 567 $ 2,605 $ 1,920
======== ======= ======== ======== ========
Net income (loss) per share, basic and diluted..... -- -- $ .01 $ .06 $ .04
Weighted average common shares outstanding,
basic ............................................ 44,695 44,695 44,695 44,697 44,700
Weighted average common shares outstanding,
diluted .......................................... 44,695 44,695 44,695 46,462 50,000
Pro forma basic net income (loss) per share .......
Pro forma diluted net income (loss) per share .....
Pro forma weighted average common shares
outstanding, basic ...............................
Pro forma weighted average common shares
outstanding, diluted .............................

<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ......................................... $ 9,434 $ 16,159
Cost of goods sold ................................ 5,340 8,779
-------- --------
Gross profit ..................................... 4,094 7,380
Operating expenses (exclusive of non-cash
stock compensation expense of $799,000 for
the six months ended June 30, 2000) .............. 2,620 8,160
Stock compensation expense ........................ -- 799
-------- --------
Income (loss) from operations .................... 1,474 (1,579)
Other income (expense)
Interest income .................................. 27 115
Interest expense ................................. 1 31
-------- --------
Net income (loss) before income taxes .......... 1,500 (1,495)
Income tax expense (benefit) ...................... 641 (456)
-------- --------
Net income (loss) ................................ $ 859 $ (1,039)
======== ========
Net income (loss) per share, basic and diluted..... $ .02 $ (.02)
Weighted average common shares outstanding,
basic ............................................ 44,700 46,957
Weighted average common shares outstanding,
diluted .......................................... 50,000 46,957
Pro forma basic net income (loss) per share .......
Pro forma diluted net income (loss) per share .....
Pro forma weighted average common shares
outstanding, basic ...............................
Pro forma weighted average common shares
outstanding, diluted .............................
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-------------------------
PRO FORMA AS
ACTUAL ADJUSTED
--------- -------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 7,920
Working capital .................... 23,536
Total assets ....................... 37,639
Total liabilities .................. 13,589
Total stockholders' equity ......... 24,050
</TABLE>

7
<PAGE>

Pro forma as adjusted balance sheet data and pro forma basic and diluted
net income (loss) per share data gives effect to the conversion of 106,007
shares of Series A convertible preferred stock, which was all of our
outstanding shares of preferred stock, into 6,115,864 shares (including accrued
stock dividends) of common stock on July 11, 2000, and the issuance and sale by
us of shares of common stock in this offering. See "Use of Proceeds" and
"Capitalization."

Weighted average common shares outstanding for all periods have been
adjusted to reflect the 50-for-1 stock split effective January 27, 2000, and
the 1998 exchange of 100 shares of common stock, no par value, for 893,893
shares of common stock, $.01 par value. The loss per common share calculation
for the six months ended June 30, 2000 excludes shares issuable upon conversion
of convertible preferred stock or exercise of options, as the effect is
anti-dilutive for the period.

<PAGE>

RISK FACTORS

This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risks and the other
information in this prospectus before investing in our common stock. If any of
the following risks and uncertainties develop into actual events, our business,
financial condition and results of operations could be seriously harmed. This
could cause the trading price of our common stock to decline, and you may lose
all or part of your investment.

RISKS RELATED TO OUR BUSINESS

WE HAVE ONLY RECENTLY BEGUN TO SELL OUR SANLINK PLATFORM AND WE MAY NOT BE
SUCCESSFUL IN SELLING OUR NEW PRODUCTS; IN ADDITION, IT MAY BE DIFFICULT TO
PREDICT OUR FUTURE RESULTS

We began to sell our new SANLink platform in the second quarter of 2000.
This is a new product line -- previously, most of our revenues were derived
from sales of RAID storage devices. In addition to direct sales of our SANLink
platform, we expect to derive revenues from licenses of our software to OEMs
and distributors. Our future revenues will depend on the development of
enhancements to the applications we currently offer on the SANLink platform. We
may not be successful in developing any of these revenues. Due to the changing
nature of our business and our limited experience in the network storage
solutions market, our historical financial information is not a reliable
indicator of future performance. Therefore, it may be difficult to evaluate our
business and prospects.

THE MARKET FOR NETWORK STORAGE SOLUTIONS IS NEW; OUR BUSINESS MAY SUFFER IF
IT DOES NOT DEVELOP AS WE EXPECT

The market for network storage solutions has only recently begun to
develop and is rapidly evolving. Because this market is new, it is difficult to
predict its potential size or future growth rate. Potential end-user customers
who have invested substantial resources in their existing data storage and
management systems may be reluctant or slow to adopt a new approach, like
network storage solutions. Our success in generating revenue in this emerging
market will depend on, among other things, our ability to educate potential
customers about the benefits of network storage solutions and our ability to
maintain and enhance our relationships with leading OEMs and distributors.

WE MAY NOT BE SUCCESSFUL IN GROWING OUR SANLINK PLATFORM SALES OR IN
FORGING STRATEGIC ALLIANCES WITH OEMS AND DISTRIBUTORS

The market for storage area network, or SAN, devices such as our SANLink
platform is very new. If we are unsuccessful at addressing the needs of the
market or if we have overestimated the size of this market, our SANLink
platform sales may not grow as expected. In addition to directly marketing our
SANLink platform, we plan to enter into strategic alliances with OEMs and
distributors, whereby they license our technology for use in their products.
Potential purchasers of our SANLink platform may choose competing products or
solutions, including products from OEMs or distributors containing our licensed
technology, instead of our SANLink platform. This may negatively impact our
sales. A key element of our growth strategy is to leverage our existing
customer relationships by selling our SANLink platform to our installed base of
customers. If we are unable to do this, our sales may be negatively affected.
If our SANLink platform sales do not grow as expected, if we are unsuccessful
at forging strategic alliances or if sales of our products are displaced by
sales of OEMs' or distributors' products, our business, results of operations
and financial condition may be seriously harmed.

OUR SALES HAVE BEEN HIGHLY CONCENTRATED WITH A FEW MAJOR CUSTOMERS; IF WE
LOSE ONE OR MORE OF THESE CUSTOMERS, OUR BUSINESS MAY BE SERIOUSLY HARMED

Our two most important customers accounted for an aggregate of 82.3%,
78.2%, 52.2% and 63.6% of our sales in 1997, 1998, 1999 and the first half of
2000. Substantially all of these sales were of our RAID storage devices. Morgan
Stanley Dean Witter accounted for 53.2%, 52.8%, 39.5% and 54.4% of our sales in
1997, 1998, 1999 and the first half of 2000, while Merrill Lynch & Co.
accounted for 29.1%, 25.4%, 12.7% and 9.2% of our sales during those same
periods. In addition, 75.6% of our sales in 1999 were to the financial services
industry. If we were to lose one or more of our major customers, our business
may be seriously harmed.

<PAGE>

OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF WE FAIL TO MANAGE OUR GROWTH
PROPERLY

We are expanding our operations rapidly to support our new SANLink
platform and related services. Our total number of employees grew from 24 at
December 31, 1999 to 169 at November 1, 2000, and we expect to hire a
significant number of employees during the remainder of 2000 and early 2001.
This growth has placed, and our anticipated growth in future operations will
continue to place, a significant strain on our management systems and
resources.

In order to grow and achieve future success, we must:

o retain existing personnel;

o hire, train, manage and retain additional qualified personnel; and

o effectively manage relationships with our customers, suppliers and
other third parties.

Several members of our senior management joined us during the last year,
including our Chief Financial Officer, General Counsel and Chief Marketing
Officer. Because we will need to continue to expand, train and manage our
workforce worldwide, we will incur increased operating expenses. If we do not
manage this growth, or if our revenues do not grow as fast as planned, our
results would be adversely affected.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE
NETWORK STORAGE TECHNOLOGY INDUSTRY

We compete against a number of hardware manufacturers, software
developers, and vendors of both hardware and software, which sell SAN
appliances and/or SAN consulting or related services. If we are unable to
compete successfully, our business may fail. As a result of our shift of focus
to sales of our SANLink platform, we may compete directly against many of the
largest OEMs who sell or may sell SAN appliances. Many of these competitors
have significantly greater financial resources, larger development, sales and
marketing staffs, longer operating histories, greater name recognition, larger
client bases and more established relationships in the industry. As a result,
these competitors may be able to rapidly establish or expand network storage
offerings more quickly, adapt to new technologies and customer requirements
faster, take advantage of acquisition and other opportunities more readily and
adopt more aggressive pricing policies than we may be able to.

If the market for SAN appliance-based storage solutions grows as we expect
it to, additional direct competitors are likely to enter this market. It is
possible that some OEMs with whom we do business, or hope to do business, may
discontinue their relationships with us and enter the market directly.

Increased competition from any of these sources could result in a loss of
customers and market share. Additionally, price competition, particularly from
competitors with greater resources, could require us to reduce prices for our
products and services. Any of these results could seriously harm our business,
results of operations and financial condition. See "Business -- Competition."

OUR PRODUCTS MAY NOT BE ACCEPTED BY CUSTOMERS OR MAY BECOME OBSOLETE IF WE
DO NOT RESPOND RAPIDLY TO TECHNOLOGICAL AND MARKET CHANGES

Our industry is characterized by rapid technological change and frequent
product and service introductions. We may be unable to respond quickly or
effectively to these developments. If competitors introduce products, services
or technologies that are better than ours or that gain greater market
acceptance, or if new industry standards emerge, our products and services may
become obsolete, which would materially harm our business and results of
operations. Alternatively, the market may develop to a point where devices such
as our SANLink platform are not required, as a result of consolidation in the
network server and/or storage device industries. If any of these events were to
occur, our business could be seriously harmed.

OUR BUSINESS WILL SUFFER IF WE DO NOT ENHANCE AND EXPAND OUR PRODUCT AND
SERVICE OFFERINGS TO MEET CHANGING CUSTOMER REQUIREMENTS AND EXPECTATIONS

To be successful, we must develop enhanced features and capabilities that
our current products and services do not have. We must, in an effective and
timely manner, anticipate and satisfy our customers'

10
<PAGE>

requirements and expectations by developing and offering products and services
that meet their demands. The development of new or enhanced products and
services is a complex and uncertain process that requires accurate anticipation
of technological and market trends. We may experience design, marketing and
other difficulties that could delay or prevent the development, introduction or
marketing of new products and services as well as enhancements to our existing
products and services. In addition, the introduction of new or enhanced
products and services must allow our customers to easily upgrade without
disrupting their storage capabilities. Our failure to anticipate and meet
changing customer requirements and expectations or to effectively provide for
easy upgrades by our customers to new products and services would adversely
affect our business, results of operations and financial condition.

OUR COMPLEX PRODUCTS MAY HAVE ERRORS OR DEFECTS WHICH COULD RESULT IN
REDUCED DEMAND FOR OUR PRODUCTS OR COSTLY LITIGATION AGAINST US

Our SANLink platform is complex and is designed to be deployed in large
and complex networks with large volumes of traffic. Accordingly, our SANLink
platform can only be fully tested when completely deployed in these types of
networks. Our customers may discover errors or defects in the hardware or the
software, or our product may not operate as expected. In addition, many of our
customers will require that our products be designed to interface with their
existing networks, each of which may have different specifications and utilize
multiple protocol standards. Because our products are critical to the networks
of our customers, any significant interruption in their service as a result of
defects in our product within our customers' networks could result in lost
profits or damage to these customers. These problems could cause us to incur
significant service and warranty costs, divert engineering personnel from
product development efforts and significantly impair our ability to maintain
existing customer relationships and attract new customers. Although our
contracts with customers generally contain provisions designed to limit our
exposure to potential product liability claims, such as disclaimers of
warranties and limitations on liability for special, consequential and
incidental damages, a court might not enforce a limitation on our liability,
which could expose us to financial loss. In addition, a product liability
claim, whether successful or not, would likely be time consuming and expensive
to resolve and would divert management time and attention. Further, if we are
unable to fix the errors or other problems that may be identified in full
deployment, we would likely experience loss of or delay in revenues and loss of
market share and our business and prospects would suffer.

IF WE LOSE KEY PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR
BUSINESS

Our future performance will be substantially dependent on the continued
services of our senior management and other key personnel. We do not have term
employment agreements with any of our key personnel. The loss of any member of
our executive management team and our inability to hire additional executive
management could harm our business and results of operations. In addition, our
personnel needs are more acute than those facing most companies as a result of
our rapid expansion and the general tightness in the technology job markets. We
must hire many additional sales, engineering, service and administrative
personnel to support our SANLink platform and related services. If we are
unable to hire and retain these employees, our business and quarterly and
annual results of operations will be adversely affected. Additions of new
personnel and departures of existing personnel may also disrupt our business
and may result in the departure of other employees.

WE RELY ON THIRD PARTY MANUFACTURERS FOR THE COMPONENTS IN OUR HARDWARE
PRODUCTS, AND ANY INTERRUPTION IN THE SUPPLY OF THESE PRODUCTS AND
MATERIALS COULD HARM OUR BUSINESS

We are dependent on other companies to manufacture the key components of
our hardware products. A number of our key components are purchased from only
one manufacturer. Although we believe that in the event of a shortage of any of
these components we generally would be able to obtain like parts from other
manufacturers or resellers without material harm to our business, it is
possible that we could experience interruptions in our business if we are
unable to obtain quality replacements in the quantities we require. Any
interruption in our ability to obtain these products, or comparable quality
replacements, would substantially harm our business and results of operations.

11
<PAGE>

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY NOT
BE ABLE TO COMPETE EFFECTIVELY

Our success and ability to compete are substantially dependent upon our
internally developed technology. We intend to rely on a combination of patent,
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. These legal protections afford only
limited protection. Any failure by us to adequately protect our intellectual
property could have a material adverse effect on our ability to compete
effectively. We do not have any patents and, although we recently filed four
patent applications in the United States and are considering filing patent
applications in international jurisdictions, we cannot be certain that any of
these or any future patent applications will be granted, that any future
application will not be challenged, invalidated or circumvented, or that rights
granted under any patent issued to us will afford us a competitive advantage.
Our intellectual property may be subject to even greater risk in foreign
jurisdictions because the laws of many countries do not protect proprietary
rights to the same extent as the laws of the United States.

Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement. Any such litigation could result in substantial costs and
diversion of resources.

A third party recently commenced an action against us alleging that we
actively induced infringement of, and contributorily infringed, certain patents
relating to aspects of data mirroring. See "Business--Legal Proceedings" for a
discussion of this action.

RISKS RELATED TO THE SECURITIES MARKETS, THIS OFFERING AND OUR COMMON STOCK

PURCHASERS OF OUR COMMON STOCK IN THIS OFFERING WILL SUFFER IMMEDIATE AND
SUBSTANTIAL DILUTION AND MAY BE HARMED BY FUTURE DEBT OR EQUITY ISSUANCES

The initial public offering price per share will significantly exceed our
net tangible book value per share. You will experience immediate dilution of
$ in the pro forma as adjusted net tangible book value per share of common
stock, assuming an initial public offering price of $ per share. You also
will experience additional dilution when outstanding options and warrants are
exercised. If in the future we raise additional capital through the issuance of
equity securities, the percentage ownership of our then existing stockholders,
including investors in this offering, will decline, you may experience dilution
in net book value per share, and those equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock.
Any debt financing undertaken may involve covenants limiting or restricting our
operations or future opportunities.

OUR STOCK PRICE MAY BE VOLATILE AFTER THIS OFFERING AND YOU MAY LOSE SOME
OR ALL OF YOUR INVESTMENT

Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiations
between the representatives of the underwriters and us and may not be
indicative of the market price for the common stock that may develop after this
offering. We do not know the extent to which investor interest will lead to the
development of an active public market. The market for technology stocks in
particular has been extremely volatile. You may not be able to resell your
shares of our common stock at or above the initial public offering price and
you may lose some or all of your investment as a result. Our operating results
may fluctuate significantly due to a number of factors, many of which are
described elsewhere in this prospectus. Our revenues in any quarter will depend
substantially on orders we fulfill in that quarter. If we have lower revenues
than we expect, we probably will not be able to reduce our operating expenses
quickly in response. Therefore, any significant shortfall in revenues or delay
of customer orders could have an immediate adverse effect on our operating
results in that quarter. In addition to our operating results, many factors may
cause our stock price to fluctuate, including:

o economic or market conditions generally or in the technology or
financial services industries;

o announcements by us or our competitors of significant contracts, new
product or service offerings or enhancements, acquisitions, joint ventures
or capital commitments;

12
<PAGE>

o the addition or departure of key personnel;

o sales of our common stock or other securities in the future;

o changes in market valuations of technology companies;

o our failure to meet estimates of our financial performance by
securities analysts; and

o changes in estimates of our financial performance or changes in
recommendations by securities analysts.

OUR BUSINESS COULD BE HARMED BY CLASS ACTION LITIGATION RELATING TO STOCK
PRICE VOLATILITY

In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. Those companies, like us, that are involved in rapidly changing
technology markets are particularly subject to this risk. We may be the target
of litigation of this kind in the future. This kind of securities litigation
could result in substantial costs and divert management's attention and
resources, which could cause serious harm to our business. We could also incur
significant damages as a result of such litigation.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE

shares of our common stock held by our existing stockholders will
become freely tradable in the public market 180 days after this offering. See
"Underwriters." The market price of our common stock could fall in response to
sales of a large number of shares of our common stock in the market after this
offering or in response to the perception that sales of a large number of
shares could occur. In addition, such sales could create the perception by the
public of difficulties or problems with our products and services. As a result,
these sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. For a more detailed discussion of shares eligible for sale after
the offering, see "Shares Eligible for Future Sale."

OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN
PROVISIONS THAT COULD INHIBIT A TAKEOVER THAT STOCKHOLDERS MAY CONSIDER
FAVORABLE

Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change of control or changes in our management
that stockholders consider favorable. These provisions include:

o authorizing the issuance by our board of directors of "blank check"
preferred stock without any action by our stockholders;

o providing for a classified board of directors with staggered,
three-year terms;

o providing that directors may only be removed for cause by a two-thirds
vote of stockholders;

o prohibiting stockholder action by written consent;

o limiting the persons who may call special meetings of stockholders;
and

o establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.

