Crossroads Systems, Inc. — Annual Report (Period Ending: October 31, 2020)
Summary
An annual disclosure statement of Crossroads Systems, Inc. (OTCQX: CRSS), a Delaware holding company, for the period ending October 31, 2020, reporting 5,971,994 shares of common stock outstanding. It describes subsidiary Capital Plus Financial (CPF), a certified Community Development Financial Institution supporting Hispanic homeownership in Texas, acquired on December 18, 2017. It recounts the Chapter 11 reorganization in which 210/CRDS Investment LLC invested $4 million, and a definitive agreement to purchase Rice Bankshares announced on November 18, 2019. The ownership table lists Robert Alpert as Chairman of the Board, and certifications by Eric Donnelly and Farzana Giga are dated January 28, 2021.
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“Crossroads Systems, Inc. — Annual Report (Period Ending: October 31, 2020).”
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CROSSROADS SYSTEMS, INC
A Delaware Corporation
4514 Cole Avenue, Suite 1600
Dallas, TX 75205
(214) 999-0149
www.crossroads.com
SIC CODE: 6712
Annual Report
For the Period Ending: October 31, 2020
(the “Reporting Period”)
The number of shares outstanding of our Common Stock is 5,971,994 SHARES as of
OCTOBER 31, 2020.
The number of shares outstanding of our Common Stock was 5,971,994 SHARES as of
JULY 31, 2020 (end of previous reporting period)
Indicate by check mark whether the company is a shell company (as defined in Rule 405
of the Securities Act of 1933 and Rule 12b-2 of the Exchange Act of 1934):
Yes: No: (Double-click and select “Default Value” to check)
Indicate by check mark whether the company’s shell status has changed since the previous
reporting period:
Yes: No:
Indicate by check mark whether a change in control of the company has occurred over this
reporting period:
Yes: No:
Part A General Company Information
Item 1) Name of the issuer and its predecessors (if any)
Crossroads Systems, Inc
Prior Symbol CRDS - Bankruptcy Plan Effective October 3, 2017;
Current CRSS: OTCQX
Item 2) Address and principal executive offices
Crossroads Systems, Inc
4514 Cole Avenue, Suite 1600
Dallas, TX 75205
(214) 999-0149
www.crossroads.com; www.capitalplusfin.com
ir@crossroads.com; info@capitalplusfin.com
Item 3) Jurisdiction and date of incorporation and organization
Delaware Corporation, Active
September 26, 1996
Has the issuer or any of its predecessors ever been in bankruptcy, receivership, or any similar proceeding in the past
five years?
Yes: No:
Part B Share Structure
Item 4) The exact title and class of securities outstanding
Trading symbol: CRSS
Exact title and class of securities outstanding Common Shares
CUSIP: 22766K103
Par or stated value: $0.001
Item 5) Par or state value and description of security
Crossroads Systems, Inc. (OTCQX: CRSS), Amended and Restated Certificate of Incorporation
authorizes the Company to issue 75,000,000 shares of Common Stock, par value $0.001 per share.
As of October 31, 2020, there were 5,971,994 shares of Common Stock issued and outstanding.
A. Par or Stated Value.
Common Stock: $.001 per share
Common or Preferred Stock.
1. Common Stock dividend, voting and preemption rights: Each share of Common Stock has one
vote on each matter submitted to a vote of the stockholders of the Company. Subject to the
provisions of applicable law and the rights of the holders of the outstanding shares of preferred
stock, if any, the holders of shares of Common Stock are entitled to receive, when and as
declared by the Board of Directors of the Company, out of the assets of the Company legally
available therefor, dividends or other distributions, whether payable in cash, property or
securities of the Company.
2. Preferred Stock dividend, voting, conversion and liquidation rights as well as redemption or
sinking fund provisions: n/a
3. Other material rights of Common or Preferred Stockholders: n/a
4. Any provision in the issuer’s charter or by-laws that would delay, defer or prevent a change in
control of the issuer: The Company’s charter includes a tax benefits protection provision that
prohibits any transfer of the Company’s shares to the extent that, as a result of such transfer, a
person would become a 4.99% stockholder of the Company or the percentage stock ownership
of any current 4.99% stockholder would increase.
Item 6) The number of shares or total amount of securities outstanding for each class of securities
authorized
Total shares authorized: 75,000,000 as of date: October 31, 2020
Total shares outstanding: 5,971,994 as of date: October 31, 2020
Number of shares in the Public Float1: 2,029,592 as of date: October 31, 2020
Total number of shareholders of record: 162 as of date: October 31, 2020
Total number of shareholders of record
(holding at least 100 shares): 57 as of date: October 31, 2020
Item 7) Transfer Agent
Name: American Stock Transfer & Trust Company
Phone: (866) 703-9077
Email: TCajuste@astfinancial.com
Is the Transfer Agent registered under the Exchange Act?2 Yes: No:
Part C Business Information
Item 8) The nature of the issuer’s business.
A. Business Development.
Crossroads Systems, Inc. (OTC Pink: CRSS) was an intellectual property licensing company headquartered in Austin,
Texas. Founded in 1996 as a product solutions company, Crossroads created some of the storage industry's most
fundamental patents and has licensed patents to more than 50 companies since 2000. CRSS’s fiscal year-end is October
31.
