Crossroads Systems Reports Fiscal Second Quarter 2019 Financial Results

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Jun 13, 2019, 08:00 ET

DALLAS, June 13, 2019 /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, 2019.

The overall performance for the quarter was in line with expectations. Portfolio growth remained in line with historical growth. Additionally, to increase the availability of affordable housing in our markets, a concerted effort was made to acquire more inventory which has skewed the cost of goods figures to sales as those homes make their way through the system to their ultimate sale.

The company, as did much of Texas, faced weather challenges in March and April which resulted in delays related to remodels which impacted inventory for sale.

Fiscal Q2 2019 Financial Highlights

Total property sales income was $7.4 million for the quarter and remained flat to the comparative period of 2018
Total interest income was $2.9 million up from $2.4 million from the comparative period of 2018
Operating income of $1.4 million, up from $1.3 million for the comparative period of 2018
Earnings per share of $0.23 compared to earnings per share of $0.22 for the comparative period of 2018
Held 108 properties in inventory compared to 58 at the same time in 2018
Added $6.4 million in new single-family mortgages during the quarter
Tangible Net Book Value of $32.2 million
Cash balance of $904,000

Eric A. Donnelly, Chief Executive Officer at Crossroads Systems, said, "We are pleased to announce another consistent quarter of community impact, loan growth and profitability. As a social enterprise focused on double bottom line results, our unwavering commitment to improving communities, realizing the dream of homeownership for thousands of deserving borrowers while building shareholder value remains the balanced focus of our business. Conscious capitalism works and has a place in public markets."

Recent developments

During the second quarter, CPF successfully completed the annual recertification with the Community Development Financial Institution Fund ("CDFI Fund"). In addition, CPF had a site visit from the Bond Guaranty Program ("BGP") which it applied for in February. CPF plans to refinance its existing debt with the BGP which will allow the Company to better serve its mission.

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: Crossroads Systems [email protected]

Press Contact: Matthew ZintelZintel Public Relations [email protected]

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

			April 30,
			2019
ASSETS

Current assets:
	Cash and cash equivalents		$ 904
	Restricted Cash		1,279
	Accounts receivable, net		1,006
	Current portion of mortgage notes receivable		1,033
	Inventories		10,041
	Prepaids and other current assets		335
		Total current assets	14,599

Mortgage Notes Receivable			115,183
Goodwill			18,567
Deferred tax asset			21,401
Other non-current assets			419
		Total assets	$ 170,168

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable		$ 475
	Accrued expenses		664
	Escrow liabilities		1,222
	Current portion of senior secured credit facilities		61,829
	Current portion of other note payable		168
	Current portion of acquisition note payable		2,495
		Total current liabilities	66,853

Senior secured credit facilities, net			40,865
Acquisition debt, net			11,644
		Total liabilities	119,362

Stockholders' equity			50,806
		Total liabilities and stockholders' equity	$ 170,168

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

			For the three months ended
			April 30, 2019


Revenue:
	Interest income		$ 2,948
	Property sales		7,438
	Other revenue		66
		Total revenue	10,452

Cost of revenue:
	Interest expense		1,602
	Cost of properties sold		6,178
		Total cost of revenue	7,779

Gross profit			2,673

Operating expenses:
	General and administrative		419
	Salaries and wages		629
		Total operating expenses	1,048

Income (loss) from operations			1,625

Other income (expense):
	Interest (expense) income		(269)
	Other (expense) income		-

	Income before provision for income taxes		1,356

	Income tax provision		(203)
Net Income (loss)			$ 1,154

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

			For the six months ended
			April 30, 2019


Revenue:
	Interest income		$ 5,796
	Property sales		11,754
	Other revenue		112
		Total revenue	17,662

Cost of revenue:
	Interest expense		2,993
	Cost of properties sold		9,856
		Total cost of revenue	12,849

Gross profit			4,813

Operating expenses:
	General and administrative		832
	Salaries and wages		1,366
		Total operating expenses	2,198

Income (loss) from operations			2,615

Other income (expense):
	Interest (expense) income		(569)
	Other (expense) income		-

	Income before provision for income taxes		2,046

	Income tax provision		(264)
Net Income (loss)			$ 1,782

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)

	For the six months ended
	April 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	1,782
Adjustments to reconcile net income to net cash used in operating activities:
Stock compensation	(2)
Gain on derivative related activity	(155)
Amortization of deferred financing fees	11
Provision for income taxes	-
Changes in operating assets and liabilities:
Interest receivable	(275)
Notes receivable	(7,193)
Inventories	(2,553)
Prepaids and other assets	176
Accounts payable	683
Accrued and other liabilities	(301)
Escrow liabilities	(1,311)
Net cash used in operating activities	(9,138)

