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Crossroads Systems Reports Fiscal Fourth Quarter and Fiscal Year 2019 Financial Results

DALLAS, Dec. 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 fourth quarter and the year ended October 31, 2019.

Crossroads Systems -  www.crossroads.com (PRNewsFoto/Crossroads Systems)

The overall performance for the quarter and for fiscal 2019 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 to date, we are pleased with the sales volumes experience.

Fiscal Q4 2019 Financial Highlights

  • Total property sales income was $6.6 million for the quarter compared to $4.1 million for the comparative period of 2018
  • Total interest income was $3.2 million up from $2.7 million from the comparative period of 2018
  • Operating income of $1.0 million, up from $476,000 for the comparative period of 2018
  • Cash EPS (operating income less income to non controlling interests) increased to $0.14 from $0.06 for the comparative period of 2018
  • Held 128 properties in inventory compared to 79 at the same time in 2018
  • Added $5.6 million in new single-family mortgages during the quarter
  • Book Value of $51.0 million or $8.54 per share
  • Cash balance of $1.7 million

Fiscal 2019 Financial Highlights

  • Total property sales income was $25.3 million for the fiscal year compared to $19.3 million for the comparative period of 2018
  • Total interest income was $12 million up from $8.9 million from the comparative period of 2018
  • Operating income of $4.4 million, up from $2.6 million for the comparative period of 2018
  • Cash EPS (operating income less income to non controlling interests) increased to $0.63 from $0.36 for the comparative period of 2018
  • The company booked $688,000 of state and federal income tax expense for the fiscal year which will be offset against the deferred tax asset. In addition, the company recorded a tax valuation allowance of $1.3 million related to unusable tax carryforward losses. This non-cash valuation allowance will swing year over year as we grow earnings and are able to utilize additional losses.

Eric A. Donnelly, Chief Executive Officer at Crossroads Systems, said, "With an almost 75% increase to EPS and 69% increase to operating income, we are excited about the momentum going into the recent announcement of our bank acquisition and what that means for our shareholders and customers later this year and beyond. We will continue to be prudent with inventory management and managing our liability sensitive balance sheet. The Texas economy continues to perform at a high level and interest rate outlook remains favorable for responsible scaling of our company and continued social impact throughout our markets."

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.

©2019 Crossroads Systems, Inc., Crossroads and Crossroads Systems are registered trademarks of Crossroads Systems, Inc. All trademarks are the property of their respective owners.

Investor Contact: Crossroads Systems ir@crossroads.com 

Press Contact: Matthew Zintel Zintel Public Relations matthew.zintel@zintelpr.com 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)
























October 31,






2019

ASSETS









Current assets:





Cash and cash equivalents


$        1,736


Restricted Cash


2,583


Accounts receivable, net 


892


Current portion of mortgage notes receivable


1,478


Inventories



11,796


Prepaids and other current assets


349



Total current assets 


18,835







Mortgage Notes Receivable


122,207

Goodwill



18,567

Deferred tax asset


19,680

Other non-current assets


214



Total assets


$     179,503







LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:




Accounts payable 


$           350


Accrued expenses 


620


Escrow liabilities


2,653


Current portion of senior secured credit facilities


63,139


Current portion of other note payable


168


Current portion of acquisition note payable


2,495



Total current liabilities


69,425







Senior secured credit facilities, net


48,637

Acquisition debt, net


10,397



Total liabilities 


128,458







Stockholders' equity


51,044



Total liabilities and stockholders' equity


$      179,503

 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)








For the year ended




October 31, 2019









Revenue:




Interest income

$                              11,986


Property sales

25,331


Other revenue 

387



Total revenue

37,704





Cost of revenue:



Interest expense

6,298


Cost of properties sold

21,149



Total cost of revenue

27,447





Gross profit


10,257





Operating expenses:



General and administrative 

2,071


Salaries and wages

2,760



Total operating expenses

4,831





Income (loss) from operations 

5,425





Other income (expense):



Interest (expense) income 

(1,064)


Other (expense) income 

-






Income before provision for income taxes

4,361






Income tax provision

(1,991)

Net Income (loss) 

$                                2,370






Less: income attributable to non-controlling interests

(618)





Net income attributable to controlling interests

$                                1,752

 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENT OF CASH FLOWS

(In Thousands) 




For the year ended


October 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES


Net income

$                  2,370

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

(161)

Notes receivable

(14,663)

Inventories

(4,308)

Prepaids and other assets

368

Accounts payable

2,279

Accrued and other liabilities

(241)

