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They've reached it: Crossroads' stock price crashes to just $0.25

Ailing storage biz seems to be on brink of a pivot

Crossroads Systems’s share price has collapsed to $0.25. It was $3.65 in March 2015, following full fiscal 2015 results showing a fifth loss-making year of declining revenues. Why is it still afloat?

In its final quarter of financial year 2015, ended Oct 31, the archival software systems shipper saw revenues of a derisory $1.8m, which were 31 per cent less than a year ago and 16 per cent less than a quarter ago; a poor result. Why?

The company said it was “primarily due to lower revenue from our SPHiNX OEM and StrongBox products.”

There was a net loss of $538,000, an improvement on the year-ago loss of $2m and the prior quarter’s $3.3m.

Let’s be blunt. The company is selling a derisory amount of kit. If it was a VC-backed startup, the investors would close it down. In fact, specific investors are funding it and hoping to turn it into an IP licensing business, using its patents.

Crossroads_Quarterly_results_to_Q4fy2015

Techquity, an Austin, Texas based Intellectual Property (IP) investment firm, led a $10m investment round in November, 2015, and Crossroads is now debt-free with cash to fund ongoing IP litigation.

CEO and president Rick Coleman said: "This financing supports our ongoing patent infringement litigation against NetApp, Oracle, Cisco, Quantum, and Dot Hill as well as the repayment of 100 per cent of our outstanding debt. As a result of the financing, we believe Crossroads has secured the capital necessary to execute our business strategy, and our shareholders can now be confident in our ability to manage the litigation to a successful conclusion."

Shareholders were not confident, and the stock is now trading at 25¢. There has been a considerable fall. The price was $1.38 in November 2015 and $3.43 in June of that year. Market capitalisation is $7.11m.

Crossroads_Annual_results_to_fy2015

The firm was threatened with ejection from Nasdaq on January 15 for non-compliance with the exchange's rules after failing to maintain stockholders' equity of at least $2.5m, but regained compliance on January 20.

Basically the firm is now kept afloat by activist investors seeking patent fees in a Rambus-lite kind of operation. Coleman became CEO and president in May 2013. The board chairman is Jeffrey Eberwein, who joined the board in April 2013. Eberwein is the founder and CEO of Lone Star Value Management, an investment fund “focused on long-term investing in deeply undervalued public securities where we create value through a hands-on approach.”

Before founding Lone Star, Eberwein was a portfolio manager at Soros Fund Management.

Lone Star Value Investors GP LLC holds 16.55 per cent of Crosstoads shares and is its largest investor.

As a patent licensing business Crossroads has yet to show its real mettle. As an archival software systems business its performance has been, to say the very least, poor, and shows no improvement revenue-wise.

El Reg concludes that Crossroads Systems is now an IP licensing business, aiming to monetize its intellectual development past, with a small archival software business inside it. What that means in terms of the firm’s passion for, and focus on, engineering development of its product, via engineering development funding and management focus... we leave it to you to judge. ®

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