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Crossroads Systems Reports Fiscal Second Quarter 2014 Financial Results

Companies mentioned in this article: Crossroads Systems

AUSTIN, Texas, June 5, 2014 /PRNewswire/ -- Crossroads Systems, Inc. (NASDAQ: CRDS), a global provider of data archive solutions, reported financial results for its fiscal second quarter ended April 30, 2014.

Revenue for fiscal Q2 2014 was $2.3 million, a decrease of 16 percent from $2.7 million in the same quarter a year ago. The decrease is primarily attributable to a decrease in the company's OEM SPHiNX business as well as revenue from an intellectual property licensee. Gross profit for fiscal Q2 2014 was $1.8 million, or 80 percent of total revenue, as compared to $1.9 million or 70 percent of total revenue in the same quarter a year ago.

Operating expenses for fiscal Q2 2014 totaled $3.6 million as compared to $5.8 million in the same period a year ago, a decrease of 37 percent, primarily due to the reduction in force in October 2013.

Net loss available to common stockholders for fiscal Q2 2014 totaled $(1.8) million or $(0.14) loss per share, compared to a net loss available to common stockholders of $(4.8) million or $(0.41) loss per share in the same quarter a year ago.

At April 30, 2014, cash and cash equivalents increased $2.7 million to $10.7 million from $8.0 million in the previous quarter. The Company completed a private placement of its common stock netting $4.3 million during the quarter and paid $865,000 toward its Fortress debt.

Management Commentary
Richard K. Coleman, Jr., President and CEO at Crossroads Systems, said, "Despite the acceleration of the anticipated decline in our legacy product and recurring IP revenues, we've made great progress in positioning Crossroads for the future. StrongBox is poised for success in an expanding market and our future IP licensing potential presents us with exciting opportunities."

Conference Call Information
Crossroads will hold a conference call on Thursday, June 5, 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., and CFO Jennifer Crane will host the call. A question and answer session will follow management's presentation.

Date: Thursday, June 5, 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: 35783429

To access the live or recorded webcast, visit:
https://engage.vevent.com/rt/audiostreaming~crossroadssystemsinc_060514

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.

*Tables Attached*

                                                                                               CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES

                                                                                                 CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                                   (In thousands, except share data)


                                                                                                                                          April 30,          October 31,

                                                                                  ASSETS                                                               2014                 2013
                                                                                                                                                       ----                 ----

                                                                                                                                         (Unaudited)

    Current assets:

      Cash and cash equivalents                                                                                                                     $10,723               $7,795

      Accounts receivable, net of allowance for
       doubtful

        accounts of $98 and $97, respectively                                                                                                         2,013                2,301

      Inventory                                                                                                                                         305                  313

      Prepaid expenses and other current assets                                                                                                         577                  694
                                                                                                                                                        ---                  ---


        Total current assets                                                                                                                         13,618               11,103


    Property and equipment, net                                                                                                                         707                1,031

    Other assets                                                                                                                                        147                  256
                                                                                                                                                        ---                  ---


        Total assets                                                                                                                                $14,472              $12,390
                                                                                                                                                    =======              =======





                                                              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


    Current liabilities:

      Accounts payable                                                                                                                                 $785               $1,066

      Accrued expenses                                                                                                                                  931                2,095

      Deferred revenue                                                                                                                                1,040                1,090

      Current portion of long term debt, net of debt
       discount                                                                                                                                       3,501                1,605
                                                                                                                                                      -----                -----


        Total current liabilities                                                                                                                     6,257                5,856



    Long term debt, net of debt discount                                                                                                              4,774                6,984

    Long term derivative liability                                                                                                                        -                  772

    Other long term liabilities                                                                                                                         396                  299


    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)
                                                                                                                                                          -                6,394



    Stockholders' equity (deficit):

      Common stock, $0.001 par value, 75,000,000 shares
       authorized,

        15,045,049 and 11,949,937 shares issued and outstanding, respectively                                                                            15                   12

      Convertible preferred stock, $0.001 par value,
       25,000,000 shares authorized,

        3,783,697 shares issued and outstanding, net as of April 30, 2014

        (transferred from temporary equity)                                                                                                               4                    -

      Additional paid-in capital                                                                                                                    225,091              208,702

      Accumulated other comprehensive loss                                                                                                              (48)                 (51)

      Accumulated deficit                                                                                                                          (222,017)            (216,578)
                                                                                                                                                   --------             --------


        Total stockholders' equity (deficit)                                                                                                          3,045               (7,915)
                                                                                                                                                      -----               ------


        Total liabilities and stockholders' equity                                                                                                  $14,472              $12,390
                                                                                                                                                    =======              =======

                                                                                  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,
                                                       ---------                                         ---------

                                                                         2014                                               2013                 2014                 2013
                                                                         ----                                               ----                 ----                 ----


    Revenue:

                       Product                                         $1,096                                             $1,046               $2,326               $2,964

                        IP license,
                        royalty and
                        other               1,199                                   1,691                                              4,094                3,324



                        Total
                        revenue             2,295                                   2,737                                              6,420                6,288


    Cost of revenue:

                       Product                204                                     186                                                440                  380

                        IP license,
                        royalty and
                        other                 256                                     622                                                639                1,376



                        Total
                        cost of
                        revenue               460                                     808                                              1,079                1,756
                                              ---                                     ---                                              -----                -----


    Gross profit                            1,835                                   1,929                                              5,341                4,532
                                            -----                                   -----                                              -----                -----


    Operating expenses:

                        Sales and
                        marketing             939                                   1,909                                              1,971                3,869

                        Research and
                        development         1,517                                   2,990                                              3,048                5,847

                        General and
                        administrative      1,180                                     905                                              2,518                1,781



                        Total
                        operating
                        expenses            3,636                                   5,804                                              7,537               11,497
                                            -----                                   -----                                              -----               ------


    Loss from operations                   (1,801)                                 (3,875)                                            (2,196)              (6,965)


    Gain on settlement                                                     -                                                  -                1,050                    -
                                                                         ---                                                ---                -----                  ---


    Loss before interest
     and derivative expense                (1,801)                                 (3,875)                                            (1,146)              (6,965)


    Other expense:

                        Interest
                        expense              (557)                                    (80)                                            (1,144)                (134)

                        Change in
                        value of
                        derivative
                        liability             635                                                                             -               (2,765)                   -

                        Other
                        expense               (18)                                      5                                                (18)                   4



    Net loss                                                          $(1,741)                                           $(3,950)             $(5,073)             $(7,095)
                                                                      =======                                            =======              =======              =======


    Dividends attributable
     to preferred stock                                                  $(93)                                             $(864)               $(248)               $(864)
                                                                         ----                                              -----                -----                -----

    Net loss available to
     common stockholders,
     basic and diluted                                                $(1,834)                                           $(4,814)             $(5,321)             $(7,959)
                                                                      =======                                            =======              =======              =======

                                                                       $(0.14)                                            $(0.41)              $(0.41)              $(0.67)
     Net loss per share
      available to common
      stockholders, basic
      and diluted



    Shares used in
     computing net loss per
     share:

                        Available to
                        common
                        stockholders,
                        basic and
                        diluted        13,577,795                              11,836,140                                         12,963,235           11,827,430



                                         CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES



                                           CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                        (Unaudited)



                                                      (In thousands)


                                                                                                                         Six Months Ended

                                                                                                                            April 30,
                                                                                                                            ---------

                                                                                              2014              2013
                                                                                              ----              ----


    Cash flows from operating activities:

      Net loss                                                                             $(5,073)             $(7,095)

      Adjustments to reconcile net loss to
       net cash used in

        operating activities:

        Depreciation                                                                           380               409

        Non cash interest paid on conversion to
         preferred stock                                                                         -                55

        Loss on change in value of derivative
         liability                                                                           2,765                   -

        Amortization of debt discount                                                          667                   -

        Gain on disposal of property and
         equipment                                                                             (15)                  -

        Stock-based compensation                                                             1,008               557

        Provision for doubtful accounts
         receivable                                                                              4                (5)

      Changes in assets and liabilities:

        Accounts receivable                                                                    284               894

        Inventory                                                                                8                78

        Prepaid expenses and other assets                                                       34              (168)

        Accounts payable                                                                      (277)             (313)

        Accrued expenses                                                                    (1,150)             (921)

        Deferred revenue                                                                        42              (108)

                                                                   Net cash used in operating
                                                                   activities                                 (1,323)              (6,617)


    Cash flows from investing activities:

      Purchase of property and equipment                                                       (56)             (273)

      Proceeds from sale of property and
       equipment                                                                                15                   -

                                                                   Net cash used in investing
                                                                   activities                                    (41)                (273)


    Cash flows from financing activities:

      Proceeds from issuance of common
       stock, net of expenses                                                                5,123                27

      Proceeds from issuance of preferred
       stock, net of expenses                                                                    -             7,333

      Proceeds from issuance of bridge loan                                                      -               550

      Repayment of debt                                                                       (833)           (1,963)

      Net cash provided by financing
       activities                                                                            4,290             5,947
                                                                                             -----             -----


    Effect of foreign exchange rate on cash and cash equivalents                                 2                 1
                                                                                               ---               ---

    Net increase (decrease) in cash and cash equivalents                                     2,928              (942)

    Cash and cash equivalents, beginning of period                                           7,795             6,895

    Cash and cash equivalents, end of period                                               $10,723            $5,953
                                                                                           =======            ======



    Supplemental disclosure of cash flow information:


    Cash paid for interest                                                                    $492               $74
                                                                                              ====               ===

    Cash paid for income taxes                                                                  $1                $2
                                                                                               ===               ===


    Supplemental disclosure of non cash financing activities:

    Conversion of promissory note to preferred stock                             $               -              $605
                                                                                 =================              ====

    Conversion of preferred stock to common stock                                             $674  $              -
                                                                                              ====  ================

    Common stock dividends issued to preferred shareholders                                   $366  $              -
                                                                                              ====  ================

    Conversion of derivative liability to equity                                              $850  $              -
                                                                                              ====  ================

SOURCE Crossroads Systems