Additionally, because our existing stockholders will continue to hold
voting control after the offering, they will be able to prevent most changes of
control. Delaware law also imposes limitations on persons proposing to merge
with or acquire us. If a change of control or change in management is delayed
or prevented, the market price of our common stock could decline. See
"Description of Capital Stock."

BECAUSE CERTAIN EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING
STOCK, OTHER STOCKHOLDERS' VOTING POWER MAY BE LIMITED

Following consummation of this offering, limited partnerships partially
controlled by Daniel Gittleman, our Chairman and Chief Executive Officer, will
beneficially own approximately % of our

13
<PAGE>

common stock. In addition, our executive officers, directors and their
affiliates will beneficially own or control a large portion of our common
stock. In combination with entities owning 5% or more of our outstanding shares
of common stock immediately prior to this offering, this group will control
shares of common stock, or approximately % of the outstanding shares of our
common stock immediately after this offering. As a result, if these persons act
together, they will have the ability to control all matters submitted to our
stockholders for approval, including the election and removal of directors and
the approval of any merger, consolidation or sale of all or substantially all
of our assets. These stockholders may make decisions that are adverse to your
interests. See "Principal Stockholders" for more information about ownership of
our outstanding shares.

WE HAVE BROAD DISCRETION OVER HOW TO USE THE OFFERING PROCEEDS, AND THE
INVESTMENT OF THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN

The net proceeds of this offering are not allocated for specific purposes.
Thus, our management has broad discretion over how these net proceeds are used
and could spend most of these proceeds in ways with which our stockholders may
not agree. The net proceeds may be invested in ways that do not yield favorable
returns. Pending use of the net proceeds of this offering, we plan to invest
the net proceeds in short-term investment grade, interest-bearing securities.
See "Use of Proceeds" for more information about how we plan to use the
proceeds of this offering.

WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR
FUTURE CAPITAL NEEDS

We expect the net proceeds from this offering, our current cash and cash
equivalents and expected future cash flows from operations will meet our
currently anticipated working capital and capital expenditure needs for the
foreseeable future. We may need to raise additional funding if we decide to
undertake more rapid expansion, including acquisitions of complementary
products or technologies, or if we increase our marketing and/or research and
development efforts in order to respond to competitive pressures. We cannot be
certain that we will be able to obtain additional equity or debt financing on
favorable terms, if at all. We may obtain additional financing by issuing
shares of our common stock, which could dilute our existing stockholders. If we
cannot raise needed funds on acceptable terms, or at all, we may not be able to
develop or enhance our products or respond appropriately to competitive
pressures, which would seriously harm our business.

14
<PAGE>

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this prospectus, including the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," that are based on our management's beliefs and
assumptions and on information currently available to our management.
Forward-looking statements include the information concerning our possible or
assumed future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, benefits resulting from
this offering and the effects of competition. Forward-looking statements
include all statements that are not historical facts and can be identified by
the use of forward-looking terminology such as the words "believe," "expect,"
"anticipate," "intend," "plan," "estimate" or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to
update forward-looking statements after we distribute this prospectus.

You should understand that many important factors, in addition to those
discussed elsewhere in this prospectus, could cause our results to differ
materially from those expressed in forward-looking statements. These factors
include our competitive environment, economic and other conditions in the
markets in which we operate and technological advances.

15
<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds from our sale of shares of common
stock in this offering will be approximately $ million, assuming an initial
public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that the
net proceeds from this offering will be approximately $ million.

The primary purposes of this offering are to obtain additional equity
capital, create a public market for our common stock and facilitate future
access to public markets. As of the date of this prospectus, we have not made
any specific expenditure plans with respect to the net proceeds from this
offering and, therefore, our management has broad discretion with respect to
the use of all of the net proceeds from this offering. We expect to use the net
proceeds from this offering, together with available funds, for general
corporate purposes, including working capital and capital expenditures relating
to the expansion of our operations. Pending these uses, we plan to invest the
net proceeds of this offering in short-term investment grade, interest-bearing
securities. The timing and size of our particular capital expenditure needs may
change rapidly in response to perceived market opportunities, technological
changes and actions by our competitors and, therefore, our management is
currently unable to allocate any specific portions of the net proceeds for
particular uses.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We
currently anticipate that we will retain all available funds for use in the
operation and expansion of our business, and do not anticipate paying any cash
dividends in the foreseeable future.

16
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000:

o on an actual basis,

o on a pro forma basis after giving effect to the conversion of 106,007
shares of Series A convertible preferred stock, which was all of the
outstanding shares of preferred stock, into 6,115,864 shares (including
accrued stock dividends) of common stock on July 11, 2000, and

o on a pro forma as adjusted basis to reflect our sale of shares of
common stock at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.

<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------- ----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations ................................................ $ 822 $ 822 $
Stockholders' equity:
Convertible preferred stock, $.01 par value per share, 200,000 shares
authorized and 106,007 shares issued and outstanding, actual;
5,000,000 shares authorized and 0 shares issued and outstanding,
pro forma and pro forma as adjusted ................................... 1 -- --
Common stock, $.01 par value per share, 75,000,000 shares
authorized and 49,004,554 shares issued and outstanding, actual;
200,000,000 shares authorized and shares issued and
outstanding, pro forma and pro forma as adjusted ...................... 490 551
Additional paid-in capital .............................................. 19,997 19,937
Retained earnings ....................................................... 3,661 3,661
Deferred compensation ................................................... (95) (95)
Accumulated other comprehensive loss .................................... (4) (4)
Stock subscription receivable from stockholder .......................... -- --
------- -------
Total stockholders' equity ............................................... 24,050 24,050
------- -------
Total capitalization .................................................... $24,872 $24,872 $
======= ======= =======
</TABLE>

17
<PAGE>

DILUTION

The pro forma net tangible book value of StorageApps as of June 30, 2000
was $24.0 million or $0.44 per share of common stock. Pro forma net tangible
book value per share represents the amount of total tangible total assets less
total liabilities, divided by the number of shares of common stock outstanding,
after giving effect to the conversion of 106,007 shares of Series A convertible
preferred stock, which was all of the outstanding shares of preferred stock,
into 6,115,864 shares (including accrued stock dividends) of common stock on
July 11, 2000. Assuming the sale by us of shares of common stock in this
offering at an assumed initial public offering price of $ per share, our pro
forma net tangible book value as of June 30, 2000 would have been $ , or
$ per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $ per share to our existing stockholders
and an immediate dilution of $ per share to new investors purchasing shares
in this offering. The following table illustrates this dilution of common
stock:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .......................... $
Pro forma net tangible book value per share as of June 30, 2000 ......... $ 0.44
Increase per share attributable to new investors ........................ ------
Pro forma net tangible book value per share after this offering ......... --------
Dilution per share to new investors ...................................... $
========
</TABLE>

The following table summarizes information regarding the pro forma number
of shares of common stock outstanding as of June 30, 2000. The table assumes
the conversion of 106,007 shares of Series A convertible preferred stock, which
were converted into 6,115,864 shares (including accrued stock dividends) of
common stock on July 11, 2000. The information presented is based upon an
assumed initial public offering price of $ per share for shares purchased in
this offering, before deducting the estimated underwriting discounts and
commissions and estimated offering expenses:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 55,120,418 % $20,001,000 % $ 0.36
New investors .................
---------- ---- ----------- ----
Total ........................ 100% $ 100%
==== =========== ====
</TABLE>

These tables assume no exercise of any outstanding stock options or
warrants to purchase common stock. As of June 30, 2000, there were:

o 6,462,007 shares of common stock issuable upon the exercise of stock
options outstanding under our stock incentive plan at a weighted average
exercise price of $2.04 per share; and

o 4,537,993 additional shares of common stock available for issuance under
our stock incentive plan.

To the extent these options are exercised, there will be further dilution to
the new investors.

If the underwriters' over-allotment option is exercised in full, the
number of shares held by new investors will increase to shares, or %
of the total number of shares of common stock outstanding after this offering.

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes
included elsewhere in this prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The selected consolidated
statement of income data for the years ended 1997, 1998, 1999, and the balance
sheet data as of December 31, 1998 and 1999, are derived from the consolidated
financial statements audited by PricewaterhouseCoopers LLP, independent
accountants, included elsewhere in this prospectus, and should be read in
conjunction with those consolidated financial statements and the accompanying
notes. The selected statement of income data for the periods ended December 31,
1995 and 1996, and the balance sheet data as of December 31, 1995 and 1996, are
derived from our unaudited financial statements which are not included in this
prospectus. The consolidated statement of income data for the six month periods
ended June 30, 1999 and 2000 and the consolidated balance sheet data as of June
30, 2000 are derived from the unaudited financial statements included elsewhere
in this prospectus, which, in our opinion, have been prepared on the same basis
as the audited consolidated financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our financial position and results of operations during those
periods and as of that date. Results for the six months ended June 30, 2000 are
not necessarily indicative of results that may be expected for the year ended
December 31, 2000.

Pro forma basic and diluted net income (loss) per share data give effect
to the conversion of 106,007 shares of Series A convertible preferred stock,
which was all of our outstanding shares of preferred stock, into 6,115,864
shares (including accrued stock dividends) of common stock on July 11, 2000 and
the issuance and sale by us of shares of common stock in this offering.
See "Use of Proceeds."

<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 22,
1995 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------------------ ----------------------
1995 1996 1997 1998 1999 1999 2000
--------------- --------- ---------- ---------- ---------- --------- ------------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales .............................. $456 $4,873 $15,689 $24,007 $23,322 $9,434 $ 16,159
Cost of goods sold ..................... 153 3,165 10,562 14,347 13,782 5,340 8,779
---- ------ ------- ------- ------- ------ --------
Gross profit .......................... 303 1,708 5,127 9,660 9,540 4,094 7,380
Operating expenses:
Sales and marketing expenses .......... -- 426 896 1,473 1,641 766 2,006
General and administrative expenses
(exclusive of non-cash stock
compensation expense of $799,000
for the six months ended June 30,
2000) ............................... 227 1,188 3,048 3,411 4,210 1,633 3,661
Research and development
expenses ............................ -- -- -- 26 552 221 2,493
Stock compensation expense ............ -- -- -- -- -- -- 799
---- ------ ------- ------- ------- ------ --------
Total operating expenses ............ 227 1,614 3,944 4,910 6,403 2,620 8,959
---- ------ ------- ------- ------- ------ --------
Income (loss) from operations ......... 76 94 1,183 4,750 3,137 1,474 (1,579)
Other income (expense)
Interest income ....................... -- -- 89 194 100 27 115
Interest expense ...................... 9 77 209 357 81 1 31
---- ------ ------- ------- ------- ------ --------
Net income (loss) before income
taxes .............................. 67 17 1,063 4,587 3,156 1,500 (1,495)
Income tax expense (benefit) ........... 13 12 496 1,982 1,236 641 (456)
---- ------ ------- ------- ------- ------ --------
Net income (loss) ..................... $ 54 $ 5 $ 567 $ 2,605 $ 1,920 $ 859 $ (1,039)
==== ====== ======= ======= ======= ====== ========
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------------- ---------------
1995 1996 1997 1998 1999 2000
------ -------- --------- --------- --------- ---------------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............ $ 29 $ 234 $ 199 $ 2,023 $ 1,195 $ 7,920
Working capital (deficiency) ......... 12 (82) (997) 3,198 5,765 23,536
Total assets ......................... 367 2,631 6,848 11,142 14,586 37,639
Total liabilities .................... 313 2,571 6,225 7,914 9,438 13,589
Total stockholders' equity ........... 55 60 623 3,228 5,148 24,050
</TABLE>

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

StorageApps provides a portfolio of Proactive Network Storage Solutions
products and services to customers with mission-critical storage requirements.
We deliver solutions utilizing our proprietary technology, which are available
through our SANLink platform, as well as through platforms produced and sold by
our OEM partners.

Our SANLink platform became commercially available in the second quarter of
2000. In addition, we have begun to enter into agreements under which OEMs will
integrate our technology into their products. Our first OEM products were sold
by Dell Computer in the third quarter of 2000. Also in the third quarter, we
introduced the first product extension to the SANLink platform, SANLink
Plus(Trade Mark). SANLink Plus provides all of the features, functionality and
benefits of the base SANLink platform, as well as network attached storage, or
NAS, as a completely integrated element.

Until the launch of our SANLink platform and the related OEM products,
almost all of our revenues were derived from sales of RAID storage devices.
Although this business will continue, we expect revenues from RAID storage
devices to decline significantly as a percentage of our sales. We are
leveraging our storage technology expertise, customer relationships and revenue
base to grow our Proactive Network Storage Solutions products and services.

We currently market the SANLink platform through a direct sales force, a
worldwide distribution network and our OEM relationship base. We assemble,
integrate and test the SANLink platform at our Lawrenceville, New Jersey
facility and support the installed products with our technical support staff in
our six locations.

REVENUES

We currently derive revenues from two sources:

o Integrated SAN Solutions: Sales of our SANLink platform, which began in
June 2000, amounted to $1.1 million for the six months ended June 30,
2000.

o RAID storage systems sales: We sold approximately $23.3 million of RAID
storage device systems loaded with our proprietary monitoring software in
1999. Sales of these RAID storage devices were $15.1 million for the six
months ended June 30, 2000.

Included in these amounts are revenues we derive from related service and
support contracts.

We have also entered into an agreement with Dell providing for its license
of our proprietary technology for use in its PowerVault 530F storage device and
follow-on offerings of products. We expect to begin recognizing royalty
revenues during the fourth quarter of 2000.

We recognize revenue from sales of our SANLink platform upon completion of
installation. We generally recognize RAID storage device revenue when products
are shipped to customers. We do not provide our customers with product return
programs. Reserves for warranty repairs are provided based upon historical
warranty repairs experience. We recognize revenues from service and support
over the life of the contract. We will recognize royalty revenues from OEMs or
distributors as they are received. Dell has agreed to make quarterly royalty
payments.

Our sales have been highly concentrated with a few major customers. Our
two most important customers accounted for an aggregate of 82.3%, 78.2%, 52.2%
and 63.6% of our sales in 1997, 1998, 1999 and the first half of 2000.
Substantially all of these sales were of our RAID storage devices. Morgan
Stanley Dean Witter accounted for 53.2%, 52.8%, 39.5% and 54.4% of our sales in
1997, 1998, 1999 and the first half of 2000, while Merrill Lynch & Co.
accounted for 29.1%, 25.4%, 12.7% and 9.2% of our sales during those same
periods. In addition, 75.6% of our sales in 1999 were to the financial services
industry. We expect that our customer base will diversify as our SANLink
platform continues to gain market acceptance.

21
<PAGE>

EXPENSES

The expenses making up our cost of goods sold consist primarily of
purchases of components for our hardware products and costs of assembly,
integration and testing.

Sales and marketing expenses consist primarily of salaries and related
employee costs, sales commissions, advertising, travel, public relations and
other costs associated with marketing materials and tradeshows. We expect that
sales and marketing expenses will increase in the future as we hire additional
sales and marketing personnel.

General and administrative expenses consist primarily of salaries and
related personnel expenses, fees paid for legal, accounting and professional
services, depreciation and amortization and other general corporate expenses.
We expect general and administrative expenses to increase as we incur costs
related to the anticipated growth of our business and the infrastructure
required to operate as a public company.

Research and development expenses consist primarily of salaries and
related personnel expenses, fees paid to consultants and other service
providers, design tools and equipment and computer support services expenses.
We believe that continued investment in research and development is critical to
the success of our future operations.

During the six months ended June 30, 2000, we recorded a non-cash charge
of $799,000 for stock compensation. Of this charge, $795,000 relates to options
granted to non-employee consultants. We do not expect additional charges
relating to these options. The remaining $4,000 relates to options granted to
employees at prices subsequently deemed to be below fair market value on the
dates of grant. We expect aggregate additional charges of $95,300 relating to
these options during the remainder of 2000, 2001 and 2002. See note 11 to the
consolidated financial statements included in this prospectus for additional
information.

RESULTS OF OPERATIONS

The following table summarizes historical results of operations as a
percentage of net sales for the periods shown:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales .................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ......................... 67.3 59.8 59.1 56.6 54.3
----- ----- ----- ----- -----
Gross profit .............................. 32.7 40.2 40.9 43.4 45.7
Operating expenses:
Sales and marketing expenses .............. 5.7 6.1 7.0 8.1 12.4
General and administrative expenses
(exclusive of non-cash stock
compensation expense for the six
months ended June 30, 2000) ............. 19.4 14.2 18.1 17.3 22.7
Research and development expenses ......... -- 0.1 2.4 2.4 15.4
Stock compensation expense ................ -- -- -- -- 4.9
----- ----- ----- ----- -----
Total operating expenses ................ 25.1 20.4 27.5 27.8 55.4
----- ----- ----- ----- -----
Income (loss) from operations ............. 7.6 19.8 13.5 15.6 ( 9.7)
Other income (expense) .....................
Interest income ........................... 0.5 0.8 0.4 0.3 0.7
Interest expense .......................... 1.3 1.5 0.4 0.0 0.2
----- ----- ----- ----- -----
Net income (loss) before income
taxes .................................. 6.8 19.1 13.5 15.9 ( 9.2)
Income tax expense (benefit) ............... 3.2 8.3 5.3 6.8 ( 2.8)
----- ----- ----- ----- -----
Net income (loss) ......................... 3.6% 10.8% 8.2% 9.1% ( 6.4)%
===== ===== ===== ===== =====
</TABLE>

22
<PAGE>

SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999

Net sales. Net sales for the six months ended June 30, 2000 totaled $16.2
million, an increase of $6.8 million, or 72.3%, from $9.4 million for the
comparable period of the prior year. The increase was due primarily to an
increase in sales volumes for our RAID storage devices and the introduction of
our SANLink product line.

Gross profit. Gross profit for the six months ended June 30, 2000 totaled
$7.4 million, or 45.7% of sales, compared to $4.1 million, or 43.4% of sales,
for the comparable period of the prior year. This increase as a percentage of
net sales was due primarily to reduced prices from the manufacturer of our RAID
storage devices, and the introduction of higher margin SANLink products.

