Fiscal Third Quarter Shareholder Report for the Three Months Ended July 31, 2021 — Crossroads Systems, Inc.

Summary

Crossroads Systems, Inc. issues its Fiscal Third Quarter Shareholder Report for the three months ended July 31, 2021, with a letter beginning "Dear Shareholder". The letter says the company and its partners issued and approved nearly 400,000 loans and generated nearly a billion dollars in origination fees under the Paycheck Protection Program, and that approximately 85,000 applications for forgiveness have been received. It announces a strategic relationship with Enhanced Capital Group ("ECG"), a national impact lender, and states that Thiruvendran Vignarajah, described as former Maryland Deputy Attorney General, was appointed as CEO. The letter also says the company intends to explore uplisting onto a national exchange. The signature block names Eric A. Donnelly.

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             Fiscal Third Quarter
            Shareholder Report for
           the Three Months Ended
                 July 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: OTCQB

          75,000,000 Common Shares Authorized

5,971,994 Shares Issued and Outstanding as of July 31, 2021
Dear Shareholder:

As I write to you today, we find ourselves seemingly on the other side of what has been an
eventful 18 months for everyone. And while we are closely monitoring developments and
the potential impact from the surging COVID-19 Delta variant, it does seem like there’s
light at the end of the tunnel to eventually return to some semblance of normalcy. Stepping
back to a year and a half ago, this was not the case. Nearly all of us in some capacity were
either fearing for our friends, families, or at-risk loved ones, and many others were also
forced to contend with a potential loss of livelihood.

As an enterprise equally devoted to providing positive social impact as well as financial
performance, we recognized that we had a role to play in helping Americans navigate
through this generational crisis and that we were well equipped as a community
development financial institution, or CDFI, to lead the charge for the Paycheck Protection
Program’s second draw. With the program’s conclusion in May, we now have an
opportunity to take a look back at what we were able to accomplish in that time and also
to evaluate what’s next.

In just a few short months, along with our community bank referral partners and partners
at Blueacorn, we issued and approved nearly 400,000 loans and generated nearly a billion
dollars in origination fees, both of which are monumental achievements that have
irrevocably changed our business and impacted the lives of many Americans.

Equally important to this program were our efforts to ensure that the funds were dispersed
to the people and businesses that met all necessary qualifications. We have gone through
painstaking and patient detail with borrowers to try and give them every opportunity to
provide the required information which is a differentiated approach than most banks would
be willing to undertake. At the same time, our approval process was both rigorous and
secure. Though we leaned heavily on our loan service providers for support on the front
end, we were thorough in reviewing applications on the back end, using four layers of
identity verification in comparison to most lenders’ one or two. This investment in KYC
or ‘know your customers’ substantially reduced fraud, which is evidenced by a negligible
rate of active fraud cases of less than .0025%. Throughout the term of the program, we
cumulatively detected, reported, and stopped over 80,000 applications that were withdrawn
due to insufficient data or other reasons.

From here, we are now transitioning from loan origination to forgiveness. Today, we have
already received approximately 85,000 applications for forgiveness and are working
diligently in direct partnership with the SBA to address these requests as efficiently as we
can. With the SBA’s direct forgiveness online portal and dedicated helpline now available
for any previously issued loans under $150,000, we plan to direct our portfolio to these
resources and are aiming to have outstanding requests materially addressed over the next
90 days. We are grateful to the SBA for their partnership and assistance in making this
process as seamless as possible for such a large number of requests. To date, not a single
one of the applicants we have worked with has been turned away. The work does not simply
stop at loaning money to businesses in need; we must find ways to educate, mentor, and
ensure these businesses stabilize and thrive once the economy recovers.

While the SBA loan program has admittedly taken much of our focus over the last few
months, throughout this process we have remained committed to our core mission of
providing housing and loan opportunities to the low-income, largely Hispanic population
in Texas. Like the rest of the U.S. housing market, Texas residential real estate remains
extremely tight; inventory is hard to come by and houses that do arrive on the market are
sold quickly. In response, we have been actively evaluating new markets for growth and
expanding our geographic footprint. In McAllen, TX, one of our relatively recent
expansion markets, we’ve made strides with new home development activity, and we are
moving quickly to add more inventory. Still, we hope to build a larger base of homes in
the quarters ahead and will be watching the market closely to identify potential
opportunities that meet our criteria.

