Crossroads Systems Reports Fiscal First Quarter 2019 Financial Results

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Mar 07, 2019, 08:00 ET

DALLAS, March 7, 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 first quarter ended January 31, 2019.

Fiscal Q1 2019 Financial Results

Revenue for the fiscal first quarter ended January 31, 2019 was $7.2 million compared to $3.2 million in the same period of 2018. Gross profit rose to $2.1 million for the period ended January 31, 2019 compared to $1.3 million for the same period in 2018. Property sales income for the quarter were $4.3 million or 60 percent of total revenues compared to $2.0 million in the first quarter of 2018. Interest income was $2.8 million or 40 percent of revenue for the quarter compared to $1.2 million for first quarter 2018. The operating income for the quarter was $689,675 or $0.12 earning per share compared to a loss of $344,000 in the comparative period for 2018. The net income for the quarter was $627,949 after recording a tax provision for $61,726. The provision is a non-cash expense the Company offsets against its deferred tax asset of $21.6 million.

At October 31, 2018, cash and cash equivalents totaled $1.0 million.

Management Commentary

Eric A. Donnelly, Chief Executive Officer at Crossroads Systems, said, "We worked diligently in the first year of the assimilated businesses to reduce the holding company expenses to very efficient levels and the year over year improvement in Crossroads' quarterly earnings reflect that. As it has historically done, Capital Plus spent the first quarter of 2019 building inventory for the busy spring sales season. Our first quarter is typically our slowest sales period but demand for our affordable housing as well as mortgage demand and performance remain consistent year over year as we continue to build long term shareholder value."

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
For the period ended January 31, 2019
(In Thousands)




ASSETS

Current assets:
	Cash and cash equivalents		$ 1,033
	Restricted Cash		673
	Accounts receivable, net		801
	Current portion of mortgage notes receivable		1,079
	Inventories		9,523
	Prepaids and other current assets		462
		Total current assets	13,571

Mortgage Notes Receivable			109,374
Goodwill			18,567
Deferred tax asset			21,604
Other non-current assets			497
		Total assets	$ 163,612

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable		$ 78
	Accrued expenses		642
	Escrow liabilities		437
	Current portion of senior secured credit facilities		68,057
	Current portion of other note payable		168
	Current portion of acquisition note payable		2,843
		Total current liabilities	72,225

Senior secured credit facilities, net			29,560
Acquisition debt, net			11,920
		Total liabilities	113,704

Stockholders' equity			49,908
		Total liabilities and stockholders' equity	$ 163,612

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the quarter ended January 31, 2019
(In Thousands)




Revenue:
	Interest income		$ 2,849
	Property sales		4,315
	Other revenue		46
		Total revenue	7,209

Cost of revenue:
	Interest expense		1,391
	Cost of properties sold		3,678
	Other cost of revenue		-
		Total cost of revenue	5,069

Gross profit			2,140

Operating expenses:
	General and administrative		413
	Salaries and wages		737
		Total operating expenses	1,150

Income (loss) from operations			990

Other income (expense):
	Interest (expense) income		(300)
	Other (expense) income		-

	Income before provision for income taxes		690

	Income tax provision		(62)

Net Income (loss)			$ 628

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the quarter ended January 31, 2019


CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 627,949
Adjustments to reconcile net income to net cash
used in operating activities:
Stock compensation	2,521
Gain on derivative related activity	(154,870)
Amortization of deferred financing fees	11,450
Provision for income taxes	-
Changes in operating assets and liabilities:
Interest receivable	(69,911)
Notes receivable	(1,429,993)
Inventories	(2,034,971)
Prepaids and other assets	(28,797)
Accounts payable	83,681
Accrued and other liabilities	(271,617)
Escrow liabilities	(2,096,082)
Net cash used in operating activities	(5,360,641)

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash	1,869,078
Net cash used in investing activities	1,869,078

CASH FLOWS FROM FINANCING ACTIVITIES
Preferred equity contributions	2,500,000
Preferred equity dividend distributions	(136,740)
Borrowings on credit facilities, net	2,434,117
Principal payments on credit facilities	-
Principal payments on other notes payable	(41,002)
Borrowings on acquisition note payable	-
Principal payments on acquisition note payable	(2,555,679)
Net cash provided by financing activities	2,200,696

Net change in cash and cash equivalents	(1,290,867)
Cash and cash equivalents at beginning of the year	2,323,614
Cash and cash equivalents at end of the year	$ 1,032,747

SUPPLEMENTAL INFORMATION
Cash paid for interest	$ 1,426,636

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

					Unaudited	Unaudited	Unaudited	Unaudited
					Crossroads	CPF	Elimination Entries	Consolidated
					January 31, 2019	January 31, 2019	January 31, 2019	January 31, 2019
ASSETS
	Current assets:
		Cash and cash equivalents			48,516	984,230	-	1,032,747
		Restricted cash			-	672,852	-	672,852
		Accounts receivable, net			-	801,418	-	801,418
		Inventories			-	9,523,242	-	9,523,242
		Intercompany receivable			3,143,910	15,469,943	(18,613,853)	(0)
		Prepaids and other current assets		0	222,294	180,535	-	402,829
		Earnest money deposits			-	58,995	-	58,995
		Mortgage notes receivable (residential)			-	110,447,451	-	110,447,451
		Discount on notes receivables acquired			-	(3,825)		(3,825)
		Mortgage notes receivable (Commerical property)			-	8,879		8,879
			Total current assets		3,414,720	138,143,720	(18,613,853)	122,944,587