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash	1,263
Net cash used in investing activities	1,263

CASH FLOWS FROM FINANCING ACTIVITIES
Preferred equity contributions	2,500
Preferred equity dividend distributions	(294)
Borrowings on credit facilities, net	8,351
Principal payments on credit facilities	(840)
Principal payments on other notes payable	(82)
Principal payments on acquisition note payable	(3,180)
Net cash provided by financing activities	6,455

Net change in cash and cash equivalents	(1,419)
Cash and cash equivalents at beginning of the year	2,324
Cash and cash equivalents at end of the year	904

SUPPLEMENTAL INFORMATION
Cash paid for interest	$ 3,297

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Balance Sheet
As of April 30, 2019

				Unaudited	Unaudited	Unaudited	Unaudited
				Crossroads	CPF	Elimination Entries	Consolidated
				April 30, 2019	April 30, 2019	April 30, 2019	April 30, 2019
ASSETS
	Current assets:
		Cash and cash equivalents		25,145	879,097	-	904,241
		Restricted cash		-	1,279,273	-	1,279,273
		Accounts receivable, net		-	1,006,308	-	1,006,308
		Inventories		-	10,041,043	-	10,041,043
		Intercompany receivable		3,143,910	16,494,943	(19,638,853)	-
		Prepaids and other current assets		206,541	44,242	-	250,784
		Earnest money deposits		-	84,390	-	84,390
		Mortgage notes receivable (residential)		-	114,194,803	-	114,194,803
		Discount on notes receivables acquired		-	(3,825)		(3,825)
		Mortgage notes receivable (Commerical property)		-	2,024,641		2,024,641
			Total current assets	3,375,596	146,044,915	(19,638,853)	129,781,658

	Property and equipment, net			-	24,540	-	24,540
	Investment in subsidiaries			13,386,175	-	(13,386,175)	-
	Goodwill			18,566,966	-	-	18,566,966
	Other assets			200,649	193,573	-	394,222
	Deferred tax asset			21,400,797	-	-	21,400,797
			Total assets	$ 56,930,183	$ 146,263,028	$ (33,025,028)	$ 170,168,183

LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
		Accounts payable		204	474,429	-	474,633
		Accrued and other current liabilities		226,104	438,138	-	664,242
		Escrow liabilities		-	1,221,990	-	1,221,990
		Due to subsidiaries		16,494,943	-	(16,494,943)	-
		Revolving line of credit, inventory		-	8,326,953	-	8,326,953
		Revolving line of credit, mortgage notes (current maturities)		-	55,226,997	(1,724,723)	53,502,274
		Current portion of other note payable				168,071	168,071
		Current portion of acquisition note payable				2,495,160	2,495,160
		Payroll liabilities		-		-	-
			Total current liabilities	16,721,251	65,688,507	(15,556,435)	66,853,323

	Senior secured term notes (long-term)			-	39,140,036	1,724,723	40,864,759
	Acquisition debt (long-term)			14,139,287	-	(2,495,160)	11,644,127
			Total liabilities	30,860,538	104,828,544	(16,326,872)	119,362,210

	Stockholders' equity:
	Total participating payables			-	156,688	-	156,688
	Total preferred equity investment			-	18,051,781	-	18,051,781
	Total subordinated debt			2,199,377	1,600,295	(168,071)	3,631,601
		Members equity in CPF		-	18,846,554	-	18,846,554
		Common stock		5,972	-	-	5,972
		Additional paid-in capital		242,361,362	-	(13,351,925)	229,009,437
		(Accumulated deficit)/Retained Earnings		(217,499,406)	-	(3,178,160)	(220,677,566)
		Current year net (loss) income		(997,660)	2,779,167	-	1,781,506
			Total stockholders' equity (deficit)	26,069,645	41,434,485	(16,698,156)	50,805,973
			Total liabilities and stockholders' equity (deficit)	$ 56,930,183	$ 146,263,028	$ (33,025,028)	$ 170,168,183

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Income Statement
For the Quarter Ended April 30, 2019

				Unaudited	Unaudited	Unaudited
				Crossroads	CPF	Consolidated
				April 30, 2019	April 30, 2019	April 30, 2019
	Revenue:
		Interest income		$ -	$ 2,947,604	$ 2,947,604
		Property sales		-	7,438,400	7,438,400
		Other revenue			66,490	66,490
			Total revenue	-	10,452,494	10,452,494

	Cost of revenue:
		Interest expense		-	1,601,854	1,601,854
		Cost of properties sold		-	6,177,597	6,177,597
			Total cost of revenue	-	7,779,451	7,779,451