With the government lending program entering its sunset period, and our housing business
well managed and capitalized, we’ve had an opportunity to reevaluate what the future of
Crossroads might look like going forward. What we’ve long known is that the US banking
system is a woefully inefficient at servicing independent contractors. On both ends of the
spectrum, either a self-employed person trying to get a mortgage or a gig economy worker
just trying to get a small loan, the current infrastructure is not doing enough to support
these people. Over the last few years, Capital Plus Financial has developed into a go-to
lender for housing loans for the underbanked population in Texas. While we knew we were
making a difference – helping many families secure their first homes and providing
opportunities for communities that so often faced closed doors when they tried to make a
way for themselves – we’ve also been aware that there was potential for so much more.
And thanks to the massive success of the SBA program, we’re now in a position to do
more.

Looking ahead, we are very excited about the next chapter for Crossroads. We see
substantial opportunity to represent the premier, diversified impact credit platform in the
public markets in Capital Plus Financial. As one of the only publicly traded non-bank
CDFIs, our PPP experience has catapulted us from a single asset and regional focus to a
national platform with hundreds of thousands of borrowers across multiple lines of
business. As we’ve noted before, we focus our business on a “double bottom line” result:
creating significant, tangible impact across all we do, and generating strong returns on
tangible common equity for our shareholders. There are firms that attempt the former, and
those that attempt the latter, but we believe our combination of both will distinguish us in
the quarters and years to come.
Relatedly, this morning we announced a strategic relationship with Enhanced Capital
Group (“ECG”), a national impact lender, to deploy flexible capital to women and minority
owned small businesses, small businesses located in underserved areas, and to renewable
energy and community redevelopment projects across the country. Like CPF, Enhanced
Capital Group has multi-decade track record achieving double bottom line results across a
wide array of end markets. Under this partnership, both Crossroads and ECG will be
combining their respective impact footprints and diversifying product and service offerings
to deliver capital to areas including underserved and low-income communities at an
unprecedented scale. In practice, ECG will originate its future production on our balance
sheet in exchange for a management fee and incentive fee, providing a win-win for both
organizations.

We expect ECG-originated assets, in aggregate and with proper financing in place, to yield
in excess of 20% return on equity for Crossroads, while dramatically expanding our impact
footprint. ECG will also help CPF raise additional low cost funding in the debt and
preferred equity markets, which should allow ECG to tap into its billion dollar pipeline to
deploy a diversified pool of impact products across the U.S. Put plainly, this agreement
sets up our CPF subsidiary as one of the nation’s most impactful, institutionally-backed
CDFI’s in the nation.

At a high level, partnering with ECG will enable us to further our mission on a much greater
scale, geographically and thematically, providing flexible lending solutions to small
businesses throughout the U.S. Whereas our ability to reach the underbanked community
was previously centralized to strategic locales in the state of Texas with a specific
demographic makeup, the ECG partnership allows us to expand our reach to much of the
continental United States; ECG and its affiliates have deployed approximately $4 billion
since inception, with employees in 10 states and investments in 37, including Washington
D.C. and Puerto Rico. Expanding our reach to new markets is an important step in our
mission to help a larger segment of the population.

To aid in CPF’s expanded mission, we’ve appointed former Maryland Deputy Attorney
General Thiruvendran “Thiru” Vignarajah as CEO. Thiru is a talented operator with a
world-class background and a passion for solving the issue of inequity in the financial
system and being a champion for the less fortunate. I look forward to working with him
closely as we aim to become a market-leading, ethically mandated private credit provider.

With this agreement now in place, we intend to explore uplisting onto a national exchange
in coming quarters. The Crossroads story and mandate has no doubt broadened; we can
now provide aid and services on a national level. Coupled with the financial strength of our
operations, the timing is right for us to increase our access to institutional capital and to tell
our story to a larger audience that’s now aligned with our future growth plans. I look
forward to sharing further updates in the near future.
In just a few short months we’ve been able to accumulate significant financial resources,
build meaningful new strategic partnerships, and attract talented leadership, which,
together, will allow us to accelerate our growth trajectory and realize our vision of a more
equitable financial future for all.


Saludos Cordiales,

Eric A. Donnelly


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