Sales and marketing expenses. Sales and marketing expenses for the six
months ended June 30, 2000 totaled $2.0 million, or 12.4% of sales, compared to
$766,200, or 8.1% of sales, for the comparable period of the prior year. This
increase was due primarily to our establishment in the second quarter of 2000
of a marketing department, and expenses incurred in connection with building
the StorageApps brand and the launch of our SANLink platform.

General and administrative expenses. General and administrative expenses
(exclusive of non-cash stock compensation expense) for the six months ended
June 30, 2000 totaled $3.7 million, or 22.7% of sales, compared to $1.6
million, or 17.3% of sales, for the comparable period of the prior year. This
increase was due primarily to new hires and increases in salaries in
anticipation of growth in our Proactive Network Storage Solutions business.

Research and development expenses. Research and development expenses for
the six months ended June 30, 2000 totaled $2.5 million, or 15.4% of sales,
compared to $221,500, or 2.4% of sales, for the comparable period of the prior
year. This increase was due mainly to increases in spending on development of
our SANLink platform.

Stock compensation expense. We incurred stock compensation expense of
$799,000 in the six months ended June 30, 2000, as described above.

Other income (expense). Other income (expense) for the six months ended
June 30, 2000 totaled $84,000, or 0.5% of sales, compared to $26,000, or 0.3%
of sales, for the comparable period of the prior year. This increase was due
mainly to an increase in interest income as a result of increased cash and cash
equivalents, partially offset by an increase in interest expense on capital
lease obligations.

Net income (loss). As a result of the foregoing, we had a net loss of $1.0
million for the six months ended June 30, 2000, compared to net income of
$859,200 for the comparable period of the prior year.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Net sales. Net sales in 1999 totaled $23.3 million, a decrease of
$679,000, or 2.9%, from $24.0 million in 1998. The decrease was due primarily
to the transition of resources to the development and launch of our SANLink
platform and to customers purchasing less equipment in the fourth quarter of
1999 due to allocation of IT budgets to required Year 2000 compliance spending.

Gross profit. Gross profit in 1999 totaled $9.5 million, or 40.9% of
sales, compared to $9.7 million, or 40.2% of sales, in 1998. This increase as a
percentage of net sales was due primarily to reduced prices from the
manufacturer of our RAID storage devices.

Sales and marketing expenses. Sales and marketing expenses in 1999 totaled
$1.6 million, or 7.0% of sales, compared to $1.5 million, or 6.1% of sales, in
1998. This increase was due primarily to the addition of sales and marketing
personnel.

General and administrative expenses. General and administrative expenses
in 1999 totaled $4.2 million, or 18.1% of sales, compared to $3.4 million, or
14.2% of sales, in 1998. The increase was due primarily to increased expenses
relating to the hiring of new senior management and other personnel at the end
of 1999, in connection with the development and launch of our SANLink platform.

23
<PAGE>

Research and development expenses. Research and development expenses in
1999 totaled $552,500, or 2.4% of sales, compared to $26,300, or 0.1% of sales,
in 1998. This increase was due mainly to increased spending on development of
our SANLink platform.

Other income (expense). Other income (expense) in 1999 totaled $19,000,
or 0.0% of sales, compared to $(163,000), or (0.7)% of sales, for the
comparable period of the prior year. This change was due to reduced interest
expense as a result of the reduction of notes payable.

Net income. As a result of the foregoing, net income decreased to $1.9
million, or 8.2% of sales, in 1999, from $2.6 million, or 10.8% of sales, in
1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Net sales. Net sales in 1998 totaled $24.0 million, an increase of $8.3
million, or 52.9%, from $15.7 million in 1997. The increase was due primarily
to an increase in sales to Morgan Stanley Dean Witter and Merrill Lynch.

Gross profit. Gross profit in 1998 totaled $9.7 million, or 40.2% of
sales, compared to $5.1 million, or 32.7% of sales in 1997. This increase as a
percentage of sales was due primarily to reduced prices from the manufacturer
of our RAID storage devices.

Sales and marketing expenses. Sales and marketing expenses in 1998 totaled
$1.5 million, or 6.1% of sales, compared to $896,200, or 5.7% of sales, in
1997. This increase was due mainly to commissions paid to sales professionals
as a result of increased revenues.

General and administrative expenses. General and administrative expenses
in 1998 totaled $3.4 million, or 14.2% of sales, compared to $3.0 million, or
19.4% of sales, in 1997. This decrease as a percentage of net sales was due
primarily to our successful efforts to increase sales without a comparable
increase in general and administrative expenses.

Research and development expenses. Research and development expenses in
1998 totaled $26,300, or 0.1% of sales, compared to $0 in 1997. The 1998 figure
related to software developed for our RAID customers.

Other income (expense). Other income (expense) in 1998 totaled $(163,000),
or (0.7)% of sales, compared to $(120,000), or (0.8)% of sales, for the
comparable period of the prior year. This increase was due to an increase in
interest expense in connection with outstanding notes payable, partially offset
by an increase in interest income as a result of increased cash and cash
equivalents.

Net income. As a result of the foregoing, net income increased to $2.6
million, or 10.8% of sales, in 1998, from $567,200, or 3.6% of sales, in 1997.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations primarily through cash from
operations and private issuances of equity securities.

Our operating activities used net cash of $11.2 million for the six months
ended June 30, 2000, used net cash of $442,600 in 1999, provided net cash of
$2.3 million in 1998 and used net cash of $117,000 in 1997. For the six months
ended June 30, 2000, the primary use of net cash was an increase in accounts
receivable, arising out of increased sales of our RAID storage devices. We also
substantially increased our spending on inventory in anticipation of the launch
of our SANLink platform and to provide potential customers with demonstration
units. We believe the use of on-site demonstration units is crucial for
generating new customer sales. Also contributing to our uses of net cash were
payments of income taxes and research and development expenses relating to our
SANLink platform. These uses of cash were partially offset by an increase in
accounts payable.

Net cash used in investing activities was $1.1 million for the six months
ended June 30, 2000, $341,500 in 1999, $115,300 in 1998 and $40,700 in 1997.
The cash used was primarily for the purchase of property and equipment and the
purchase of short-term investments in the six months ended June 30, 2000. We

24
<PAGE>

intend to continue to invest our cash in excess of current operating
requirements in short-term investment grade, interest-bearing securities, some
of which are classified for accounting purposes as cash equivalents and some as
short-term investments.

Financing activities provided cash of $19.0 million for the six months
ended June 30, 2000, used cash of $43,700 in 1999, used cash of $394,800 in
1998 and used cash of $123,000 in 1997. The primary source of cash from
financing activities has been issuances of equity securities. The primary use
of cash from financing activities has been capitalized lease payments and the
repayment of a note outstanding in 1998.

Although our capital expenditure plans may change, we estimate capital
expenditures for the full year 2000 to be approximately $10 million. We
estimate capital expenditures in 2001 to be approximately $12 million.

On October 3, 2000 we sold and issued a total of 3,500,000 shares of
common stock to accredited investors in a private placement for an aggregate
amount of $35,000,000.

Our principal sources of liquidity consist of equity financings and cash
flows from operations. We also maintain a bank credit facility which includes a
revolving line of credit providing borrowings up to the lesser of $15 million
or 85% of eligible accounts receivable. Borrowings under the revolving line of
credit bear interest at the bank's prime rate and are secured by our accounts
receivable and inventories. The revolving line of credit requires the
maintenance of specified levels of tangible net worth and certain financial
ratios based on eligible accounts receivable balances measured on a monthly
basis. We currently have no balance outstanding under this credit facility.

We expect the net proceeds from this offering, our recent private
financing and our current cash and cash equivalents will meet our currently
anticipated working capital and capital expenditure needs for the foreseeable
future. We may need to raise additional funding if we decide to undertake more
rapid expansion, including acquisitions of complementary products or
technologies, or if we increase our marketing and/or research and development
efforts in order to respond to competitive pressures. We cannot be certain that
we will be able to obtain additional equity or debt financing on favorable
terms, if at all.

MARKET RISK DISCLOSURE

We have maintained our cash in a money market fund. As of June 30, 2000,
all of our cash equivalent investments will mature in three months or less (see
note 2 to our consolidated financial statements). We did not hold any
derivative financial instruments as of June 30, 2000, and have never held such
investments. Due to the short term nature of our investments, we believe we
have no material exposure to interest rate risk arising from our investments.
Therefore, no quantitative tabular disclosure is required.

Currently, the vast majority of our revenues and expenses are denominated
in U.S. dollars and, as a result, we have not had any material exposure to
foreign currency rate fluctuations.

25
<PAGE>

BUSINESS

OVERVIEW

We provide a portfolio of Proactive Network Storage Solutions products and
services to customers with mission-critical storage requirements. Our proactive
applications bring intelligence to storage networks, enabling customers to
manage their information infrastructures efficiently and effectively. We
believe our solutions provide a superior combination of functionality,
interoperability and management capability compared to other network storage
solutions. Since our management team is comprised of several former enterprise
information technology executives, we believe we have a unique focus on and
understanding of our customers' needs.

We deliver our solutions utilizing our proprietary technology, which is
available through our SANLink platform, as well as through platforms produced
and sold by our OEM partners. Our solutions enable:

o Interoperability with a wide range of storage and server products,
allowing for the selection of superior, or best-of-breed, solutions;

o Easy and rapid deployment of storage networks;

o Scalability to accommodate enterprise growth;

o Efficient and cost-effective use of storage resources;

o Simplified, centralized management of storage networks, allowing them to
be operated with minimal training;

o Enhanced information protection and business continuity; and

o Improved control over access to storage network data through enhanced
network security.

Our current applications also enable virtualization of storage capacity
into a single pool of storage, point-in-time imaging of live data and remote
data mirroring. They provide a secure environment whereby particular users can
access specific data using multiple connectivity methods, and can also provide
automatic monitoring and management through our Internet-based SANMaster (Trade
Mark) application.

We currently market to global companies with mission-critical storage
requirements through a direct sales force. Our customers include leading
companies such as Morgan Stanley Dean Witter, Merrill Lynch & Co., Brocade
Communications, Enron Broadband and Imation Corp. In the third quarter of 2000,
we started selling our technology through an OEM relationship with Dell
Computer Corporation, which licenses some of our proprietary technology for use
in its family of storage products. To complement our direct sales efforts, we
are pursuing relationships with additional OEMs and with distributors. We
believe our sales coverage model will enable us to rapidly expand our customer
base, build awareness of the StorageApps brand and accelerate the adoption of
our technology.

INDUSTRY BACKGROUND

Increasing Importance of Enterprise Data Management. Business environments
have recently witnessed an explosion in the amount of data being stored and
managed, with significant future growth expected. META Group estimates that
e-business storage requirements, such as e-mail and complex electronic
documentation, are driving storage capacity growth of 200% to 300% a year.
Forrester Research estimates that the Global 2500 companies managed an average
of 15,000 gigabytes of data in 1999 and that by 2003 the Global 2500 companies
will manage over ten times as much information -- an average of 153,000
gigabytes of data. This represents a 79% compound annual growth rate. 1,000
gigabytes of electronically stored data is equivalent to approximately 27
million pages of text. Coupled with the increase in data volume is the
escalating strategic importance of data as companies attempt to use superior
data management as a competitive tool. However, as the volume of data to be
managed increases and as access to that data becomes more critical to
operations, today's enterprises are challenged by the complexity and difficulty
of managing storage solutions which are often comprised of technologies sourced
from multiple vendors.

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<PAGE>

Accelerating Growth in Data Management Spending. As the volume and
importance of data increase along with the complexity of data management,
corporate storage-related spending is expected to rise dramatically. Forrester
Research reports that costs are falling for commodity storage components.
However, the increase in data volume and the increasing complexity of
designing, implementing and managing data storage systems are leading to an
increase in aggregate expenditures on storage solutions and systems. META Group
estimates that between 70% and 80% of all IT spending in 2001 will be
storage-related.

Based on IDC and Dataquest estimates, sales of network storage technology
products are expected to increase at a 34% compound annual growth rate from
$4.4 billion in 1999 to $19.8 billion in 2004. Network storage technology
products consist of storage infrastructure software products, data management
software products, enterprise storage resource management software products and
fibre channel switches and routers.

Enterprise Data Management Needs. Enterprises are seeking solutions that
enable them not only to cope with their rapidly expanding data needs, but also
to gain a competitive advantage through superior data management. Businesses
are primarily searching for data management solutions that:

o provide interoperability with current and future storage systems and
solutions;

o enable quick and scalable implementations of storage networks within
enterprise infrastructures;

o reduce the costs of operating storage networks;

o protect information and ensure business continuity; and

o utilize enhanced network security to control access to storage
resources.

Limitations of Traditional Storage Management Solutions. Traditional
approaches to storage management can generally be divided into two categories:
host-based solutions and storage-based solutions. Each of these alternatives
presents inherent challenges.

Host-based solutions run storage management software on the server. The
server is typically expensive and implemented to execute critical applications.
Host-based storage management solutions consume finite server resources,
inhibiting performance of the critical applications for which the server was
intended. Host-based solutions require expert system administrators in IT
departments to operate the storage management software on each individual
server. Complexity grows with the number of servers and different operating
systems a customer may have. Furthermore, host-based storage management
solutions are not easily scalable, as upgrades typically require system
administrators to modify each individual host or server. This is costly and
time consuming and creates the potential for error.

Storage-based solutions run storage management software on disk storage
devices and also present many problems for customers. Storage-based solutions
require the customer to purchase both hardware and software from one vendor,
potentially limiting access to best-of-breed solutions from other vendors. In
addition, the operating environments on most disk storage devices are not
designed to serve for general applications, limiting the range and scope of
functionality that can be provided and potentially increasing the time to
market.

Limitations of Emerging Storage Networks. In response to the shortcomings
of the traditional storage architecture, providers of storage management
solutions have begun to introduce storage networks, which link multiple servers
to multiple storage devices. Storage networks are designed to deliver the
benefits of faster, more manageable, reliable and scalable storage
environments. Storage networks enable connectivity via a variety of methods.
Two common approaches are storage area networks, or SANs, which rely on fibre
channel connectivity, and network attached storage, or NAS, solutions which
rely on TCP/IP for connectivity. Storage area networking and network attached
storage have yet to deliver on their potential because they generally do not
provide adequate functionality and scalability, respectively, in an
interoperable storage network environment.

Emerging Trends in Network Storage Virtualization. Virtual volume
software, which traditionally resides on host systems or storage devices, is
expected to be a key component of this new paradigm. This

27
<PAGE>

software is used to divide available storage space into virtual disks, or
virtual volumes, without regard to the physical layout of actual storage
devices. Virtual volumes are not physical storage devices. They can be created,
expanded, deleted, moved, and selectively presented, independent of the storage
subsystem on which data physically resides. As virtual volume software migrates
out of individual servers and storage devices and onto the SAN, it enables the
connection of heterogeneous servers and storage devices and provides greater
functionality and scalability in network storage environments. The virtual
volume software also provides a foundation for higher level SAN software
elements that automate important data movement functions, including snapshot,
remote mirroring, and virtual tape, each of which may rely upon the creation
and expansion of virtual volumes.

In order to realize the full potential benefits of storage networks,
software applications that work across all devices on the storage network are
required. These applications must enable the optimization, planning,
organization, management, and protection of an enterprise's data across the
storage network. Storage networks with inadequate software applications limit
the ability to perform certain mission-critical operations, increase the cost
and complexity of management and increase the risk of lost, corrupted or
unavailable data.

THE STORAGEAPPS SOLUTION

We provide a portfolio of Proactive Network Storage Solutions products and
services to customers with mission-critical storage requirements. Our proactive
applications bring intelligence to storage networks, enabling customers to
manage their information infrastructure efficiently and effectively. We believe
our solutions provide a superior combination of functionality, interoperability
and management capability compared to other network storage solutions. Our
current applications also enable virtualization of storage capacity into a
single pool of storage, point-in-time imaging of live data and remote data
mirroring. They provide a secure environment whereby particular users can
access specific data using multiple connectivity methods and can also provide
automatic monitoring and management through our Internet-based SANMaster
application.

PROACTIVE NETWORK STORAGE SOLUTIONS

[DIAGRAM ILLUSTRATING SANLINK CONNECTION TO HETEROGENEOUS
SERVERS AND STORAGE VIA FIBRE CHANNEL AND INTERNET PROTOCOL]

<PAGE>

Our solution provides the following key benefits to our customers:

Interoperability with a Wide Range of Storage and Server Products,
Allowing for the Selection of Superior, or Best-of-Breed, Solutions. Our
SANLink storage solution has been designed to provide customers with maximum
flexibility in terms of interoperability among various servers, operating
systems, storage devices and connectivity methods. Our solution gives customers
the flexibility to choose best-of-breed products for their entire network.

Easy and Rapid Deployment of Storage Networks; Scalability to Accommodate
Enterprise Growth. Our solution is easily and rapidly deployable and enables a
highly scalable storage network, which is critically important given the
explosive growth in the volume of data. Our SANLink platform enables the rapid
and streamlined deployment of additional storage capacity. The SANLink platform
enables users to add distributed storage devices, from practically any vendor,
to the virtual storage pool and to upgrade their storage network configurations
without long lead times, network downtime, or significant investment.

Efficient and Cost-Effective Use of Storage Resources. Our solution
aggregates all storage devices connected to an enterprise's network and manages
them as a single, virtual storage pool. This approach maximizes capacity
utilization efficiency by eliminating the possibility of excess capacity for
one host and no capacity for another host. Rather, all hosts have optimized
access to the shared storage pool. In addition, through point-in-time imaging,
users can improve performance by migrating backup and data mining functions
away from application servers to servers dedicated to system management.

Simplified, Centralized Management of Storage Networks, Allowing Them to
Be Operated with Minimal Training. Our SANLink solution reduces the need for
customers to have expert system administrators to operate the storage network.
We have designed our solution to be easy-to-use and to require minimal training
for use by our customers. Our solution presents customers with a simplified,
single point-of-management for their storage network. Our SANMaster application
provides automatic error and event notification via e-mail and paging systems
to our centralized customer support center, where problems can be resolved by
StorageApps professionals, 24 hours a day, 7 days a week.

