Crossroads Systems Reports Fiscal Second Quarter 2018 Financial Results and Change in Auditor

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Jun 08, 2018, 08:00 ET

DALLAS, June 8, 2018 /PRNewswire/ -- Crossroads Systems, Inc. (OTC Pink: CRSS), a holding company focused on investing in businesses that promote economic vitality and community development, reported financial results for its fiscal second quarter ended April 30, 2018.

The company also announced today that it has changed auditors from PMB Helin Donovan to Montgomery Coscia Greilich effective today. This decision was taken to streamline expenses following the December 2017 acquisition of Capital Plus Financial.

Fiscal Q2 2018 Financial Results
Revenue for the fiscal second quarter of 2018 was $9.9 million and gross profit was $3.3 million or 33 percent of revenue. Property sales income for the quarter was $7.4 million or 74 percent of total revenues. Interest income was $2.4 million or 25 percent of revenue. Fiscal second quarter results included $422,000 of one-time expenses, of which $333,000 were related to the wind down of the Crossroads legacy business. Fiscal second quarter net income was $1.23 million or $0.21 income per share.

At April 30, 2018, cash and cash equivalents totaled $2.2 million.

Management Commentary
Eric A. Donnelly, Chief Executive Officer at Crossroads Systems, said, "Capital Plus Financial continues to positively impact its communities while building shareholder value. We expect to have Crossroads' legacy business expenses fully eliminated by fiscal year end."

About Crossroads Systems
Crossroads Systems, Inc. (OTC Pink: CRSS), is a holding company focused on investing in businesses that promote economic vitality and community development. Crossroads' subsidiary, Capital Plus Financial (CPF), 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.

Important Cautions Regarding Forward-Looking Statements
This press release includes forward-looking statements that relate to the business and expected future events or future performance of Crossroads Systems, Inc. and Capital Plus Financial 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' and Capital Plus Financial's ability to implement their business strategy, and their ability to achieve or maintain profitability. The future performance of Crossroads Systems and Capital Plus Financial may be adversely affected by the following risks and uncertainties: economic changes affecting homeownership in the geographies where Capital Plus Financial conducts business, developments in lending markets that may not align with Capital Plus Financial's expectations and that may affect Capital Plus Financial's plans to grow its portfolio, variations in quarterly results, developments in litigation to which we may be a party, technological change in the industry, future capital requirements, regulatory actions or delays and other factors that may cause actual results to be materially different from those described or anticipated by these forward-looking statements. For a more detailed discussion of these factors and risks, investors should review Crossroads Systems' annual and quarterly reports. Forward-looking statements in this press release are based on management's beliefs and opinions at the time the statements are made. All forward-looking statements are qualified in their entirety by this cautionary statement, and Crossroads Systems undertakes no duty to update this information to reflect future events, information or circumstances.

Investor Contact:
Mark Hood
Crossroads Systems
[email protected]

Press Contact:
Matthew Zintel
Zintel Public Relations
[email protected]

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)



			April 30,
			2018
ASSETS

Current assets:
	Cash and cash equivalents		$ 2,226
	Restricted Cash		595
	Accounts receivable, net		1,858
	Current portion of mortgage notes receivable		955
	Inventories		5,381
	Prepaids and other current assets		325
		Total current assets	11,340

Mortgage Notes Receivable			97,058
Goodwill			5,033
Other assets			782
		Total assets	$ 114,214

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable		$ 169
	Accrued expenses		620
	Escrow liabilities		846
	Current portion of senior secured credit facilities		45,239
		Total current liabilities	46,874
Senior secured credit facilities, net			37,764
Acquisition debt, net			18,952
		Total liabilities	103,590

Stockholders' equity			10,624
		Total liabilities and stockholders' equity	$ 114,214

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)

			For the three months ended	For the six months ended
			April 30, 2018	April 30, 2018


Revenue:
	Interest income		$ 2,426	$ 3,636
	Property sales		7,357	$ 9,385
	Other revenue		122	163
		Total revenue	9,905	13,184

Cost of revenue:
	Interest expense		979	1,303
	Cost of properties sold		5,627	7,240
	Other cost of revenue		-	3
		Total cost of revenue	6,606	8,547