	Gross Profit			-	2,673,043	2,673,043

	Operating expenses:
		General and administrative		74,622	344,265	418,887
		Salaries and wages		-	628,802	628,802
			Total operating expenses	74,622	973,067	1,047,689

	Income (Loss) from operations			(74,622)	1,699,976	1,625,354

	Other income (expense):
		Interest (expense) income		(268,989)	-	(268,989)
	Total other income (expense)			(268,989)	-	(268,989)

	Income before provision for income taxes			(343,611)	1,699,976	1,356,365

		Income tax provision		(202,763)	-	(202,763)
	Net Income (Loss)			$ (546,374)	$ 1,699,976	$ 1,153,602


	Outstanding shares					5,971,994

	Earnings per share, net income					$ 0.23

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Income Statement
For the Six Months Ended April 30, 2019


				Crossroads	CPF	Consolidated
				April 30, 2019	April 30, 2019	April 30, 2019
	Revenue:
		Interest income		$ -	$ 5,796,261	$ 5,796,261
		Property sales		-	11,753,503	11,753,503
		Other revenue		-	112,094	112,094
			Total revenue	-	17,661,859	17,661,859

	Cost of revenue:
		Interest expense		-	2,992,878	2,992,878
		Cost of properties sold		-	9,855,743	9,855,743
		Other cost of revenue		-	-	-
			Total cost of revenue	-	12,848,621	12,848,621

	Gross Profit			-	4,813,238	4,813,238

	Operating expenses:
		General and administrative		163,913	667,787	831,700
		Salaries and wages		-	1,366,285	1,366,285
			Total operating expenses	163,913	2,034,071	2,197,984

	Income (Loss) from operations			(163,913)	2,779,167	2,615,254

	Other income (expense):
		Interest (expense) income		(569,258)	-	(569,258)
		Other (expense) income		-		-
	Total other income (expense)			(569,258)	-	(569,258)

	Income before provision for income taxes			(733,171)	2,779,167	2,045,995

		Income tax provision		(264,489)		(264,489)
	Net Income (Loss)			$ (997,660)	$ 2,779,167	$ 1,781,506

	Outstanding shares					5,971,994

	Earnings per share, net income					$ 0.30

Unaudited Fiscal Second Quarter 2019 Shareholder Report for
The Three Months Ended
April 30, 2019
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

5,971,994 Shares Issued and Outstanding as of April 30, 2019

Dear Shareholder:

We are pleased to announce another quarter of community impact and profitability. While Texas experienced a very wet March and April which slowed down the pace of remodeling and homes ready for sale, we are quite confident that the increased number of homes in the pipeline for remodel and ultimately for sale will meet our mission of impacting more people in more communities we serve at an affordable price and will deliver scale.

Portfolio performance continues to be strong validating the creditworthiness of unbanked and underbanked borrowers. The impact that our affordable home and credit product has made on the lives of thousands of deserving families should hopefully make your investment in our public social enterprise all the more rewarding as we not only build value for your investment but transform the lives of those seeking upward mobility.

As previously stated, we are proud to serve alongside our fellow CDFIs in the change we all make in the communities we serve. To that end, we are collaborating with another area CDFI to help scale that business. Additionally, a site visit from the CDFI Bond Guarantee Program was completed this quarter for the application CPF made earlier in the year. CPF through its Crossroads ownership is the first publicly traded CDFI BGP applicant, making CPF a unique candidate. We hope to be a model for other CDFIs to access public markets and bring awareness to the incredible work the industry does. We believe strongly that conscious capitalism and a balance between impact and profitability and sustainability has a place in public markets.

CPF's outstanding mortgage balance portfolio continued to grow at its historical pace and is currently at $114 million. For the second quarter, CPF generated $2.9 million in interest income from its $114 million fixed-rate conventional mortgage portfolio and $7.4 million in sales income from the sale of properties in low to moderate income census tracts. The consolidated operating income for the quarter was approximately $1.4 million before accruing for a non-cash tax provision of $203,000. The net income after the provision was $1.2 million. Note the Company offsets this provision against its deferred tax asset of $21.6 million. At April 30, 2019, CPF's unadjusted leverage was 2.53x and the consolidated cash coverage ratio, adjusted for one-time and transaction expenses, was 2.64x.

The financials are presented on a consolidated basis. The expenses at the holding company (Crossroads) level have been reduced to essential operating expenses and interest expense on the original acquisition loan. We continue to focus on impacting communities and delivering long term shareholder value while operating at efficiency expense ratios.

We thank you for your continued support of our mission.

Saludos cordiales,

Robert H. Alpert & Eric A. Donnelly

SOURCE Crossroads Systems

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