On August 13, 2017, the Company filed for re-organization under Chapter 11 of the Federal Bankruptcy Code (the
“Plan”) which had been accepted by the holders of more than 2/3 of the preferred shares of the Company. In connection
with the filing, the Company entered into restructuring support agreements with 210/CRDS Investment LLC ("210")
and with certain holders of the Company's series F preferred stock. Subject to the terms and conditions of the Plan and
the restructuring support agreement with 210, Dallas-based 210 invested $4 million cash in the Company in exchange
for shares of the reorganized Company's common stock representing approximately 49.49% of the common stock of
the reorganized Company. In addition, 210 committed to provide up to $10 million of financing for the Company to
use (subject to the terms and conditions of the Plan and the 210 RSA) to implement its strategy of monetizing its
intellectual property assets and pursuing investments in companies that generate profit and positive cash flows, thus
creating long-term shareholder value. The Plan provided for the payment of all creditor claims in full, for holders of
preferred shares to receive their pro rata share of $2.7 million in cash plus 8% of the common stock of the reorganized
Company, and for holders of common stock to exchange their existing shares of common stock for an equivalent
number of new shares of the common stock of the reorganized Company, which shares would constitute approximately
42.51% of the outstanding shares of common stock of the reorganized Company. The Plan was approved by the Court
on September 18, 2017 and effective October 3, 2017, The Company was delisted from the Nasdaq exchange to the
Over-the-Counter (“OTC”) Pink Sheets on September 10, 2017, 10 days after the exchange filed its Form 25.
On December 18, 2017, Crossroads Systems, Inc. closed on the acquisition of 100% of the common equity of Capital
Plus Financial, LLC (“CPF”), a Texas based community development financial institution (“CDFI”), $30.8 million in
cash and 49.5% or 2,955,028 of newly issued common stock. This transaction did not trigger any Change of Control,
however, did grant CPF owners/management two board seats.
In November 2019, Crossroads announced it had reached a definitive agreement to purchase Rice Bankshares. The
transaction will merge Capital Plus Financial and the First State Bank and create a CDFI Bank and Minority
Depository Institution and expand the products and services CPF has historically offered to more traditional banking
products such as deposit accounts for the underbanked and unbanked and small business loans. As of the date of this
report, the Company was working through the regulatory application process.
As of the date of this report and the three preceding years, Crossroads has not been involved in any litigation. In 2018,
the Company settled two outstanding legal matters dating back to 2013 and prior management and business lines since
shuttered as part of the reorganization into a financial holding company. The matters were related to the Crossroads
patent business and royalties owed to the Company.
Outside of the legal settlement above, Crossroads has not been in any default of a loan, lease, or other indebtedness
or financing arrangement.
B. Business of Issuer.
Crossroads primary and secondary SIC Codes are 6712.
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 that supports Hispanic homeownership
with a long-term, fixed-rate single-family mortgage product. CPF was acquired on December 18, 2017 and CPF
management currently owns 2,955,028 shares or 49.5% of the outstanding stock.
Crossroads’ primary subsidiary is Capital Plus Financial. Capital Plus was originally formed in 1992 to provide
mortgage financing within the state of Texas. Throughout its life, CPF has evolved to serve the Hispanic population
by providing credit that is otherwise unavailable.
CPF has injected over $250 million into under-served communities and populations in Texas. CPF is committed to
continuing to serve communities in which it has a history of 25 years, as well as expand its reach to serve its expanding
customer base.
The other integral part of the CPF's mission is to provide affordable housing. This is done through the substantial
rehabilitation of blighted homes in low to moderate-income areas. Through this process, communities are improved
and housing that is safe and sustainable is provided to hundreds of people a year looking to make their way up the
socio-economic ladder.
The consolidated company currently has 27 full-time employees between Dallas-Fort Worth, Houston, and San
Antonio. The financial results of Crossroads are consolidated and include the operating results of CPF.
The Company has not at any time been a “shell company” as defined in Rule 405 of the Securities Act of 1933, as
amended, and Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
As with any operating company, we are subject to a growing number of local, national, and international laws and
regulations. These laws are often complex and are frequently changing. Changing or growing regulation could impose
additional compliance burdens and costs on us and could subject us to significant liability for any failure to comply.
Item 9 The nature of the products or services offered
The nature of products or services offered.
Through our subsidiary, CPF’s core business is to provide mortgage financing to Hispanic homeowners within the
state of Texas. CPF achieves this via purchasing blighted, single-family homes in low to moderate-income areas
within the state. It then renovates and refurbishes these properties and sells them to the Hispanic community. The
targeted homes are generally 900 to 1,400 sq. ft., 2-3 bedrooms, and range in value from $75,000 to $150,000 (after
renovations).
Typically, targeted properties meet some or all of the following criteria:
• Outdated, especially the kitchens and bathrooms;
• Little current curb appeal;
• Atypical layouts or features that turn buyers away;
• Not well maintained;
• Sellers looking for a quick sale; and
• Sellers seeking a cash buyer, who is not reliant upon financing contingencies.
While there is natural competition from community banks on the financing side of the business, there are multiple
factors that have kept this to a minimum, including but not limited to bank compliance regulation costs, borrower
distrust of the banking system, and small balance size of the mortgages provided.
CPF is, as are all regulated lending institutions, dependent on the continued regulatory approval of our loan offerings.
We comply with the Texas Department of Savings and Mortgage Lending regulations as well as federal lending
guidelines. We subject ourselves to annual compliance, fair lending, and servicing audits to ensure that our procedures
remain in compliance and are kept abreast of the latest regulatory changes.
