CRDS - Crossroads Systems

[Laxputs]

Crossroads Systems

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46m Market cap. Data storage company. Activist Investors Lone Star Capital at the helm. Relaunch and revamp of main product Strongbox. Most per share value likely in patent infringement lawsuits that have gone through Markman proceedings and will be ruled on by judge (likely in days). After that it goes to trial.

 

2.40 share price. Reasonable chance of 9$-30$ in the next few years with favorable patent infringement rulings and their main product Strongbox reaching profitability.

 

Good VIC article runs over the value breakdown. http://www.valueinvestorsclub.com/idea/CROSSROADS_SYSTEMS_INC/136347#description

 

Has anyone looked into this? Is there real downside protection? They are going up against some of the country's best patent infringement defense lawyers. Their key product has not reached profitability. Quantum and NetApp have filed counter-suits.  However, given their historical rulings, it is likely the court proceedings or settlements end up in their favour.

 

“I wouldn’t want be a defendant in a trial in front on an Austin, Texas jury, after our lawyers explained that the U.S. government has not once, not twice, but three times validated our patents, and after we’ve had the opportunity to apply our presumably favorable Markman ruling. When you combine all of that with our historical damages, I think that the defendants would, I guess, I’ll use the Texas phrase, the defendants would be in a world of hurt. It would be a very difficult situation for them.” Pres, CEO, Coleman.

 

 

 

[jawn619]

Crossroads Systems

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46m Market cap. Data storage company. Activist Investors Lone Star Capital at the helm. Relaunch and revamp of main product Strongbox. Most per share value likely in patent infringement lawsuits that have gone through Markman proceedings and will be ruled on by judge (likely in days). After that it goes to trial.

 

2.40 share price. Reasonable chance of 9$-30$ in the next few years with favorable patent infringement rulings and their main product Strongbox reaching profitability.

 

Good VIC article runs over the value breakdown. http://www.valueinvestorsclub.com/idea/CROSSROADS_SYSTEMS_INC/136347#description

 

Has anyone looked into this? Is there real downside protection? They are going up against some of the country's best patent infringement defense lawyers. Their key product has not reached profitability. Quantum and NetApp have filed counter-suits.  However, given their historical rulings, it is likely the court proceedings or settlements end up in their favour.

 

“I wouldn’t want be a defendant in a trial in front on an Austin, Texas jury, after our lawyers explained that the U.S. government has not once, not twice, but three times validated our patents, and after we’ve had the opportunity to apply our presumably favorable Markman ruling. When you combine all of that with our historical damages, I think that the defendants would, I guess, I’ll use the Texas phrase, the defendants would be in a world of hurt. It would be a very difficult situation for them.” Pres, CEO, Coleman.

 

No real downside protection. Also the author himself states that the high cases are a little ridiculous. Doesn't seem bad if sized appropriately though

[jawn619]

This is a big win. decision coming in Jan and stock is up 30% after hours

 

Crossroads Systems Announces Patent Litigation Update Including Results of Markman Hearing

 

Yesterday, the Federal Court in the Western District of Texas entered an order in which the Court determined the meaning of 17 disputed claim terms in the patents-in-suit. The order was consistent with the Special Master's recommendation issued on February 23, 2015 and overruled the defendants' objections on almost all disputed claims terms. The Markman order also closely parallels the claim constructions in previous litigation. A Markman order is significant to a patent case because it provides clarity to a number of patent infringement and validity arguments and must be followed by a jury in deliberations.

 

In conjunction with the Markman Order, the Court also granted a motion to stay the cases until the Patent Trial and Appeal Board issues a final decision in the instituted inter partes reviews. The first decision is expected in January 2016.

 

 

[jawn619]

The company recently announced a rights offering. I'm guessing they need it for legal fees and to survive as their product looks like ass. I did a before and after using a theoretical investment of around $1,000.

 

Conclusion: Risk/Reward of over 3 to 1, with probability higher than 50%. Also option with non 972 patents(worth considerably more if they win, worth nothing if they don't win) 

 

Current shares outstanding 22,439,602

Shares owned before 559

Price paid $1.5

% of company we own 0.00249113%

Amount we paid to buy our shares  $1,000.61

 

Amount of additional shares we can buy  279.50

Cost  $349.38

Amount of our investment  $1,349.99

 

After Rights offering

Shares outstanding  33,659,403.00

Shares we own if we buy additional rights  838.50

% of company we own if we buy additional rights 0.00249113%

Shares we own if we don't  559.00

% of company we own if we don't 0.0016608%

 

If lawsuit wins (management has guided $200M)

 

We get if we buy more shares $4,982.26

We get if we don't buy more shares $3,321.51

 

If lawsuit loses $0

 

There's another longer and more uncertain lawsuit that could be worth considerably more, but If they don't win this upcoming one in Jan, this stock is a goose egg.

 

 

[samwise]

 

If lawsuit loses $0

If they don't win this upcoming one in Jan, this stock is a goose egg

 

It actually didn't go to zero. I followed along loosely but didn't understand enough to make any money here. I am hoping someone smarter than me will educate me on what was actually happening.

 

What I saw:

 

1. bankruptcy in Aug 2017, with a 49% investment by a partner, investor Robert Alpert who gets 49.5% of the equity (just under section 382 NOL restrictions?): https://www.prnewswire.com/news-releases/crossroads-systems-inc-files-chapter-11-case-and-prepackaged-plan-of-reorganization-announces-new-investor-and-access-to-capital-for-acquisitions-300504126.html

"holders of common stock to exchange their existing shares of common stock for an equivalent number of new shares of the common stock of the reorganized company". This bankcruptcy seems to be strategic to cancel all option grants and preferred shares.

 

https://www.statesman.com/news/20170815/austins-crossroads-systems-files-for-bankruptcy-agrees-to-restructuring-plan

"potential acquisitions that can create value for investors" "shares were up about 30 percent, or 66 cents, at $2.84"

 

2. OTC listing under symbol CRSS. Now this was a microchip post bankruptcy equity bouncing around $3

 

3. A deal presumably to monetize the NOLs, closed in Dec 2017: https://www.prnewswire.com/news-releases/crossroads-systems-announces-acquisition-and-board-changes-300572899.html

Frankly I didn't understand the value here. Not sure what to make of their description: "is a certified Community Development Financial Institution (CDFI) and certified B-Corp which supports Hispanic homeownership with a long term, fixed rate single family mortgage product." Online reviews had some claims of bad behavior. I didn't understand it and I didn't put in more time. Stock bounces around $4. I think I've missed the run from 2 to 4.

 

4. June 2018, quarterly results reported at an annualized rate of $0.80. Stock jumps to $7.

 

What I learnt: Its possible to make money in really really ignored stocks if you pay attention. But you have to understand what you are seeing, which I obviously didn't, and still don't. So I am hoping someone else has followed this, or is interested and knowledgeable enough to educate me. What did these guys do?

 

What did I miss?