Escrow liabilities

119

Net cash used in operating activities

(14,382)



CASH FLOWS FROM INVESTING ACTIVITIES


Restricted cash

(41)

Net cash used in investing activities

(41)



CASH FLOWS FROM FINANCING ACTIVITIES


Preferred equity contributions

2,500

Preferred equity dividend distributions

(664)

Borrowings on credit facilities, net

16,594

Principal payments on credit facilities

-

Principal payments on other notes payable

(168)

Borrowings on acquisition note payable

-

Principal payments on acquisition note payable

(4,427)

Net cash provided by financing activities

13,835



Net change in cash and cash equivalents

(588)

Cash and cash equivalents at beginning of the year

2,324

Cash and cash equivalents at end of the year

$                   1,736



SUPPLEMENTAL INFORMATION


Cash paid for interest

$                   7,098

 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)








For the three months ended




October 31, 2019









Revenue:




Interest income

$                                  3,160


Property sales

6,611


Other revenue 

42



Total revenue

9,814





Cost of revenue:



Interest expense

1,683


Cost of properties sold

5,548



Total cost of revenue

7,231





Gross profit


2,583





Operating expenses:



General and administrative 

666


Salaries and wages

691



Total operating expenses

1,356





Income (loss) from operations 

1,226





Other income (expense):



Interest (expense) income 

(240)


Other (expense) income 

-






Income before provision for income taxes

986






Income tax provision

(1,587)

Net Income (loss) 

(601)






Less: income attributable to non-controlling interests

(156)





Net income attributable to controlling interests

$                                      (757)

 

CROSSROADS SYSTEMS, INC.

Supplemental Schedule - Unaudited Consolidated Balance Sheet

As of October 31, 2019









































 Crossroads 


 CPF 


 Elimination Entries 


 Consolidated 







October 31, 2019


October 31, 2019


October 31, 2019


October 31, 2019

ASSETS











Current assets:












Cash and cash equivalents


34,030


1,701,595


-


1,735,625



Restricted cash


-


2,583,057


-


2,583,057



Accounts receivable, net


-


892,213


-


892,213



Inventories



-


11,796,430


-


11,796,430



Intercompany receivable


3,143,910


18,579,160


(21,723,070)


(0)



Prepaids and other current assets


201,704


97,338


-


299,042



Earnest money deposits


-


49,890


-


49,890



Mortgage notes receivable (residential)


-


121,858,489


-


121,858,489



Discount on notes receivables acquired


-


(20,244)




(20,244)



Mortgage notes receivable (Commercial property)


-


1,847,106




1,847,106




Total current assets 


3,379,644


159,385,034


(21,723,070)


141,041,608















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 



177,749


11,543


-


189,292


Deferred tax asset



19,680,324


-


-


19,680,324




Total assets


$         55,190,857


$       159,421,118


$            (35,109,245)


$       179,502,730














LIABILITIES AND STOCKHOLDERS' EQUITY








Current liabilities:












Accounts payable


10,162


340,298


-


350,460



Accrued and other current liabilities 


199,457


420,206


-


619,663



Escrow liabilities


-


2,652,581


-


2,652,581



Due to subsidiaries


18,579,160


-


(18,579,160)


(0)



Revolving line of credit, inventory


-


10,677,838


-


10,677,838



Revolving line of credit, mortgage notes (current maturities)


-


54,186,080


(1,724,723)


52,461,357



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


18,788,779


68,277,003


(17,640,652)


69,425,130















Senior secured term notes (long-term)


-


46,911,858


1,724,723


48,636,581


Acquisition debt (long-term)


12,891,703


-


(2,495,160)


10,396,543




Total liabilities


31,680,482


115,188,862


(18,411,089)


128,458,255















Stockholders' equity:










Total participating payables


-


156,049


-


156,049


Total preferred equity investment


-


18,053,507


-


18,053,507


Total subordinated debt


2,199,377


1,514,898


(168,071)


3,546,203



Members equity in CPF


-


18,580,846


-


18,580,846



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


(3,556,930)


5,926,957


-


2,370,027




Total stockholders' equity (deficit)


23,510,375


44,232,256


(16,698,156)


51,044,475













-




Total liabilities and stockholders' equity (deficit)


$         55,190,857


$       159,421,118


$            (35,109,246)


$       179,502,729

 

 CROSSROADS SYSTEMS, INC.

