See accompanying notes to the condensed
consolidated financial statements.
See accompanying notes to the condensed
consolidated financial statements.
See accompanying notes to the condensed
consolidated financial statements.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial
statements include the accounts of Crossroads Systems, Inc. and its wholly-owned subsidiaries (“Crossroads” or the
“Company”). Headquartered in Austin, Texas, Crossroads, a Delaware corporation, is an intellectual property licensing
company. Founded in 1996 as a product solutions company, Crossroads created some of the storage industry’s most fundamental
patents and has licensed patents to more than 50 companies since 2000.
On March 22, 2016, the Company announced
the sale of its product business and all related assets to Canadian-based StrongBox Data Solutions, Inc. (“SDSI”) for
gross proceeds of $1.9 million in cash. Under the purchase agreement, the Company sold and transferred all of the assets related
to the Company’s product and support services division, including its StrongBox and SPHiNX products.
Principles of Consolidation and Presentation
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.
The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has accumulated significant losses as it developed
its past products. Our operations are funded by cash and cash equivalents, as well as from revenue provided by IP licensing,
royalties and other revenue. We may also generate revenue from other sources as described in Liquidity and Capital Resources,
including without limitation, through obtaining a favorable judgment or settlement in our ongoing litigation concerning
infringement of our intellectual property, successfully monetizing all or a portion of the non-‘972 patents, or
pursuing other strategic opportunities to generate revenue. If we are not able to obtain additional sources of
revenue through these or alternative means, the Company may not have sufficient funds to continue to operate the business.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern
for a reasonable period of time.
The investment in KIP CR P1 LP (which we
refer to as the “partnership” (see Note 6)), of which the Company is a limited partner and of which an affiliate of
Fortress Investment Group (“Fortress”) is the general partner, is accounted for using the equity method. The current
investment balance is nominal at January 31, 2017.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates, and such differences may be material to the consolidated financial statements.
Reclassification
Certain prior period amounts have been
reclassified to conform to the current period presentation. The reclassification includes assets, liabilities, and certain expenses
in sales and marketing, research and development, and general and administrative related to discontinued operations. The amounts
for the prior periods have been reclassified to be consistent with the current period presentation and have no impact on previously
reported financials.
Cash and Cash Equivalents, Restricted
Cash
Cash and cash equivalents consist of cash
on deposit and highly liquid investments with original maturities of 90 days or less at date of purchase. While the Company’s
cash and cash equivalents are on deposit with high quality FDIC and Association of German Banks insured financial institutions,
at times such deposits exceed insured limits. As of January 31, 2017, total uninsured deposits were $2.8 million. The Company has
not experienced any losses in such accounts.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Restricted cash amounted to $1.1 million
and represents cash held from the sale of a portion of potential future revenue generated from the Company’s ‘972 patent
family.
IP Revenue Stream Sale
On October 30, 2015, the
Company entered into an agreement with TQ Zeta LLC, an affiliate of Techquity, and Intrepidus Holdings LLC
(collectively, “Techquity”), pursuant to which Techquity will share in the revenue generated from the ‘972
patent litigation. For consideration of $10.0 million received by the Company, Techquity received the rights to 52% of the
first $20 million in license, settlement, or award proceeds from the ‘972 patents, 40% of the proceeds between $20 and
$100 million, and 12% of the proceeds above $100 million received. Under the terms of the agreement, the Company’s use
of proceeds is restricted to payment of the Fortress debt, approved legal expenditures, and certain general and
administrative expenses. During the three months ended January 31, 2017 and 2016, the Company recognized $0.5 and $2.7
million in other income, respectively. $1.1 million is held in deferred revenue and restricted cash at January 31, 2017. The
Company will recognize other income from this transaction as the authorized expenditures are made with the unspent balance
being reflected as deferred revenue.
Computation of Net Loss Per Share
Basic loss per share
is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share is computed by giving effect to all dilutive potential common shares that were outstanding
during the period. Basic earnings per share excludes the dilutive effect of common stock equivalents such as stock options and
warrants, while earnings per share, assuming dilution, includes such dilutive effects. Future weighted-average shares outstanding
calculations will be impacted by the following factors, among others: (i) the ongoing issuance of common stock associated with
stock option and warrant exercises; (ii) any fluctuations in the Company’s stock price, which could cause changes in the
number of common stock equivalents included in the earnings per share, assuming dilution computation; and (iii) the issuance of
common stock to effect business combinations should the Company enter into such transactions.
The Company has excluded all outstanding
common stock equivalents from the calculation of diluted net loss per share because all such common stock equivalents are antidilutive
for all periods presented. The total number of common stock equivalents excluded from the diluted net loss per common share calculation
was 3,153,108 and 3,164,867 for the three months ended January 31, 2017 and 2016, respectively. The dilutive common stock equivalents
for the three months ended January 31, 2017 include warrants to purchase 368,765 shares of common stock, 2,591,257 shares of preferred
stock, which are excluded until converted to common shares (Note 6), and stock options to purchase 193,086 shares of common stock.
Net loss available to common stockholders
is calculated by deducting from net loss, preferred dividends paid and accrued of $68,000 and $51,000 for the three months ended
January 31, 2017 and 2016, respectively.
Recently Issued Accounting Pronouncements
In August 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15 requiring management to evaluate
whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability
to continue as a going concern, which is currently performed by the external auditors. Management will be required to perform this
assessment for both interim and annual reporting periods and must make certain disclosures if it concludes that substantial doubt
exists. This ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December
15, 2016. The adoption of this guidance is not expected to have a material effect on our financial statements.