Gross profit			3,299	4,637

Operating expenses:
	General and administrative		820	1,563
	Salaries and wages		924	1,702
		Total operating expenses	1,744	3,265

Income (loss) from operations			1,555	1,371

Other income (expense):
	Interest (expense) income		(323)	(487)
	State income tax expense		-	-
Net Income (loss)			$ 1,232	$ 885

Earnings per share			$ 0.21	$ 0.15

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Balance Sheet
As of April 30, 2018

				Unaudited	Unaudited	Unaudited	Unaudited
				Crossroads	CPF	Elimination Entries	Crossroads Consolidated
				April 30, 2018	April 30, 2018	April 30, 2018	April 30, 2018
ASSETS
	Current assets:
		Cash and cash equivalents		38,597	2,179,399	8,013	2,226,008
		Restricted cash		-	595,217	-	595,217
		Accounts receivable, net		1,199,960	657,944	-	1,857,904
		Inventories		-	5,381,064	-	5,381,064
		Intercompany receivable		3,143,910	10,541,693	(13,685,603)	(0)
		Prepaids and other current assets		258,273	7,844	-	266,118
		Earnest money deposits		-	58,890	-	58,890
		Mortgage notes receivable		-	98,013,499	-	98,013,499
			Total current assets	4,640,740	117,435,550	(13,677,590)	108,398,700

	Property and equipment, net			-	24,540	-	24,540
	Investment in subsidiaries			26,919,888		(26,919,888)	-
	Goodwill			5,033,253	-	-	5,033,253
	Other assets			246,644	510,732	-	757,377
			Total assets	$ 36,840,525	$ 117,970,823	$ (40,597,478)	$ 114,213,870
				-
LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
		Accounts payable		76,329	92,652	-	168,981
		Accrued and other current liabilities		329,715	240,110	-	569,825
		Escrow liabilities		-	845,550	-	845,550
		Due to subsidiaries		10,541,693	-	(10,541,693)	(0)
		Revolving line of credit, inventory		-	5,027,653	-	5,027,653
		Revolving line of credit, mortgage notes (current maturities)		-	40,211,290	-	40,211,290
		Payroll liabilities		-	50,588	-	50,588
							-
			Total current liabilities	10,947,737	46,467,843	(10,541,693)	46,873,886

	Senior secured term notes (long-term)			-	37,763,524	-	37,763,524
	Acquisition debt (long-term)			18,952,381	-	-	18,952,381
			Total liabilities	29,900,118	84,231,367	(10,541,693)	103,589,791

	Stockholders' equity:
	Total participating payables			-	158,156	-	158,156
	Total preferred equity investment			-	15,240,089	-	15,240,089
	Total subordinated debt			2,200,000	1,763,005	-	3,963,005
		Members equity in CPF		-	13,594,075	-	13,594,075
		Common stock		5,881	-	-	5,881
		Additional paid-in capital		242,309,739	-	(26,885,638)	215,424,101
		(Accumulated deficit)/Retained Earnings		(235,477,298)		(3,170,147)	(238,647,445)
		Current year net (loss) income		(2,097,915)	2,984,131	-	886,215
			Total stockholders' equity (deficit)	6,940,407	33,739,456	(30,055,785)	10,624,078
			Total liabilities and stockholders' equity (deficit)	$ 36,840,525	$ 117,970,823	$ (40,597,478)	$ 114,213,870

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Income Statement
For the Six Months Ended April 30, 2018

				Unaudited	Unaudited	Unaudited
				Crossroads	CPF	Crossroads Consolidated
				April 30, 2018	April 30, 2018	April 30, 2018
	Revenue:
		Interest income		$ -	$ 3,636,005	$ 3,636,005
		Property sales		-	9,385,484	9,385,484
		Other revenue		12,082	150,482	162,564
			Total revenue	12,082	13,171,971	13,184,053

	Cost of revenue:
		Interest expense		-	1,303,475	1,303,475
		Cost of properties sold		-	7,240,336	7,240,336
		Other cost of revenue		3,430	-	3,430
			Total cost of revenue	3,430	8,543,811	8,547,242