As was announced on November 18, 2019, Crossroads has reached a definitive agreement to purchase Rice
Bankshares. The transaction will merge Capital Plus Financial and the First State Bank and create a CDFI Bank and
Minority Depository Institution and expand the products and services CPF has historically offered to more traditional
banking products such as deposit accounts for the underbanked and unbanked and small business loans. As of the
date of this report, the Company was working through the regulatory application process.
Item 10 The nature and extent of the issuer’s facilities.
The Company is obligated, as lessee, under non-cancelable operating lease agreements for office space located in
Bedford, Texas and Houston, Texas. The lease agreements require monthly payments totaling $12,600 through their
expiration in December 2022.
Future minimum payments required under non-cancelable operating lease agreements are as follows for the years
ending October 31:
Rent expense associated with non-cancelable operating leases for the year ended October 31, 2020 was $151,200.
Bedford Houston Total
2021 109,800 41,400 151,200
2022 109,800 41,400 151,200
2023 18,300 6,900 25,200
$237,900 $ 89,700 $327,600
Part D Management Structure and Financial Information
Item 11 The name of the chief executive officer, members of the board of directors, as well as control
persons.
A. Officers, Directors and Control Persons.
The following table shows the number of shares of Common Stock beneficially owned by directors, executive officers,
and persons known by the Company to beneficially own more than five percent (5%) of the issued and outstanding
shares of Common Stock of the Company as of October 31, 2020.
Percentage of beneficial ownership is calculated assuming 5,971,994 shares of the Company’s Common Stock (net of
treasury shares) were outstanding as of October 31, 2020. Except as otherwise indicated, and subject to applicable
community property laws, to the Company’s knowledge, each person has sole voting and dispositive power with
respect to all shares of Common Stock beneficially shown as owned by that person.
Beneficial Business Affiliation with Number % Class of
Owner/Shareholder Address Company (e.g. of Shares Ownership Shares
Name Officer/Director
/Control Person)
Eric Donnelly (EDUCM, Dallas, TX Executive Officer, 532,838 8.9% Common
Inc.) Director and Control
Person
Farzana Giga (Giga Frisco, TX Executive Officer, 432,931 7.2% Common
Investments, LLC) Director and Control
Person & Member of
Audit Committee
Robert Alpert (210/CRDS Dallas, TX Chairman of the Board & 746,142 12.5% Common
Investments) Control Person
Clark Webb (210/CRDS Dallas, TX Director & Control 746,142 12.4% Common
Investments) Person & Member Audit
Committee
Claire Gogel Dallas, TX Independent Director 193,438 3.2% Common
James Perez Foster Boulder, CO Independent Director & 601 0.01% Common
Member Audit
Committee
Ray Kembel Dallas, TX Independent Director & 401 0.01% Common
Member Audit
Committee
Mark Crockett Fort Worth, TX Officer and Owner of 466,233 7.8% Common
more that 5%
Westchester Standard, LLC Dallas, TX Owner of more than 5%; 557,225 9.3% Common
(Farzana Giga) Managed by Farzana
Giga
Charles A Vose III Dallas, TX Owner of more than 5% 299,722 5.0% Common
Robert H. Alpert - Chairman of the Board
Robert Alpert has served as Chairman of the Board since October 2017. He is the Chairman and Co-CEO of P10
Holdings, Inc. He is also the co-founder and principal of 210 Capital, LLC. Mr. Alpert is a director of Elah Holdings,
Inc., Collaborative Imaging, LLC. and Chairman of the Board of Redpoint Insurance Group, LLC. He is also the co-
founder of Homebuilder Capital Advisors, LLC. and the co-founder and managing member of Merfax Financial
Group, LP. Mr. Alpert previously served as the Chief Executive Officer and Chairman of the Board of GlobalSCAPE,
Inc. Prior to founding 210 Capital, Mr. Alpert was the founder and portfolio manager of Atlas Capital Management,
L.P.
Eric Donnelly – Director and Officer
Eric Donnelly has served as a director and as Chief Executive Officer since December 2017. Mr. Donnelly has spent
his 20-year career focused on supporting small businesses and developing low to moderate-income communities with
an emphasis on Hispanic homeownership. He has served as Capital Plus Financial LLC’s Chief Executive Officer
since 2014 after having been hired by the company’s founder in 2012 to scale the 25-year social enterprise. Mr.
Donnelly has grown the company into one of the largest Community Development Financial Institutions in the country
and under his leadership has achieved its B Corp certification further reinforcing the company’s commitment to
community impact as well as shareholder value growth. In 2005 after many years in commercial banking, Mr.
Donnelly founded a national small balance commercial real estate finance company focused on delivering long-term,
fixed-rate options to small business owners. He is an active Hispanic entrepreneur and leader whose passion it is to
improve underserved and underbanked market segments. Mr. Donnelly is a graduate of Southern Methodist University
with a Bachelor of Arts in Economics. Mr. Donnelly is a director of InBankshares and International Bank, a
community bank located in New Mexico and Colorado. He is a on the board of Financial Mentors of America, Inc.
(FMA), an educational nonprofit which seeks to achieve social and economic transformation. He is a participant in
the BBVA Momentum program for Social Entrepreneurs, a 2017 graduate of the Stanford Latino Entrepreneur
Initiative.
