Crossroads Systems Reports Fiscal Third Quarter 2019 Financial Results

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Sep 12, 2019, 08:00 ET

DALLAS, Sept. 12, 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 third quarter ended July 31, 2019.

The overall performance for the quarter was consistent with expectations. Portfolio growth remained in line with historical growth. The results of additional homes in inventory converting to additional sales volume has begun and updates will continue to be made on this initiative.

For the second year in a row, Capital Plus Financial (CPF) was recognized by the B Corporation for the company's commitment to its customers with the Best for World Honoree.

CPF also completed its first Impact Assessment. The full report can be found on the website and we encourage shareholders and prospective investors to review the impact investment dollars are supporting.

Fiscal Q3 2019 Financial Highlights

Total property sales income was $7.0 million for the quarter compared to $5.8 million for the comparative period of 2018
Total interest income was $3.0 million up from $2.6 million from the comparative period of 2018
Operating income of $1.3 million, up from $1.2 million for the comparative period of 2018
Cash earnings¹ per share $0.22 compared $0.20 for the comparative period of 2018
Held 137 properties in inventory compared to 63 at the same time in 2018
Added $7.0 million in new single-family mortgages during the quarter
Book Value of $51.8 million or $8.68 per share
Cash balance of $834,000

¹Cash earnings represent net income before non-cash expenses.

Eric A. Donnelly, Chief Executive Officer at Crossroads Systems, said, "We are honored to be recognized with our fellow B Corporations for our commitment to our customers. We recognize that true impact can only grow with assessing each of our metrics and as such, we are proud to unveil CPF's first formal impact assessment completed this quarter. This will be an annual report as part of our ongoing commitment to our stakeholders. Our continued profitability along with our community impact should make our shareholders proud of their investment."

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 Zintel
Zintel Public Relations
[email protected]

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


			July 31,
			2019
ASSETS

Current assets:
	Cash and cash equivalents		$ 834
	Restricted Cash		1,742
	Accounts receivable, net		840
	Current portion of mortgage notes receivable		1,479
	Inventories		11,672
	Prepaids and other current assets		409
		Total current assets	16,976

Mortgage Notes Receivable			118,930
Goodwill			18,567
Deferred tax asset			21,262
Other non-current assets			305
		Total assets	$ 176,039

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable		$ 232
	Accrued expenses		571
	Escrow liabilities		1,804
	Current portion of senior secured credit facilities		63,052
	Current portion of other note payable		168
	Current portion of acquisition note payable		2,495
		Total current liabilities	68,323

Senior secured credit facilities, net			44,851
Acquisition debt, net			11,020
		Total liabilities	124,194

Stockholders' equity			51,844
		Total liabilities and stockholders' equity	$ 176,039

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

			For the three months ended
			July 31, 2019


Revenue:
	Interest income		$ 3,030
	Property sales		6,966
	Other revenue		233
		Total revenue	10,228

Cost of revenue:
	Interest expense		1,623
	Cost of properties sold		5,745
		Total cost of revenue	7,368

Gross profit			2,861

Operating expenses:
	General and administrative		574
	Salaries and wages		703
		Total operating expenses	1,277

Income (loss) from operations			1,584

Other income (expense):
	Interest (expense) income		(255)
	Other (expense) income		-

	Income before provision for income taxes		1,329

	Income tax provision		(139)
Net Income (loss)			$ 1,190

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

			For the nine months ended
			July 31, 2019


Revenue:
	Interest income		$ 8,826
	Property sales		18,720
	Other revenue		345
		Total revenue	27,890

Cost of revenue:
	Interest expense		4,615
	Cost of properties sold		15,601
		Total cost of revenue	20,216

Gross profit			7,674

Operating expenses:
	General and administrative		1,406
	Salaries and wages		2,069
		Total operating expenses	3,475

Income (loss) from operations			4,199

Other income (expense):
	Interest (expense) income		(824)
	Other (expense) income		-