 Supplemental Schedule - Consolidated Income Statement

 For the Quarter Ended October 31, 2019






















Crossroads

CPF

Consolidated





October 31, 2019

October 31, 2019

October 31, 2019

Revenue:







Interest income


$                  -

$                  3,160,107

$                3,160,107


Property sales


-

6,611,054

6,611,054


Other revenue 



42,433

42,433



Total revenue 

-

9,813,594

9,813,594








Cost of revenue:






Interest expense


-

1,682,942

1,682,942


Cost of properties sold

-

5,547,809

5,547,809


Other cost of revenue


-

-



Total cost of revenue

-

7,230,752

7,230,752








Gross Profit


-

2,582,843

2,582,843








Operating expenses:






General and administrative 

126,771

538,908

665,678


Salaries and wages

-

690,675

690,675



Total operating expenses 

126,771

1,229,583

1,356,354








Income (Loss) from operations 

(126,771)

1,353,259

1,226,489








Other income (expense):





Interest (expense) income 

(240,126)

-

(240,126)


Other (expense) income 

-

-

-

       Total other income (expense)

(240,126)

-

(240,126)








Income before provision for income taxes

(366,896)

1,353,259

986,363









Income tax provision

(1,587,459)

-

(1,587,459)

Net Income (Loss) 


$       (1,954,356)

$                 1,353,259

$                (601,096)









Less: income attributable to non-controlling interests

$                   (155,546)

(155,546)








Net income attributable to controlling interests

$       (1,954,356)

$                 1,197,713

$                 (756,642)








Outstanding shares




5,971,994








Earnings per share, before income tax provision


$                         0.14


 

 CROSSROADS SYSTEMS, INC.

 Supplemental Schedule - Consolidated Income Statement

For the Year Ended October 31, 2019





















Crossroads

CPF

Consolidated





October 31, 2019

October 31, 2019

October 31, 2019

Revenue:







Interest income


$                      -

$                   11,986,113

$               11,986,113


Property sales


-

25,330,557

25,330,557


Other revenue 


-

387,264

387,264



Total revenue 

-

37,703,935

37,703,935








Cost of revenue:






Interest expense


-

6,298,379

6,298,379


Cost of properties sold

-

21,148,760

21,148,760


Other cost of revenue

-

-

-



Total cost of revenue

-

27,447,139

27,447,139








Gross Profit


-

10,256,796

10,256,796








Operating expenses:






General and administrative 

501,539

1,569,875

2,071,413


Salaries and wages

-

2,759,964

2,759,964



Total operating expenses 

501,539

4,329,838

4,831,377








Income (Loss) from operations 

(501,539)

5,926,957

5,425,418








Other income (expense):





Interest (expense) income 

(1,064,403)

-

(1,064,403)


Other (expense) income 

-


-

       Total other income (expense)

(1,064,403)

-

(1,064,403)








Income before provision for income taxes

(1,565,941)

5,926,957

4,361,016









Income tax provision

(1,990,989)


(1,990,989)

Net Income (Loss) 


$       (3,556,930)

$                    5,926,957

$                 2,370,027









Less: income attributable to non-controlling interests

$                      (617,582)

(617,582)








Net income attributable to controlling interests

$       (3,556,930)

$                     5,309,375

$                 1,752,445








Outstanding shares




5,971,994








Earnings per share, before income tax provision


$                          0.63


 

Shareholder Report for

the Fourth Quarter & Fiscal Year Ended

October 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 October 31, 2019

Dear Shareholder:

As we complete our second successful fiscal year at the helm of Crossroads, we look to our third year as hugely transformative to our business. Before we expand on the proposed bank acquisition, we'd like to summarize the 2019 financial results.

During the year, we successfully sold 179 properties, ending the year with a mortgage portfolio balance of $122 million.  To further impact our communities, we made a decision to decrease our operating margins on property sales as a means to drive more volume and loan growth. This is especially significant in a bank structure where loan growth and interest margin are key metrics. Our operating income for the year continued to grow to $4.4 million compared to $2.6 million in the prior year.  As a result of our focus on volume and loan growth, we have been able to increase our inventory of available homes from 79 homes at October 31, 2018 to 128 homes at October 31, 2019, which should result in higher sales for 2020.  We feel strongly that the margin reduction will result in long-term portfolio growth and increased earnings for the company.

In addition, we continued to evaluate new markets opportunities and chose to expand into McAllen, Texas by acquiring three individual lots and another group of 22 in a new residential development.  We have partnered with a local builder to build the homes and have sold and closed on one to date.  The delivery of these homes will have a longer cycle than our usual single-family product in our existing markets but have a lower risk profile as the homes will be built after qualified buyers are under contract. We will offer financing to qualified buyers of these homes as we do on our existing inventory of homes. 