In March 2016, the FASB issued ASU 2016-09
amending several aspects of share-based payment accounting. This guidance requires all excess tax benefits and tax deficiencies
to be recorded in the income statement when the awards vest or are settled, with prospective application required. The guidance
also changes the classification of such tax benefits or tax deficiencies on the statement of cash flows from a financing activity
to an operating activity, with retrospective or prospective application allowed. Additionally, the guidance requires the classification
of employee taxes paid when an employer withholds shares for tax-withholding purposes as a financing activity on the statement
of cash flows, with retrospective application required. This ASU is effective for annual periods, and interim periods after those
annual periods, beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact
of the new guidance on its consolidated financial statements and related disclosures.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
2. FAIR VALUE MEASUREMENT
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes
the inputs used in the valuation methodologies, is applied as follows:
Level 1 –
Valuations
based on quoted prices for identical assets and liabilities in active markets.
Level 2 –
Valuations
based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data.
Level 3
– Valuations
based on unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by
other market participants. These valuations require significant judgment.
As of January 31, 2017, the fair value
of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses, approximates book value due to the short maturity of these instruments. As of January
31, 2017 and October 31, 2016, the Company held no items which are reported at fair value.
3. ACCRUED EXPENSES AND DEFERRED REVENUE
Accrued expenses consist of the following
(in thousands):
|
|
January 31,
|
|
|
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Professional services
|
|
$
|
401
|
|
|
$
|
398
|
|
Payroll related
|
|
|
86
|
|
|
|
218
|
|
Other
|
|
|
14
|
|
|
|
21
|
|
|
|
$
|
501
|
|
|
$
|
637
|
|
Deferred revenue, consists
of the following (in thousands):
|
|
January 31,
|
|
|
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
57
|
|
|
$
|
72
|
|
Deferred revenue stream sale
|
|
|
1,011
|
|
|
|
1,459
|
|
|
|
$
|
1,068
|
|
|
$
|
1,531
|
|
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Deferred revenue stream sale consists
of the remaining amount of consideration received from the sale of a portion of the Company’s IP revenue stream. The deferred
revenue will be recognized upon the expenditure of approved legal costs related to the ongoing IP litigation described in Note
4.
4. COMMITMENTS AND CONTINGENCIES
Leases
In accordance with the terms of the March
22, 2016 sale of the Company’s product division, the Company’s office space and equipment lease obligations have been
assigned to the purchaser.
Legal Proceedings
Intellectual Property Litigation
The Company has a number of ongoing lawsuits
and related proceedings as described below. In discussing these patent litigation proceedings, the following terms will be used:
A “Markman hearing” in a patent
infringement case is a pre-trial hearing in U.S. District Court, in which the Court hears arguments regarding the meanings of key
words used in a disputed patent claim. The outcome of a Markman hearing can play a significant role in whether findings of infringement
and validity are made by the Court or by the jury at trial. Depending on the Court, a ruling could be received quickly or could
take months after the Markman hearing.
An “
Inter Partes
Review,”
or “IPR,” is a post-grant review of an issued patent in which the petitioner attempts to challenge the validity of
a patent on certain grounds (e.g. novelty and obviousness). If successful during
inter partes
review, a petitioner could
potentially invalidate some or all of the claims in the patents asserted against that petitioner in related litigation, and an
adverse ruling in any of these proceedings would result in invalidation or other limitations on the Company’s patent rights.
Inter partes
review, if granted, is typically a twelve to eighteen month process from institution.
An “
Ex Parte
Reexamination
” or “Reexamination” is a different post-grant review of an issued patent in which the requestor attempts to
challenge the validity of a patent on certain grounds (e.g. novelty and obviousness). In a Reexamination proceeding,
a panel of three senior examiners from the U.S. Patent and Trademark Office (the “U.S. Patent Office”) will review
the issued patent against prior art in a manner similar to the original examination. An adverse ruling in a Reexamination
proceeding involving any patent asserted against any defendant in district court litigation would result in invalidation or other
limitations on our patent rights. A Reexamination is typically about an eighteen-month process.
Crossroads v. Dot Hill
The Company filed a lawsuit on September
11, 2013 against Dot Hill Systems Corp. (“Dot Hill”) styled Crossroads Systems, Inc. v. Dot Hill Systems Corp., Civil
Action No. 1:13-CV-800-SS alleging patent infringement of U.S. Patent No. 6,425,035 (the “’035 patent”) and breach
of the Amended Settlement and License Agreement dated June 27, 2006 between Crossroads and Dot Hill. The action is pending. The
Markman hearing was conducted October 6-7, 2014. Dot Hill moved to join two existing IPR proceedings previously filed against Crossroads
by other defendants (one filed by NetApp/Oracle/Huawei and one filed by Cisco/Quantum, each as defined below) and to stay the pending
litigation based on those IPR proceedings. On June 16, 2015, Judge Sparks entered the Markman order (the “Markman Order”)
construing the claims in a manner favorable to Crossroads and issued an order staying the case pending resolution of the IPR proceedings.
