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Crossroads Systems Reports Fiscal Fourth Quarter and Full Year 2012 Results

AUSTIN, TX--(Marketwire - Dec 19, 2012) - Crossroads Systems, Inc. ( NASDAQ : CRDS ), a global provider of data archive solutions, reported financial results for its fiscal fourth quarter and full year ended October 31, 2012.

Fiscal Q4 and Full Year 2012 Financial Results
Total revenue for fiscal Q4 2012 decreased 29% to $4.4 million from $6.2 million in the same quarter a year ago. The decrease was due to a 38% decrease in intellectual property (IP) licensing, royalty and other revenue offset by an increase of 21% in product revenue from fiscal Q4 2011.

Total revenue for the fiscal full year 2012 decreased 7% to $14 million from $15 million in the prior year. The decrease was due to a 23% decrease in IP licensing, royalty and other revenue, offset by a 32% increase in product revenue. The company's IP licensing campaign resulted in fewer contractual settlements in fiscal year 2012. We intend on continuing our IP licensing campaign in fiscal year 2013.

Gross profit for fiscal Q4 2012 was $3.1 million or 70% of total revenue, as compared to $4.7 million, or 76% of total revenue in the same quarter a year ago. Gross profit for fiscal year 2012 was $11.1 million or 79% of total revenue, as compared to $12.3 million or 82% of total revenue in fiscal 2011. The decrease was mainly due to the lower margin associated with the recognition of the Iron Mountain service revenue in fiscal 2012.

Operating expenses for fiscal Q4 2012 totaled $5.7 million, including $400,000 of stock-based compensation, as compared to $5.4 million, including $575,000 of stock-based compensation in the same period a year ago. Operating expenses for fiscal year 2012 totaled $21.5 million, including $1.7 million of stock-based compensation, as compared to $19.7 million, including $877,000 of stock-based compensation in the prior year. The increase was primarily due to increased headcount in order to support the sales and marketing efforts around the company's StrongBox product.

Net loss for fiscal Q4 2012 totaled $2.6 million or $(0.23) loss per share, as compared to a net loss of $726,000 or $(0.07) loss per share in the same quarter a year ago. Net loss for fiscal year 2012 totaled $10.7 million or $(0.95) loss per share, as compared to a net loss of $7.5 million or $(0.69) loss per share in fiscal 2011.

At October 31, 2012, cash and cash equivalents totaled $6.9 million as compared to $10.3 million in the previous quarter. The decrease in cash was due to the timing of payments received as well as increased costs related to the company's StrongBox initiative.

Management Commentary
"Our StrongBox go-to-market strategy remains on plan," said Rob Sims, President and CEO of Crossroads Systems. "Our sales team along with our channel partners, continue to successfully penetrate key market verticals where we believe Strongbox is poised to become a leader in long-term archive solutions. Additionally, the revenue pipeline continues to grow over the prior quarter. We saw our first follow-on order from a StrongBox customer, confirming the capacity-based revenue model that StrongBox brings. The Iron Mountain development effort is on schedule and we remain excited about this pivotal relationship. The overall strength of our model was shown over the course of this last year as product revenue increased 32% from the prior year, positioning Crossroads for continued market leadership in 2013 and beyond."

Conference Call
Crossroads will hold a conference call later today (Wednesday, December 19, 2012) to discuss financial results. Crossroads' 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: Wednesday, December 19, 2012
Time: 4:30 p.m. Eastern Time (3:30 p.m. Central Time)
Dial-In Number: 1-877-221-8809
International: 1-706-679-8667

The conference call will be broadcasted and available for replay at http://us.meeting-stream.com/crossroadssystemsinc_121912 and via the company's Web site in the Investor Relations Events & Presentations section.

For the webcast, please visit the Web site at least 15 minutes early to register, download, and install any necessary audio software.

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 holds 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 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.

