Crossroads Systems Reports Fiscal Fourth Quarter and Fiscal Year 2021 Financial Results

Rhea-AI Summary

Crossroads Systems (CRSS) reported financial results for the fiscal fourth quarter and year ended October 31, 2021. In Q4, the company added $3.1 million in new single-family mortgages, growing its portfolio to $133.1 million. Total revenues were negative at $37.8 million, down from $9.2 million in 2020 due to a GAAP adjustment for PPP origination fees. However, total interest income surged 407% to $16.7 million. For the fiscal year, revenues skyrocketed 2,446% to $932.7 million, with an operating income rise of 4,127% to $243.4 million. Management emphasizes growth and social impact initiatives.

Positive

• Total interest income increased 407% to $16.7 million.
• Operating income rose 4,127% to $243.4 million.
• Total revenues increased 2,446% to $932.7 million for the fiscal year.

Negative

• Total revenues were negative at $37.8 million in Q4 due to GAAP adjustments.
• Total property sales income decreased to $4.6 million for Q4 2021.

DALLAS, Dec. 14, 2021 /PRNewswire/ -- Crossroads Systems, Inc. (OTCQX: CRSS) ("Crossroads" or the "Company"), a holding company focused on investing in businesses that promote economic vitality and community development, reported financial results for its fiscal fourth quarter and year ended October 31, 2021.

Fiscal Fourth Quarter and Fiscal Year 2021 Key Performance Indicators (KPIs)

• Added $3.1 million in new single-family mortgages during the fiscal fourth quarter and $16.4 million during the fiscal year 2021.
• The Company's mortgage portfolio grew to $133.1 million, up from $128.9 million for the comparative period in 2020.
• The serious delinquency rate as of the period ended October 31, 2021 was 0.81%, compared to 0.9% at the end of the same period in 2020. The Federal Home Loan Mortgage Corporation (Freddie Mac) reported a single-family serious delinquency rate of 1.32% as of the period ended October 31, 2021. The serious delinquency rate is based on the number of mortgage loans that are three monthly payments or more past due or in the process of foreclosure.
• Held 93 properties in inventory compared to 109 for the comparative period in 2020. As of October 31, 2021, gross inventory was $10.2 million compared to $10.5 million as of October 31, 2020. The Company is looking to build inventory to not only meet current demand but to also plan for renovated housing units going forward.

Fiscal Fourth Quarter 2021 Financial Highlights

• Total revenues as reported were negative at $37.8 million compared to $9.2 million in the comparative 2020 period. The decrease in total revenues was primarily due to a GAAP accounting adjustment for previously recorded origination fees associated with the Company's participation in the Paycheck Protection Program (PPP) to properly account for loans that have yet to be forgiven by the Small Business Administration (SBA). This adjustment equated to a deferral of $69 million in previously reported PPP income, which the Company expects to re-record as income in subsequent quarters as loans are forgiven. Removing PPP impact from the quarter's operations, total revenues were $8.4 million compared to $9.2 million in the comparative 2020 period.
• Total property sales income was $4.6 million for the quarter compared to $5.7 million for the same period in 2020. The decrease in property sales income for the quarter was primarily due to a lack of inventory resulting in a lower number of homes available for sale during the period.
• Total interest income increased 407% to $16.7 million, up from $3.3 million in the comparative 2020 period. The increase in interest income was the result of growth in the total mortgage note receivable portfolio during the period and the addition of PPP loans to the portfolio. Removing PPP impact from the quarter's operations, total interest income increased 15% to $3.8 million compared to $3.3 million in the comparative 2020 period.
• Operating loss was $73.8 million compared to an operating income of $1.6 million in the same period in 2020. The substantial decrease in operating income was primarily due to the GAAP accounting adjustment to previously disclosed origination fees explained above. Removing PPP impact from the quarter's operations, operating income increased 21% to $2.0 million compared to $1.6 million in the comparative 2020 period.
• Cash EPS (operating income less income to non-controlling interests) was a loss of $12.40 compared to an income of $0.22 for the comparative period in 2020. The substantial decrease in operating income was primarily due to the adjustment to previously disclosed origination fees explained above. Removing PPP impact from the quarter's operations, cash EPS increased 29% to $0.29 compared to $0.22 in the comparative 2020 period.
• Book value as reported was $6.2 million, or $1.04 per share. Adjusted book value including $1.1 million of subordinated debt totaled $7.3 million, or $1.23 per share. Without the GAAP accounting adjustment, the book value would be $75.6 million, or $12.70 per share.
• As of October 31, 2021, the Company held a cash balance of $430.4 million compared to $2.1 million as of October 31, 2020.