	Income before provision for income taxes		3,375

	Income tax provision		(404)
Net Income (loss)			$ 2,971

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

	For the nine
	months ended
	July 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	2,971
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	(108)
Notes receivable	(11,386)
Inventories	(4,183)
Prepaids and other assets	216
Accounts payable	579
Accrued and other liabilities	(343)
Escrow liabilities	(729)
Net cash used in operating activities	(13,128)

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash	800
Net cash used in investing activities	800

CASH FLOWS FROM FINANCING ACTIVITIES
Preferred equity contributions	2,500
Preferred equity dividend distributions	(455)
Borrowings on credit facilities, net	12,721
Principal payments on credit facilities	-
Principal payments on other notes payable	(125)
Principal payments on acquisition note payable	-
Net cash provided by financing activities	(3,804)
	10,838
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the year	(1,490)
Cash and cash equivalents at end of the year	2,324
	834
SUPPLEMENTAL INFORMATION
Cash paid for interest	$ 5,175

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Balance Sheet
As of July 31, 2019

				Unaudited	Unaudited	Unaudited	Unaudited
				Crossroads	CPF	Elimination Entries	Consolidated
				July 31, 2019	July 31, 2019	July 31, 2019	July 31, 2019
ASSETS
	Current assets:
		Cash and cash equivalents		30,620	803,148	-	833,768
		Restricted cash		-	1,741,777	-	1,741,777
		Accounts receivable, net		-	839,798	-	839,798
		Inventories		-	11,671,759	-	11,671,759
		Intercompany receivable		3,143,910	17,614,943	(20,758,853)	(0)
		Prepaids and other current assets		189,199	141,375	-	330,574
		Earnest money deposits		-	78,890	-	78,890
		Mortgage notes receivable (residential)		-	118,662,328	-	118,662,328
		Discount on notes receivables acquired		-	(3,825)		(3,825)
		Mortgage notes receivable (Commercial property)		-	1,750,435		1,750,435
			Total current assets	3,363,729	153,300,628	(20,758,853)	135,905,504

	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			190,789	89,238	-	280,027
	Deferred tax asset			21,261,756	-	-	21,261,756
			Total assets	$ 56,769,415	$ 153,414,407	$ (34,145,028)	$ 176,038,794

LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
		Accounts payable		204	231,747	-	231,951
		Accrued and other current liabilities		174,042	397,223	-	571,265
		Escrow liabilities		-	1,804,094	-	1,804,094
		Due to subsidiaries		17,614,943	-	(17,614,943)	(0)
		Revolving line of credit, inventory		-	10,237,389	-	10,237,389
		Revolving line of credit, mortgage notes (current maturities)		-	54,539,620	(1,724,723)	52,814,897
		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	17,789,189	67,210,072	(16,676,435)	68,322,826

	Senior secured term notes (long-term)			-	43,126,464	1,724,723	44,851,187
	Acquisition debt (long-term)			13,515,495	-	(2,495,160)	11,020,335
			Total liabilities	31,304,684	110,336,536	(17,446,872)	124,194,348

	Stockholders' equity:
	Total participating payables			-	156,433	-	156,433
	Total preferred equity investment			-	18,051,781	-	18,051,781
	Total subordinated debt			2,199,377	1,557,942	(168,071)	3,589,248
		Members equity in CPF		-	18,738,016	-	18,738,016
		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		(1,602,575)	4,573,698	-	2,971,123
			Total stockholders' equity (deficit)	25,464,730	43,077,871	(16,698,156)	51,844,445
							-
			Total liabilities and stockholders' equity (deficit)	$ 56,769,415	$ 153,414,407	$ (34,145,028)	$ 176,038,793

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Income Statement
For the Quarter Ended July 31, 2019


			Crossroads	CPF	Consolidated
			July 31, 2019	July 31, 2019	July 31, 2019
Revenue:
	Interest income		$ -	$ 3,029,581	$ 3,029,581
	Property sales		-	6,966,000	6,966,000
	Other revenue			232,902	232,902
		Total revenue	-	10,228,482	10,228,482