James Pérez Foster – Independent Director & Member of Audit Committee
James Pérez Foster is a seasoned board member with national banking and Community Development Financial
Institution (CDFI) board experience. He is a technology executive and management consultant with more than 25
years of strategic growth, impact investment advisory, and community engagement experience. A published expert on
U.S. underserved market segments for global financial services and banking institutions, he is the founder of
Bainbridge Advisors, LLC, a consulting and research firm that serves financial institutions and federal agencies. Pérez
Foster also founded Solera National Bancorp, a federally chartered bank holding company that is credited as one of
the first Hispanic-markets focused commercial banks in the country. He has a BA in International Relations from
Syracuse University’s Maxwell School of Citizenship and Public Affairs.
Farzana Giga – Director and Officer & Member of Audit Committee
Farzana Giga has served as Capital Plus Financial’s Chief Financial Officer since 2014. Ms. Giga’s background
includes extensive experience in private equity, financial reporting and analysis, investor reporting, and treasury for
both private and public companies in Canada and the United States. Prior to CPF, Ms. Giga served as CFO for a
private equity firm focused on residential seller financing including acquisitions, mortgage origination, and mortgage
servicing for a portfolio exceeding $100M. From 2007 to 2009, she worked as an Investment Manager at Quadrant
Capital Partners where she was responsible for loan acquisitions and financial analysis of residential and commercial
real estate. Prior to Quadrant, Ms. Giga served as an Assistant Vice President at INYX Canada where she was
responsible for all strategic and financial planning, budgeting/forecasting, cash flow analysis, mergers and acquisitions
analysis including quarterly and annual SEC filings. Prior to INYX, Ms. Giga served as Director, Treasury at RR
Donnelly responsible for managing a debt portfolio of $2B. Ms. Giga is a Certified Public Accountant, Certified
Management Accountant in Ontario, Canada, and received her Bachelor of Arts, Economics (Management &
Accounting) from the University of Toronto.
Claire Gogel – Independent Director
Claire Gogel has served as a director since October 2017. Ms. Gogel was an Independent Director and member of the
finance and restructuring committee at SunEdison, Inc., and had served in that position since 2016 when she was
appointed as an independent director by Greenlight Capital. From 2009 to 2014, Ms. Gogel served as a partner and
analyst at Greenlight Capital, a hedge fund in New York. From 2001 to 2009, Ms. Gogel was founder and portfolio
manager of Perennial Advisors. Ms. Gogel’s professional experience also includes positions as a portfolio manager at
Discovery Partners and as a research associate at Cardinal Investment Company. Ms. Gogel is a Board member and
Chair of the Grant Committee for Capital for Kids, and has served in that position since 2005. Ms. Gogel is Board
member and Chair of the Investment Committee for Booker T. Washington School for the Performing and Visual
Arts, and has served in that position since 2015. Ms. Gogel earned a Bachelor of Arts degree with High Honors from
The University of Texas at Austin.
Ray Kembel – Independent Director & Member of Audit Committee
Ray Kembel is a tenured finance executive with a broad knowledge of real estate and credit finance. He is currently
an Executive Vice President with Oakwood Bank in Texas. Prior to joining Oakwood Bank, Ray helped develop the
Dallas commercial banking platform for Green Bancorp, Inc. (NASDAQ: GNBC). Ray previously spent 10 years with
Staubach Capital Partners, a private equity group under The Staubach Company umbrella, acquired by JLL (NYSE:
JLL). He began his career with Bank of America (NYSE: BAC). Ray holds a BBA degree from The University of
Texas at San Antonio and an MBA from The University of Dallas.
C. Clark Webb – Director & Member of Audit Committee
C. Clark Webb has served as a director since October 2017. Mr. Webb is the Co-CEO and a Director of P10 Holdings,
Inc. He is also the co-founder and principal of 210 Capital, LLC. Additionally, Mr. Webb serves as the Chairman of
the Board of Elah Holdings, Inc. and Chairman of the Board of Collaborative Imaging LLC. Previously, Mr. Webb
was Founder and Managing Member of P10 Capital Management, Co-Portfolio Manager of the Lafayette Street Fund,
and a Partner at Select Equity Group, L.P. Mr. Webb holds a B.A. from Princeton University.
Board Compensation
The non-executive members of the Board of Directors each receive $3,750 per quarter for their service on the Board
of Directors. The Chairman of the Board receives and an additional $900 per quarter and the Chairman of the Audit
Committee receives an additional $600 per quarter.
The following table discloses compensation received by the Company’s Chief Executive Officer and Chief Financial
Officer, for the fiscal year 2020.
Name and Principal Fiscal Salary Bonus Option Awards All Other
Total ($)
Position Year ($) ($) (Fair Value $) Compensation ($)
Eric Donnelly, Chief
2020 $350,000 N/A $405,900 N/A $755,900
Executive Officer
Farzana Giga, Chief
2020 $300,000 N/A $405,900 N/A $705,900
Financial Office
A. Legal/Disciplinary History.
None of the persons listed in Item 11.A above have, in the last five years, been the subject of: (1) a conviction
in a criminal proceeding or named as a defendant in a pending criminal proceeding (excluding traffic
violations and other minor offenses); (2) the entry of an order, judgment, or decree, not subsequently
reversed, suspended or vacated, by a court of competent jurisdiction that permanently or temporarily
enjoined, barred, suspended or otherwise limited such person’s involvement in any type of business,
securities, commodities, or banking activities; (3) a finding or judgment by a court of competent jurisdiction
(in a civil action), the Securities and Exchange Commission, the Commodity Futures Trading Commission,
or a state securities regulator of a violation of federal or state securities or commodities law, which finding
or judgment has not been reversed, suspended, or vacated; or (4) the entry of an order by a self-regulatory
organization that permanently or temporarily barred, suspended or otherwise limited such person’s
involvement in any type of business or securities activities
B. Disclosure of Family Relationships.
There are no family relationships among and between the issuer’s directors, officers, persons nominated or
chosen by the issuer to become directors or officers or beneficial owners of more than five percent (5%) of
any class of the issuer’s equity securities.