Fiscal Year 2021 Financial Highlights

• Total revenues increased 2,446% to $932.7 million, up from $36.6 million in the comparative 2020 period. The substantial increase in total revenues was primarily due to an increase in other revenues during the year. Removing PPP impact from the year's operations, total revenues were $34.9 million compared to $36.6 million in 2020.
• Total property sales income was $21.4 million for the fiscal year ended October 31, 2021, compared to $23.5 million in 2020. The decrease in property sales income for the year was primarily due to fewer completed homes being available for sale during the period.
• Total interest income increased 220% to $40.5 million, up from $12.6 million in 2020. The increase in interest income was the result of growth in the total mortgage note receivable portfolio during the period and the addition of PPP loans to the portfolio. Removing PPP impact from the year's operations, total revenues increased 7% to $13.5 million compared to $12.6 million in 2020.
• Operating income increased 4,127% to $243.4 million, up from $5.8 million in 2020. The substantial increase in operating income was primarily due to origination fees associated with the Company's participation in the PPP loan program. Removing PPP impact from the year's operations, total revenues increased 8% to $6.2 million compared to $5.8 million in 2020.
• Cash EPS (operating income less income to non-controlling interests) was $36.19, which was a 4,820% increase compared to $0.74 during the same period in 2020. Removing PPP impact from the quarter's operations, cash EPS increased 17% to $0.86 compared to $0.74 in 2020. The Company booked $47.9 million of state and federal income tax expense during the period, of which only $29.2 million is payable. The Company has fully utilized its non-operating tax losses of $140 million.

Management Commentary
"Throughout the past twelve months, Crossroads has evolved from a single asset class and regional focus to a national platform with hundreds of thousands of borrowers across multiple lines of business," said Eric A. Donnelly, CEO of Crossroads Systems. "Today, our work within the PPP is nearly complete, and we are moving with full force into several new opportunities that have positioned us to make a social and financial impact on a greater level through a host of important causes. As of the end of the fourth quarter, we have completed nearly 62 percent of the approximately 230,000 loan forgiveness applications. Within our core housing and loan business, inventory is expected to remain a challenge through next year, but we are actively evaluating new markets for growth and expanding our geographic footprint to build a larger base of homes in the quarters ahead."

"Entering 2022, our business is stronger than ever. Our recently announced strategic partnerships with Enhanced Capital Group and Rise Line Business Credit have collectively enabled us to dramatically expand our reach further into impact real estate, climate financing and other small business uses. Based on the opportunities we've identified to date, we believe our relationship with Enhanced should enable us to close nearly $100 million in new deals by the end of the first quarter, with a remaining pipeline of close to $400 million. Moving forward, we plan to make it a priority to partner with and set an example for larger institutions to demonstrate the concrete ways to support diversity, combat inequality and truly make a difference for underserved communities. We will continue to champion communities that need representation and use our platform to get others involved, as we work to make a difference where it matters."

About Crossroads Systems
Crossroads Systems, Inc. (OTCQX: 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.

©2021 Crossroads Systems, Inc., Crossroads and Crossroads Systems are registered trademarks of Crossroads Systems, Inc. All trademarks are the property of their respective owners.

Company Contact:
Crossroads Systems
IR@crossroads.com 

Investor Relations Contact:
Gateway Investor Relations
Matt Glover and Tom Colton
CRSS@gatewayir.com
(949) 574-3860

Press/Media Contact:
dovetail solutions
Andy Boian
aboian@dovetailsolutions.com
(720) 221-9211