Enhanced Information Protection and Business Continuity. Through data
replication and point-in-time imaging features, our solution minimizes planned
and unplanned downtime and enables business continuity by providing
uninterrupted data access. Data replication involves the creation of back-up
data and our point-in-time imaging feature enables tracking of changes in data
from a known time.

Improved Control Over Access to Network Storage Data Through Enhanced
Security. Our solution provides security through software that controls access
to data in an environment that allows the sharing of network storage resources.
Data security, or protection of data from issues relating to multiple servers
accessing the data, is typically handled by others on a physical basis by
dividing physical storage devices among hosts or servers.

OUR STRATEGY

Our objective is to become the leading provider of network storage
products and services to customers with mission-critical storage requirements.
Key elements of our strategy to achieve this objective are to:

Leverage Our Superior Technologies to Increase Market Acceptance of Our
Solution. We intend to leverage the advanced proprietary technologies
incorporated in our SANLink platform to establish it as the preeminent network
storage solution. We believe the key features of our technology, including its
interoperability, virtualization capabilities, point-in-time imaging and
security features, appeal to customers with mission-critical storage
requirements. We believe that further market acceptance of our solution will be
driven by the recognition that other storage network solutions in the
marketplace do not offer the breadth of functionality combined with
interoperability currently included in our SANLink platform.

Enhance Current Technology and Introduce More Advanced Applications. We
are focused on enhancing our current technology which will provide the
foundation for us to introduce more advanced applications in the future and
help us to maintain our competitive advantage. We are building new

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<PAGE>

applications to enable customers to plan, organize, direct and monitor their
network storage infrastructures. We believe these additional applications will
retain customers, bring in additional customers and attract additional OEMs.

Pursue a Multi-Channel Global Sales and Distribution Strategy. We are
pursuing a multi-channel global sales and distribution strategy in which our
direct sales force targets specific customers while our current and future OEM
partners and distributors provide wide marketplace coverage. We are building on
the extensive direct customer relationships we established as a leading global
reseller of RAID storage technologies. We believe this strategy will help us
increase our customer base rapidly, generate awareness and acceptance of our
technology in the marketplace and allow us to target potential customers more
efficiently. We currently have an OEM agreement with Dell Computer, and we are
in discussions with additional high quality OEMs and distributors.

Maintain an Intense Focus on Customers. A number of our senior executives
formerly were senior IT professionals and as a result we believe our extensive
experience in dealing with and solving storage-related problems enables us to
understand and anticipate what our customers require in a storage solution. We
have a strong customer focus and our products have been designed to meet our
customers' critical storage needs. We will continue to actively communicate and
work with our customers to design and develop innovative solutions for the
storage management challenges they face. In addition, all of our products are
supported by round-the-clock technical assistance. By further developing an
extensive customer service and support capability designed for customer
satisfaction, we believe we will be positioned to sell new applications and
services to our existing customers.

Establish StorageApps as a Leading Brand for Enterprise Storage
Solutions. We intend to continue to invest in building awareness of our brand
in our target markets. We are promoting our brand and the key benefits of our
products and services to create deep penetration in key market segments,
including financial services firms, application service providers and
Internet-related businesses. We believe that by implementing a company-wide
branding strategy rather than focusing our marketing efforts on product- or
application-specific branding, we can create a competitive advantage in our
overall market.

STORAGEAPPS PRODUCTS AND SERVICES

SANLink Platform and Applications. The StorageApps Proactive Network
Storage Solutions portfolio of products and services is built on the SANLink
platform, an engineered and tested infrastructure that enables the use of any
server (operating system) and any storage subsystem via any connectivity
protocol, including SCSI, Fibre Channel and TCP/IP. The SANLink platform
provides customers a completely open infrastructure environment that gives them
freedom to select best-of-breed solutions without worry about being locked-in
to particular vendors, technology incompatibility or ability to provide
on-demand scalability and reliability.

The SANLink platform is structured to provide:

o an integrated network storage management model;

o built-in system resiliency;

o completely open, any-to-any infrastructure;

o scalability;

o exploitation of SAN connectivity; and

o enhanced functionality, including replication, point-in-time image,
dynamic virtualization and network storage security.

The SANLink Plus enhanced platform also provides network attached storage,
or NAS, through a simple NAS interface that fits into the current network and
leverages all features and functionality of the base SANLink platform.

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<PAGE>

The complete StorageApps Proactive Network Storage Solutions portfolio
consists of:

<TABLE>
<CAPTION>
OFFERING DESCRIPTION CUSTOMER BENEFIT
-------- ----------- ----------------
<S> <C> <C>
SANLink(TM) A leading-edge technology platform Provides fully integrated, black-box,
that enables operating system and lights-out management of storage
storage device independence over infrastructure and enables any-to-any
any connectivity protocol. connectivity. Provides
high-availability and
high-performance network storage
infrastructure.

SANLink Plus(TM) Includes the base SANLink platform Combines the advantages offered by
but is enabled to provide network SANLink with the flexibility and
attached storage, or NAS, through a features of NAS while providing
simple NAS interface that fits into a integrated management of the
customer's current network. network storage infrastructure.

SAN.OS(TM) A proprietary operating system for Provides seamless integration of
the SANLink platform that enables SANLink and SANSuite
server platform and storage device functionality.
independence.

SANSuite(TM) A proprietary base software suite Provides an integrated,
that enables: single-package suite of
o dynamic virtualization; mission-critical functionality for
o storage network security; management of network storage
o point-in-time image; and infrastructures. Leverages the
o replication. black-box, lights-out management
The SANSuite product line will have system of the SANLink platform.
additional, value-added modules that
will be available for new
functionality, such as bandwidth
management.

SANMaster(TM) A proprietary integrated network Provides complete management
storage management system that functionality for monitoring and
provides complete monitoring, control of a network storage
control and support across all storage infrastructure and enables access via
in an enterprise through a graphical secured Internet site from anywhere
user interface accessible via the in the world. Also enables black-box,
Internet. lights-out operation.

SANLink RAID storage configurations built on Provides complete network storage
Storage(TM) world-class LSI Logic (Registered Trademark) technology solution for information
and optimized for integration into the infrastructures with a total package
SANLink platform. of platform, management and
storage.
</TABLE>

RAID Solutions. We are a global supplier of full function,
enterprise-wide, RAID storage systems. We manage extremely large enterprise
storage solutions for some of the most demanding data-intensive companies,
including several of the world's most prestigious and influential financial
services firms. We have been successful in this business due to the application
of proprietary state-of-the-art software products coupled with our
customer-focused service model. We provide a comprehensive solution to our
customers through our integration, testing and ongoing monitoring of network
storage solutions and software, which we believe gives us a distinct advantage
over our competitors.

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<PAGE>

CUSTOMERS

Our customers come from a variety of different industries, including the
financial service, ASP/ISP, service integration, Internet, and energy sectors.
From a storage technology standpoint, these are among the most demanding
industries and require the most complex solutions. The following is a
representative list of valued customers with whom we are actively working to
meet their storage management needs:

<TABLE>
<S> <C> <C>
Morgan Stanley Dean Witter Brocade Communications Enron Broadband
Tornado Imation Corp. Merrill Lynch
DoubleClick Instinet The Blackstone Group
Credit Suisse First Boston Corporation CoServ Centripetal
NYSE J.P. Morgan Fuji Capital Markets Corporation
Lehman Brothers LSI Logic Soros Fund Management
Nomura Securities International, Inc. Novus Deutsche Bank
Commerzbank Societe Generale The Metropolitan Museum of Art
Knight Securities, Inc.
</TABLE>

Our two most important customers accounted for an aggregate of 82.3%,
78.2%, 52.2% and 63.6% of our sales in 1997, 1998, 1999 and the first half of
2000. Substantially all of these sales were of our RAID storage devices. Morgan
Stanley Dean Witter accounted for 53.2% 52.8%, 39.5% and 54.4% of our sales in
1997, 1998, 1999 and the first half of 2000, while Merrill Lynch & Co.
accounted for 29.1%, 25.4%, 12.7% and 9.2% of our sales during those same
periods. In addition, 75.6% of our sales in 1999 were to the financial services
industry.

MARKETING AND SALES

Marketing. We are committed to building a unique, enduring and relevant
brand that is customer-centric and solutions-focused. We are implementing an
integrated direct marketing campaign to increase StorageApps brand awareness,
to educate the target market about storage and create lead generation. We will
use a number of marketing strategies and tactics designed to establish
StorageApps as the "must see" solution provider in our industry.

Sales. We are establishing a sales organization that is composed of a
direct sales force and an OEM distribution channel. Our direct sales force is
structured geographically in the United States into Eastern and Western
regions. Within each region, there are sales people who focus on financial
services firms, application service providers, Internet-related, energy sector
businesses and other significant users of data storage. The sales organization
is supported by storage consultants who assist the sales force pre-sale and
systems engineers who assist the sales force post-sale.

We provide our storage network solutions to global enterprise customers
throughout the United States and the United Kingdom, and intend to enter the
Asia Pacific and European markets as well. We expect to continue growing our
sales, marketing and customer support force to meet future demands.

RESEARCH AND DEVELOPMENT

We have a talented and skilled group of professional engineers and
technicians that form the core of our research and development operations. Our
engineering efforts are directed toward SANLink, SANSuite, SAN.OS and
SANMaster. Our engineers, located in our offices in Wellesley, Massachusetts
(soon to be moved to larger space in Wayland, Massachusetts), are responsible
for developing and enhancing our current offerings, including SANLink, SANSuite
and SAN.OS, as well as for developing new and enhanced applications. Our
engineers focused on SANMaster are located in our offices in Bridgewater, New
Jersey and are developing value-added storage management services, including
remote monitoring.

Our Wellesley office is also the site of our platform engineering work,
which focuses primarily on integrating our products with other SAN devices and
software. Our platform engineers are also involved in product testing,
certification, documentation and hardware integration.

32
<PAGE>

In 2000 and 2001, we expect to spend approximately $6 million and $10
million, respectively, on research and development.

SUPPLIERS; ASSEMBLY, INTEGRATION AND TESTING

We buy components from a number of manufacturers. A number of our key
components are purchased from only one source; however, we believe that in the
event of a shortage of any of these components we would be able to obtain like
parts without material harm to our business. All of our products are assembled,
integrated and tested at, and shipped from, our Lawrenceville, New Jersey
facility.

COMPETITION

The network storage technology industry is highly competitive and changing
rapidly in terms of technology offerings and key players. We believe that the
principal competitive factors affecting the market include:

o quality and variety of services offered;

o engineering and technical expertise and development of proprietary
software;

o brand recognition;

o security, reliability, ease of use and rapid deployment of services;

o relationships with equipment vendors;

o ability to attract and retain skilled professionals;

o quality of customer service and support;

o financial resources; and

o price.

Currently, our primary direct competitors are storage network solution and
appliance providers such as Compaq, StoreAge Networking Technologies, DataCore
Software, DataDirect Networks, Veritas Software, and Vicom. We believe that we
may face future competition from OEMs, such as IBM, Sun Microsystems and EMC,
that provide or are attempting to provide alternative SAN solutions through
their storage subsystem offerings. Many of the companies that have entered or
may enter the network storage technology market have significantly greater
financial resources, larger development, sales and marketing staffs, longer
operating histories, greater name recognition, larger client bases and more
established relationships in the industry. As a result, these competitors may
be able to rapidly establish or expand network storage offerings more quickly,
adapt to new technologies and customer requirements faster, take advantage of
acquisition and other opportunities more readily and adopt more aggressive
pricing policies than we may be able to.

INTELLECTUAL PROPERTY

General. Our success and ability to compete depends in part on our ability
to develop and protect the proprietary aspects of our technology and to operate
without infringing on the proprietary rights of others. We rely and intend to
rely on a combination of patents, copyrights, trademarks, trade secret laws and
contractual restrictions as the primary means to protect our technology. These
legal protections afford only limited protection for our technology. We have
filed four patent applications in the United States and are considering filing
patent applications in other jurisdictions, and we cannot be certain that
patents will be granted based on these or any other patent applications, or
that, even if issued, the patents will adequately protect our technology. We
protect our software under trade secret and copyright laws, and we limit
disclosure of our intellectual property by requiring employees, consultants and
third parties with access to our proprietary information to execute
confidentiality agreements with us. We also protect our documentation, computer
screens and other written materials through copyright laws.

33
<PAGE>

While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent
product enhancements and reliable product maintenance are essential to
establishing and maintaining a technology leadership position. There can be no
assurance that others will not develop technologies that are similar or
superior to our technology.

Our success will depend upon our ability to obtain necessary intellectual
property rights and to protect these intellectual property rights. We cannot be
certain that we will be able to obtain the necessary intellectual property
rights or that other parties will not contest our intellectual property rights.

Patents. We have adopted a patent and trademark strategy designed to
protect our technology and intellectual property. We currently hold no patents
applicable to our business. However, we have filed four United States patent
applications and are considering filing patent applications in other
jurisdictions. Our pending patent applications relate to our technology.
However, these patent applications may never result in the issuance of patents.

Trademarks and Service Marks. We have filed applications for U.S.
registration of the following marks: StorageApps, SANSuite, SAN.OS, SANLink,
SANMaster, SANTree and the "Diamond S" logo. These applications are currently
pending with the United States Patent and Trademark Office. We have filed
applications for registration of the StorageApps mark and the "Diamond S" logo
in the European Community and in certain Asian Pacific countries.

EMPLOYEES

As of November 1, 2000, we had 169 full-time employees. We expect the size
of our workforce to increase substantially over the next 12 months. As of
November 1, 2000, 55 of our employees were involved in sales and marketing, 73
were involved in research and development and 6 were involved in assembly and
integration.

We have not entered into any collective bargaining agreement with our
employees and we believe our relations with our employees are good.

We believe our future success will depend in part upon the continued
service of our key employees and on our continued ability to hire and retain
qualified personnel. We may not be able to retain our key employees and may not
be successful in attracting and retaining sufficient numbers of qualified
personnel to conduct our business in the future.

PROPERTIES AND FACILITIES

We provide customer service for the Americas from regional offices in:
Austin, Texas; Wayland, Massachusetts; Lawrenceville, New Jersey; and New York,
New York. Customer service for Europe is based in London, United Kingdom.
Affiliates in Hong Kong, China; Singapore; and Tokyo, Japan provide customer
service for Asia Pacific.

Our Executive Offices and Global Customer Center are located in 71,236
square feet of leased office space located in Bridgewater, New Jersey.

Our research and development centers consist of 24,919 square feet of
combined leased office space in Wellesley and Wayland, Massachusetts. We also
perform additional research and development at our Bridgewater, New Jersey
location. Our SANLink platforms are assembled in 14,174 square feet of leased
office space in Lawrenceville, New Jersey.

We believe that we will be able to renew each of these leases, or obtain
suitable replacement space without material impact on our financial condition
or results of operations.

34
<PAGE>

LEGAL PROCEEDINGS

On October 20, 2000, EMC Corporation filed a complaint against us in the
United States District Court, District of Massachusetts (Central Section)
alleging that StorageApps actively induced infringement of, and contributorily
infringed, U.S. Patent Nos. 6,101,497, 5,819,310, 5,987,566, 5,544,347 and
5,742,792 relating to aspects of data mirroring. The complaint seeks
unspecified damages and injunctive relief. The complaint does not set forth any
supporting factual allegations for the claims and does not allege that our
products directly infringe the patents.

The action has only recently been commenced and no discovery has begun.
Based upon a preliminary review of the asserted patents and our products, we do
not believe that we have actively induced infringement of, or contributorily
infringed, any of the patents. We intend to vigorously defend against the
allegations of the complaint. However, because the case is in its early stages,
no assurance can be given that the litigation will be resolved in a manner that
does not have a material adverse impact on our products or business.

Except for the foregoing, we are not a party to any material legal
proceedings and we are not aware that our products, trademarks, or other
proprietary rights infringe the proprietary rights of third parties.

35
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of StorageApps as of November 1, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Daniel Gittleman 34 Chairman of the Board of Directors and Chief Executive Officer
Daniel Petrozzo 36 President and Chief Operating Officer and Director
Daniel Crain 40 Executive Vice President of Engineering and Customer Services
David Dill 49 Executive Vice President and Chief Financial Officer
Michael Feinberg 37 Executive Vice President and Chief Technology Officer
Joachim Gfoeller, Jr. 43 Director
J. Tomilson Hill III 52 Director
Joshua Levine 46 Director
Morton Topfer 64 Director
</TABLE>

Daniel Gittleman. Mr. Gittleman founded StorageApps (then RAID Power
Service, Inc.) in March 1995 and has served as our Chairman and Chief Executive
Officer since our inception. Mr. Gittleman became President of StorageApps
Limited, our wholly-owned subsidiary, in April 1999. Mr. Gittleman also
launched several high technology start-ups prior to founding StorageApps.

Daniel Petrozzo. Mr. Petrozzo became our President and Chief Operating
Officer in November 1999. He has also been a director since March 2000. Before
joining StorageApps, Mr. Petrozzo joined Morgan Stanley Dean Witter & Co. in
September 1995 and served as a Principal and Head of Global Distributed Systems
from January 1999 to November 1999. During that time, Mr. Petrozzo was
responsible for Morgan Stanley Dean Witter's storage, servers, and database
programs. Before joining Morgan Stanley Dean Witter, Mr. Petrozzo served as a
professional consultant from May 1983 to September 1995.

Daniel Crain. Mr. Crain became our Executive Vice President of Engineering
and Customer Services in November 1999. From February 1999 to November 1999,
Mr. Crain served as Vice President and Chief Operating Officer for Global
Distributed Systems at Morgan Stanley Dean Witter. From October 1996 to
February 1999, Mr. Crain worked as a consultant for Morgan Stanley Dean Witter.
Previously, Mr. Crain was Director of Technical Consulting for Computron
Software from April 1995 to October 1996. Mr. Crain has also held a variety of
consulting positions.