The U.S. Patent Office issued rulings in both of the IPR proceedings that Dot Hill had joined, ruling in one that the ‘035
Patent is not unpatentable in view of the prior art raised and in the other that the ‘035 Patent is unpatentable in view
of different prior art. Crossroads believes the ruling of unpatentability was in error and has filed an appeal of that ruling with
the Federal Circuit Court of Appeals. That appeal is on-going. If the patent asserted against Dot Hill is found partially or entirely
invalid at the conclusion of the IPR proceedings, including appeal, Crossroads might be adversely impacted in the litigation proceeding
against Dot Hill, including potentially losing the ability to continue with its claims of infringement. In May 2016, Crossroads
filed a motion to lift the stay for limited purposes regarding Dot Hill’s failure to pay certain royalties and in July 2016
the Court denied the motion and the stay and this action remains in place.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Company has recorded
approximately $1.3 million at January 31, 2017 related to an agreement between the companies. The Company believes these
amounts have been earned and collectability is probable at January 31, 2017. Nonetheless, Crossroads has reserved a portion
of past and future Dot Hill revenue in the amount of $134,000 and Cost of Sales in the amount of $34,000 during the quarter
ended January 31, 2017 and 2016, respectively. Effective November 1, 2016, the Company has discontinued recognition of
revenue (and related cost of sales) for these Dot Hill royalties. Had the Company accrued the revenue for the period ended
January 31, 2017, the revenue recognized for the quarter would have been $182,000, and costs of sales of $38,000 would have
been accrued.
Revenue for the three months
ended January 31, 2016 and the accounts receivable balance at January 31, 2017 and October 31, 2016 are concentrated with Dot
Hill. In 2015, Seagate Technologies (“Seagate”) purchased Dot Hill. The loss or bankruptcy of Seagate could
adversely affect operating results. The Company has not experienced material credit losses in any of the periods
presented. The level of sales to any customer may vary from quarter to quarter. However, the Company expects that
significant customer concentrations will continue for the foreseeable future.
Crossroads v. Oracle, Huawei, Cisco,
NetApp, and Quantum
These related cases were filed on October
7, 2013, November 26, 2013, and February 18, 2014 in the United States District Court for the Western District of Texas alleging
infringement by these parties of one or more patents in the ‘972 patent family. The asserted patents (6,425,035, 7,934,041,
7,987,311 (the “‘311 Patent”) and 7,051,147) were subject to a re-examination of the patents conducted in 2005-2006
by the U.S. Patent Office or were issued after the re-examination. On May 7, 2014, these cases and the Dot Hill case were consolidated
for purposes of discovery and a Markman hearing occurred on October 6 and 7, 2014. On June 16, 2015, Judge Sparks entered the Markman
Order construing the claims in a manner favorable to Crossroads and entered an order staying these actions in light of the IPR
proceedings.
During the time Crossroads was pursuing
the potential infringers of the ‘972 patent family, the Company gave companies with potentially infringing products the opportunity
to license the Company’s proprietary technology. For example, NetApp was first given notice of potential infringement in
2004. Cisco was first given notice of potential infringement in 2002. Quantum has been on notice of its potential infringement
since 2006. Oracle acquired several companies that were given notice of potential infringement at least as early as 2009 and Oracle
itself has been on notice since then. Despite repeated attempts by Crossroads throughout the years to negotiate licenses to the
‘972 patent family, these companies refused and left Crossroads with no alternatives but litigation. Crossroads believes
these companies (and companies they have acquired) have been illegally using Crossroads’ proprietary technology and that
the potential compensatory damages could be in excess of $200 million, which does not include enhanced damages or attorney fees.
While the uncertainties and expense of litigation are great and the Company can provide no guarantees of success, the Company believes
the infringement by most of these companies has been prolonged and potentially willful.
In response to the lawsuits brought by
Crossroads, collectively these defendants filed nineteen
inter partes
review petitions with the U.S. Patent Office to challenge
the validity of the patents asserted by the Company in these lawsuits. The U.S. Patent Office instituted review of six of the petitions,
granted joinder in four of the petitions and denied review of the remaining nine petitions. The first of the petitions were filed
only months after Crossroads filed lawsuits against these parties and years after they were made aware of their potential infringement.
Crossroads continues to believe it has meritorious factual and legal defenses to the challenges presented in these petitions and
will vigorously defend the validity of the patents. The U.S. Patent Office issued rulings in the IPR proceedings, ruling in one
that the ‘035 Patent is not unpatentable in view of the prior art raised and ruling in the others that the ‘035 Patent
and Patent No. 7,051,147 (the “‘147 Patent”) are unpatentable in view of different prior art. Crossroads believes
the rulings of unpatentability were in error and has appealed these rulings to the Federal Circuit Court of Appeals. Those appeals
are on-going. If these patents, which have been asserted against Oracle, Cisco, NetApp, and Quantum, are found partially or entirely
invalid at the conclusion of these IPR proceedings, including appeal, Crossroads might be adversely impacted in the litigation
proceedings against these companies, including potentially losing the ability to continue with its claims of infringement.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Company filed a lawsuit on October
7, 2013 against Oracle Corporation (“Oracle”) alleging infringement of U.S. Patent Nos. 6,425,035, 7,051,147 and 7,934,041
(the case is styled Crossroads Systems, Inc. v. Oracle Corporation; Civil Action No. 1:13-cv-0895-SS (W.D. Tex., Austin Division)).