 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS	October 31, 2021		October 31, 2020
CURRENT ASSETS
Cash and cash equivalents	$      430,363,591		$      2,127,059
Restricted cash	158,647,275		3,004,051
Interest and PPP loan fees receivable	23,441,325		930,871
Current portion of notes receivable	1,727,844		1,527,234
Current portion of other notes receivable	7,578		7,014
Inventory	10,202,770		10,544,236
Prepaid expenses and other current assets	891,270		411,645
Total current assets	625,281,653		18,552,110
NOTES RECEIVABLE, net of current maturities and allowance of $0	129,208,851		127,304,450
OTHER NOTES RECEIVABLE, net of current maturities, participations and allowance of $0	17,679,943		1,583,761
PPP LOAN RECEIVABLES	2,759,667,441		-
GOODWILL	18,566,966		18,566,966
DEFERRED TAX ASSET	-		18,300,334
OTHER NON-CURRENT ASSETS	9,479,089		-
TOTAL ASSETS	$   3,559,883,943		$   184,307,621
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$            481,417		$         222,610
Accrued liabilities	274,487,680		353,901
Escrow liabilities	3,113,207		2,886,249
Income tax payable	32,674,618		-
Current portion of credit facilities	60,517,603		75,694,845
Current portion of other note payable (subordinated)	204,151		191,337
Current portion of acquisition notes payable	2,495,172		2,495,172
Total current liabilities	373,973,848		81,844,114
CREDIT FACILITIES, net of current maturities	39,443,490		39,481,435
OTHER NOTE PAYABLE, net of current maturities (subordinated)	940,084		1,144,234
ACQUISITION NOTES PAYABLE, net of current maturities	5,823,162		10,582,769
PAYROLL PROTECTION PROGRAM LOAN	376,800		376,800
FED PPPLF CREDIT FACILITY	3,132,566,332		-
OTHER LONG-TERM LIABILITIES	558,424		407,091
TOTAL LIABILITIES	3,553,682,140		133,836,443
EQUITY
Common stock, $0.001 par value: 75,000,000 shares
authorized, 5,971,994 shares issued and outstanding	5,972		5,972
Additional paid in capital	3,889,086		242,471,412
Accumulated deficit	(15,745,035)		(210,057,986)
Crossroads Systems, Inc. stockholders' equity	(11,849,977)		32,419,398
Non-controlling interests	18,051,780		18,051,780
TOTAL EQUITY	6,201,803		50,471,178
TOTAL LIABILITIES AND EQUITY	$   3,559,883,943		$   184,307,621

 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
	For the Three Months Ended
	October 31, 2021		October 31, 2020
REVENUES
Interest income	$         16,694,588		3,294,195
Property sales	4,638,500		5,725,586
Other revenue	(59,170,956)		160,627
Total revenues	(37,837,868)		9,180,408
COSTS AND EXPENSES
Interest expense	6,065,132		1,343,316
Cost of properties sold	3,671,601		4,871,987
General and administrative	22,310,309		588,991
Salaries and wages	3,909,887		733,555
Total costs and expenses	35,956,929		7,537,849
Income from operations	(73,794,797)		1,642,559
OTHER EXPENSES
Interest expense	(103,887)		(148,707)
Total other expenses	(103,887)		(148,707)
Income before income tax provision	(73,898,684)		1,493,852
INCOME TAX PROVISION	18,588,968		(929,174)
NET INCOME	(55,309,716)		564,678
Less: net income attributable to non-controlling interests	(158,795)		(158,795)
NET INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS	$        (55,468,511)		$             405,883
Earnings (loss) per share:
Cash income attributable to common shareholders	(55,468,511)		1,335,057
Weighted average shaes outstanding	5,971,994		5,971,994
Cash income per share	$                 (9.29)		$                  0.22

 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
	For the Twelve Months Ended
	October 31, 2021		October 31, 2020
REVENUES
Interest income	$          40,472,311		$          12,633,818
Property sales	21,372,291		23,461,898
Other revenue	870,811,998		538,876
Total revenues	932,656,600		36,634,592
COSTS AND EXPENSES
Interest expense	15,160,149		5,712,138
Cost of properties sold	18,140,146		20,297,457
General and administrative	631,341,016		2,027,976
Salaries and wages	24,640,890		2,839,113
Total costs and expenses	689,282,201		30,876,684
Income from operations	243,374,399		5,757,908
OTHER EXPENSES
Interest expense	(476,746)		(734,005)
Other income/(expenses)	-		-
Total other expenses	(476,746)		(734,005)
Income before income tax provision	242,897,653		5,023,903
INCOME TAX PROVISION	(47,954,702)		(1,377,572)
NET INCOME	194,942,951		3,646,331
Less: net income attributable to non-controlling interests	(630,000)		(630,000)
NET INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS	$        194,312,951		$            3,016,331
Earnings (loss) per share:
Cash income attributable to common shareholders	209,593,035		4,393,903
Weighted average shaes outstanding	5,971,994		5,971,994
Cash income per share	$                  35.10		$                   0.74