C. Disclosure of Related Party Transactions
The Company also leases office space in Dallas, Texas on a month to month basis from Southwest Federated,
Inc., a related party through common ownership for $4,500 per month.
Copy participations from audit upon completion
D. Disclosure of Conflicts of Interest.
Not Applicable
Item 12 Financial information for the issuer’s most recent fiscal period.
The Company has provided the following financial statements for the most recent fiscal year ending October 31, 2020
which are attached hereto as Exhibit A and are hereby incorporated by reference:
• Consolidated Balance Sheet
• Consolidated Statement of Operations
• Consolidated Statement of Changes in Equity
• Consolidated Statement of Cash Flows
• Notes to the Consolidated Financial Statements
Item 13 Similar financing information for such part of the two preceding fiscal years as the issuer or
its predecessor has been in existence.
The Company has provided the following financial statements for the two most recent fiscal years ending October 31,
2020 and October 31, 2019 (“Fiscal 2020”), and (“Fiscal 2019”):
• Report of Independent Public Accounting Firm
• Consolidated Balance Sheet
• Consolidated Statement of Operations
• Consolidated Statement of Changes in Equity
• Consolidated Statement of Cash Flows
• Notes to the Consolidated Financial Statements
These are published as Exhibit A to “Annual Reports” for each of Fiscal 2020 and Fiscal 2019 and filed through the
OTC Disclosure and News Service, available at www.otcmarkets.com, and are hereby incorporated by reference.
Item 14 Beneficial Owners and Control Person
Shareholder Beneficial Address Affiliation with Company Number of Class of
Holder (e.g. Officer/Director/Owner Shares Shares
of more than 5%)
EDUCM, Inc Eric Dallas, TX CEO & Director 532,838 Common
Donnelly
Giga Farzana Giga Frisco, TX CFO & Director 432,931 Common
Investments,
LLC
210/CRDS Robert Dallas, TX Chairman of the Board 1,492,284 Common
Investment Alpert/Clark
Webb
Westchester Farzana Giga Dallas, TX Owner of more than 5%; 557,225 Common
Standard, LLC Managed by Farzana Giga
Charles A Vose Dallas, TX Owner of more than 5% 299,722 Common
III
Mark Crockett Fort Worth, Owner of more than 5% 466,233 Common
TX
Item 15 The name, address, telephone number, and email address of each of the following outside
providers that advise the issuer on matters relating to operations, business development, and disclosure:
Securities Counsel
Name: Claudia Dubon
Firm: Olshan Frome Wolosky LLP
Address 1: 1325 Avenue of the Americas
Address 2: New York, NY 10019
Phone: (212) 451-2300
Email: info@olshanlaw.com
Auditor
Name: Bridget M. Quin
Firm: Baker Tilly Virchow Krause LLP
Address 1: 9 Wood Avenue South, Suite 801,
Address 2: Iselin, NJ 08830-2734
Phone: (848) 467-3909
Email: info@bakertilly.com
Investor Relations Consultant
Name: Tom Colton and Matt Glover
Firm: Gateway Investor Relations
Address 1: 4685 MacArthur Court, Suite 400
Address 2: Newport Beach, CA 92660
Phone: (949) 574-3860
Email: crss@gatewayir.com
Item 16 Management’s Discussion and Analysis or Plan of Operation.
Item 16 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion provides information and analysis of the Company’s results of operations and its liquidity
and capital resources and should be read in conjunction with the Company’s Consolidated Financial Statements and
the other financial information included in Exhibit A and elsewhere in this Annual Report. This discussion contains
forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially
from those anticipated in these forward-looking statements as a result of any number of factors.
The Company’s operating and reporting period is on a fiscal year ending on October 31.
Fiscal 2020 Financial Overview & Results of Operations
For the Twelve Months Ended Increase/(Decrease)
October 31, October 31,
2020 2019 $ %
REVENUES
Interest income $ 12,633,818 $ 11,986,113 $ 647,705 5.4%
Property sales 23,461,898 25,330,557 (1,868,659) -7.4%
Other revenue 538,876 387,264 151,612 39.1%
Total revenues 36,634,592 37,703,935 (1,069,343) -2.8%
COSTS AND EXPENSES
Interest expense 5,712,138 6,343,947 (631,809) -10.0%
Cost of properties sold 20,297,457 21,138,085 (840,628) -4.0%
General and administrative 2,027,776 1,962,626 65,150 3.3%
Salaries and wages 2,839,113 2,788,032 51,081 1.8%
Total costs and expenses 30,876,484 32,232,690 (1,356,206) -4.2%
Income from operations 5,758,108 5,471,245 286,863 5.2%
OTHER EXPENSES
Interest expense (734,005) (1,110,230) 376,225 -33.9%
Total other expenses (734,005) (1,110,230) 376,225 -33.9%
Income before income tax provision 5,024,103 4,361,015 663,088 15.2%
INCOME TAX PROVISION (1,377,572) (1,990,988) 613,416 -30.8%
NET INCOME 3,646,531 2,370,027 1,276,504 53.9%
Less: net income attributable to non-controlling interests (630,000) (617,582) (12,418) 2.0%
NET INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS $ 3,016,531 $ 1,752,445 $ 1,264,086 72.1%
Earnings (loss) per share:
Cash income attributable to common shareholders 4,394,103 3,743,433 650,670 17.4%
Weighted average shaes outstanding 5,971,994 5,971,994 - 0.0%
Cash income per share $ 0.74 $ 0.63 $ 0.11 17.4%
Operations
Total revenue from operations for the fiscal year ended October 31, 2020 was $36.6 million compared to $37.7 million
for the same period of 2019. The 2.8% decrease in revenue was the result of lower unit sales of homes during the
pandemic which had much of the state under a Shelter in Place order for the key spring selling months. Net operating
income before taxes and minority interest for the fiscal year ended October 31, 2020 was $5.0 million compared to
$4.4 million for the same period of 2019.
