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

DALLAS, Dec. 12, 2019 /PRNewswire/ -- Crossroads Systems, Inc. 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.

www.crossroads.com (PRNewsFoto/Crossroads Systems)" alt="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. 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. 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

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/crossroads-systems-reports-fiscal-fourth-quarter-and-fiscal-year-2019-financial-results-300973756.html

SOURCE Crossroads Systems

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