©2012 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  
(In thousands, except share data)  
             
    October 31,     October 31,  
ASSETS   2011     2012  
                 
Current assets:                
  Cash and cash equivalents   $ 7,336     $ 6,895  
  Short-term investments     3,385       -  
                 
    Total cash, cash equivalents and short-term investments     10,721       6,895  
                 
  Accounts receivable, net of allowance for doubtful accounts of $71 and $102, respectively     2,659       2,847  
  Inventory     188       376  
  Prepaid expenses and other current assets     297       309  
                 
    Total current assets     13,865       10,427  
                 
Property and equipment, net     1,320       1,521  
Intangible assets, net     110       -  
Other assets     56       76  
                 
    Total assets   $ 15,351     $ 12,024  
                 
                 
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
  Accounts payable   $ 2,228     $ 1,260  
  Accrued expenses     2,156       2,879  
  Deferred revenue     1,009       1,306  
  Current portion of long term debt     1,973       2,948  
                 
    Total current liabilities     7,366       8,393  
                 
                 
Long term liabilities     126       1,634  
                 
Commitments and contingencies     -       -  
                 
Stockholders' equity:                
  Common stock, $0.001 par value, 75,000,000 shares authorized, 10,923,543 and 11,679,860 shares issued and outstanding, respectively     11       12  
  Additional paid-in capital     199,750       204,582  
  Accumulated other comprehensive loss     (40 )     (39 )
  Accumulated deficit     (191,862 )     (202,558 )
                 
    Total stockholders' equity     7,859       1,997  
                 
    Total liabilities and stockholders' equity   $ 15,351     $ 12,024  
                 
                 
   
   
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(In Thousands, Except Share and Per Share Data)  
                         
                         
                         
    Three Months Ended     Years Ended  
    October 31,     October 31,  
    2011     2012     2011     2012  
Revenue:                                
  Product   $ 1,032     $ 1,245     $ 4,441     $ 5,856  
  IP license, royalty and other     5,201       3,202       10,546       8,143  
                                 
    Total revenue     6,233       4,447       14,987       13,999  
                                 
Cost of revenue:                                
  Product     72       171       357       642  
  IP license, royalty and other     1,426       1,170       2,308       2,301  
                                 
    Total cost of revenue     1,498       1,341       2,665       2,943  
                                 
Gross profit     4,735       3,106       12,322       11,056  
                                 
Operating expenses:                                
  Sales and marketing     1,534       1,870       5,218       6,386  
  Research and development     2,850       2,755       10,702       11,408  
  General and administrative     1,011       1,060       3,158       3,590  
  Amortization of intangible assets     47       -       629       110  
                                 
    Total operating expenses     5,442       5,685       19,707       21,494  
                                 
Loss from operations     (707 )     (2,579 )     (7,385 )     (10,438 )
                                 
Interest expense     (13 )     (63 )     (104 )     (241 )
Other expense     (6 )     (1 )     (6 )     (17 )
                                 
Net loss   $ (726 )   $ (2,643 )   $ (7,495 )   $ (10,696 )
                                 
Basic and diluted net loss per share     (0.07 )     (0.23 )     (0.69 )     (0.95 )
                                 
Basic and diluted average common shares outstanding     10,909,371       11,671,416       10,820,028       11,245,813  
                                 
                                 
             
             
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES            
CONSOLIDATED STATEMENTS OF CASH FLOWS            
(Unaudited)            
(In thousands)            
             
    Years Ended  
    October 31,  
    2011     2012  
                 
Cash flows from operating activities:                
  Net loss   $ (7,495 )   $ (10,696 )
  Adjustments to reconcile net loss to net cash used in operating activities:                
    Depreciation     537       711  
    Amortization of intangible assets     629       110  
    Loss on disposal of property and equipment     8       17  
    Stock-based compensation     877       1,680  
    Provision for doubtful accounts receivable     52       31  
  Changes in assets and liabilities:                
    Accounts receivable     2,895       (219 )
    Inventory     (95 )     (188 )
    Prepaid expenses and other assets     (4 )     (32 )
    Accounts payable     1,314       (968 )
    Accrued expenses     (114 )     665  
    Deferred revenue     (485 )     440  
      Net cash used in operating activities     (1,881 )     (8,449 )
Cash flows from investing activities:                
  Purchase of property and equipment     (1,290 )     (944 )
  Proceeds from sale of property and equipment     -       15  
  Purchase of held-to-maturity investments     (6,669 )     (185 )
  Maturity of held-to-maturity investments     3,284       3,570  
      Net cash (used in) provided by investing activities     (4,675 )     2,456  
Cash flows from financing activities:                
  Proceeds from issuance of common stock, net of expenses     144       3,212  
  Proceeds from borrowing on debt     -       3,000  
  Paydown of debt     -       (655 )
      Net cash provided by financing activities     144       5,557  
                 
Effect of foreign exchange rate on cash and cash equivalents     (63 )     (5 )
Net (decrease) increase in cash and cash equivalents     (6,475 )     (441 )
Cash and cash equivalents, beginning of period     13,811       7,336  
Cash and cash equivalents, end of period   $ 7,336     $ 6,895