The action is pending. The Markman hearing was conducted October 6-7, 2014 and on June 16, 2015, Judge Sparks entered the Markman
Order construing the claims in a manner favorable to Crossroads. Oracle filed nine petitions for IPR at the U.S. Patent Office
challenging the validity of each of the patents Crossroads asserted in the lawsuit against Oracle. The U.S. Patent Office granted
six of those petitions. Based on the IPRs, Oracle filed a motion to stay the litigation pending the outcome of the IPR proceedings,
which was granted by the Court. The U.S. Patent Office issued rulings in the IPR proceedings involving Oracle, ruling in one that
the ‘035 Patent is not unpatentable over the prior art and ruling in the other five that the ‘035 Patent and ‘147
Patent are unpatentable in view of different prior art. Crossroads believes the rulings of unpatentability were in error and has
appealed these rulings to the Federal Circuit Court of Appeals. Those appeals are on-going. If the patents are found partially
or entirely invalid during the IPR proceedings, including appeal, Crossroads might be adversely impacted in the litigation proceeding
against Oracle, including potentially losing the ability to continue with its claims of infringement.
The Company filed a lawsuit on February
18, 2014 against Cisco Systems, Inc. (“Cisco”) alleging infringement of U.S. Patent Nos. 6,425,035 and 7,934,041 (the
case is styled Crossroads Systems, Inc. v. Cisco Systems, Inc.; Civil Action No. 1:14-cv-00148-SS (W.D. Tex., Austin Division)).
The action is pending. The Markman hearing was conducted October 6-7, 2014 and on June 16, 2015, Judge Sparks entered the Markman
Order construing the claims in a manner favorable to Crossroads. Cisco is a party to three petitions for IPR filed at the U.S.
Patent Office challenging the validity of each of the patents Crossroads asserted in the lawsuit against Cisco. The U.S. Patent
Office granted those petitions. Based on the IPRs, Cisco filed a motion to stay the litigation pending the outcome of the IPR proceedings,
which was granted by the Court. The U.S. Patent Office issued rulings in the IPR proceedings involving Cisco, ruling that the ‘035
Patent and ‘147 Patents are unpatentable in view of the cited prior art. Crossroads believes the rulings of unpatentability
were in error and has appealed these rulings to the Federal Circuit Court of Appeals. Those appeals are on-going. If the patents
are found partially or entirely invalid during the IPR proceedings, including appeal, Crossroads might be adversely impacted in
the litigation proceeding against Cisco, including potentially losing the ability to continue with its claims of infringement.
The Company filed a lawsuit on February
18, 2014 against NetApp, Inc. (“NetApp”) alleging infringement of U.S. Patent Nos. 6,425,035, 7,934,041, 7,987,311
and 7,051,147 (the case is styled Crossroads Systems, Inc. v. Net App, Inc.; Civil Action No. 1:14-cv-00149-SS (W.D. Tex., Austin
Division)). The action is pending. The Markman hearing was conducted October 6-7, 2014 and on June 16, 2015, Judge Sparks entered
the Markman Order construing the claims in a manner favorable to Crossroads. NetApp filed seven petitions for IPR filed at the
U.S. Patent Office challenging the validity of each of the patents Crossroads asserted in the lawsuit against NetApp. The U.S.
Patent Office granted three of those petitions. Based on the IPRs, NetApp filed a motion to stay the litigation pending the outcome
of the IPR proceedings, which was granted by the Court. The U.S. Patent Office issued rulings in the IPR proceedings involving
NetApp, ruling in one that the ‘035 Patent is not unpatentable over the prior art and ruling in the others that the ‘147
Patent is unpatentable in view of different prior art. Crossroads believes the rulings of unpatentability were in error and has
appealed these rulings to the Federal Circuit Court of Appeals. Those appeals are on-going. If the patents are found partially
or entirely invalid during the IPR proceedings, including appeal, Crossroads might be adversely impacted in the litigation proceeding
against NetApp, including potentially losing the ability to continue with its claims of infringement. On March 4, 2016, after its
IPR on the ‘311 Patent was denied, NetApp filed a Reexamination request with the U.S. Patent and Trademark Office challenging
the validity of the ‘311 Patent based on a subset of the prior art used in the IPR proceeding. The U.S. Patent and Trademark
Office granted the request for Reexamination and issued an office action rejecting the claims of the ‘311 Patent. Crossroads
believes this rejection of the claims of the ‘311 Patent to be in error just as we believe the rulings on the IPRs are in
error. On September 3, 2016, the Company conducted an interview with the patent examiners to explain why we believe the ‘311
Patent to be valid over the cited prior art. This proceeding is ongoing and could be concluded in 2017. If the ‘311 Patent
is found partially or entirely invalid during the Reexamination proceeding, the Company may be adversely impacted in the litigation
proceeding against NetApp, including potentially losing the ability to continue with our claims of infringement.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Company filed a lawsuit on February
18, 2014 against Quantum Corporation (“Quantum”) alleging infringement of U.S. Patent Nos. 6,425,035 and 7,934,041
(the case is styled Crossroads Systems, Inc. v. Quantum Corporation; Civil Action No. 1:14-cv-00150-SS (W.D. Tex., Austin Division)).
The action is pending. The Markman hearing was conducted October 6-7, 2014 and on June 16, 2015, Judge Sparks entered the Markman
Order construing the claims in a manner favorable to Crossroads. Quantum filed three petitions for IPR filed at the U.S. Patent
Office challenging the validity of each of the patents Crossroads asserted in the lawsuit against Quantum. The U.S. Patent Office
granted those petitions. Based on the IPRs, Quantum filed a motion to stay the litigation pending the outcome of the IPR proceedings,
which was granted by the Court. The U.S. Patent Office issued rulings in the three IPR proceedings involving Quantum, ruling that
the ‘035 Patent and ‘147 Patents are unpatentable in view of the cited prior art. Crossroads believes the rulings of
unpatentability were in error and has appealed those rulings to the Federal Circuit Court of Appeals. Those appeals are on-going.