	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				212,099	260,725	-	472,824
	Deferred tax asset				21,603,560	-	-	21,603,560
			Total assets		$ 57,183,520	$ 138,428,985	$ (32,000,028)	$ 163,612,477
					57,183,520
LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
		Accounts payable		0	204	77,894	-	78,098
		Accrued and other current liabilities			330,073	311,450	-	641,523
		Escrow liabilities			-	437,266	-	437,266
		Due to subsidiaries			15,469,943	-	(15,469,943)	(0)
		Revolving line of credit, inventory			-	7,731,633	-	7,731,633
		Revolving line of credit, mortgage notes (current maturities)			-	55,686,070	4,639,056	60,325,126
		Current portion of other note payable					168,071	168,071
		Current portion of acquisition note payable					2,843,046	2,843,046
		Payroll liabilities			-		-	-
								-
			Total current liabilities		15,800,220	64,244,312	(7,819,770)	72,224,762

	Senior secured term notes (long-term)				-	34,198,621	(4,639,056)	29,559,565
	Acquisition debt (long-term)				14,763,080	-	(2,843,046)	11,920,034
			Total liabilities		30,563,300	98,442,933	(15,301,872)	113,704,361

	Stockholders' equity:
	Total participating payables				-	157,187	-	157,187
	Total preferred equity investment				-	18,099,582	-	18,099,582
	Total subordinated debt				2,199,377	1,641,967	(168,071)	3,673,272
		Members equity in CPF			-	19,008,082	-	19,008,082
		Common stock			5,972	-	-	5,972
		Additional paid-in capital			242,361,362	-	(13,351,925)	229,009,437
		(Accumulated deficit)/Retained Earnings			(217,495,205)	-	(3,178,160)	(220,673,365)
		Current year net (loss) income			(451,286)	1,079,235	-	627,949
			Total stockholders' equity (deficit)		26,620,220	39,986,052	(16,698,156)	49,908,116
								-
			Total liabilities and stockholders' equity (deficit)		$ 57,183,520	$ 138,428,985	$ (32,000,028)	$ 163,612,477

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

				Unaudited	Unaudited	Unaudited
				Crossroads	CPF	Consolidated
				January 31, 2019	January 31, 2019	January 31, 2019
	Revenue:
		Interest income		$ -	$ 2,848,662	$ 2,848,662
		Property sales		-	4,315,103	4,315,103
		Other revenue			45,600	45,600
			Total revenue	-	7,209,365	7,209,365

	Cost of revenue:
		Interest expense		-	1,391,024	1,391,024
		Cost of properties sold		-	3,678,146	3,678,146
		Other cost of revenue			-	-
			Total cost of revenue	-	5,069,170	5,069,170

	Gross Profit			-	2,140,195	2,140,195

	Operating expenses:
		General and administrative		89,291	323,477	412,768
		Salaries and wages		-	737,483	737,483
			Total operating expenses	89,291	1,060,960	1,150,251

	Income (Loss) from operations			(89,291)	1,079,235	989,944

	Other income (expense):
		Interest (expense) income		(300,270)	-	(300,270)
		Other (expense) income		-	-	-
			Total other income (expense)	(300,270)	-	(300,270)

	Income before provision for income taxes			(389,560)	1,079,235	689,675

		Income tax provision		(61,726)	-	(61,726)
	Net Income (Loss)			$ (451,286)	$ 1,079,235	$ 627,949


	Outstanding shares					5,976,994

	Earnings per share, net income					$ 0.11

Unaudited Fiscal First Quarter 2019 Shareholder Report for
The Three Months Ended
January 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

5,979,994 Shares Issued and Outstanding as of January 31, 2019

Dear Shareholder:

The first quarter is historically our seasonally slowest sales quarter as CPF builds its inventory of rehabilitated homes to be ready for the busy spring sales season in Texas. As previously stated, the exit of indiscriminate rent to own funds has allowed the company to build well priced inventory in order to meet one of the core missions – to provide an affordable home in densely urban MSAs of Texas.

CPF's outstanding mortgage balance portfolio continued to grow at its historical pace and is currently at $110 million. For the first quarter, CPF generated $2.8 million in interest income from its $110 million fixed rate conventional mortgage portfolio and $4.3 million sales from the sale of properties in low to moderate income census tracts. Again, the winter months are inventory building months vs robust home sales periods. This mirrors industry cycles. The consolidated operating income for the quarter was approximately $690K before accruing for a non-cash tax provision of $62K. The net income after the provision for was $627K. Note the Company offsets this provision against its deferred tax asset of $21.6M. At January 31, 2019, CPF's unadjusted leverage was 2.46x and the consolidated cash coverage ratio, adjusted for one-time and transaction expenses was 2.57x.

CPF as a certified CDFI is eligible to apply for the CDFI's Annual Bond Guarantee Program. Applications were due on February 25^th and CPF has applied. We encourage any shareholders to read more about this incredible program on the CDFI Fund's website – www.cdfifund.gov. As a CDFI, CPF is also eligible for membership into the Federal Home Loan Bank System and is continuing to complete its membership application.

As a wholly owned subsidiary of Crossroads, the financials are presented on a consolidated basis (supplementary schedules are included for reference). The expenses at the holding company (Crossroads) level have been reduced to essential operating expenses and interest expense on the original acquisition loan. Crossroads and CPF continue to focus on impacting communities and delivering long term shareholder value while operating at efficiency expense ratios.

We thank you for your support of our social enterprise.

Saludos Cordiales,

Robert H. Alpert & Eric A. Donnelly

SOURCE Crossroads Systems

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