SOURCE: Crossroads Systems

Crossroads Systems

May 26, 2011 16:05 ET

Crossroads Systems Reports Fiscal Second Quarter 2011 Financial Results

AUSTIN, TX--(Marketwire - May 26, 2011) - Crossroads Systems, Inc. (PINKSHEETS: CRDS) reported financial results for its fiscal second quarter (Q2) ended April 30, 2011.

Q2 2011 Operational Highlights

--  Officially announced the upcoming launch of StrongBox®, a new
    tape-based archive solution that leverages the Linear Tape File System
    (LTFS) technology co-developed by IBM and HP
--  Achieved StrongBox best path testing and performance testing milestones
    on stated schedule
--  Formed a strategic partnership with Capgemini, one of the world's
    leading providers of IT consulting services, to deliver Crossroads
    archiving solutions to its customers, including ReadVerify® Appliance
    (RVA®) and the Crossroads SPHiNX™ virtual tape library
--  Released RVA 4.0, the latest edition of Crossroads' standalone
    appliance that improves tape system efficiency and now offers support
    for VMware ESXi 4.1 virtual environments

Q2 2011 Financial Results

Revenue totaled $2.6 million, a decrease of 49% from $5.0 million in the same quarter a year ago. The decline was primarily due to a 64% decrease in revenue from intellectual property (IP) licensing, royalty and other sources, from $4.1 million to $1.5 million. IP licensing settlements can vary significantly from quarter to quarter and are best viewed on an annual basis, as Crossroads does not control the pace of negotiations. The decrease in revenue from IP licensing, royalty and other was partially offset by a 15% increase in product revenue from $941,000 in Q2 2010 to $1.1 million in Q2 2011.

Gross profit was $2.2 million or 86% of total revenue, as compared to $4.0 million or 79% of total revenue in the same quarter a year ago.

Operating expenses totaled $5.1 million including $83,000 of stock-based compensation, compared to $4.4 million and $124,000 of stock-based compensation in the same quarter of 2010. The increase was primarily due to increased headcount needed to staff the development of StrongBox.

Net loss was $2.9 million or $(0.07) per share, as compared to a net loss of $440,000 or $(0.01) per share in the same quarter a year ago.

At April 30, 2011, cash, cash equivalents and short-term investments totaled $12.7 million as compared to $14.7 million at January 31, 2011. The decrease in cash was primarily due to timing of cash receipts.

Management Commentary

"Operations were largely in line with our expectations this quarter except for IP revenue," said Rob Sims, president and CEO of Crossroads Systems. "However, we expect the third quarter to recover with a strong IP component.

"We achieved critical milestones on schedule this quarter for our transformative tape archive solution, and we continue to execute on our strategy. Earlier this month we formed a Customer Advisory Board (CAB) comprised of more than 19 end-user organizations across numerous vertical markets. CAB will play a valuable role in guaranteeing Crossroads' solutions directly reflect the needs of our target customers by providing feature guidance to our development team.

"As we continue to collaborate with our CAB to enhance product functionality, StrongBox remains on schedule to meet its July early adopter program dates, as well as the October general availability. This positions Crossroads well to exit 2011 and enter 2012 having released transformative new technology that will serve the highest growth segment of the largest IT market."

Conference Call

Crossroads will hold a conference call later today (Thursday, May 26, 2011) to discuss its financial results. President and CEO Rob Sims and CFO Jennifer Crane will host the call starting at 4:30 p.m. Eastern time. A question and answer session will follow management's presentation.

To participate in the call, dial the number 5-10 minutes prior to the start time and ask for the Crossroads Systems conference call:

Date: Thursday, May 26, 2011

Time: 4:30 p.m. Eastern time (3:30 p.m. Central time)

Dial-In Number: 877-221-8809

International: 706-679-8667

The conference call will be broadcasted and available for replay on the company's Web site in the Investor Relations Events & Presentations section and is also available by clicking here.

For the webcast, please go to the Web site at least 15 minutes early to register, download, and install any necessary audio software. If you have any difficulty connecting with the conference call or webcast, please contact Liolios Group at 949-574-3860.

About Crossroads Systems

Crossroads Systems, Inc. (PINKSHEETS: CRDS) is a global provider of solutions and services that ensure stored data is proactively protected and reliably recovered. Crossroads offers organizations powerful data protection, proactive data security, intelligent storage connectivity, unmatched performance, and significant cost savings. Founded in 1996 and headquartered in Austin, Texas, Crossroads holds more than 100 patents granted and pending and has been honored with numerous industry awards for innovation in data protection and storage. Visit www.crossroads.com.

Important Cautions Regarding Forward-Looking Statements

This press release includes forward-looking statements that relate to the business and 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, uncertainties relating to product development and commercialization, the ability to obtain, maintain or protect patent and other proprietary intellectual property rights, technological change in its industry, market acceptance of its products and services, future capital requirements, regulatory actions or delays, competition in general and other factors that may cause actual results to be materially different from those described herein. Forward-looking statements in this press release are based on management's beliefs and opinions at the time the statements are made. Crossroads Systems does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.

©2011 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.