If the patents are found partially or entirely invalid during the IPR proceedings, including appeal, Crossroads might be adversely
impacted in the litigation proceeding against Quantum, including potentially losing the ability to continue with its claims of
infringement.
5. DISCONTINUED OPERATIONS
On March 22, 2016, the Company entered
into a Purchase and Assignment Agreement (the “Purchase Agreement”) with SDSI.
Under the Purchase Agreement, the Company
sold and transferred all of the assets related to the Company’s product and support services division (the “Business”),
including the Company’s StrongBox and SPHiNX storage solutions, to SDSI. SDSI also assumed certain liabilities of the Company
related to the Business, and absorbed the majority of Crossroads’ employees. As consideration under the Purchase Agreement,
SDSI paid the Company net proceeds equal to $1.9 million in cash on the closing date. Consideration of $1.0 million was paid to
the holders of the Company’s 5.0% Series F Convertible Preferred Stock (the “Series F Preferred Stock”) in exchange
for a vote to approve the divestiture. The Board of Directors approved this payment, which has been reflected as a cost to sell
the Business.
The assets and liabilities transferred
for consideration received in the second fiscal quarter of 2016 were (in thousands, at book value):
Cash Received
|
|
$
|
1,852
|
|
|
|
|
|
|
Cash paid to Series F Convertible Preferred shareholders
|
|
|
(1,000
|
)
|
Net cash received
|
|
|
852
|
|
|
|
|
|
|
Fixed Assets
|
|
|
(499
|
)
|
Inventory
|
|
|
(386
|
)
|
Other Comprehensive Income
|
|
|
(110
|
)
|
Expenses incurred
|
|
|
(79
|
)
|
Deferred Revenue
|
|
|
1,795
|
|
Other Assets and Liabilities
|
|
|
198
|
|
Net gain on sale of discontinued operations
|
|
$
|
1,771
|
|
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The amounts in the statement of operations
that are part of the discontinued operations are summarized in the following table (in thousands):
|
|
Three Months Ended
|
|
|
|
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
-
|
|
|
$
|
859
|
|
IP License, royalty and other
|
|
|
-
|
|
|
|
987
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
-
|
|
|
|
1,846
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
|
-
|
|
|
|
309
|
|
IP License, royalty and other
|
|
|
-
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
-
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
1,304
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
-
|
|
|
|
826
|
|
Research and development
|
|
|
-
|
|
|
|
1,096
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
-
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
-
|
|
|
$
|
(618
|
)
|
6. STOCKHOLDERS’ EQUITY
On May 25, 2016, the Company’s stockholders
approved an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split (the “Reverse Split”)
of the outstanding shares of the Company’s common stock at a ratio of one-for-twenty at the Company’s annual meeting
of stockholders. The Reverse Split was effective on June 20, 2016. Upon the effectiveness of the Reverse Split, every twenty (20)
shares of the Company’s issued and outstanding common stock were automatically combined and reclassified into one (1) share
of the Company’s common stock. Stockholders who otherwise would have been entitled to receive fractional shares as a result
of the Reverse Split instead received a cash payment in lieu thereof equal to the product obtained by multiplying (a) the number
of shares of pre-split common stock held by the stockholder that would otherwise have been exchanged for such fractional share
interest by (b) the average of the last reported sales prices of the common stock as quoted on Nasdaq for the twenty business days
ending on the trading day that is the second day immediately prior to the effective date of the Reverse Split. All share and per
share data in the accompanying consolidated financial statements and notes have been adjusted for the effects of the Reverse Split.
2013 Private Placement
On March 22, 2013, the Company entered
into a securities purchase agreement with certain accredited investors for the issuance and sale in a private placement of 4,231,154
units at a purchase price of $2.0625 per unit, valued at $8.6 million, for net proceeds of approximately $7.9 million after related
expenses. Each unit consists of one share of cumulative Series F Preferred Stock, par value $0.001 per share, and a warrant
to purchase one-half of a share of common stock per share of Series F Preferred Stock purchased, at an exercise price of $2.00
per whole share, subject to certain adjustments, resulting in the issuance of warrants to purchase an additional 114,138 shares
of common stock, split adjusted, with an exercise price of $40.00 per share, split adjusted. In connection with the 2015 Common
Stock Rights Offering, defined below, an additional 0.2019 warrants were granted for every outstanding warrant on August 31, 2015.