Cost of revenue:
	Interest expense		-	1,622,559	1,622,559
	Cost of properties sold		-	5,745,208	5,745,208
	Other cost of revenue			-	-
		Total cost of revenue	-	7,367,767	7,367,767

Gross Profit			-	2,860,715	2,860,715

Operating expenses:
	General and administrative		210,855	363,180	574,035
	Salaries and wages		-	703,004	703,004
		Total operating expenses	210,855	1,066,184	1,277,039

Income (Loss) from operations			(210,855)	1,794,531	1,583,676

Other income (expense):
	Interest (expense) income		(255,018)	-	(255,018)
	Other (expense) income		-	-	-
Total other income (expense)			(255,018)	-	(255,018)

Income before provision for income taxes			(465,873)	1,794,531	1,328,658

	Income tax provision		(139,041)	-	(139,041)
Net Income (Loss)			$ (604,914)	$ 1,794,531	$ 1,189,617


Outstanding shares					5,971,994

Earnings per share, Income before taxes					$ 0.22

CROSSROADS SYSTEMS, INC.
Supplemental Schedule - Unaudited Consolidated Income Statement
For the Nine Months Ended July 31, 2019


			Crossroads	CPF	Consolidated
			July 31, 2019	July 31, 2019	July 31, 2019
Revenue:
	Interest income		$ -	$ 8,825,841	$ 8,825,841
	Property sales		-	18,719,503	18,719,503
	Other revenue		-	344,996	344,996
		Total revenue	-	27,890,341	27,890,341

Cost of revenue:
	Interest expense		-	4,615,437	4,615,437
	Cost of properties sold		-	15,600,951	15,600,951
	Other cost of revenue		-	-	-
		Total cost of revenue	-	20,216,388	20,216,388

Gross Profit			-	7,673,953	7,673,953

Operating expenses:
	General and administrative		374,768	1,030,967	1,405,735
	Salaries and wages		-	2,069,288	2,069,288
		Total operating expenses	374,768	3,100,255	3,475,023

Income (Loss) from operations			(374,768)	4,573,698	4,198,930

Other income (expense):
	Interest (expense) income		(824,277)	-	(824,277)
	Other (expense) income		-		-
Total other income (expense)			(824,277)	-	(824,277)

Income before provision for income taxes			(1,199,045)	4,573,698	3,374,653

	Income tax provision		(403,530)		(403,530)
Net Income (Loss)			$ (1,602,575)	$ 4,573,698	$ 2,971,123

Outstanding shares					5,971,994

Earnings per share, Income before taxes					$ 0.57

Unaudited Fiscal Third Quarter 2019 Shareholder Report for
The Three Months Ended
July 31, 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 July 31, 2019

Dear Shareholder:

We are pleased to announce a profitable third quarter and recognition again by B Corporation as a 2019 Honoree Best for World Customers for our commitment to those we are fortunate to serve. Additionally, we completed our first Impact Assessment which will be an annual report to our stakeholders to highlight our impact metrics. As a social enterprise, we are ever mindful of profitability to our shareholders and impact to our communities. We hope you will agree that we are making great strides in both and that you can be proud of your investment in us.

Net mortgage loan growth is $17 million through the 3^rd quarter, well within growth goals. We continue to push inventory levels up to increase the number of homes we can provide to the communities we serve. To that end, we are pleased to report that our first homes in the Rio Grande Valley (McAllen area) have been sold and we look forward to additional volume from this market and will continue to update you on this progress.

CPF's outstanding mortgage balance portfolio continued to grow at its historical pace and is currently at $118.5 million. For the third quarter, CPF generated $3.0 million in interest income from its $118.5 million fixed-rate conventional mortgage portfolio and $7.0 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 $1.3 million before accruing for a non-cash tax provision of $135,000. The net income after the provision was $1.2 million. Note the Company offsets this provision against its deferred tax asset of $21.3 million. At July 31, 2019, CPF's unadjusted leverage was 2.56x and the consolidated cash coverage ratio, adjusted for one-time and transaction expenses, was 3.12x.

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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