Notes
to Financial Statements
(Unaudited)
Note
1 - Description of Business
Crossroads
Liquidating Trust (the “Liquidating Trust” or the “Trust”) operates as a statutory trust under the general
laws of the State of Maryland following the conversion of Crossroads Capital, Inc. (“Crossroads Capital”) into Crossroads
Liquidating Trust pursuant to a Plan of Liquidation (the “Plan”). The sole purpose of the Trust is the liquidation
of its assets and distribution of its proceeds to the holders of the beneficial interests in the Liquidating Trust.
Prior
to conversion, Crossroads Capital, Inc. (“Crossroads Capital”) elected to be regulated as a business development company
(“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). On June 23, 2017,
Crossroads Capital and each of the trustees of the Liquidating Trust (the “Trustees”) executed the Liquidating Trust
Agreement (the “Liquidating Trust Agreement”) in connection with the conversion of Crossroads Capital into Crossroads
Liquidating Trust pursuant to the Plan. On June 23, 2017, Crossroads Capital filed Articles of Conversion with the State
of Maryland and all of the assets and liabilities of Crossroads Capital became assets and liabilities of the Trust (the “Conversion”).
Stockholders of Crossroads Capital received one unit of beneficial interest for each share of common stock held by such stockholder
on the date of conversion.
The
Liquidating Trust will terminate upon payment to the holders of the beneficial interests in the Liquidating Trust (“Trust
Units”) of all the Liquidating Trust’s assets and in any event upon the third anniversary of the effectiveness of
the Conversion. The life of the Liquidating Trust may, however, be extended to more than three years if the Trustees then
determine that an extension is reasonably necessary to fulfill the purposes of the Trust. The Trustees are authorized to
engage the services of other professionals or service organizations to assist in managing the Liquidating Trust’s affairs.
Under the Liquidating Trust Agreement, Trust Units are not transferable or assignable, except for certain exceptions described
in the Liquidating Trust Agreement. The Trust Units are not certificated, listed on any exchange or quoted on any quotation
system. The Liquidating Trust Agreement provides that neither the Trustees nor anyone associated with the Liquidating Trust
may take any action to facilitate or encourage any trading in the Trust Units. The Liquidating Trust’s activities
are specifically limited to conserving, protecting and selling its assets and distributing the proceeds therefrom. These
activities include holding the Liquidating Trust’s assets for the benefit of the holders of the Trust Units and enforcing
their rights, temporarily investing asset sale proceeds and collecting income therefrom, providing for the liabilities of the
Liquidating Trust, making liquidating distributions to the holders of Trust Units, and taking such other actions as may be necessary
to conserve and protect the assets of the Liquidating Trust.
The
Liquidating Trust remains subject to the restrictions under the 1940 Act from engaging in transactions with affiliated parties,
except under certain circumstances. The Liquidating Trust is required to file with the U.S. Securities and Exchange Commission
(the “SEC”) annual reports showing the assets and liabilities of the Liquidating Trust at the end of each calendar
year and its receipts and disbursements for the period. The annual reports will describe the changes in the Liquidating
Trust’s assets during the reporting period and the actions taken by the Trustees during the period. The financial
statements contained in such reports will be prepared in accordance with generally accepted accounting principles and will be
reviewed by the Liquidating Trust’s independent registered public accounting firm; the financial statements, however, will
not be audited. The Liquidating Trust will file with the SEC a Form 8-K whenever an event occurs that requires such a report to
be filed or whenever, in the opinion of the Trustees, any other material event relating to the Liquidating Trust has occurred.
The
Trust has entered into agreements with MidFirst Bank to be the custodian of its portfolio securities and Frontier Bank to be the
custodian of the majority of its cash and cash equivalent assets. 1100 Capital Consulting, LLC (the “Administrator”)
serves as the Trust’s administrator, performing the administrative services necessary for its operation, including without
limitation providing it with equipment, clerical, bookkeeping, accounting and record keeping services.
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America, (“U.S. GAAP”).
Liquidation
Basis of Accounting
Under
the liquidation basis of accounting, all assets are stated at their estimated liquidation value and liabilities, including estimated
costs associated with implementing the Plan, are stated at their estimated settlement amounts over the remaining liquidation period.
The net assets in liquidation represent the estimated liquidation value of our remaining assets available to our beneficiaries
upon liquidation. The actual amounts realized for assets and settlement of liabilities may differ materially, perhaps in adverse
ways, from the estimated amounts.