As of January 31, 2017, there were 121,979 warrants outstanding. The Series F Preferred Stock ranks senior to the common stock
and each other class or series of the Company’s capital stock, whether common, preferred or otherwise, with respect to distributions
of dividends and distributions upon liquidation, dissolution or winding up of the Company. The warrants were exercisable immediately
upon issue, and expire March 22, 2018. During the twelve months ended October 31, 2016, the Company issued a dividend of
6,346 split adjusted common shares valued at approximately $138,000, and cash dividends of approximately $133,000. During the three
months ended January 31 2017, the Company issued a cash dividend of approximately $135,000. Accrued and unpaid dividends were valued
at approximately $23,000 as of January 31, 2017.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Series F Preferred Stock has the rights, qualifications,
limitations and restrictions set forth in the Certificate of Designation (the “Certificate of Designation”) filed with
the Secretary of State of the State of Delaware on March 28, 2013. The Certificate of Designation authorizes issuance of up to
4,500,000 shares of Series F Preferred Stock, with 3,750,000 shares designated as “Sub-Series F-1” and 750,000 shares
designated as “Sub-Series F-2.” The right of holders of Series F Preferred Stock to convert the Series F Preferred
Stock is subject to a 9.99% beneficial ownership limitation for holders of Sub-Series F-1 and a 4.99% beneficial ownership limitation
for holders of Sub-Series F-2. Such beneficial ownership limitations may be increased or decreased by a holder of Sub-Series F-1
to any percentage not in excess of 19.99% after providing notice of such increase or decrease to the Company. For as long as at
least 90% of the aggregate number of shares of Sub-Series F-1 issued on the original issue date are outstanding, the holders of
such Sub-Series F-1, voting as a single class, will be entitled to elect two directors of the Company. If less than 90%, but at
least 20%, of such shares of Sub-Series F-1 are outstanding, such holders, voting as a single class, will be entitled to elect
one director of the Company. As of the date hereof, less than 78% of the aggregate number of shares of Sub-Series F-1 are outstanding,
as the remainder have been voluntarily converted into common stock at the option of the holders. Therefore, the holders of the
Sub-Series F-1 shares are entitled to elect one director to the Board of Directors. The holders of Sub-Series F-2 will not be entitled
to vote on the directors elected by the holders of Sub-Series F-1. The holders of shares of the Series F Preferred Stock are entitled
to a liquidation preference equal to the original issuance price plus any unpaid dividends.
The Certificate of Designation contains
customary anti-dilution protection for proportional adjustments (e.g. stock splits).
Upon approval of the full ratchet anti-dilution
provisions on June 21, 2013, the warrants were reclassified as a derivative liability and recorded at fair value. This created
a scenario for which the shares of Series F Preferred Stock were potentially convertible into more shares of common stock than
authorized. Therefore, the Series F Preferred Stock was classified in temporary equity. Upon the expiration of the full ratchet
anti-dilution provisions, the Company reclassified the Series F Preferred Stock and warrants to permanent stockholders’ equity
following the stockholders vote.
During the three months ended January 31,
2017, no shares of Series F Preferred Stock were converted to common shares.
Dividends on the Series F Preferred Stock
accrue at an annual rate of 5.0% of the original issue price and are payable on a semi-annual basis. The Series F Preferred Stock
ranks senior to the common stock and each other class or series of the Company’s capital stock, whether common, preferred
or otherwise, with respect to distributions of dividends and distributions upon liquidation, dissolution or winding up of the Company.
The Company may elect to satisfy the obligation to pay semi-annual dividends in cash, by distribution of common stock or a combination
thereof, in the Company’s discretion.
2013 Fortress Credit Agreement
On July 22, 2013, the Company issued warrants
to purchase 72,727 shares of its common stock to Fortress at $41.25 per share, split adjusted. In connection to the 2015 Common
Stock Rights Offering, as described below, an additional 0.2019 warrants were granted for every outstanding warrant on August 31,
2015, with the strike price remaining $41.25. Certain terms in the Fortress agreement permit us to buy out the Fortress partnership
interest and return all of the rights to the assigned non-‘972 patent rights to ourselves in return for the payment of a
monetization call option of $2 million dollars. As of January 31, 2017, there were 87,410 split adjusted warrants outstanding.
The Fortress warrants will expire on the
seventh anniversary of the effective date of the Fortress transactions.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
2014 Private Placement
On March 31, 2014, the Company sold 99,331
units at $45.13 per unit, split adjusted, for gross proceeds to the Company of $4.5 million. Each unit consists of one share of
common stock and a warrant to purchase one-half of a share of common stock. The warrants to purchase 49,666 shares of
common stock have a weighted average exercise price of $49.00 per share, split adjusted. Fees in the amount of
$0.2 million relating to the stock placement were netted against proceeds. The warrants were exercisable upon the six-month
anniversary of issue, and expire March 31, 2019. In connection to the 2015 Common Stock Rights Offering, an additional 0.2019 warrants
were granted for every outstanding warrant on August 31, 2015, with the strike price remaining $49.00. As of January 31, 2017,
there were 59,693 split adjusted warrants outstanding.
2015 Common Stock Offering
On January 27, 2015, the Company sold 153,587
units at $46.00 per unit, split adjusted, for gross proceeds to the Company of $7.1 million. Each unit consists of one share of
common stock and a warrant to purchase one-half of a share of common stock. The warrants to purchase 82,938 shares of
common stock have an exercise price of $55.20 per share. Fees in the amount of $1.1 million relating to the stock
placement were netted against proceeds. The warrants were exercisable upon the six-month anniversary of issue, and expire
January 31, 2020. In connection to the 2015 Common Stock Rights Offering an additional 0.2019 warrants were granted for every outstanding
warrant on August 31, 2015, with the strike price of $55.20. As of January 31, 2017, there were 99,683 split adjusted warrants
outstanding.
2015 Common Stock Rights Offering
On July 28, 2015, the Company closed a
subscription rights offering for the Company’s common stock (the “Rights Offering”). Under the terms of the Rights
Offering, the Company distributed to its common and preferred stockholders one subscription right for each share of the Company’s
common or preferred stock owned as of the record date, which entitled the holder to purchase 0.50 shares of common stock, at the
subscription price of $25.00 per share, split adjusted, subject to certain protection mechanics in place to preserve the Company’s
ability to utilize its net operating loss carryforwards (“NOLs”).
