Crossroads Systems Reports Fiscal Third Quarter 2014 Financial Results

PR Newswire

AUSTIN, Texas

AUSTIN, Texas, Sept. 9, 2014 /PRNewswire/ -- Crossroads Systems, Inc. (NASDAQ: CRDS), a global provider of data archive solutions, reported financial results for its fiscal third quarter ended July 31, 2014.

Revenue for fiscal Q3 2014 was $2.1 million, a decrease of 25 percent from $2.8 million in the same quarter a year ago. The decrease is primarily attributable to a decrease in the company's OEM SPHiNX business. StrongBox revenue also decreased compared to Q3 2013, which included one-time payments from both FujiFilm and Iron Mountain for custom development agreements. Gross profit for fiscal Q3 2014 was $1.7 million, or 79 percent of total revenue, as compared to $2.1 million, or 75 percent of total revenue, in the same quarter a year ago.

Operating expenses for fiscal Q3 2014 totaled $3.4 million as compared to $5.7 million in the same period a year ago, a decrease of 41 percent, due to employee and operating expense reductions. The Company has continued to closely monitor expenses resulting in an additional $0.3 million decrease from Q2 2014 to Q3 2014.

Net loss available to common stockholders for fiscal Q3 2014 totaled $2.4 million or $0.16 loss per share, compared to a net loss available to common stockholders of $4.1 million or $0.34 loss per share in the same quarter a year ago.

At July 31, 2014, cash and cash equivalents decreased $3.6 million to $7.1 million from $10.7 million in the previous quarter. Payments to Fortress this quarter totaled $3.0 million, including an optional principal payment of $2.0 million.

Management Commentary

Richard K. Coleman, Jr., President and CEO at Crossroads Systems, said, "Crossroads completed pivotal product enhancements this quarter and StrongBox is now well positioned as a unique enterprise storage solution for virtually any storage environment. Despite declines in our legacy OEM product sales, we are confident that the future revenues from StrongBox, combined with our considerable IP licensing opportunity and protection from taxation by our $128 million NOL, will provide strong returns for our investors."

Conference Call Information

Crossroads will hold a conference call on Tuesday, September 9, 2014 at 4:30 p.m. Eastern Time (3:30 p.m. Central Time) to discuss the financial results. President and CEO Richard K. Coleman, Jr., CFO Jennifer Crane, and Mark Hood, executive vice president of corporate development, will host the call. A question and answer session will follow management's presentation.

Date: Tuesday, September 9, 2014
Time: 4:30 p.m. Eastern Time (3:30 p.m. Central Time)
Dial-In Number: (877) 221-8809
International: (706) 679-8667
Conference ID: 80133243

To access the live or recorded webcast, visit:
https://engage.vevent.com/rt/crossroadssystems_ao~090914

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. For those unable to listen to the live call, a webcast replay of the call will be available from the day after the call in the Investor Relations Events & Presentations section of the Crossroads website.

About Crossroads Systems

Crossroads Systems, Inc. (NASDAQ: CRDS) is a global provider of data archive solutions. Through the innovative use of new technologies, Crossroads delivers customer-driven solutions that enable proactive data security, advanced data archiving, optimized performance and significant cost-savings. Founded in 1996 and headquartered in Austin, TX, Crossroads has been awarded more than 100 patents and has been honored with numerous industry awards for data archiving, storage and protection. Visit www.crossroads.com.