 

CROSSROADS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
	As of October 31, 2021		As of October 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$   194,942,951		$       3,646,531
Adjustments to reconcile net income to net cash
used in operating activities:
Loss on derivative related activity	(105,702)		(105,702)
Stock based compensation	297,434		112,569
Amortization of deferred financing fees	(9,479,089)		36,083
Amortization of PPP loan income	69,672,174		-
Provision for income taxes	18,300,334		1,379,990
Changes in operating assets and liabilities:
Account & Interest receivable	(22,510,454)		(37,528)
Notes receivable (Mortgages, other and PPP)	(2,847,541,372)		(7,693,243)
Inventory	341,466		1,252,194
Prepaids and other assets	(479,625)		(60,099)
Accounts payable	258,807		(66,620)
Accrued liabilities (including income taxes)	307,065,432		257,148
Escrow liabilities	226,958		239,668
Net cash used in operating activities	(2,289,010,686)		(1,039,010)
CASH FLOWS FROM FINANCING ACTIVITIES
Preferred equity contributions	-		-
Preferred equity dividend distributions	(630,000)		(631,726)
Common equity distributions	(238,879,760)		-
Paycheck Protection Program loan	-		376,800
Borrowings on credit facilities, net	2,752,674		36,701,455
Principal payments on credit facilities	(17,967,861)		(33,300,951)
Principal payments on other notes payable	(191,336)		(179,325)
Principal payments on acquisition note payable	(4,759,607)		(1,835,390)
Principal payments on participations in mortgage notes and other receivables	-		800,086
Net Proceeds from the federal reserve PPP credit facility	3,132,566,332		-
Net cash provided by financing activities	2,872,890,442		1,930,949
Net change in cash and cash equivalents and restricted cash	583,879,756		891,939
Cash and cash equivalents and restricted cash at beginning of period	5,131,110		4,239,171
Cash and cash equivalents and restricted cash at end of period	$   589,010,866		$       5,131,110
SUPPLEMENTAL INFORMATION
Cash paid for interest	$       9,775,115		$       6,625,205

 

Shareholder Report for
the Fourth Quarter & Fiscal Year Ended
October 31, 2021

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: OTCQX

75,000,000 Common Shares Authorized

5,971,994 Shares Issued and Outstanding as of October 31, 2021

Dear Shareholder:

The holidays provide a time for many to reflect on the year that's passed and, in many traditions, to express gratitude for the things and people we have in our lives. As we get closer to the end of 2021, I cannot help but be grateful for the countless individuals and groups who have collectively supported our business, as employees, as partners, as investors, and as stakeholders of all kinds. I am also appreciative of the opportunity to do so much for those in need; while the year has been a great success for Crossroads, it's also been incredibly difficult for many others. As a CDFI, our mandate has always been to provide positive social impact as well as financial performance, but this year we saw that our business and others like it can do both and so much more.

Today, our work within the PPP is nearly complete. We're continuing to work closely with the SBA to address the remaining loan forgiveness applications as efficiently as we can, not only to let us move forward, but also to let our loan recipients close this chapter in their lives as well. As of the end of the fourth quarter, we have completed about 62% or approximately 230,000 loan forgiveness applications, and we anticipate processing the remaining requests over the next few quarters. The process has been quite painless for the borrowers, and we are most appreciative of the SBA's direct forgiveness portal and incredible customer service team.

We're looking forward to having this process in our rearview mirror as well. While loan forgiveness applications are ongoing, GAAP regulation dictates that we adjust our income to account for loans not yet forgiven. In practice, this means that we're deferring approximately $69 million in what we had previously considered PPP income until the loans are fully forgiven, which is forecasted for the next couple of quarters. The end result of this reclassification over time will be a net neutral impact with increased earnings being recognized in subsequent quarters to offset the one-time negative revenue we have in this period. For context, had we not made the adjustment to reflect GAAP, our earnings for the year would have been normalized to roughly $6 million, which is greater than our fiscal year 2020 and also reflects significant investments in legal and headcount to support some of our newer initiatives. We're confident that our investors have backed out PPP income and expenses as one time but, nonetheless, wanted to communicate this accounting reclassification.