The Company accepted subscriptions for
196,694 shares, split adjusted, resulting in aggregate gross proceeds of approximately $4.9 million. Expenses incurred to complete
the Rights Offering amounted to approximately $0.4 million.
The Company has the following
common stock warrants outstanding at January 31, 2017:
Warrant Transaction
|
|
Warrants
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
2013 Private Placement
|
|
|
121,979
|
|
|
$
|
40.00
|
|
2013 Fortress Credit Agreement
|
|
|
87,410
|
|
|
$
|
41.20
|
|
2014 Private Placement
|
|
|
59,693
|
|
|
$
|
49.00
|
|
2015 Common Stock Offering
|
|
|
99,683
|
|
|
$
|
55.20
|
|
Total Warrants
|
|
|
368,765
|
|
|
|
|
|
7. STOCK OPTIONS AND STOCK BASED COMPENSATION
The Company has a stock-based compensation
plan available to grant incentive stock options, non-qualified stock options and restricted stock to employees and non-employee
members of the Board of Directors and advisors.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Company’s 2010 Stock Incentive
Plan (the “2010 Plan”), succeeded the 1999 Stock Option/Stock Issuance Plan (the “1999 Plan”). As
of January 31, 2017, options to purchase 5,623 shares of common stock were outstanding under the 1999 Plan, and no further grants
can be made under the 1999 Plan.
The 2010 Plan was approved by the Board
of Directors on May 26, 2010 and became effective on August 13, 2010, upon approval by stockholders, and was subsequently
amended by the Board of Directors on March 12, 2015 and approved by stockholders on April 24, 2015. A maximum of 683,064
shares, adjusted for the split of outstanding options on May 25, 2016, the date of the Company’s 1-for-20 split, of Crossroads
common stock may be awarded. As of January 31, 2017, options to purchase 308,826 shares of common stock were granted from
the 2010 Plan, of which 187,462 were outstanding. During the three months ended January 31, 2017 and 2016, no common stock shares
were granted from the 2010 Plan, respectively.
As of January 31, 2017, options to purchase
an aggregate of 193,086 shares of common stock were outstanding under the 1999 Plan and the 2010 Plan, of which 152,311 were vested.
Under the 2010 Plan, 436,962 shares of common stock were available for future grants as of January 31, 2017. The shares of
common stock reserved for future grant are reduced by 26,344 options previously exercised under the 2010 Plan, and 26,457 shares
of stock granted under the 2010 Plan. The Compensation Committee of the Board of Directors determines the exercise price,
term and other conditions applicable to each stock option granted under the 2010 Plan. The exercise price of stock options is set
on the grant date and may not be less than the fair market value per share of the Company’s stock on that date (at market
close). The 2010 Plan options generally become exercisable over either a two-year (vesting 25% at the end of six months and 12.5%
quarterly thereafter until fully vested) or four-year period (vesting 25% after one year, the remaining 75% vesting quarterly thereafter)
and expire after ten years. Stock option exercises are fulfilled with new shares of common stock.
The Company realized stock-based compensation
expense for all awards issued under the Company’s stock plans in the following line items in the consolidated statements
of operations:
|
|
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
71
|
|
|
$
|
193
|
|
Discontinued operations
|
|
|
-
|
|
|
|
116
|
|
Total stock-based compensation
|
|
$
|
71
|
|
|
$
|
309
|
|
The fair value of each option award is
estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on historical volatility
of the Company’s common stock. The expected term represents an estimate of the time options are expected to remain outstanding
based upon historical analysis. The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury
yield curve in effect at the time of grant. No variables were used in the Black-Scholes calculation during the quarter ended January
31, 2017 or 2016, as no options were granted during the respective periods.
The following table summarizes information
about stock option activity for the three months ended January 31, 2017:
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Term
(years)
|
|
|
Aggregate
Intrinsic
Value ($M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and expected to vest at October 31, 2016
|
|
|
198,700
|
|
|
$
|
30.16
|
|
|
|
5.02
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,614
|
)
|
|
$
|
74.48
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and expected to vest at January 31, 2017
|
|
|
193,086
|
|
|
$
|
28.87
|
|
|
|
4.91
|
|
|
$
|
-
|
|
Exercisable at January 31, 2017
|
|
|
152,311
|
|
|
$
|
33.33
|
|
|
|
3.96
|
|
|
$
|
-
|
|
The weighted average fair value per option
granted during the three months ended January 31, 2017 was $0, as no options were granted during the period. The total
intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date
of exercise) exercised during the three months ended January 31, 2017 was $0. During the three months ended January 31,
2017 the amount of cash received from the exercise of stock options was $0.
At January 31, 2017, there was
approximately $0.1 million of total unrecognized compensation cost related to non-vested stock option awards which is
expected to be recognized over a weighted-average period of 0.7 years. There were 4,625 and 4,632 options that became vested
during the three months ended January 31, 2017 and 2016, respectively with the total fair value of these awards of
approximately $0.1 and $0.2 million, respectively.