We continue to operate with social responsibility at the forefront, and we are quite proud of the work our team has done.  A copy of our Social Impact report can be found on our website.

On November 18th, we announced our definitive agreement to purchase Rice Bancshares Inc. (the "Bank"), a Texas community bank located just outside of our DFW market and 8 years away from celebrating its 100th year serving it communities. We will acquire the Bank for approximately $32M in cash which will result in merged bank book value of just under $60 million dollars.  We anticipate that the combination of our operating subsidiary, Capital Plus Financial ("CPF"), and the First State Bank will result in one of the best capitalized and highest performing Community Development Financial Institution ("CDFI") banks and Minority Depository Institutions ("MDI") in the country. Our goal is not only to lead in our corner of the industry but to be one of the best performing banks in the country. With a holding company board comprised of experienced bank board directors and a bank board actively supporting the success of the combined companies, we are confident in our ability to execute on our growth plan.

While the timing for regulatory approval is unknown; the acquisition and merger with the Bank is expected to be immediately accretive to our shareholders. The Bank's current cost of funds is less than 100 basis points which will result in a decrease to our current cost of capital of greater than 300 basis points. Moreover, we anticipate growing the deposit base of the Bank considerably to broaden the shorter end of the liability side of the balance sheet in today's favorable interest rate environment. On the longer end of the curve and to better match fund the longer dated assets of the combined entity, we intend to complete our CDFI Bond Guarantee Application in 2020 which was carried over from last year.

In addition, we are projecting historical originations for CPF and conservative loan growth at the Bank. While there will undoubtedly be efficiencies gained from the merger and increased quality commercial loan production, we expect our return on average assets and return on equity to be far in excess of average bank metrics. We expect our return on assets to be in excess of 2.5% and our return on equity in excess of 18% with a capital ratio of at least 15%, all of which compare favorably to peers and demonstrate a highly profitable and well capitalized bank. We hope to be able to realize further savings from collaborating with our bank partners to share important compliance services. One of our goals is to continue to help them achieve their Community Reinvestment Act ("CRA") qualifications by sharing services and excess deposits with our bank, for example.  

Not surprisingly, our deposit strategy will focus both on earnings and social impact. We plan to grow the Bank organically in our markets by banking quality C&I customers but we will also leverage on the trust we've developed in our markets to offer basic financial services to the underbanked and unbanked in Texas which by some estimates represents 25% of the population. As a proven social enterprise and B-Corp, we believe we can close the trust gap which often prevents people from depositing with traditional banks. The third deposit strategy will be to solicit excess deposits from larger institutions in our markets who will receive CRA credit for supporting a CDFI and MDI. A recent House Financial Services Sub Committee meeting on MDIs highlighted the push for collaboration between large banks and MDIs. A common form of this collaboration is the placement of deposits into the MDI.

We expect to file our regulatory application with the Federal Reserve this quarter for Crossroads to apply for bank holding company status and to the FDIC and Texas Department of Banking for the bank acquisition. The resulting transaction will merge CPF and the bank with CPF's real estate activities done through a wholly owned subsidiary of the bank in a community development corporation ("CDC"). The CDC will continue CPF's mission of providing affordable housing throughout its markets and will look to expand its social impact throughout its markets.

To that end, CPF consummated a licensing agreement with SG Blocks, Inc. (NASDAQ: SGBX) in the fourth fiscal quarter of 2019 to license SG Blocks' residential technology under the name SG Residential ("SGR"), a public welfare investment of the CDC. Our agreement provides exclusive rights to the residential construction pipeline in the United States and its territories. Our licensing agreement allows us to develop residential home and multifamily projects in an efficient and profitable manner to help scale the real estate vertical of our business. The public welfare investment will focus initially on Opportunity Zone eligible projects. We do not believe this will be a capital intensive endeavor however it does help us to fulfill our mission to improve low to moderate communities.

We believe in the SG Blocks technology, its efficiency and the benefits it can provide to low to moderate income homeowners often most at risk in natural disasters. We view this as a very low cost opportunity to expand our housing mission and one which leverages our expertise in project management and bidding accuracy to create a low risk, high return vertical for the company using our existing overhead.

In summary, we're honored that you're on this journey with us as we continue to transform Crossroads into a well-capitalized financial holding company. We will continue to come up with innovative solutions to maximize shareholder value and social impact equally. Thank you for your continued support.

Saludos Cordiales,

Robert H. Alpert & Eric A. Donnelly

 

SOURCE Crossroads Systems