This adjusted financial performance reflects the results of our operations within Crossroads' core business: providing housing and loan opportunities to the low- and middle-income minority communities in Texas. Conditions in our areas of influence continue to reflect circumstances in most of the country, which is an extremely tight market, with scarce inventory that sells quickly. Overall, we completed 24 property sales in the fourth quarter, accounting for $4.6 million in revenue. The delinquency rate at year end was 3.4% over the most recent 30-day window, compared to 0.9% in the prior year period, in part due to a reduction in widespread rent freezes due to the COVID-19 pandemic. While inventory is expected to remain a challenge in 2022, we are actively evaluating new markets for growth and expanding our geographic footprint to build a larger base of homes in the quarters ahead.

As we reflect on the year that was, we must also be mindful of the mission ahead. Over the last twelve months, we've evolved from a single asset class and regional focus to a national platform with hundreds of thousands of borrowers across multiple lines of business. While we're putting PPP behind us operationally, a lot of work around underserved people and businesses still remains.

In service of this expanded mission, we recently announced a partnership with Enhanced Capital Group and acquired Rise Line Business Credit, both national lending firms.  These transactions will enable us to further our mission on a much greater scale, geographically and thematically, as we deploy flexible capital to women and minority businesses, small businesses located in underserved areas, and to renewable energy and community redevelopment projects across the country. Our partners' commitments to supporting investments in climate finance, impact real estate, and small businesses mirrors our own longstanding values.

With Enhanced, in just a few short months we've already generated roughly $8 million in new loans and expect significant growth over the next few quarters as we operationalize the process. Through Enhanced we've also invested another $8 million in solar related projects through a targeted fund, providing us with another climate impact investment vehicle.

With Rise Line, we closed on a merger in September and are starting to build a pipeline with $25 million in potential deals in process, covering an even broader mandate of small business opportunities, including new areas such as manufacturing, distribution, retail and consumer products, business services, staffing, and technology services.

Clearly, we have plenty to do in returning to our work in the private sector, but there's also more to do in partnership with the administration who has graciously granted all CDFIs varying amounts of money to support our range of initiatives.

It is our hope we can partner with and set an example for larger institutions to demonstrate the concrete ways to support diversity, combat inequality and truly make a difference for underserved communities in the United States. Longer term, we hope to create an anchor program to perennially serve these causes. The work does not simply stop at loaning money to businesses in need; we must find ways to educate, mentor, and ensure these businesses and entrepreneurs, who are looking to make a real, positive impact, are supported. We will continue to champion communities that need representation and use our platform to get others involved as well.

Entering 2022, our business is stronger than ever. And while we have worked many long hours and sleepless nights over the last eighteen plus months, I have never been more invigorated by our mission or more convinced in our ability to make a difference where it matters. I would be remiss if I did not once again acknowledge all those who have shared in this endeavor, most of whom will not get the public recognition they deserve for devoting themselves to our cause these many months and going forward. Together, we are proving every day that it's possible to do good for others while also still excelling financially. Thank you for supporting us in that worthwhile mission.

Saludos Cordiales,
Eric A. Donnelly

 

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SOURCE Crossroads Systems; Capital Plus Financial

FAQ

What were the fiscal fourth quarter financial results for Crossroads Systems (CRSS)?

Crossroads reported negative revenues of $37.8 million in Q4 2021, mainly due to GAAP accounting adjustments.

How did Crossroads Systems (CRSS) perform in fiscal year 2021?

For FY 2021, Crossroads saw revenues soar 2,446% to $932.7 million and operating income increased 4,127% to $243.4 million.

What factors contributed to Crossroads Systems (CRSS) revenue changes?

Revenue changes were primarily driven by GAAP adjustments related to PPP origination fees and substantial growth in interest income.

What challenges does Crossroads Systems (CRSS) face in inventory?

Crossroads faces inventory challenges, expecting ongoing issues into 2022 due to limited available homes.

What strategic partnerships has Crossroads Systems (CRSS) formed?

Crossroads has partnered with Enhanced Capital Group and Rise Line Business Credit, aiming to close nearly $100 million in new deals by Q1 2022.