The following table shows information
about outstanding stock options at January 31, 2017:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
Shares
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise Prices
|
|
|
Outstanding
|
|
|
Contractual Term
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
$
|
-
|
|
|
$
|
5.90
|
|
|
|
32,000
|
|
|
|
9.35
|
|
|
$
|
5.90
|
|
|
|
-
|
|
|
$
|
-
|
|
$
|
11.98
|
|
|
$
|
21.96
|
|
|
|
19,819
|
|
|
|
4.36
|
|
|
$
|
18.80
|
|
|
|
19,819
|
|
|
$
|
18.80
|
|
$
|
24.63
|
|
|
$
|
24.63
|
|
|
|
187
|
|
|
|
1.75
|
|
|
$
|
24.63
|
|
|
|
187
|
|
|
$
|
24.63
|
|
$
|
25.62
|
|
|
$
|
25.62
|
|
|
|
27,045
|
|
|
|
6.81
|
|
|
$
|
25.62
|
|
|
|
27,045
|
|
|
$
|
25.62
|
|
$
|
25.96
|
|
|
$
|
26.80
|
|
|
|
24,735
|
|
|
|
2.65
|
|
|
$
|
26.38
|
|
|
|
20,201
|
|
|
$
|
26.28
|
|
$
|
28.20
|
|
|
$
|
33.94
|
|
|
|
4,441
|
|
|
|
3.52
|
|
|
$
|
29.22
|
|
|
|
4,283
|
|
|
$
|
29.26
|
|
$
|
34.94
|
|
|
$
|
34.94
|
|
|
|
42,972
|
|
|
|
0.63
|
|
|
$
|
34.94
|
|
|
|
42,972
|
|
|
$
|
34.94
|
|
$
|
35.27
|
|
|
$
|
42.60
|
|
|
|
22,133
|
|
|
|
7.00
|
|
|
$
|
41.16
|
|
|
|
21,505
|
|
|
$
|
41.18
|
|
$
|
45.59
|
|
|
$
|
91.85
|
|
|
|
19,344
|
|
|
|
5.84
|
|
|
$
|
55.73
|
|
|
|
15,889
|
|
|
$
|
57.91
|
|
$
|
98.50
|
|
|
$
|
119.80
|
|
|
|
410
|
|
|
|
4.94
|
|
|
$
|
104.49
|
|
|
|
410
|
|
|
$
|
104.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5.90
|
|
|
$
|
119.80
|
|
|
|
193,086
|
|
|
|
4.91
|
|
|
$
|
28.87
|
|
|
|
152,311
|
|
|
$
|
33.33
|
|
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
8. EMPLOYEE BENEFITS
The Company established the Crossroads
Systems, Inc. 401(k) Savings Plan (the “Savings Plan”), which is a qualified plan under section 401(k) of the Internal
Revenue Code. All employees who have attained 18 years of age are eligible to enroll in the Savings Plan. Under the
Savings Plan, participating United States employees may defer up to 100% of their pretax salary, but not more than statutory limits.
Our matching contributions vest immediately to employees up to four percent of their pretax salary. The Company made matching
contributions of $9,000 and $46,000 during the three months ended January 31, 2017 and 2016, respectively.
9. RELATED PARTY TRANSACTIONS
Discontinued operations consideration
paid
During the year ended October 31, 2016,
the Company’s Board of Directors approved a payment to the Series F Preferred stockholders of the greater of 50% of the net
proceeds from the sale of the Business or $1.0 million. The sale of the Business required a 70% approval of the Series F Preferred
stockholders. The $1.0 million payment was recognized as an expense of selling the Business.
10. PREFERRED STOCK RIGHTS
On May 23, 2014, the Company’s Board
of Directors adopted a tax benefit preservation plan (the “Plan”). The Plan is intended to diminish the risk that the
Company’s ability to use net operating loss carryforwards to reduce future federal income tax obligations may become substantially
limited due to an “ownership change,” as defined in Section 382 of the Internal Revenue Code. The Board of Directors
authorized and declared a dividend distribution of one right for each outstanding share of common stock, par value $0.001 per share,
and Series F Preferred Stock, par value $0.001 per share, of the Company to stockholders of record as of the close of business
on June 4, 2014. Each right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series
G Participating Preferred Stock, par value $0.001 per share, of the Company at an exercise price of $14.00 per one one-thousandth
of a share of Series G Participating Preferred Stock, subject to adjustment.
The rights will become exercisable following
(i) the 10th business day (or such later date as may be determined by the Board of Directors) after the public announcement that
an acquiring person has acquired beneficial ownership of 4.99% or more of the common stock (calculated pursuant to the Plan) or
(ii) the 10th business day (or such later date as may be determined by the board) after a person or group announces a tender or
exchange offer that would result in ownership by a person or group of 4.99% or more of the common stock (calculated pursuant to
the Plan).
In addition, upon the occurrence of certain
events, the exercise price of the rights would be adjusted and holders of the rights (other than rights owned by an acquiring person
or group) would be entitled to purchase common stock at approximately half of market value. Given the potential adjustment of the
exercise price of the rights, the rights could cause substantial dilution to a person or group that acquires 4.99% or more of the
Company’s common stock on terms not approved by the Company’s Board of Directors.
CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
No rights were exercisable at January 31,
2017. There is no impact to the Company's financial results as a result of the adoption of the Plan for the three months ended
January 31, 2017 or 2016.
11. SUBSEQUENT EVENTS
On January 23, 2017, the United States Court of Appeals for
the Federal Circuit notified the Company that the oral argument date for the Company’s appeals has been set for Tuesday,
March 7, 2017. The appeals before the Federal Circuit relate to the Final Written Decisions issued by the Patent Trial and Appeal
Board of the U.S. Patent Office regarding IPR proceedings 2014-01207, 2014-01209, 2014-01226, 2014-01463, 2014-01544, and the IPRs
joined to certain of those proceedings (IPRs 2015-00825, 2015-00854, and 2015-00852).