David Dill. Mr. Dill became our Executive Vice President and Chief
Financial Officer in November 2000. Mr. Dill served as Senior Vice President
and Chief Financial Officer of Commerx, Inc. from August 1999 to November 2000.
Previously, he was Chief Financial Officer of WorldGate Communications, Inc.
from April 1996 to August 1999. From July 1994 to October 1995, Mr. Dill was
the Vice President of Finance for General Instrument's Communications Division.
From August 1991 through March 1994, Mr. Dill held executive positions with
IBM, including Assistant General Manager of Finance and Planning for the RISC
System/6000 Division. Prior to joining IBM, Mr. Dill was Vice President and
Controller for the Rolm Company (an IBM/Siemens joint venture). From February
1975 to August 1989, Mr. Dill held several other executive positions with IBM,
including Director of Finance for the Communications Systems Group.

Michael Feinberg. Mr. Feinberg became our Executive Vice President and
Chief Technology Officer in November 1999. Prior to that, Mr. Feinberg served
as Morgan Stanley Dean Witter's Vice President and Head of Global UNIX
Engineering from January 1997 to December 1998. He also acted as Morgan Stanley
Dean Witter's Chief Technology Officer of Global Distributed Systems from
December 1998 to November 1999. Mr. Feinberg joined Morgan Stanley Dean Witter
as an Associate in August 1994. Previously, he was an engineering manager with
IBM, an operating system architect with IBM and an operating system engineer
with Data General.

36
<PAGE>

Joachim Gfoeller, Jr. Mr. Gfoeller, Jr. became a director in September
1998. He has been the managing general partner of GMS Capital Partners since
October 1997. From November 1996 to October 1997, Mr. Gfoeller worked as a
financial consultant and President of Gfoeller & Company. From March 1993 to
November 1996, Mr. Gfoeller was a partner of Stolberg Partners.

J. Tomilson Hill III. Mr. Hill became a director in March 2000. Mr. Hill
has been a Senior Managing Director of The Blackstone Group since November
1993. He also is Acting President and Chief Executive Officer of Blackstone
Alternative Asset Management. He is a member of Blackstone's management
committee and a member of the investment committee for Blackstone's private
equity group. Mr. Hill began his career at First Boston, where he was one of
the co-founders of the Mergers and Acquisitions Department. After running the
Mergers and Acquisitions Department at Smith Barney, he joined Lehman Brothers
as a partner in 1982, serving as co-Head and subsequently Head of Investment
Banking. Later, he served as co-Chief Executive Officer of Lehman Brothers and
co-President and co-Chief Operating Officer of Shearson Lehman Brothers Holding
Inc.

Joshua Levine. Mr. Levine became a director in May 2000. He has been Chief
Technology Officer at E*TRADE since October 1999. Prior to joining E*TRADE, Mr.
Levine was Managing Director and Global Head of Equities Technology for
Deutsche Bank from April 1997 to October 1999. From 1985 to April 1997, Mr.
Levine was with Morgan Stanley Dean Witter, ultimately as a Managing Director
and Chief Technology Officer, and as a senior member of the IT Operating
Committee.

Morton Topfer. Mr. Topfer became a director in July 2000. He has been
Counselor to the Chief Executive Officer of Dell Computer since December 1999.
Prior to that, he served as Vice Chairman of Dell from 1994 to November 1999.
Prior to joining Dell in May 1994, Mr. Topfer served as Corporate Executive
Vice President of Motorola, Inc. and President of Motorola's Land Mobile
Products Sector. Mr. Topfer serves on the board of directors of Dell Computer
Corporation.

BOARD COMPOSITION

Our certificate of incorporation authorizes a board of between and
directors. We currently have a board of six directors. The board of
directors is divided into three classes, each serving staggered three-year
terms: Class I, consisting of and , whose term will expire at
the 2001 annual meeting of stockholders; Class II, consisting of and
, whose term will expire at the 2002 annual meeting of stockholders; and
Class III, consisting of and , whose term will expire at the
2003 annual meeting of stockholders. As a result, only one class of directors
will be elected at each annual meeting of our stockholders, with the other
classes continuing for the remainder of their respective terms. Our officers
are appointed by the board of directors and serve at the discretion of the
board of directors. There are no family relationships among any of our
directors or executive officers.

BOARD COMMITTEES

The audit committee is comprised of independent directors. The audit
committee reviews and, as it deems appropriate, recommends to the board of
directors the internal accounting and financial controls for StorageApps and
the accounting principles and auditing practices and procedures to be employed
in the preparation and audit of the financial statements of StorageApps. The
audit committee also makes recommendations to the board concerning the
engagement of independent public accountants and the scope of the audit to be
undertaken by the auditors.

The compensation committee is comprised of independent directors. The
compensation committee reviews and, as it deems appropriate, recommends to the
board of directors policies, practices and procedures relating to the
compensation of the officers and other managerial employees and the
establishment and administration of employee benefit plans. The compensation
committee also exercises all authority under StorageApps' employee equity
incentive plans and advises and consults with the officers of StorageApps as
may be requested regarding managerial personnel policies.

37
<PAGE>

DIRECTOR COMPENSATION

Under the StorageApps Inc. 2000 Stock Incentive Plan, which is described
below, directors who are not officers or employees of StorageApps receive
annual grants of options exercisable for 10,000 shares of our common stock.
These options vest after one year of service on the board, provided that the
director attends at least 75% of the combined meetings of the board and of all
committees on which the director serves. If the director does not satisfy this
75% attendance requirement, the options are forfeited. Similar options will be
granted to future non-employee directors at the time of their election to the
board. Directors also receive reimbursement for travel expenses in connection
with attendance at board meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee does not include any officer or employee of
StorageApps. Nor is the compensation committee composed of any former
StorageApps officer or employee. Finally, no interlocking relationship exists
between any member of our board of directors or our compensation committee and
any member of the board of directors or compensation committee of any other
company and no such interlocking relationship has existed in the past.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
paid to StorageApps' Chief Executive Officer and StorageApps' four other most
highly compensated executive officers during the year ended December 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- -------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
---------------------------------------- ------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Daniel Gittleman ....................... 1999 $500,000 -- -- --
Chairman and Chief Executive Officer
Daniel Petrozzo(1) ..................... 1999 $ 65,062 $550,000 -- --
President and Chief Operating Officer
Michael Feinberg(2) .................... 1999 $ 35,784 $250,000 -- --
Executive Vice President and Chief
Technology Officer
Daniel Crain(3) ........................ 1999 $ 35,608 $150,000 -- --
Executive Vice President of Engineering
and Customer Services
Patricia Pikus(4) ...................... 1999 $ 81,970 $ 22,717 -- --
Vice President of Accounting
</TABLE>

----------
(1) Mr. Petrozzo commenced employment with us in November 1999. The amount
disclosed in the bonus column reflects a one-time sign-on bonus for 1999,
50% of which was paid in 1999, with the balance paid in 2000. On an
annual basis, Mr. Petrozzo's salary for the year ended December 31, 1999
would have been $500,000.

(2) Mr. Feinberg commenced employment with us in November 1999. The amount
disclosed in the bonus column reflects a one-time sign-on bonus for 1999,
50% of which was paid in 1999, with the balance paid in 2000. On an
annual basis, Mr. Feinberg's salary for the year ended December 31, 1999
would have been $275,000.

(3) Mr. Crain commenced employment with us in November 1999. The amount
disclosed in the bonus column reflects a one-time sign-on bonus for 1999.
On an annual basis, Mr. Crain's salary for the year ended December 31,
1999 would have been $275,000.

(4) Prior to November 2000, Ms. Pikus served as our Chief Financial Officer.

EMPLOYMENT AGREEMENTS

Our employment agreement with Daniel Gittleman entitles him to severance
in the amount of three years' base salary in the event that he is terminated
without cause. Our employment agreements with

38
<PAGE>

Daniel Petrozzo, David Dill, Michael Feinberg and Daniel Crain entitle them to
severance in the amount of six months' base salary in the event that they are
terminated without cause.

OPTION GRANTS

There were no options granted prior to December 31, 1999. The following
table describes the options that were granted in the year 2000 through November
1, 2000.

OPTION GRANTS IN 2000
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT
ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF PERCENT OF PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------
NAME GRANTED (#) YEAR 2000 ($/SH) DATE 5%($) 10%($)
-------------------------- ------------- -------------- ------------ ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Daniel Gittleman ......... -- -- -- --
Daniel Petrozzo .......... 1,000,000 7.5% $ 1.44 01/27/05
250,000 1.9 4.10 03/14/05
750,000 5.6 7.07 07/13/05
Michael Feinberg ......... 500,000 3.7 1.44 01/27/05
150,000 1.1 7.07 07/13/05
Daniel Crain ............. 500,000 3.7 1.44 01/27/05
50,000 0.4 4.10 03/14/05
100,000 0.7 7.07 07/13/05
Patricia Pikus ........... 375,000 2.8 1.44 01/27/05
David Dill ............... 500,000 3.7 10.00 11/07/05
</TABLE>

STORAGEAPPS INC. 2000 STOCK INCENTIVE PLAN

We adopted our 2000 Stock Incentive Plan on January 27, 2000 and we
amended and restated the plan on September 11, 2000. The following description
of the plan is intended to be a summary and does not describe all provisions of
the plan. For a more thorough understanding of the terms of the plan, you
should refer to the plan, which is included as an exhibit to the registration
statement of which this prospectus is a part.

PURPOSE OF THE PLAN

The purpose of the plan is to secure for StorageApps and its stockholders
the benefits of the incentive inherent in stock ownership by employees,
directors, consultants and other persons who perform services for us. The plan
also promotes the success and enhances the value of StorageApps by linking the
personal interests of participants to those of our stockholders and provides
participants with an incentive for outstanding performance. The plan is further
intended to provide flexibility in our ability to motivate, attract and retain
the services of employees upon whose judgment, interest and special effort we
depend.

ADMINISTRATION OF THE PLAN

Following the closing of this initial public offering, the compensation
committee will administer all facets of the plan. However, the plan is
currently administered by the stock incentive plan committee of the board. The
stock incentive plan committee of the board has, and the compensation committee
will have, the power, in its discretion, to select the participants who will
participate in the plan, to grant awards under the plan, to determine the terms
of these awards, to interpret the provisions of the plan and to take any action
that it deems necessary or advisable for the administration of our plan.

ELIGIBILITY AND PARTICIPATION

Eligibility to participate in the plan is limited to our key employees,
key employees of our subsidiaries, non-employee directors, and consultants or
other persons who perform services for us. Participation in the plan is at the
discretion of the stock incentive plan committee and will be based upon each
participant's present and potential contributions to our success and other
factors that the committee may deem relevant.

39
<PAGE>

TYPE OF AWARDS UNDER THE PLAN

The plan provides that the stock incentive plan committee may grant awards
to eligible participants in any of the following forms, subject to the terms,
conditions and provisions that our stock incentive plan committee may determine
are necessary or desirable:

o incentive stock options;

o nonqualified stock options;

o stock appreciation rights;

o restricted shares of our common stock;

o unrestricted shares of our common stock; or

o performance share awards.

NUMBER OF AUTHORIZED SHARES

We have authorized a maximum of 15,000,000 shares of our common stock for
participants during the term of our plan. The stock incentive plan committee
may adjust the available number and class of shares to prevent the dilution or
accretion of rights in the event of changes to our capitalization.

CHANGE IN CONTROL

If there is a change in control of StorageApps, all unvested options
granted under the plan will vest and become immediately exercisable and all of
the restrictions on restricted shares of our common stock will lapse. A change
in control generally means:

o the acquisition by any person, other than any person who owned 25% or
more of our outstanding voting securities on September 11, 2000, of 50%
or more of our outstanding voting securities,

o approval by StorageApps' stockholders of the liquidation, dissolution,
sale or other disposition of StorageApps, whether by merger or other
means, or

o a majority of our board of directors is replaced, other than by death,
during any 24 month period.

TERM OF THE PLAN

Unless earlier terminated by our board, the plan will terminate on
September 11, 2010.

AMENDMENT AND TERMINATION

Our board may alter, amend, suspend or terminate the plan at any time. Any
material increase in the maximum number of shares that may be issued under the
plan, other than anti-dilution or equitable adjustments, must be approved by
our stockholders. In addition, any material modification in the plan's
eligibility requirements must also be approved by our stockholders. Finally,
any extension of the plan's term and any other amendment that the board, in its
discretion, determines should become effective upon stockholder approval, must
be approved by our stockholders.

STORAGEAPPS INC. 401(K) PLAN

We maintain an employee savings and retirement plan qualified under
Section 401 of the Internal Revenue Code and covering all of our employees.
Pursuant to the 401(k) plan, employees may elect to reduce their current
compensation by 15% of their annual salary or up to the statutorily prescribed
annual limit and have the amount of each reduction contributed to the 401(k)
plan. Beginning calendar year 2000, we will match 25% of the first 6% of an
employee's contribution.

40
<PAGE>

CERTAIN RELATIONSHIPS

REGISTRATION RIGHTS AGREEMENT

Substantially all existing stockholders of StorageApps are parties to an
amended and restated registration rights agreement dated March 8, 2000 which
grants demand registration rights following the closing of our initial public
offering. Generally, the agreement grants stockholders of at least 5% of all
outstanding common stock two demand registration rights. These demand
registration rights may be exercised at any time after our initial public
offering, although we have the right to delay the registration under certain
circumstances. All stockholders have agreed not to request such registration
for a period of 180 days after this offering.

The amended and restated registration rights agreement also provides that
the parties to the agreement are entitled to "piggyback" registration rights.
Substantially all the stockholders have agreed to waive their "piggyback
rights" in connection with this offering.

We are required to bear substantially all of the expenses incurred in
connection with any of the registrations described above, other than
underwriting discounts and commissions. Registration of any of the shares of
common stock held by stockholders with registration rights would result in
those shares becoming freely tradable without restriction under the Securities
Act immediately after effectiveness of the registration.

STOCKHOLDERS AGREEMENTS

We and substantially all of our existing stockholders are parties to a
stockholders agreement. The stockholders agreement restricts transfers of all
common stock held by those bound by the agreement and generally provides a
right of first offer in favor of StorageApps upon sales by stockholders. We and
certain investors, or the investor stockholders, have also entered into
investor stockholders agreements. The investor stockholders agreements also
restrict transfers of common stock held by the investor stockholders. The
investor stockholders agreements also provide a right of first offer and tag
along rights, gives Mr. Gittleman the right to appoint four directors, provides
GMS Capital Partners with the right to appoint two directors, and grants The
Blackstone Group the right to appoint one director. In addition, the investor
stockholders agreements give the investor stockholders the right to purchase
shares to maintain specified percentage ownership levels in connection with
issuances of common stock. This right to purchase shares does not apply with
respect to this offering, except for Dell Computer Corporation and Blackstone.
Their right to purchase shares is subject to the underwriters' reasonable
approval. We do not expect this offering to trigger Dell's and Blackstone's
rights, as their ownership levels are currently substantially over the
specified levels.

Both the stockholders agreement and the investor stockholders agreements
will terminate upon the closing of this offering.

OTHER TRANSACTIONS

We have incurred expenses on behalf of Daniel Gittleman, our Chairman and
Chief Executive Officer, in connection with certain of his personal
expenditures. These expenditures have been treated as loans to Mr. Gittleman.
The loan balance was $22,700 at June 30, 2000. The largest aggregate loan
balance was $1,513,900, $3,077,400 and $107,600 during 1997, 1998 and 1999,
respectively. All amounts due to StorageApps bear interest at a rate of 9% per
annum. At all times prior to September 1998, Mr. Gittleman was the sole
stockholder of StorageApps. Since September 1998, the balance has been paid off
each month. This lending arrangement shall terminate upon the closing of this
offering. See note 7 of the consolidated financial statements included in this
prospectus.

41
<PAGE>

In connection with a March 2000 private placement, we issued a call option
to Blackstone to purchase up to 452,453 additional shares of common stock, and
a put option which would obligate Blackstone to purchase up to an additional
1,131,132 shares of common stock, in each case at a price of $4.42 per share.
The exercise of the call or put option was contingent upon our achievement of
certain performance goals, which have been met. Either the call option or the
put option, but not both, could have been exercised. On September 20, 2000
Blackstone exercised the call option. See note 8 of the consolidated financial
statements included in this prospectus.

42
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of November 1, 2000, and as
adjusted to reflect the sale of shares offered by this prospectus, held by all
executive officers and directors individually and as a group. In accordance
with the rules of the SEC, beneficial ownership includes voting or investment
power with respect to securities and includes the shares issuable pursuant to
stock options that are exercisable within 60 days of November 1, 2000. Shares
issuable pursuant to stock options are deemed outstanding for computing the
percentage of the person holding such options but are not outstanding for
computing the percentage of any other person. Unless otherwise indicated, all
shares listed below were outstanding on November 1, 2000. The percentage of
beneficial ownership for the following table is based on 60,907,871 shares of
common stock outstanding as of November 1, 2000, and shares of common
stock outstanding after the completion of this offering. Unless otherwise
indicated, the address for each listed stockholder is: c/o StorageApps Inc.,
1001 Frontier Road, Bridgewater, New Jersey 08807. To our knowledge, except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock.

<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
OUTSTANDING
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ ---------- ---------
<S> <C> <C> <C>
GMS Capital Partners, L.P. ............................ 5,513,525 9.1%
405 Park Avenue, 16th Floor
New York, New York 10022
Strategic Investment Partners, Ltd. ................... 5,096,544 8.4
888 Seventh Avenue
New York, New York 10106
Dell USA L.P. ......................................... 3,071,071 5.0
c/o Dell Computer Corporation
Mail Stop 8066
One Dell Way
Round Rock, Texas 78682
Daniel Gittleman (1) .................................. 25,329,662 41.6
Daniel Petrozzo (2) ................................... 1,083,333 1.8
Daniel Crain (3) ...................................... 200,000 *
Michael Feinberg (4) .................................. 216,667 *
Patricia Pikus (5) .................................... 62,500 *
David Dill ............................................ -- --
J. Tomilson Hill III (6) .............................. 2,742,211 4.5
Morton Topfer (7) ..................................... 706,957 1.2
Joshua Levine ......................................... 21,209 *
Joachim Gfoeller, Jr. (8) ............................. 5,513,525 9.1
All directors and officers as a group (10 persons) (9) 35,876,064 58.9
</TABLE>

----------
* Less than 1%.