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


                                                  OCTOBER 31,   APRIL 30,
                    ASSETS                            2010         2011
                                                  -----------  -----------
                                                               (Unaudited)
Current assets:
   Cash and cash equivalents                      $    13,811  $     8,513
   Short-term investments                                   -        4,200
                                                  -----------  -----------
     Total cash, cash equivalents and short-term
      investments                                      13,811       12,713

   Accounts receivable, net of allowance for
    Doubtful accounts of $19 and $16,
    respectively                                        5,607        2,840
   Inventories, net                                        93          164
   Prepaid expenses and other current assets              293        1,286
                                                  -----------  -----------
     Total current assets                              19,804       17,003

Property and equipment, net                               575        1,188
Intangible assets, net                                    739          204
Other assets                                               60           57
                                                  -----------  -----------
     Total assets                                 $    21,178  $    18,452
                                                  ===========  ===========


      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                               $       990  $     1,803
   Accrued expenses                                     2,271        1,524
   Deferred revenue                                     1,517        2,315
   Line of credit                                       1,973        1,973
                                                  -----------  -----------
     Total current liabilities                          6,751        7,615

Long term deferred revenue                                103           35

Stockholders' equity:
   Common stock, $.001 par value, 75,000,000
    shares authorized, 42,945,102 and 43,463,232
    shares issued and outstanding, respectively            43           43
   Additional paid-in capital                         198,697      199,264
   Accumulated other comprehensive loss                   (49)         (41)
   Accumulated deficit                               (184,367)    (188,464)
                                                  -----------  -----------
     Total stockholders' equity                        14,324       10,802
                                                  -----------  -----------
     Total liabilities and stockholders' equity   $    21,178  $    18,452
                                                  ===========  ===========






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


                           Three Months Ended         Six Months Ended
                                April 30,                 April 30,
                        ------------------------  ------------------------
                            2010         2011         2010         2011
                        -----------  -----------  -----------  -----------
Revenue:
  Product               $       941  $     1,085  $     2,034  $     2,394
  IP license, royalty
   and other                  4,102        1,492        5,731        3,784
                        -----------  -----------  -----------  -----------
    Total revenue             5,043        2,577        7,765        6,178

Cost of revenue:
  Product                       138          125          221          230
  IP license, royalty
   and other                    933          242        1,115          640
                        -----------  -----------  -----------  -----------
    Total cost of
     revenue                  1,071          367        1,336          870
                        -----------  -----------  -----------  -----------

Gross profit                  3,972        2,210        6,429        5,308
                        -----------  -----------  -----------  -----------
Operating expenses:
  Sales and marketing         1,322        1,175        2,645        2,390
  Research and
   development                2,185        2,820        4,465        4,937
  General and
   administrative               570          835        1,232        1,482
  Amortization of
   intangible assets            312          224          624          536
                        -----------  -----------  -----------  -----------

    Total operating
     expenses                 4,389        5,054        8,966        9,345
                        -----------  -----------  -----------  -----------

Loss from operations           (417)      (2,844)      (2,537)      (4,037)

Interest expense                (23)         (24)         (46)         (62)
                        -----------  -----------  -----------  -----------

Net loss                $      (440) $    (2,868) $    (2,583) $    (4,099)
                        ===========  ===========  ===========  ===========

Basic and diluted net
 loss per share         $     (0.01) $     (0.07) $     (0.09) $     (0.10)
                        ===========  ===========  ===========  ===========
Basic and diluted
 average common shares
 outstanding             30,130,102   42,842,260   29,714,005   42,757,088
                        ===========  ===========  ===========  ===========






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


                                                      Six Months Ended
                                                          April 30,
                                                  ------------------------
                                                      2010         2011
                                                  -----------  -----------
Cash flows from operating activities:
  Net loss                                        $    (2,583) $    (4,099)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Depreciation                                          311          227
    Amortization of intangible assets                     624          536
    Loss on disposal of fixed assets                        -            6
    Stock-based compensation                              516          165
    Provision for doubtful accounts receivable            (14)           1
    Provision for excess and obsolete inventory            (6)          (3)
  Changes in assets and liabilities:
    Accounts receivable                                 2,679        2,801
    Inventories                                            11          (69)
    Prepaids and other current assets                     122         (989)
    Accounts payable                                      374          515
    Accrued expenses                                     (383)        (418)
    Deferred revenue                                      119          723
                                                  -----------  -----------
      Net cash provided by (used in) operating
       activities                                       1,770         (604)
                                                  -----------  -----------
Cash flows from investing activities:
  Purchase of property and equipment                     (163)        (844)
  Purchase of held-to-maturity investments                          (4,511)
  Maturity of held-to-maturity investments                  -          311
                                                  -----------  -----------
      Net cash used in investing activities              (163)      (5,044)
                                                  -----------  -----------
Cash flows from financing activities:
  Proceeds from issuance of common stock, net of
   expenses                                                 -           59
                                                  -----------  -----------
      Net cash provided by financing activities             -           59
                                                  -----------  -----------

Effect of exchange rate on cash                          (336)         291
Net increase in cash and cash equivalents               1,271       (5,298)
Cash and cash equivalents, beginning of period          5,297       13,811
                                                  -----------  -----------
Cash and cash equivalents, end of period          $     6,568  $     8,513
                                                  ===========  ===========


Contact Information

  • Investor Contact:
    Jennifer Crane
    Crossroads Systems
    Email Contact
    512.928.6897
    800.643.7148

    Investor Contact:
    Scott Liolios or Matt Glover
    Liolios Group
    Email Contact
    949.574.3860

    Press Contact:
    Matthew Zintel
    Zintel Public Relations
    Email Contact
    317.848.8804