Net Earnings Per Share
Net earnings per share from operations before taxes and after minority interests for the year ended October 31, 2020
was $0.74 compared to $0.63 for the fiscal year ended October 31, 2019 representing an increase of 17.4% year over
year.
Gross Sales
Gross income from the sale of recently rehabilitated homes was $23.5 million for the year ended October 31, 2020
compared to $25.3 million for the year ended October 31, 2019. The decrease in gross sales was the result of lower
unit sales during the pandemic which were offset by higher sales prices for the fiscal year ended October 31, 2020.
Interest income generated from the Company’s mortgage note receivable portfolio increased to $12.6 million for the
year ended October 31, 2020 compared to $12.0 million for the year ended October 31, 2019. The increase was the
result of growth in the total mortgage note receivable portfolio during the year. The company also provided
forbearance agreements to 234 borrowers as a result of the pandemic which impacted interest income by
approximately $412,000.
Cost of Goods Sold
The cost of goods sold related to the sale of homes decreased by 4% to $20.3 million for the fiscal year ended October
31, 2020 from $21.1 million for the fiscal year ended October 31, 2019. The decrease was the result of fewer home
sales and costs on those homes during fiscal year 2020.
Cost of goods sold includes all the direct costs of the inventory sold as well as the costs related to the rehabilitation of
the homes sold. In addition, cost of goods sold includes carrying costs of all the properties sold and inventory on
hand.
The second component of cost of goods sold is the interest expense on the mortgage note receivable portfolio. The
interest expense related to the portfolio income was $5.7 million for the year ended October 31, 2020 compared to
$6.3 million for the year ended October 31, 2019. The decrease in interest expense was the result of the Federal
Reserve Board lowering interest which translated to lower rates from the Company’s lenders on its debt portfolio.
Operating Expenses
Total operating expenses increased approximately $116,000 from $4.8 million from the fiscal year ended October 31,
2019 to $4.9 million for the year ended October 31, 2020. Operating expenses as a percentage of total revenues
increased from 12.6% for the fiscal year ended October 31, 2019 to 13.2% for the fiscal year ended October 31, 2020.
The increase in operating expenses was primarily due to the granting of stock options to the employees and legal fees
related to the FSB Rice Bankshares pending acquisition. The stock option expense is not a cash expense.
Operating expenses consist primarily of the following: compensation, sales and marketing, technology, legal,
professional fees, insurance, and other operating expenses.
Other Income/Expense
The other interest expense relates to interest from acquisition debt. Total other interest expenses decreased $376,000
from the October 31, 2019 fiscal year-end to the October 31, 2020 fiscal year-end due to a declining interest rate and
lower debt balance. The total debt repayment of the acquisition debt for the fiscal year was $1.8 million.
Liquidity and Capital Resources
We define liquidity as our ability to generate sufficient cash to fund current loan demand at the subsidiary level and to
operate on an ongoing basis. Our liquidity requirements are met primarily through cash flow from operations, receipt of pre-
paid and maturing balances in our loan portfolios, debt financing, and preferred equity investments.
As of October 31, 2020, Capital Plus Financial had lines of credit available with its current banking partners in excess
of $13 million. We continue to monitor our financings need ahead of our bank acquisition. In the event, our bank
acquisition is not completed, we will add additional liquidity.
The Company also offers a Preferred Equity instrument to its bank partners which is considered a qualified investment
under the Community Reinvestment Act (“CRA”) investment test for banks. Banks purchase units of the preferred
investment which generates cash for the Company and provides banks with an “innovative” investment, providing a
more favorable CRA assessment from their regulators.
Working Capital
Mortgage Note Portfolio
The mortgage note portfolio consists of $128.8 million of long term fixed, amortizing single-family residential
mortgages in the Dallas/Fort Worth, Houston, and San Antonio markets. The Company provides a mortgage for the
purchase of a property with an equity down payment from the potential buyer. Our mortgage portfolio is comprised
of first-time home buyers, and in over 60% of the cases, first-time credit recipients. We believe the risk associated
with these borrowers is mitigated by their history of debt aversion. Plainly said, those who have shown the financial
discipline to operate without debt should be rewarded and not punished as is often the case with a zero credit score
borrower attempting to qualify for a mortgage. Each borrower is manually underwritten, and all are given the
opportunity to demonstrably prove their ability to repay. A 43% debt to income (“DTI”) ratio is the maximum ratio
for approved mortgages, but the average back-end DTI ratio in our portfolio is 29.5%, further reinforcing the quality
of our borrowers. All mortgages are originated in house and are Qualified Mortgages (QM). Our weighted average
rate on the portfolio was 10.44% at October 31, 2020.