Important Cautions Regarding Forward-Looking Statements

This press release includes forward-looking statements that relate to the business and expected future events or future performance of Crossroads Systems, Inc. and involve known and unknown risks, uncertainties and other factors that may cause its actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," "targets," "likely," "will," "would," "could," and similar expressions or phrases identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about Crossroads Systems' ability to implement its business strategy, including the transition from a hardware storage company to a software solutions and services provider, its ability to expand its distribution channels, its ability to maintain or broaden relationships with existing distribution channels and strategic alliances and develop new industry relationships, the performance of third parties in its distribution channels and of its strategic alliances, the potential market for our data storage products, changes in the fair value of its derivative instruments and its ability to achieve or maintain profitability. The future performance of Crossroads Systems may be adversely affected by the following risks and uncertainties: uncertainties relating to product development and commercialization, uncertain market acceptance of Crossroads Systems products, including StrongBox, intense competition in the data protection and storage markets, variations in quarterly results and a consequence of unpredictable sales cycles and other factors, the ability to obtain, maintain or protect patent and other proprietary intellectual property rights, developments in litigation to which we may be a party, technological change in the industry, future capital requirements, regulatory actions or delays and other factors that may cause actual results to be materially different from those described or anticipated by these forward-looking statements. For a more detailed discussion of these factors and risks, investors should review Crossroads Systems' reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, which can be accessed through the SEC's website or by clicking "SEC Filings" on the company's Investor Relations website at http://investors.crossroads.com. Forward-looking statements in this press release are based on management's beliefs and opinions at the time the statements are made. Crossroads Systems undertakes no duty to update this information to reflect future events, information or circumstances.

©2014 Crossroads Systems, Inc., Crossroads and Crossroads Systems are registered trademarks of Crossroads Systems, Inc. All trademarks are the property of their respective owners. All specifications are subject to change without notice.

Company Contacts:	Investor Contact:
Jennifer Crane	Mark Hood
Crossroads Systems	Crossroads Systems
jcrane@crossroads.com	mhood@crossroads.com
512.928.6897	512.928.7330

Press Contact:
Matthew Zintel
Zintel Public Relations
matthew.zintel@zintelpr.com
281.444.1590

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

			July 31,	October 31,
ASSETS			2014	2013
			(Unaudited)
Current assets:
	Cash and cash equivalents		$ 6,810	$ 7,795
	Restricted cash		270	-

		Total cash, cash equivalents and restricted cash	7,080	7,795

	Accounts receivable, net of allowance for doubtful
		accounts of $104 and $94, respectively	2,002	2,301
	Inventory		296	313
	Prepaid expenses and other current assets		486	694

		Total current assets	9,864	11,103

Property and equipment, net			581	1,031
Other assets			91	256

		Total assets	$ 10,536	$ 12,390




LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
	Accounts payable		$ 818	$ 1,066
	Accrued expenses		1,174	2,095
	Deferred revenue		1,048	1,090
	Current portion of long term debt, net of debt discount		3,116	1,605

		Total current liabilities	6,156	5,856


Long term debt, net of debt discount			2,573	6,984
Long term derivative liability			-	772
Other long term liabilities			368	299

Commitments and contingencies (See Note 7)			-	-

Convertible preferred stock, $0.001 par value, 25,000,000 shares authorized, 4,231,154 shares issued and outstanding, net at October 31, 2013 (transferred to stockholders equity as of April 30, 2014)(Note 8)			-	6,394


Stockholders' equity (deficit):
	Common stock, $0.001 par value, 75,000,000 shares authorized, 15,334,103 and 11,949,937 shares issued and outstanding, respectively		15	12
	Convertible preferred stock, $0.001 par value, 25,000,000 shares authorized, 3,747,447 shares issued and outstanding, net as of July 31, 2014		4	-
	Additional paid-in capital		225,937	208,702
	Accumulated other comprehensive loss		(55)	(51)
	Accumulated deficit		(224,462)	(216,578)

		Total stockholders' equity (deficit)	1,439	(7,915)

		Total liabilities and stockholders' equity	$ 10,536	$ 12,390

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share and Per Share Data)



			Three Months Ended		Nine Months Ended
			July 31,		July 31,
			2014	2013	2014	2013

Revenue:
	Product		$ 600	$ 1,239	$ 2,925	$ 4,203
	IP license, royalty and other		1,487	1,555	5,581	4,879

