Crossroads at a Crossroads

Crossroads Systems announced late Thursday that it is de-listing its stock from the Nasdaq stock market, citing “current and increasing regulatory burdens and costs.”

The board of directors’ resolution cited “the burdens on management time, as well as increased costs for outside accounting and legal services caused by rules and regulations required of listed and registered companies. The directors stated that such burdens and costs are in addition to the time and costs that would be involved to meet the internal control documentation and monitoring requirements of Section 404 of the Sarbanes-Oxley Act together with substantial, additional accounting and legal costs.”

The company’s shares began trading on the Pink Sheets Friday, which means the company no longer has to meet listing requirements or file reports with the SEC.

CEO Rob Sims told Enterprise Storage Forum that Sarbanes-Oxley “was the straw that broke the camel’s back.”

The costs of being public are already burdensome for a company of Crossroads’ size, Sims said, and the additional regulatory burdens that have been added as a result of accounting scandals at the likes of Enron and WorldCom have created “an unknown expense” and a “never-ending well of activity.”

“The IT part is the easy one,” Sims said, “but the administrative part was very demanding.”

The SEC has acknowledged that the burden can be overwhelming for companies with less than $100 million in sales; Crossroads’ annual revenues are about $20 million.

With auditors and reporting requirements no longer a burden, Sims said Crossroads will have more resources to devote to the business.

“We view it very positively,” he said. “This gives us an opportunity to focus a lot more on business activities.”

In Crossroads’ last quarterly report filed with the SEC in September, the company said it lost $7.2 million on $14.7 million in sales in the nine months ended July 31. That compared to a $3.9 million loss on $19.4 million in sales in the same period of 2004. With layoffs and other measures that the company began last spring, the loss was pared to just $500,000 in the July quarter. The company had $20 million in cash as of the end of July, down from $28 million a year earlier.

The company faces a number of other changes as well. It recently launched its StrongBox line of database firewall solutions, and is also moving toward a direct sales model for the products.

Crossroads also noted uncertainty because of Sun’s acquisition of StorageTek, which has accounted for more than 20% of the company’s sales in recent years. Crossroads also provides products for EMC, HP and Quantum.

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Paul Shread
eSecurity Editor Paul Shread has covered nearly every aspect of enterprise technology in his 20+ years in IT journalism, including an award-winning series on software-defined data centers. He wrote a column on small business technology for Time.com, and covered financial markets for 10 years, from the dot-com boom and bust to the 2007-2009 financial crisis. He holds a market analyst certification.

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