(1) All shares are held by limited partnerships partially controlled by Mr.
Gittleman.

(2) Includes 333,333 shares issuable upon exercise of options exercisable
within 60 days of November 1, 2000.

(3) Includes 166,667 shares issuable upon exercise of options exercisable
within 60 days of November 1, 2000.

(4) Includes 166,667 shares issuable upon exercise of options exercisable
within 60 days of November 1, 2000.

(5) All shares are issuable upon exercise of options exercisable within 60
days of November 1, 2000.

43
<PAGE>

(6) All shares are held by entities controlled by The Blackstone Group, of
which Mr. Hill is a Senior Managing Director. See "Certain
Relationships--Other Transactions."

(7) Does not include 3,071,071 shares held by Dell USA L.P.

(8) All shares are held by GMS Capital Partners, L.P., of which Mr. Gfoeller
is the managing general partner.

(9) See footnotes (1) through (8).

44
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $.01 par value, and 5,000,000 shares of
undesignated preferred stock, $.01 par value. The following description of our
capital stock is intended to be a summary and does not describe all provisions
of our certificate of incorporation or bylaws or Delaware law applicable to us.
For a more thorough understanding of the terms of our capital stock, you should
refer to our certificate of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus is a part.

COMMON STOCK

As of November 1, 2000, there were 60,907,871 shares of common stock
outstanding held by approximately 83 stockholders. In addition, as of November
1, 2000, there were options outstanding to purchase 11,424,323 shares of common
stock. Upon completion of this offering, there will be shares of
common stock outstanding, assuming no exercise of the underwriters'
overallotment option or additional exercise of outstanding options under our
stock option plan and warrants. All outstanding shares of common stock are
fully paid and non-assessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and non-assessable.

VOTING RIGHTS

The holders of our common stock have one vote per share. Holders of our
common stock are not entitled to vote cumulatively for the election of
directors. Generally, all matters to be voted on by our stockholders must be
approved by a majority, or, in the case of election of directors, by a
plurality, of the votes cast at a meeting at which a quorum is present, voting
together as a single class subject to any voting rights granted to holders of
any then outstanding preferred stock. Immediately after the closing of this
offering, there will be no shares of preferred stock outstanding.

DIVIDEND POLICY

Although we do not anticipate paying any cash dividends in the foreseeable
future, holders of common stock will share ratably in any dividends declared by
our board of directors, subject to the preferential rights of any preferred
stock then outstanding. Dividends consisting of shares of common stock may be
paid to holders of shares of common stock.

OTHER RIGHTS

On liquidation, dissolution or winding up of StorageApps, all holders of
common stock are entitled to share ratably in any assets available for
distribution to holders of shares of common stock. No shares of common stock
are subject to redemption or have preemptive rights to purchase additional
shares of common stock.

PREFERRED STOCK

Our certificate of incorporation provides that up to 5,000,000 shares of
preferred stock may be issued from time to time in one or more classes or
series. Our board of directors is authorized to fix the voting rights, if any,
designations, powers, preferences, qualifications, limitations and restrictions
applicable to the shares of each class or series. Our board of directors may,
without stockholder approval, issue preferred stock with voting and other
rights that could adversely affect the voting power and other rights of the
holders of the common stock and could have anti-takeover effects, including
preferred stock or rights to acquire preferred stock in connection with
implementing a stockholder rights plan. We have no present plans to issue any
shares of preferred stock. The ability of our board of directors to issue
preferred stock without stockholder approval could have the effect of delaying,
deferring or preventing a change of control of StorageApps or the removal of
existing management.

45
<PAGE>

REGISTRATION RIGHTS

We have granted registration rights to substantially all of our existing
stockholders, under an amended and restated registration rights agreement. See
"Certain Relationships -- Registration Rights."

ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

A number of provisions of our certificate of incorporation and bylaws
which will be effective upon completion of this offering concern matters of
corporate governance and the rights of stockholders. These provisions, as well
as the ability of our board of directors to issue shares of preferred stock and
to set the voting rights, preferences and other terms of that preferred stock,
may be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by our board of directors, including takeovers that
stockholders may deem to be in their best interests. These provisions, together
with our classified board of directors, also could delay or frustrate the
removal of incumbent directors even if the removal of incumbent directors would
be beneficial to our stockholders. Our board of directors believes that these
provisions are appropriate to protect the interests of StorageApps and of our
stockholders.

Classified Board of Directors

Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board
of directors will be elected each year. These provisions, when coupled with the
provision of our certificate of incorporation authorizing the board of
directors to fill vacant directorships or increase the size of the board of
directors, may delay a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.

No Stockholder Action by Unanimous Written Consent

Our certificate of incorporation prohibits stockholders from acting by
written consent. It further provides that special meetings of our stockholders
may be called only by the Chairman of the full board of directors, a majority
of the board of directors or the Chief Executive Officer.

Advance Notice Requirements for Stockholder Proposals and Director
Nominations

Our bylaws include advance notice and informational requirements and time
limitations on any director nomination or any new proposal which a stockholder
wishes to make at an annual meeting of stockholders. In general, a
stockholder's notice of a director nomination or proposal will be timely if
delivered to the secretary of StorageApps at our principal executive offices
not less than 60 days nor more than 90 days prior to the scheduled date of the
annual meeting. These provisions may preclude stockholders from bringing
matters before an annual meeting or from making nominations for directors at
these meetings.

Director Vacancies and Removal

Our certificate of incorporation provides that vacancies in our board of
directors may be filled only by the affirmative vote of a majority of the
remaining directors. Our certificate of incorporation also provides that
directors may be removed from office only with cause and only by the
affirmative vote of holders of two-thirds of the shares then entitled to vote
at an election of directors.

Certificate of Incorporation and Bylaws

Our certificate of incorporation and bylaws impose supermajority vote
requirements in connection with the amendment of some provisions of our
certificate of incorporation and bylaws, including those provisions relating to
the classified board of directors and the ability of stockholders to call
special meetings.

Authorized but Unissued Shares

The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate

46
<PAGE>

purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.

DELAWARE ANTI-TAKEOVER LAW

We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a business combination with
an interested stockholder for a period of three years following the date the
person became an interested stockholder, unless:

o the board of directors approved the transaction in which the person
became an interested stockholder prior to the date the interested
stockholder attained this status;

o upon consummation of the transaction that resulted in the person's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or

o on or after the date of the business combination, it is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 662/3% of the outstanding
voting stock not owned by the interested stockholder.

A business combination generally includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.

This statute could prohibit or delay the accomplishment of mergers, tender
offers or other takeover or change in control attempts with respect to
StorageApps and, accordingly, may discourage attempts to acquire us. These
provisions are likely to impose greater restrictions on new, unaffiliated
stockholders than on our existing stockholders who will continue to own a
majority of our outstanding common stock after this offering.

LISTING

We have filed an application to list our common stock on the Nasdaq
National Market under the symbol "STRG."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Registrar and
Transfer Co. The transfer agent's address is 10 Commerce Drive, Cranford, New
Jersey 07016 and its telephone number is (908) 272-8511.

47
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Furthermore, because only a
limited number of shares of our common stock will be available for resale after
this offering due to existing contractual and legal restrictions on sale as
described below, there may be sales of substantial amounts of our common stock
in the public market after these restrictions lapse. Such sales may adversely
affect the then prevailing market price and our ability to raise equity capital
in the future.

Upon completion of this offering, we will have shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of , 2000. Of these shares, the shares sold in this offering will be
freely transferable without restrictions or further registration under the
Securities Act, except for any shares purchased by one of our existing
"affiliates," as that term is defined in Rule 144 under the Securities Act. The
remaining shares of common stock existing are "restricted shares" as
defined in Rule 144. Restricted shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144 or 701 of the Securities Act. As a result of the contractual 180-day
lock-up period described below and the provisions of Rules 144 and 701, these
shares will be available for sale in public market as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ------------------------------------------------------
<S> <C>
.............. On the date of this prospectus.
.............. After 90 days from the date of this prospectus.
.............. After 180 days from the date of this prospectus
(subject, in some cases, to volume limitations).
.............. At various times after 180 days from the date of this
prospectus (subject, in some cases, to volume
limitations).
</TABLE>

LOCK-UP AGREEMENTS

StorageApps, our directors and executive officers and our existing
stockholders have each agreed not to offer, pledge, sell, contract to sell,
lend, or otherwise transfer or dispose of any shares of common stock for a
period of 180 days after the date of this prospectus, without the prior written
consent of Morgan Stanley & Co. Incorporated, subject to limited exceptions.
See "Underwriters." Morgan Stanley & Co. Incorporated, however, may in its sole
discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements. See "Underwriters."

RULE 144

In general, under Rule 144, beginning 90 days after the date of this
offering, a person, or persons whose shares are aggregated, who owns shares
that were purchased from us, or any affiliate, for at least one year, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:

o 1% of our then outstanding shares of common stock, which will equal
approximately shares immediately after this offering; or

o the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of the
notice of the sale on Form 144.

Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. Any
person, or persons whose shares are aggregated, who is not deemed to have been
one of our affiliates at any time during the three months preceding a sale, and
who owns shares within the definition of "restricted securities" under Rule 144
that were purchased from us, or any affiliate, at least two years previously,
would be entitled to sell shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.

48
<PAGE>

RULE 701

Subject to limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 may be relied upon regarding the resale of
securities originally purchased from us by our employees, directors or officers
prior to the date we become subject to the reporting requirements of the
Securities Exchange Act of 1934, or the Exchange Act, under written
compensatory benefit plans or written contracts relating to the compensation of
these persons. In addition, the Securities and Exchange Commission has
indicated that Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements of the Exchange
Act, along with the shares acquired upon exercise of the options, including
exercises after the date of this prospectus. Securities issued in reliance on
Rule 701 are restricted securities and, subject to the contractual restrictions
described above, beginning 90 days after the date of this prospectus, may be
sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its maximum holding period requirements.

STOCK OPTIONS

As of November 1, 2000, options to purchase a total of 11,424,323 shares
of common stock under our stock option plan were outstanding and 621,248 were
exercisable. All shares subject to options scheduled to vest prior to June 15,
2001 are subject to lock-up agreements. An additional 1,631,676 shares of
common stock are available for future option grants under our stock incentive
plan.

Upon completion of this offering, we intend to file a registration
statement under the Securities Act covering all shares of common stock subject
to outstanding options or issuable under our stock option plan. Subject to Rule
144 volume limitations applicable to affiliates, shares registered under any
registration statements will be available for sale in the open market beginning
90 days after the date of the prospectus, except to the extent that the shares
are subject to vesting restrictions or the contractual restrictions described
above.

49
<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Keegan & Company, Inc. are acting as representatives,
have severally agreed to purchase, and StorageApps has agreed to sell to them,
severally, the number of shares of StorageApps' common stock indicated below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated .........
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................
Morgan Keegan & Company, Inc. .............

Total ....................................
==========
</TABLE>

The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus
are subject to the approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take and pay for
all of the shares of common stock offered by this prospectus, except those
shares covered by the over-allotment option described below, if any shares are
taken.

The underwriters initially propose to offer a portion of the shares of
common stock directly to the public at the public offering price set forth on
the cover page of this prospectus and a portion to some dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. Any underwriter may allow, and these dealers may reallow, a
concession not in excess of $ per share to other underwriters or to other
dealers. After the initial offering of the shares of common stock, the offering
price and other selling terms may from time to time be varied by the
representatives.

We have granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent this option is
exercised, each underwriter will become obligated, subject to specified
conditions, to purchase approximately the same percentage of additional shares
of common stock as the number set forth next to the underwriter's name in the
preceding table bears to the total number of shares of common stock set forth
next to the names of all underwriters in the preceding table. If the
underwriters exercise the over-allotment option in full, the total price to the
public for this offering would be $ , the total underwriting discounts and
commissions would be $ and the total proceeds to StorageApps would be
$ .

The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.

At our request, the underwriters have reserved up to shares of common
stock offered by this prospectus for sale at the initial public offering price
to some of our directors, officers, employees, business associates and related
persons of StorageApps. We cannot assure you that any of the reserved shares
will be purchased. The number of shares of common stock available for sale to
the general public

50
<PAGE>

will be reduced to the extent that these parties purchase these reserved
shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered by this prospectus.

StorageApps has applied to list the common stock on the Nasdaq National
Market under the symbol "STRG."

StorageApps, our directors and executive officers and our existing
stockholders have each agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, he, she or it will
not, during the period ending 180 days after the date of this prospectus:

o offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

o enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;

whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.

The restrictions described in the immediately preceding paragraph do not
apply to:

o the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;

o the sale of shares of common stock to the underwriters in this offering;

o transactions by any person other than StorageApps relating to shares of
common stock or other securities acquired in open market transactions
after the completion of this offering; or

o in the case of StorageApps, the grant of options to purchase common
stock under our stock incentive plan described in the prospectus or the
issuance of restricted stock to our employees or consultants or the
issuance of shares of common stock or other rights to acquire our capital
stock, so long as these options and shares of stock are subject to the
same restrictions as those contained in this and the preceding paragraph.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may sell more shares
than they are obligated to purchase under the underwriting agreement, creating
a short position. A short sale is covered if the short position is no greater
than the number of shares available for purchase by the underwriters under the
over allotment option. The underwriters can close out a covered short sale by
exercising the over allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of shares
compared to the price available under the over allotment option. The
underwriters may also sell shares in excess of the over allotment option,
creating a naked short position. The underwriters must close out any naked
short position by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned that there may
be downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering. In
addition, to stabilize the price of the common stock, the underwriters may bid
for, and purchase, shares of common stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the common stock to cover syndicate
short positions or to stabilize the price of the common stock. Any of these
activities may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.

51
<PAGE>

Morgan Stanley Dean Witter, an affiliate of Morgan Stanley & Co.
Incorporated, and Merrill Lynch & Co., an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, are each significant customers of StorageApps. In
addition, affiliates of Morgan Stanley and Morgan Keegan & Company, Inc. own
shares of our common stock.

StorageApps and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the representative of the underwriters. Among the
factors to be considered in determining the initial public offering price will
be:

o the future prospects of StorageApps and its industry in general;

o sales, earnings and certain other financial operating information of
StorageApps in recent periods; and

o the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of StorageApps.

The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.

LEGAL MATTERS

The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for StorageApps by Davis Polk & Wardwell, New
York, New York. Certain legal matters relating to the common stock offered by
this prospectus will be passed upon for the underwriters by Shearman &
Sterling, New York, New York.

EXPERTS

The financial statements of StorageApps Inc. and its consolidated
subsidiary as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

52
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION ABOUT STORAGEAPPS

We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered by this prospectus. This prospectus does
not contain all of the information set forth in the registration statement and
its exhibits and schedules. For further information with respect to us and our
common stock being offered, see the registration statement and its exhibits and
any schedules. Statements contained in this prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance, if the contract or document is filed as an exhibit, reference is
made to the copy of the contract or other document filed as an exhibit to the
registration statement, each statement being qualified in all respects by such
reference. A copy of the registration statement, and its exhibits and schedules
may be inspected without charge at the public reference facilities maintained
by the SEC located at Room 1024, 450 Fifth Street, Washington, D.C. 20549 and
at the SEC's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part of the
registration statement may be obtained from these offices upon the payment of
the fees prescribed by the SEC. Information on the operation of the public
reference room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC
maintains a web site at www.sec.gov, from which interested persons can
electronically access the registration statement and its exhibits and
schedules. The registration statement and its exhibits and schedules are also
available for reading and copying at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.

As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to these requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain a web site
at www.storageapps.com. This reference is not an active link to our web site
and the information contained in or connected to our web site shall not be
deemed to be incorporated into this prospectus or the registration statement of
which it is a part.