The Company has a default rate below 3% per year and when it does take a property back into inventory, it is able to
put it back into its rehab cycle and resell it. Given its ability to rehab and resell the properties at a profit, the Company
has determined a reserve for delinquent and defaulted mortgages is not necessary as of October 31, 2020.
As of October 31, 2020, the Company had a mortgage note receivable balance of $128.8 million compared to $116.9
million as of October 31, 2019.
Inventory
Inventory consists of properties that are currently undergoing remodeling or are being held for sale. Inventory includes
the initial costs of acquiring the property, remodeling costs, real estate taxes and other direct costs incurred while
remodeling the property. All indirect overheard costs, such as compensation of sales personnel, management and
advertising costs are charged to salaries and wages or other general and administrative expenses as incurred.
The initial direct costs to acquire properties and remodeling costs account for approximately 92% of cost of properties
sold in the consolidated statement of operations for the year ended October 31, 2020. As of October 31, 2020, 92
properties were being remodeled and 16 were completed and held for sale. Generally, the Company holds properties
in inventory from acquisition to resale for 3 to 4 months.
The Company regularly evaluates inventories that are slow-moving or incurring costs in excess of budgeted costs. The
Company determined a reserve for slow-moving inventory was not necessary as of October 31, 2019.
As of October 31, 2020, gross inventory was $10.5 million compared to $11.8 million as of October 31, 2019, a
decrease of $1.3 million or 11%. The decrease in inventory as of October 31, 2020 compared to October 31, 2019 is
the result of lower inventory on hand. However, the company is starting to increase inventory to get homes ready for
the upcoming Spring season of 2021.
Revolving Credit Facility
The Company has a revolving line of credit for the acquisition of properties and another for its mortgage loans. The
outstanding balance on the inventory line at October 31, 2020 was $7.2 million compared to $9.3 million at October
31, 2019. The decrease in outstanding balance is the result of decreasing inventories. In addition, the Company has
two lines totaling $3.0 million for new housing development projects. The outstanding balance on these facilities was
$1.7 million.
The outstanding balance on the mortgage loan revolving credit facility was $37.5 million as of October 31, 2020,
compared to $45.4 million as of October 31, 2019. The Company transferred $10 million of loans from the revolving
line of credit to a new term facility to make capacity available on the revolving line credit facility for new loan
production.
Cash Flows Provided by Operations
Continuing Operations
Net cash used by operating activities during the year ended October 31, 2020 was $1.0 million compared to $14.3
million of net cash used for the year ended October 31, 2019. The main driver of cash usage was the generation of
new loans and increased inventories.
Cash Flows Used in Investing and Financing Activities
Net cash provided by financing activities during the year ended October 31, 2020 was $1.9 million compared to
$13.7million for the year ended October 31, 2019.
There are no known trends, events, or uncertainties that have or are reasonably like to have a material impact on the
company’s short-term or long-term liquidity. The internal sources of liquidity are profits generated from the
company’s operating subsidiary, Capital Plus Financial, and its external sources of liquidity remain debt and equity
from banking institutions that assist in the institutions compliance with the Community Reinvestment Act (CRA). The
company has no material commitments for capital expenditures and the expected source of funds for such
expenditures. There are no known trends, events, or uncertainties that had had or that are reasonably expected to have
a material impact on the net sales or revenues or income from continuing operations. There are no significant elements
of income or loss that do not arise from the company’s continuing operations. There are also no causes for any material
changes from period to period in one or more line items on the company’s financial statements nor are the seasonal
aspects that had a material effect on the financial condition of the results of operations.
C. Off-Balance Sheet Arrangements.
NA
Part E Issuance History
Item 17 List of securities offerings and shares issued for services in the past two years.
A. Changes to the Number of Outstanding Shares
Check this box to indicate there were no changes to the number of outstanding shares within the past two
completed fiscal years and any subsequent periods:
Number of
Shares Opening Balance:
outstanding as of Common: 3,014,726
October 31, 2017
Preferred: 0
Date of Transaction Number of Class of Value of Were the Individual/ Reason for Restricted Exemption or
Transaction type (e.g. new Shares Securities shares shares Entity share or Registration
issuance, Issued issued issued at Shares were issuance (e.g. Unrestricte Type?
cancellation, ($/per a issued to for cash or d as of this
shares share) at discount (entities must debt filing?
returned to Issuance to market have conversion)
treasury) price at individual OR Nature of
the time with voting / Services
of investment Provided (if
issuance? control applicable)
(Yes/No) disclosed).
Dec 2017 New Issuance 532,838 Common $0.38 Y EDUCM, Inc Acquisition of Restricted Non
(Eric Capital Plus registered
Donnelly)
Dec 2017 New Issuance 432,931 Common $0.38 Y Giga Acquisition of Restricted Non
Investments, Capital Plus registered
LLC (Farzana
Giga)
Dec 2017 New Issuance 399,629 Common $0.38 Y Southwest Acquisition of Restricted Non
Federated Capital Plus registered
(Charles A.