		Total revenue	2,087	2,794	8,506	9,082

Cost of revenue:
	Product		138	189	578	569
	IP license, royalty and other		296	511	934	1,887

		Total cost of revenue	434	700	1,512	2,456

Gross profit			1,653	2,094	6,994	6,626

Operating expenses:
	Sales and marketing		872	1,771	2,842	5,640
	Research and development		1,351	2,203	4,399	8,050
	General and administrative		1,146	1,732	3,664	3,513


		Total operating expenses	3,369	5,706	10,905	17,203

Loss from operations			(1,716)	(3,612)	(3,911)	(10,577)

Gain on settlement			-	-	1,050	-

Loss before other expenses			(1,716)	(3,612)	(2,861)	(10,577)

Other expense:
	Interest expense		(184)	(53)	(662)	(187)
	Amortization of debt discount and issuance costs		(301)	(16)	(967)	(16)
	Change in value of derivative liability		-	771	(2,765)	771
	Other expense		-	-	(17)	4

Net loss			$ (2,201)	$ (2,910)	$ (7,272)	$ (10,005)

Dividends attributable to preferred stock			$ (152)	$ (1,146)	$ (400)	$ (2,010)
Net loss available to common stockholders, basic and diluted			$ (2,353)	$ (4,056)	$ (7,672)	$ (12,015)
Net loss per share available to common stockholders, basic and diluted			$ (0.16)	$ (0.34)	$ (0.56)	$ (1.01)

Weighted average number of common shares outstanding, basic and diluted			15,165,629	11,881,928	13,705,434	11,845,796

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

				Nine Months Ended
				July 31,
				2014	2013

Cash flows from operating activities:
	Net loss			$ (7,272)	$ (10,005)
	Adjustments to reconcile net loss to net cash used in
		operating activities:
		Depreciation		517	617
		Non cash interest paid on conversion to preferred stock		-	55
		Loss (gain) on change in value of derivative liability		2,765	(771)
		Amortization of debt discount		967	16
		Gain on disposal of property and equipment		(15)	-
		Stock-based compensation		1,312	848
		Provision for doubtful accounts receivable		10	(2)
	Changes in assets and liabilities:
		Accounts receivable		286	443
		Inventory		17	87
		Prepaid expenses and other assets		96	(617)
		Accounts payable		(252)	(415)
		Accrued expenses		(950)	(411)
		Deferred revenue		37	116
			Net cash used in operating activities	(2,482)	(10,039)
Cash flows from investing activities:
	Purchase of property and equipment			(71)	(334)
	Proceeds from sale of property and equipment			18	-
			Net cash used in investing activities	(53)	(334)
Cash flows from financing activities:
	Proceeds from issuance of common stock, net of expenses			5,461	68
	Proceeds from issuance of preferred stock, net of expenses			-	7,332
	Proceeds from issuance of bridge loan			-	550
	Proceeds from issuance of debt			-	9,716
	Repayment of debt			(3,633)	(4,318)
	Net cash provided by financing activities			1,828	13,348

Effect of foreign exchange rate on cash and cash equivalents				(8)	1
Change in cash and cash equivalents				(715)	2,976
Cash and cash equivalents, beginning of period				7,795	6,895
Cash, cash equivalents, and restricted cash end of period				$ 7,080	$ 9,871


Supplemental disclosure of cash flow information:

Cash paid for interest				$ 676	$ 113
Cash paid for income taxes				$ 2	$ 3

Supplemental disclosure of non cash financing activities:
Conversion of promissory note to preferred stock				$ -	$ 605
Conversion of preferred stock to common stock				$ 729	$ -
Beneficial conversion associated with preferred stock				$ -	$ 1,090
Common stock dividends issued to preferred shareholders				$ 612	$ 106
Issuance of common stock warrants				$ -	$ 1,543
Conversion of derivative liability to equity				$ 3,537	$ -
Discount associated with long term debt				$ -	$ 1,375

SOURCE Crossroads Systems

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