53
<PAGE>

STORAGEAPPS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants ................................................... F-2

Consolidated Balance Sheets as of December 31, 1998 and 1999 and June 30, 2000
(unaudited) ........................................................................ F-3

Consolidated Statements of Income (Loss) for the years ended December 31, 1997, 1998
and 1999 and the six months ended June 30, 1999 (unaudited) and 2000 (unaudited) ... F-4

Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1997, 1998 and 1999 and the six months ended June 30, 2000
(unaudited) ........................................................................ F-5

Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999 and the six months ended June 30, 1999 (unaudited) and 2000 (unaudited) ....... F-6

Notes to Consolidated Financial Statements .......................................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
StorageApps Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in stockholders' equity
and of cash flows present fairly, in all material respects, the financial
position of StorageApps Inc. and its subsidiary (the "Company") at December 31,
1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 13, 2000

F-2

<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------- JUNE 30,
1998 1999 2000
--------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ............................ $ 2,022,700 $ 1,194,900 $ 7,919,800
Accounts receivable, net of allowance for
doubtful accounts of $0, $25,000 and $75,000
(unaudited), respectively ........................... 5,628,000 6,640,600 12,771,600
Inventories, net ..................................... 2,606,800 4,698,200 11,540,000
Prepaid expenses and other current assets ............ 44,700 187,000 648,900
Income tax receivable ................................ -- -- 756,800
Deferred income taxes ................................ 516,200 1,230,100 1,230,100
----------- ----------- -----------
Total current assets ................................. 10,818,400 13,950,800 34,867,200
Property, equipment and leasehold improvements,
net .................................................. 247,800 552,100 2,165,300
Deposits and other assets, net ......................... 60,400 83,500 286,900
Deferred income taxes .................................. 15,400 -- 319,600
----------- ----------- -----------
Total assets ......................................... $11,142,000 $14,586,400 $37,639,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Capital lease obligations, current ................... -- $ 99,500 $ 331,700
Trade accounts payable ............................... $ 2,995,800 3,657,000 6,800,500
Deferred revenue ..................................... 2,713,400 3,452,800 3,626,000
Accrued expenses and commissions ..................... 472,800 787,700 528,200
Income taxes payable ................................. 1,319,400 184,000 --
Due to affiliate ..................................... 107,200 -- --
Deferred rent obligation ............................. 11,900 -- --
Deferred income taxes ................................ -- 4,600 44,600
----------- ----------- -----------
Total current liabilities ............................ 7,620,500 8,185,600 11,331,000
Capital lease obligations, non-current .................. -- 40,800 489,800
Deferred revenue ........................................ 293,200 1,211,700 1,768,600
Commitments and contingencies
Stockholders' equity
Convertible preferred stock, $0.01 par value;
200,000 shares authorized; 106,007 shares issued
and outstanding; liquidation preference
$6,000,000 ........................................... 1,100 1,100 1,100
Common stock, $0.01 par value; 75,000,000 shares
authorized; 44,699,650, 44,699,650 and 49,004,554
(unaudited) shares issued and outstanding,
respectively ......................................... 447,000 447,000 490,100
Additional paid-in capital ............................. -- -- 19,997,200
Retained earnings ...................................... 2,780,300 4,700,300 3,660,900
Deferred compensation .................................. -- -- (95,300)
Accumulated other comprehensive loss ................... -- -- (4,300)
Stock subscription receivable from stockholder ......... (100) (100) (100)
----------- ----------- -----------
Total stockholders' equity ........................... 3,228,300 5,148,300 24,049,600
----------- ----------- -----------
Total liabilities and stockholders' equity .......... $11,142,000 $14,586,400 $37,639,000
=========== =========== ===========

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

F-3
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ------------------------------
1997 1998 1999 1999 2000
-------------- -------------- -------------- ------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales .............................. $15,689,000 $24,006,900 $23,321,700 $ 9,434,000 $ 16,159,200
Cost of goods sold ..................... 10,561,600 14,346,900 13,782,200 5,339,600 8,779,100
----------- ----------- ----------- ----------- ------------
Gross profit .......................... 5,127,400 9,660,000 9,539,500 4,094,400 7,380,100
Operating expenses:
Sales and marketing expenses .......... 896,100 1,472,900 1,641,000 766,200 2,005,700
General and administrative
expenses (exclusive of non-cash
stock compensation expense of
$799,000 for the six months ended
June 30, 2000) ...................... 3,047,700 3,410,900 4,209,600 1,631,900 3,661,600
Research and development expenses ..... -- 26,300 552,500 221,500 2,493,400
Stock compensation expense
(Note 11) ........................... -- -- -- -- 799,000
----------- ----------- ----------- ----------- ------------
Income (loss) from operations ....... 1,183,600 4,749,900 3,136,400 1,474,800 (1,579,600)
Other income (expense)
Interest income ....................... 88,700 194,400 99,700 27,000 115,000
Interest expense ...................... (208,700) (357,200) (80,600) (1,300) 31,200
----------- ----------- ----------- ----------- ------------
Net income (loss) before income
taxes .............................. 1,063,600 4,587,100 3,155,500 1,500,500 (1,495,800)
Income tax expense (benefit) ........... 496,300 1,982,100 1,235,500 641,300 (456,400)
----------- ----------- ----------- ----------- ------------
Net income (loss) ..................... $ 567,300 $ 2,605,000 $ 1,920,000 $ 859,200 $ (1,039,400)
=========== =========== =========== =========== ============
Net income (loss) per share, basic
and diluted ........................... $ .01 $ .06 $ .04 $ .02 $ (.02)
=========== =========== =========== =========== ============
Weighted average shares outstanding:
Basic ................................. 44,695,000 44,697,000 44,700,000 44,700,000 46,957,000
=========== =========== =========== =========== ============
Diluted ............................... 44,695,000 46,462,000 50,000,400 50,000,400 46,957,000
=========== =========== =========== =========== ============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

F-4
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON COMMON STOCK
PREFERRED STOCK STOCK (NO PAR) ($0.01 PAR)
------------------ -------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ 100 $ 1,000
Net income .............................
Balance at December 31, 1997 ............ 100 $ 1,000
=== =========
Exchange of common stock ............... (100) (1,000) 44,694,650 $446,900
Issuance of stock subscription ......... 5,000 100
Stock dividend of preferred shares 106,007 $1,100
Net income .............................
Balance at December 31, 1998 ............ 106,007 $1,100 -- $ -- 44,699,650 $447,000
======= ====== ==== ========= ========== ========
Net income .............................
Balance at December 31, 1999 ............ 106,007 $1,100 44,699,650 $447,000
======= ====== ========== ========
Issuance of common stock
(unaudited) ........................... 4,304,053 43,100
Exercise of stock options
(unaudited) ........................... 851
Stock options issued to consultants
and employees (Note 11)
(unaudited) ...........................
Amortization of deferred
compensation (unaudited) ..............
Foreign currency translation
adjustment (unaudited) ................
Net loss (unaudited) ...................
Balance at June 30, 2000 (unaudited) 106,007 $1,100 49,004,554 $490,100
======= ====== ========== ========

<CAPTION>
ACCUMULATED
ADDITIONAL OTHER STOCK
PAID-IN RETAINED DEFERRED COMPREHENSIVE SUBSCRIPTION
CAPITAL EARNINGS COMPENSATION LOSS RECEIVABLE
-------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ $ 55,000
Net income ............................. 567,300
-------------
Balance at December 31, 1997 ............ $ 622,300
=============
Exchange of common stock ............... (445,900)
Issuance of stock subscription ......... $ (100)
Stock dividend of preferred shares (1,100)
Net income ............................. 2,605,000
-------------
Balance at December 31, 1998 ............ $ 2,780,300 $ (100)
============= ======
Net income ............................. 1,920,000
-------------
Balance at December 31, 1999 ............ $ 4,700,300 $ (100)
============= ======
Issuance of common stock
(unaudited) ........................... $19,101,700
Exercise of stock options
(unaudited) ........................... 1,200
Stock options issued to consultants
and employees (Note 11)
(unaudited) ........................... 894,300 $ (99,300)
Amortization of deferred
compensation (unaudited) .............. 4,000
Foreign currency translation
adjustment (unaudited) ................ $ (4,300)
Net loss (unaudited) ................... (1,039,400)
-------------
Balance at June 30, 2000 (unaudited) $19,997,200 $ 3,660,900 $ (95,300) $ (4,300) $ (100)
=========== ============= ========= ======== ======

<CAPTION>
TOTAL
--------------
<S> <C>
Balance at December 31, 1996 ............ $ 56,000
Net income ............................. 567,300
------------
Balance at December 31, 1997 ............ $ 623,300
============
Exchange of common stock ............... --
Issuance of stock subscription ......... --
Stock dividend of preferred shares --
Net income ............................. 2,605,000
------------
Balance at December 31, 1998 ............ $ 3,228,300
============
Net income ............................. 1,920,000
------------
Balance at December 31, 1999 ............ $ 5,148,300
============
Issuance of common stock
(unaudited) ........................... 19,144,800
Exercise of stock options
(unaudited) ........................... 1,200
Stock options issued to consultants
and employees (Note 11)
(unaudited) ........................... 795,000
Amortization of deferred
compensation (unaudited) .............. 4,000
Foreign currency translation
adjustment (unaudited) ................ (4,300)
Net loss (unaudited) ................... (1,039,400)
------------
Balance at June 30, 2000 (unaudited) $ 24,049,600
============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

F-5
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999
---------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................. $ 567,300 $ 2,605,000 $ 1,920,000
Adjustment to reconcile net income (loss) to
net cash (used in) provided by operating
activities
Depreciation and amortization .................... 116,600 79,600 231,300
Deferred income taxes ............................ (268,700) (243,500) (693,900)
Allowance for doubtful accounts .................. -- -- 25,000
Non-cash stock compensation expense .............. -- -- --
Gain on sale of property and equipment ........... -- -- (3,700)
Changes in operating assets and liabilities
Increase in trade accounts receivable ........... (2,107,800) (2,466,800) (1,037,600)
Increase in inventories, net .................... (1,036,700) (1,159,700) (2,091,400)
Decrease/(increase) in prepaid expenses
and other current assets ...................... 7,700 (2,500) (148,700)
(Increase)/decrease in deposits and other
assets, net ................................... (14,000) (60,000) (23,100)
Increase in trade accounts payable .............. 1,370,900 560,800 661,200
Increase/(decrease) in accrued expenses
and other liabilities ......................... 8,800 186,500 195,800
Increase/(decrease) in income taxes
payable ....................................... 430,400 874,300 (1,135,400)
Increase/(decrease) in deferred revenue ......... 808,500 1,959,800 1,657,900
-------------- -------------- -------------
Net cash (used in)/provided by operating
activities ........................................ (117,000) 2,333,500 (442,600)
-------------- -------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property, plant and equipment ......... (40,700) (115,300) (364,800)
Proceeds from sale of assets ...................... -- -- 23,300
-------------- -------------- -------------
Net cash used in investing activities ............ (40,700) (115,300) (341,500)
-------------- -------------- -------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES
Proceeds from issuance of common stock ............ -- -- --
Exercise of stock options ......................... -- -- --
Principal payments under capital lease
obligation ....................................... -- -- (50,100)
Borrowings under notes payable .................... 15,032,400 17,891,800 --
Repayments of notes payable ....................... (14,051,500) (19,784,200) --
Receipts from stockholder ......................... -- 3,403,100 581,400
Advances to stockholder ........................... (857,900) (1,905,500) (575,000)
Other ............................................. -- -- --
-------------- -------------- -------------
Net cash provided by (used in) financing
activities ...................................... 123,000 (394,800) (43,700)
-------------- -------------- -------------
Net (decrease) increase in cash and cash
equivalents ..................................... (34,700) 1,823,400 (827,800)
Cash and cash equivalents, beginning of
period .......................................... 234,000 199,300 2,022,700
-------------- -------------- -------------
Cash and cash equivalents, end of period ......... $ 199,300 $ 2,022,700 $ 1,194,900
============== ============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION AND NONCASH FINANCING ACTIVITIES
Cash paid during the year for
Interest ......................................... $ 192,000 $ 357,200 $ --
Income taxes ..................................... $ 238,200 $ 1,427,000 $ 3,323,700
Capital lease obligation .......................... $ -- $ -- $ 190,400

<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------------------
1999 2000
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................. $ 859,200 $ (1,039,400)
Adjustment to reconcile net income (loss) to
net cash (used in) provided by operating
activities
Depreciation and amortization .................... 73,800 278,400
Deferred income taxes ............................ (29,400) (279,600)
Allowance for doubtful accounts .................. 12,000 50,000
Non-cash stock compensation expense .............. -- 799,000
Gain on sale of property and equipment ........... -- --
Changes in operating assets and liabilities
Increase in trade accounts receivable ........... (1,035,800) (6,181,000)
Increase in inventories, net .................... (1,835,800) (6,841,800)
Decrease/(increase) in prepaid expenses
and other current assets ...................... (1,400) (449,100)
(Increase)/decrease in deposits and other
assets, net ................................... 8,100 (203,400)
Increase in trade accounts payable .............. 1,703,200 3,143,500
Increase/(decrease) in accrued expenses
and other liabilities ......................... (306,600) (259,500)
Increase/(decrease) in income taxes
payable ....................................... (1,228,300) (940,800)
Increase/(decrease) in deferred revenue ......... (9,500) 730,100
------------- -------------
Net cash (used in)/provided by operating
activities ........................................ (1,790,500) (11,193,600)
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property, plant and equipment ......... (265,200) (1,095,700)
Proceeds from sale of assets ...................... -- --
------------- -------------
Net cash used in investing activities ............ (265,200) (1,095,700)
------------- -------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES
Proceeds from issuance of common stock ............ -- 19,144,800
Exercise of stock options ......................... -- 1,200
Principal payments under capital lease
obligation ....................................... -- (114,700)
Borrowings under notes payable .................... -- --
Repayments of notes payable ....................... -- --
Receipts from stockholder ......................... 479,700 9,900
Advances to stockholder ........................... (352,600) (22,700)
Other ............................................. -- (4,300)
------------- -------------
Net cash provided by (used in) financing
activities ...................................... 127,100 19,014,200
------------- -------------
Net (decrease) increase in cash and cash
equivalents ..................................... (1,928,600) 6,724,900
Cash and cash equivalents, beginning of
period .......................................... 2,022,700 1,194,900
------------- -------------
Cash and cash equivalents, end of period ......... $ 94,100 $ 7,919,800
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION AND NONCASH FINANCING ACTIVITIES
Cash paid during the year for
Interest ......................................... $ -- $ 27,500
Income taxes ..................................... $ 1,967,900 $ 501,900
Capital lease obligation .......................... $ -- $ 795,900

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

F-6
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

StorageApps Inc. (formerly Raid Power Service, Inc.) (the "Company")
provides a portfolio of Proactive Network Storage Solutions products and
services to customers with mission-critical storage requirements. The Company
is a global supplier of full function, enterprise-wide storage systems. In
1998, the Company developed its suite of SANLink products and services, which
provide an independent, flexible platform for storage management. The Company
also provides service to its customers under extended service contracts. In
fiscal 1999, the Company began operations in the U.K. with the formation of
StorageApps Limited. The Company's customers historically have been principally
large financial institutions located in the Northeast United States, the United
Kingdom and Japan.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All material intercompany balances and
transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The consolidated financial statements as of June 30, 2000 and for the six
months ended June 30, 2000 and 1999 are unaudited and do not include all
disclosures required by generally accepted accounting principles. In the
opinion of management, this unaudited information has been prepared
substantially on the same basis as the audited financial statements and all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation have been included. Operating results for the six months
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for any future period.

Cash Equivalents

The Company considers all highly liquid debt instruments with original
maturities at the date of purchase of three months or less to be cash
equivalents.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including
cash, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of their short maturities. The carrying amount
of the Company's capital lease obligations approximates the fair value of such
instruments based upon management's best estimate of interest rates that would
be available to the Company for similar obligations at December 31, 1999.

Inventories

Inventories, which include materials, labor, and overhead, are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
method. Inventories consist principally of finished goods and spare parts.

Foreign Currency Translation

The financial statements of StorageApps Limited were prepared in local
currency and translated into U.S. dollars based on the current exchange rate in
effect at the end of the period for the balance sheet and a weighted-average
rate for the period of the statements of income. Translation adjustments are
reflected as foreign currency translation adjustment in stockholders' equity
and accordingly have no effect on net income. Transaction gains and losses are
included in income.

F-7
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Property, Equipment and Leasehold Improvements

Plant and equipment are stated at cost, net of accumulated depreciation.
Repairs and maintenance costs are expensed as incurred; major renewals and
betterments are capitalized. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and any
gain or loss on the disposition is reflected in current operations.
Depreciation is determined on a straightline basis over the estimated useful
lives of the applicable assets, generally three years for computer equipment,
and five to seven on furniture and equipment for financial reporting purposes.
Leasehold improvements are depreciated over the lesser of the lease term or the
estimated useful lives of the related assets. The Company reviews long-lived
assets for impairment whenever any events or changes in circumstances indicate
that the carrying amount of these may not be recoverable.

Revenue Recognition

The Company recognizes software revenues when installation has occurred
and product is accepted by the customer. Revenues relating to maintenance and
service contracts are recognized ratably over the service period with customer
advance payments recorded in deferred revenue. Revenues on hardware products
are recognized when the product has been shipped and the Company has satisfied
its obligations. Revenues on test and evaluation products are recognized when
the Company receives a purchase order from the customer upon completion of the
evaluation period.

Stock Option Plan

The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and accordingly, recognizes compensation expense for stock option grants to the
extent that the estimated fair value of the stock exceeds the exercise price of
the option at the measurement date. The compensation expense is charged against
operations ratably over the vesting period of the options. Disclosures will be
made in the consolidated financial statements of future periods in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation."

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

3. CONCENTRATION OF CUSTOMERS AND SUPPLIERS

Revenues in excess of 10% of the Company's net sales were attributable to
sales made to two customers during 1997, 1998 and 1999. These individual major
customers accounted for net sales of approximately $8,350,500 and $4,562,700,
respectively, in 1997, $12,669,000 and $6,090,800, respectively, in 1998 and
$9,220,000 and $2,963,000, respectively, in 1999. Outstanding accounts
receivable from these customers aggregated approximately $2,905,300, $4,548,600
and $5,724,200 at December 31, 1997, 1998 and 1999, respectively.

F-8
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company currently buys substantially all of the components for its
drives from one supplier. Although there are a limited number of manufacturers
of these components, management believes that other suppliers could provide
similar products to meet the Company's needs.

This major supplier accounted for purchases of approximately $10,879,400,
$14,849,400 and $11,949,000 for the years ended December 31, 1997, 1998 and
1999, respectively. Outstanding trade accounts payable to this supplier were
approximately $2,238,800, $2,596,700 and $2,667,400 at December 31, 1997, 1998
and 1999, respectively.

4. INVENTORY

Inventories consist of the following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- JUNE 30,
1998 1999 2000
-------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods ................... $ 1,868,300 $ 3,356,900 $ 9,544,700
Spare parts ...................... 213,100 587,800 786,800
Inventory on consignment ......... 525,400 768,000 1,373,000
----------- ----------- ------------
2,606,800 4,712,700 11,704,500
Obsolescence reserve ............. -- (14,500) (164,500)
----------- ----------- ------------
Net inventories .................. $ 2,606,800 $ 4,698,200 $ 11,540,000
=========== =========== ============
</TABLE>

5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements and related accumulated
depreciation and amortization consist of the following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------- JUNE 30,
1998 1999 2000
------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment ............................. $ 318,400 $ 442,700 $ 1,080,000
Office equipment ............................... 71,600 54,100 113,500
Office furniture ............................... 136,800 146,400 148,200
Leasehold improvements ......................... 54,300 6,200 65,700
Computer equipment under capital lease ......... -- 190,400 986,300
Work in progress ............................... -- -- 337,400
---------- ---------- -----------
581,100 839,800 2,731,100
Less accumulated depreciation and
amortization ................................. (333,300) (287,700) (565,800)
---------- ---------- -----------
Property, equipment and leasehold
improvements, net ........................... $ 247,800 $ 552,100 $ 2,165,300
========== ========== ===========

</TABLE>

Depreciation and amortization expense for the years ended December 31,
1997, 1998, and 1999 approximated $116,600, $79,600 and $231,300, respectively.