Vose)
Dec 2017 New Issuance 299,722 Common $0.38 Y Charles A. Acquisition of Restricted Non
Vose) Capital Plus registered
Dec 2017 New Issuance 557,255 Common $0.38 Y Westchester Acquisition of Restricted Non
Standard, Capital Plus registered
LLC,
(Farzana
Giga)
Dec 2017 New Issuance 466,233 Common $0.38 Y Mark Acquisition of Restricted Non
Crockett Capital Plus registered
Dec 2017 New Issuance 177,702 Common $0.38 Y CC Texas Acquisition of Restricted Non
Realty (Neil Capital Plus registered
Clements)
Dec 2017 New Issuance 44,359 Common $0.38 Y Luke Acquisition of Restricted Non
Hammond Capital Plus registered
Dec 2017 New Issuance 44,359 Common $0.38 Y Chad Cole Acquisition of Restricted Non
Capital Plus registered
June 2018 New Issuance 957 Common 3.92 N Individual Board Unrestricted Non
Compensation registered
June 2018 New Issuance 1,283 Common 7.79 N Individuals Board Unrestricted Non
Compensation registered
Shares
Outstanding on Ending Balance:
October 31, 2020 Common: 5,971,994
Preferred: 0
B. List below and describe any issuance of Promissory Notes, Convertible Notes, or Convertible Debentures. In
responding to this item, please provide the date of execution of the Note or the Agreement, a description of the
reason for the issuance, the outstanding balance, and any interest accrued. Provide the maturity dates for each
Note or Agreement, their conversion terms, names of beneficial owners or holders and the exact class of security
such Notes or Agreement may be converted to. Also, specify if the Note is Secured or Unsecured and whether or
not it is in Default.
Date of Outstanding Principal Interest Maturity Conversion Name of Reason for Security Default
Note Balance ($) Amount at Accrued ($) Date Terms Noteholder Issuance (e.g. Pledged Status
Issuance Issuance ($) Loan, Services,
etc.)
Dec $11,020,327 $22,000,000 $18,479 Dec 2024 N/A Veritex Bank Acquisition Stock of See Status
2017 Crossroads not Below (a)
already secured
Dec $2,199,377 $2,200,000 $1,714 Dec 2021 N/A CrossFirst Bank Acquisition Cash secured In
2017 compliance
with all loan
covenants
(a) The Company is required to comply with certain financial and non-financial covenants under the
Veritex Note. The Company was not in compliance with the problem asset measurement ratio as of
October 31, 2020 due to COVID19 affecting various county government’s ability to process
foreclosures timely. The Problem Asset Measurement Ratio is the ratio of notes receivable past due 30
days plus initial inventory acquisition costs aged over 270 days to total notes receivable plus initial
inventory acquisition costs. The Company is required to maintain a quarterly Problem Asset
Measurement Ratio no greater than 5.00% with the ratio as of October 31, 2020 at 5.89%. The
Company has the capability of curing the non-compliance through the liquidation of the notes
receivable held up in the foreclosure process due to COVID-19, and accordingly, has determined that
the non-compliance is not representative of a continued default for financial reporting purposes.
Part F Exhibits
The following exhibits must be either described in or attached to the disclosure statement:
Item 18 Material Contracts.
A. Every material contract, not made in the ordinary course of business, that will be performed after
the disclosure statement is posted through www.OTCIQ.com or was entered into not more than two
years before such posting. Also include the following contracts:
NA
Item 19 Articles of Incorporation and Bylaws.
A. A complete copy of the issuer’s articles of incorporation or in the event that the issuer is not a corporation, the
issuer’s certificate of organization. Whenever amendments to the articles of incorporation or certificate of organization
are filed, a complete copy of the articles of incorporation or certificate of organization as amended shall be filed.
B. A complete copy of the issuer’s bylaws. Whenever amendments to the bylaws are filed, a complete copy of the
bylaws as amended shall be filed.
Refer to the website.
Item 20 Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
A. In the following tabular format, provide the information specified in paragraph (B) of this Item 20 with
respect to any purchase made by or on behalf of the issuer or any "Affiliated Purchaser” (as defined in
paragraph (C) of this Item 20) of shares or other units of any class of the issuer's equity securities.
NA
Item 21 Issuer’s Certifications.
10) Issuer Certification
Principal Executive Officer:
The issuer shall include certifications by the chief executive officer and chief financial officer of the issuer (or any
other persons with different titles but having the same responsibilities).
The certifications shall follow the format below:
I, Eric Donnelly, certify that:
1. I have reviewed this Annual Disclosure Statement of Crossroads Systems, Inc.;
2. Based on my knowledge, this disclosure statement does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this disclosure
statement; and
3. Based on my knowledge, the financial statements, and other financial information included or incorporated
by reference in this disclosure statement, fairly present in all material respects the financial condition, results
of operations, and cash flows of the issuer as of, and for, the periods presented in this disclosure statement.
Eric Donnelly Date: January 28, 2021
Chief Executive Officer
Principal Financial Officer:
I, Farzana Giga, certify that:
1. I have reviewed this Annual Disclosure Statement of Crossroads Systems, Inc.;
2. Based on my knowledge, this disclosure statement does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this disclosure
statement; and
3. Based on my knowledge, the financial statements, and other financial information included or incorporated
by reference in this disclosure statement, fairly present in all material respects the financial condition, results
of operations, and cash flows of the issuer as of, and for, the periods presented in this disclosure statement.
Farzana Giga Date: January 28, 2021
Chief Financial Officer
EXHIBIT A
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