	Gross Profit			8,651	4,628,160	4,636,811


	Operating expenses:
		General and administrative		883,058	679,872	1,562,930
		Salaries and wages		736,673	965,797	1,702,470
			Total operating expenses	1,619,731	1,645,669	3,265,399

	Income (Loss) from operations			(1,611,080)	2,982,491	1,371,412

	Other income (expense):
		Interest (expense) income		(486,836)	-	(486,836)
		State income tax expense		-	-	-
	Net Income (Loss)			$ (2,097,915)	$ 2,982,491	$ 884,576

	Earnings per share					$ 0.15

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Income Statement
For the Quarter Ended April 30, 2018

				Unaudited	Unaudited	Unaudited
				Crossroads	CPF	Crossroads Consolidated
				April 30, 2018	April 30, 2018	April 30, 2018
	Revenue:
		Interest income		$ -	$ 2,425,670	$ 2,425,670
		Property sales		-	7,356,600	7,356,600
		Other revenue		-	122,278	122,278
			Total revenue	-	9,904,548	9,904,548

	Cost of revenue:
		Interest expense		-	979,219	979,219
		Cost of properties sold		-	5,626,652	5,626,652
		Other cost of revenue		-	-	-
			Total cost of revenue	-	6,605,871	6,605,871

	Gross Profit			-	3,298,677	3,298,677


	Operating expenses:
		General and administrative		448,047	371,670	819,717
		Salaries and wages		263,730	660,613	924,343
			Total operating expenses	711,778	1,032,283	1,744,061

	Income (Loss) from operations			(711,778)	2,266,393	1,554,616

	Other income (expense):
		Interest (expense) income		(323,051)	-	(323,051)
		State income tax expense		-	-	-
	Net Income (Loss)			$ (1,034,828)	$ 2,266,393	$ 1,231,565

	Earnings per share					$ 0.21

Unaudited Fiscal Second Quarter 2018 Shareholder Report for
The Three Months Ended
April 30, 2018

Crossroads Systems, Inc.

Delaware 74-284664
(State of Incorporation) (IRS Employer Identification No.)

8214 Westchester Drive
Suite 950
Dallas, TX 75225
(Address of principal executive office)

(214) 999-0149
(Company's telephone number)

Common Stock
$0.001 Par Value
Trading Symbol: CRSS
Trading Market: OTC Pink Open Market

75,000,000 Common Shares Authorized

5,969,754 Shares Issued and Outstanding as of December 19, 2017

Dear Shareholder:

We continued to make significant progress toward improving Crossroads' opportunity for value creation in the fiscal second quarter of 2018. Several key strategic actions provide the foundation for delivering shareholder value.

The acquisition continues to be accretive to the business. For the second quarter, Capital Plus Financial (CPF) generated $2.4 million in interest income from its $98 million fixed rate conventional mortgage portfolio and $7.4 million sales from the sale of properties in low to moderate income census tracts. The operating income for the quarter was $2.3 million. CPF continues to have strong leverage and cash coverage ratios which are of particular emphasis to its lenders. At April 30, 2018, CPF's debt service coverage (leverage) ratio was 2.50 and its cash coverage ratio, adjusted for one-time and transaction expenses, was 1.80.

As a wholly owned subsidiary of Crossroads, the financials are presented on a consolidated basis (supplementary schedules are included for reference). The year to date financials include CPF's financials from December 19, 2017 to April 30, 2018. Please note the initial accounting for the acquisition of CPF has not yet been finalized; accordingly, the purchase price allocation contains balances that could differ from the balances reported upon completion.

The impact of the acquisition of CPF has been tremendous. Not only is the company a leader in growing markets and delivering meaningful profitability to its shareholders, but equally important is its impact on the communities so often overlooked by traditional financial sources. As a for-profit social enterprise, CPF is uniquely positioned to serve the needs of low to moderate income Hispanic homebuyers. In closing, thank you for your ownership of Crossroads stock.

Saludos Cordiales,

Robert H. Alpert & Eric A. Donnelly

SOURCE Crossroads Systems

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