During 1999, the Company disposed of $296,500 of assets with accumulated
depreciation of $276,900. The Company has recognized a $3,700 gain on these
disposals.

F-9
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 1997, 1998
and 1999 consists of the following:

<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Federal
Current ................ $ 495,000 $1,592,200 $1,515,400
Deferred ............... (208,000) (165,700) (523,000)
State
Current ................ 270,000 633,400 414,000
Deferred ............... (60,700) (77,800) (170,900)
---------- ---------- ----------
Total expense ......... $ 496,300 $1,982,100 $1,235,500
========== ========== ==========
</TABLE>

The expense for income taxes differs from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax income as a result of the
following:

<TABLE>
<CAPTION>
1997 1998 1999
------------ -------------- --------------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate .......... $ 361,600 $ 1,559,600 $ 1,072,900
Increase in income taxes resulting from State
income taxes, net of federal income tax
benefit ....................................... 138,100 366,700 160,400
Nondeductible items and other, net .............. (3,400) 55,800 2,200
--------- ----------- -----------
$ 496,300 $ 1,982,100 $ 1,235,500
========= =========== ===========
</TABLE>

The tax effects of temporary differences that give rise to the deferred
tax asset at December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
1998 1999
------------ --------------
<S> <C> <C>
Deferred tax assets
Deferred revenue ....................................... $ 495,900 $ 1,021,900
Inventory .............................................. -- 156,700
Accrued commissions .................................... 20,300 20,500
Allowance for doubtful accounts ........................ -- 10,200
State taxes ............................................ -- 15,000
Property, equipment and leasehold improvements ......... 10,400 --
Other .................................................. 5,000 11,100
--------- -----------
531,600 1,235,400
--------- -----------
Deferred tax liabilities
Property, equipment and leasehold improvements ......... -- (9,900)
--------- -----------
Net deferred tax asset ................................. $ 531,600 $ 1,225,500
========= ===========
</TABLE>

7. RELATED PARTY TRANSACTIONS

Prepaid expenses and other current assets at December 31, 1998 and 1999
include a receivable due from a stockholder in the amount of $16,300 and
$9,900, respectively. These receivables represent cash advanced and personal
expenses paid on behalf of the stockholder. Gross amounts advanced to and
repaid by the stockholder during 1998 and 1999 are $1,905,500 and $3,403,100
respectively, and $575,000 and $581,400, respectively. Amounts due to the
Company from the stockholder bear interest at a rate of 9% per annum and carry
no specific repayment terms.

8. STOCKHOLDERS' EQUITY

Authorized Capital

In January 2000, the board of directors of the Company increased the
authorized shares of common stock to 75,000,000.

F-10
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common Stock

In 1998, a stock subscription right was issued to the sole stockholder for
5,000 shares of $0.01 par value common stock, resulting in a receivable due to
the Company of $100. In addition, this stockholder exchanged 100 shares of no
par value common stock for 44,694,650 shares of $0.01 par value common stock.
No money was exchanged between the stockholder and the Company for these
transactions.

On January 27, 2000, the Company split its $0.01 par value common stock
fifty shares for one. This stock split increased the number of common shares
outstanding by 43,805,657 shares. Common stock as presented throughout the
consolidated financial statements and footnotes has been retroactively restated
to reflect this split.

In March 2000, the Company completed private placements of 1,233,000
common shares at $4.10 per share and 2,364,100 common shares at $4.23 per
share. In May, the Company completed a private placement of 706,900 common
shares at $7.07 per share. In aggregate, these placements provided proceeds,
net of offering expenses, of $19,144,800. In connection with these placements,
the Company issued a call option to one of the purchasers to purchase up to
$2,000,000 in additional shares, and a put option which would obligate the
purchaser to purchase up to $5,000,000 in additional shares. Either the call
option or the put option, but not both could have been exercised, contingent
upon the Company's achievement of certain performance goals. The purchaser
exercised the call option in September.

On October 3, 2000, the Company issued 3,500,000 shares of common stock
for $35,000,000 in aggregate proceeds.

Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the board of
directors.

Series A Convertible Preferred Stock

On September 15, 1998 a stock dividend was issued to the sole stockholder
in the form of 106,007 shares of $0.01 shares of Series A convertible preferred
stock. That stockholder then sold all issued and outstanding preferred stock
shares to three investors. Stock dividends may accrue on the preferred stock at
an annual rate of 8% beginning on March 15, 1999, if and when declared by the
board of directors. No dividends were declared in 1999 by the board of
directors. Beginning in September 1999, the Company may, at its option, redeem
the preferred stock at its liquidation preference plus accrued and unpaid
dividends. Stockholders may convert one share of the preferred stock for fifty
shares of common stock, at their option, at the earlier of September 2000 or a
notice of redemption by the Company.

On July 11, 2000, following a notice of redemption from the Company, all
outstanding shares of convertible preferred stock were converted by the Company
into 6,115,864 shares of common stock, including accrued stock dividends.

9. FINANCING ARRANGEMENT

The Company has a credit agreement with First Bank, National Association,
which provides for a $15.0 million collateralized revolving credit facility
expiring on June 20, 2002. At December 31, 1999 and June 30, 2000, there was no
outstanding balance. The line of credit consists of a revolving credit note
with an available letter of credit sub-facility. The interest rate is based
either on the bank's United States prime rate or the London Inter-Bank Offer
Rate, as adjusted dependent on the financial condition of the Company. The
LIBOR rate may be elected by the Company for outstanding borrowings up to a
three-month period, at which point they revert to the prime rate. Interest
rates are equal to (i) the U.S. prime rate plus or minus 0.50% or LIBOR plus
from 2.25% to 3.25%. The Company has granted the bank a security interest in
substantially all assets, including accounts receivable, inventories and
equipment.

F-11
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The agreement requires maintenance of certain financial ratios (minimum
earnings, leverage, and fixed charge ratios) and contains other restrictive
covenants including limitations on purchases of assets. At December 31, 1999,
the Company was in compliance with the financial ratio requirements and all
covenants.

10. COMMITMENTS AND CONTINGENCIES

The Company leases its facilities and certain office equipment under
arrangements accounted for as operating and capital leases expiring at various
dates through 2002.

Rental expense charged to operations under such agreements aggregated
approximately $191,000, $265,700 and $490,300, respectively, in 1997, 1998 and
1999.

Future aggregate minimum lease payments under noncancellable capital and
operating leases were as follows at December 31, 1999:

<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- ----------
<S> <C> <C>
2000 ....................................... $131,500 $238,700
2001 ....................................... 43,400 44,900
2002 ....................................... -- 8,700
-------- --------
174,900 292,300
Less amount representing interest .......... 34,600 --
-------- --------
$140,300 $292,300
======== ========
</TABLE>

11. INCENTIVE STOCK OPTION PLAN (UNAUDITED)

On January 27, 2000, the Company adopted an Incentive Stock Option Plan
(the "Plan"). The Plan provides for the granting of Incentive Stock Options
("ISO"), Nonqualified Stock Options ("NSO"), Restricted Stock, Stock Awards,
Performance Share Awards and Stock Appreciation Rights to employees, directors
and consultants. The exercise price of all stock options granted under the Plan
is determined by the board of directors of the Company and is generally equal
to the fair value of the stock on the grant date. The maximum term of each
option granted under the Plan is ten years from the date of grant. Options
generally vest ratably over a three year period. The Company has reserved
11,000,000 shares for issuance under this plan.

Through June 30, 2000, the Company has granted 6,462,007 NSOs, net of
forfeitures, to employees and directors of the Company at exercise prices equal
to the fair value of the stock at the grant date. Accordingly, no compensation
expense has been recorded related to these options.

During the six months ended June 30, 2000, the Company granted a total of
975,000 NSOs to non-employee consultants in recognition of prior services
provided. The options vest ratably over three years and vesting is not
contingent upon future services. The fair value of these options at grant date
has been estimated using the Black-Scholes option pricing model as $795,000.
This amount has been recorded as stock compensation expense on the statement of
income (loss).

During the six months ended June 30, 2000, the Company granted a total of
35,000 NSOs to employees at exercise prices below the fair value of the stock
on the grant date. The intrinsic value of these options of $99,300 is recorded
as deferred compensation in stockholders' equity and is amortized to stock
compensation expense over the vesting period. $4,000 of expense was recognized
for these options in the June 30, 2000 period.

12. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) retirement savings plan covering all eligible
employees. Employees may elect to contribute up to 15% of their compensation to
the plan. The Company may make contributions to the plan on behalf of the
employees at its discretion. No contributions were made by the Company during
1997, 1998 and 1999.

F-12
<PAGE>

STORAGEAPPS INC.
(FORMERLY RAID POWER SERVICE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. RISKS AND UNCERTAINTIES

The Company's network storage device sales have been concentrated with a
limited number of customers. In addition, the markets for the Company's new
product have only recently begun to develop and are rapidly evolving. The
successful introduction of these products depends on, among other things, the
Company's ability to educate potential customers, and maintain and enhance the
Company's relationship with leading manufacturers and distributors. A
significant delay in the introduction of the Company's products could have a
material adverse effect on the Company's operations, operating revenues and
financial conditions in the near term.

14. EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing income available to
common stockholders by the weighted average number of common shares actually
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.

Shares outstanding for all periods have been adjusted to reflect the 50
for 1 stock split effective January 27, 2000.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------- --------------------------------
1997 1998 1999 1999 2000
--------------- --------------- --------------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic earnings per share
Net income (loss) available to
common shareholders ................ $ 567,300 $ 2,605,000 $ 1,920,000 $ 859,200 $ (1,039,400)
Weighted average number of
common shares outstanding,
basic .............................. 44,695,000 44,697,000 44,700,000 44,700,000 46,957,000
------------ ------------ ------------ ------------ ------------
Basic earnings per share ........... $ .01 $ .06 $ .04 $ .02 $ (.02)
============ ============ ============ ============ ============
Adjustments to weighted average
number of common shares
outstanding
Conversion of 106,007 shares of
Series A convertible preferred
stock to common stock .............. 1,765,000 5,300,400 5,300,400
------------ ------------ ------------ ------------ ------------
Weighted average number of
common shares outstanding,
diluted ............................ 44,695,000 46,462,000 50,000,400 50,000,400 46,957,000
------------ ------------ ------------ ------------ ------------
Diluted earnings per share ......... $ .01 $ .06 $ .04 $ .02 $ (.02)
============ ============ ============ ============ ============
</TABLE>

The loss per common share calculation for the six months ended June 30,
2000 excludes shares issuable upon conversion of convertible preferred stock or
exercise of options, as the effect is anti-dilutive for the period.

F-13
<PAGE>

[INSIDE BACK COVER ARTWORK]

<PAGE>

[STORAGEAPPS LOG0]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-----------
<S> <C>
SEC registration fee ....................... $30,360
NASD filing fee ............................ $12,000
Nasdaq National Market listing fee ......... *
Transfer agent's fees ...................... *
Printing and engraving expenses ............ *
Legal fees and expenses .................... *
Accounting fees and expenses ............... *
Blue Sky fees and expenses ................. *
Miscellaneous .............................. *
-------
Total .................................... $ *
</TABLE>
=======
----------
* To be filed by amendment.

Each of the amounts set forth above, other than the SEC registration fee
and the NASD filing fee, is an estimate.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section of the Registrant's bylaws provides for indemnification by the
Registrant of its directors, officers and employees to the fullest extent
permitted by the Delaware General Corporation Law.

Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions, or (iv) for any transaction from which the
director derived an improper personal benefit. The Registrant's Certificate of
Incorporation provides for such limitation of liability.

The Registrant maintains standard policies of insurance under which
coverage is provided (a) to its directors and officers against loss arising
from claims made by reason of breach of duty or other wrongful act, and (b) to
the Registrant with respect to payments which may be made by the Registrant to
such officers and directors pursuant to the above indemnification provision or
otherwise as a matter of law.

The proposed form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification of directors and officers
of the Registrant by the underwriters against certain liabilities.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since September 20, 1997, the Registrant has sold the following securities
without registration under the Securities Act of 1933:

(A) ISSUANCES OF CAPITAL STOCK

(1) On September 15, 1998, we issued a stock dividend to the sole
stockholder in the form of 106,007 shares of Series A convertible preferred
stock. That stockholder then sold these shares on the same day to three
accredited investors in a private placement for an aggregate amount of
$6,000,000. This sale was deemed exempt as a private placement under the
Securities Act.

(2) On March 8, 2000, we sold and issued a total of 1,232,982 shares of
common stock to three accredited investors in a private placement for an
aggregate amount of $5,000,000. This sale and issuance was deemed exempt
from registration under the Securities Act in reliance on Regulation D
promulgated under, and Section 4(2) of, the Securities Act.

(3) On March 24, 2000, we sold and issued a total of 2,364,114 shares of
common stock to one accredited investor in a private placement for an
aggregate amount of $10,000,000. This sale and issuance was deemed exempt
from registration under the Securities Act in reliance on Regulation D
promulgated under, and Section 4(2) of, the Securities Act.

(4) On May 30, 2000, we sold and issued a total of 706,957 shares of
common stock to one accredited investor in a private placement for an
aggregate amount of $5,000,000. This sale and issuance was deemed exempt
from registration under the Securities Act in reliance on Regulation D
promulgated under, and Section 4(2) of, the Securities Act.

(5) On October 3, 2000, we sold and issued a total of 3,500,000 shares of
common stock to nine accredited investors in a private placement for an
aggregate amount of $35,000,000. This sale and issuance was deemed exempt
from registration under the Securities Act in reliance on Regulation D
promulgated under, and Section 4(2) of, the Securities Act.

(B) EXERCISE OF STOCK OPTIONS

(1) On April 14, 2000, we issued 851 shares of common stock to an
employee pursuant to the exercise of underlying stock options for an
aggregate amount of $1,225. This issuance was deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
under Section 3(b) of the Securities Act.

(2) On September 20, 2000, we issued 452,453 shares of common stock to
three accredited investors pursuant to the exercise of underlying stock
options for an aggregate amount of $2,000,000. This issuance was deemed
exempt from registration under the Securities Act in reliance on Regulation
D promulgated under, and Section 4(2) of, the Securities Act.

(3) On September 28, 2000, we issued 1,300,000 shares of common stock to
three employees pursuant to the exercise of underlying stock options for an
aggregate amount of $8,151,500. This issuance was deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
under Section 3(b) of the Securities Act.

(4) On October 2, 2000, we issued 560,000 shares of common stock to six
employees pursuant to the exercise of underlying stock options for an
aggregate amount of $3,580,767. This issuance was deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
under Section 3(b) of the Securities Act.

II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following exhibits are filed as part of this Registration
Statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
1.1 Form of Underwriting Agreement*

3.1 Certificate of Incorporation*

3.2 Bylaws*

4.1 Form of Common Stock Certificate*

5.1 Opinion of Davis Polk & Wardwell*

10.1 Registration Rights Agreement*

10.2 Software Licensing Agreement with Dell*

10.3 Credit Agreement*

10.4 StorageApps Inc. 2000 Stock Incentive Plan*

21.1 Subsidiaries of the Registrant

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)

24.1 Powers of Attorney (included on signature page)

27.1 Financial Data Schedule (1997)

27.2 Financial Data Schedule (1998)

27.3 Financial Data Schedule (1999)

27.4 Financial Data Schedule (June 30, 1999)

27.5 Financial Data Schedule (June 30, 2000)
</TABLE>
----------
* To be filed by amendment.

(b) No financial statement schedules are required to be filed as part of
this Registration Statement.

ITEM 17. UNDERTAKINGS.

The undersigned hereby undertakes:

(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,

II-3
<PAGE>

submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bridgewater, State of
New Jersey, on the 3rd day of November, 2000.

STORAGEAPPS INC.

By /s/ Daniel Gittleman
------------------------------------
Name: Daniel Gittleman
Title: Chairman of the Board of
Directors and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel Gittleman, Daniel Petrozzo, David Dill,
Howard A. Kwon, Patricia Pikus and Samuel Schwerin, and each of them, his or
her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and any and all
additional registration statements pursuant to Rule 462(b) of the Securities
Act of 1933, as amended, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agents full power and
authority to do and perform each and every act in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or either of them or
their or his or her substitute or substitutes may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board of Directors and
/s/ Daniel Gittleman Chief Executive Officer (Principal
------------------------- Executive Officer) November 3, 2000
Daniel Gittleman

/s/ David Dill Chief Financial Officer (Principal
------------------------- Financial and Accounting Officer) November 3, 2000
David Dill

/s/ Daniel Petrozzo President and Chief Operating Officer
------------------------- and Director November 3, 2000
Daniel Petrozzo

/s/ Joachim Gfoeller, Jr.
-------------------------
Joachim Gfoeller, Jr. Director November 3, 2000

/s/ J. Tomilson Hill III
-------------------------
J. Tomilson Hill III Director November 3, 2000

/s/ Joshua Levine
-----------------------
Joshua Levine Director November 3, 2000

/s/ Morton Topfer
-----------------------
Morton Topfer Director November 3, 2000
</TABLE>

II-5

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
-------- ----------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation*
3.2 Bylaws*
4.1 Form of Common Stock Certificate*
5.1 Opinion of Davis Polk & Wardwell*
10.1 Registration Rights Agreement*
10.2 Software Licensing Agreement with Dell*
10.3 Credit Agreement*
10.4 StorageApps Inc. 2000 Stock Incentive Plan*
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule (1997)
27.2 Financial Data Schedule (1998)
27.3 Financial Data Schedule (1999)
27.4 Financial Data Schedule (June 30, 1999)
27.5 Financial Data Schedule (June 30, 2000)
</TABLE>

----------
* To be filed by amendment.