Crossroads
Liquidating Trust
Notes
to Financial Statements
(Unaudited)
The
determination of the estimated liquidation value of a portfolio company may be based on an analysis of available financial results,
public market comparables and other factors relating to such portfolio company. The Trust may also consider other events,
including the transaction in which the securities were acquired, subsequent equity sales by the portfolio company or mergers,
acquisitions or other exit events affecting the portfolio company. The Trust considers the rights, preferences and limitations
of the securities owned in each portfolio company. Due to the uncertainty in the timing of any anticipated sales dates of
the Trust’s portfolio company investments and the proceeds, if any, therefrom, results may differ materially from estimated
amounts.
An
independent valuation firm assisted the Trust in its determination of the estimated liquidation value of two investments as of
December 31, 2018. The Administrator assisted the Trust in its determination of the estimated liquidation value of all of
the Trust’s portfolio company investments as of December 31, 2018.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP and under the liquidation basis of accounting requires the Trust
to make estimates and assumptions that affect the reported amounts of assets (including net assets in liquidation) and liabilities
at the date of the financial statements and the reported amounts of income and expenses during the reported period. Such estimates
and judgments could change in the future as more information becomes known, and actual results could differ from these estimates
and the differences could be material.
Cash
and Cash Equivalents
Cash
and cash equivalents include short-term liquid investments in demand deposit accounts and money market funds. Cash and cash
equivalents are carried at amortized cost which approximates market value.
Costs
to be Incurred During Liquidation
Under
the liquidation basis of accounting, an accrual is made for the estimated remaining costs to be incurred during
liquidation, including legal expenses, portfolio selling costs, accounting expenses, tax reporting expenses, contractor
services, and miscellaneous other expected future costs. Estimates are based on assumptions regarding costs to be
incurred in executing the Liquidating Trust Agreement. The actual costs incurred during liquidation may differ, which
could reduce net assets available in liquidation.
Interest
and Dividend Income
Interest
income from certificates of deposit and other short-term investments is recorded on an accrual basis to the extent such amounts
are expected to be collected and accrued interest income is evaluated periodically for collectability. Payment-in-kind (“PIK”)
interest represents contractually deferred interest computed at a contractual rate specified in the loan agreement. PIK
interest may be prepaid by either contract or the portfolio company’s election, but generally is paid at the end of the
loan term. PIK interest is added to the principal balance of the loan and is generally recorded as interest income on an
accrual basis to the extent such PIK interest is expected to be collected. The Trust did not accrue PIK interest on any
of its notes for the year ended December 31, 2018 or for the period June 23, 2017 to December 31, 2017. As of December 31,
2018, all of the Trust’s notes were on non-accrual status.
Income
Taxes
The
Trust is treated as a grantor trust for federal income tax purposes and accordingly, will not be subject to federal or state income
tax on any income earned or gain recognized. The Trust beneficiaries will be treated as the owner of a pro rata portion
of each asset held by us and will be required to report on his or her federal, state or foreign tax return his or her pro rata
share of taxable income, including any gains and losses recognized by the Trust. Accordingly, there is no provision for
federal or state income taxes in the accompanying financial statements.
Recently
Issued Accounting Pronouncements
There
are no previously issued or new accounting pronouncements or changes in accounting pronouncements that have had or are expected
to have a material impact on the Trust’s financial statements.
Crossroads
Liquidating Trust
Notes
to Financial Statements
(Unaudited)
Note
3 - Portfolio Investments
The
following table outlines the type of securities held in each of the Trust’s seven portfolio companies as of December 31,
2018. See Note 7 – Subsequent Events.
Portfolio
Company
|
|
Shares
/ Principal
|
|
Type
of Investment
|
Agilyx
Corporation
|
|
16
|
|
|
Common
Stock
|
|
BrightSource
Energy, Inc.
|
|
132,972
|
|
|
Common
Stock
|
|
|
|
2,134,523
|
|
|
Series
1A Preferred Stock
|
|
|
|
108,136
|
|
|
Series
1 Convertible Preferred Stock
|
|
|
$
|
205,193
|
|
|
Subordinated
Convertible Bridge Notes;
PIK
interest 11.5%, compounded annually
|
|
|
$
|
107,977
|
|
|
Subordinated
Secured Notes;
PIK
interest 11.5%, compounded annually
|
|
|
$
|
44,361
|
|
|
Senior
Secured Notes;
PIK
interest 11.5%, compounded annually
|
|
Deem,
Inc.
(1)
|
|
46,461
|
|
|
Common
Stock
|
|
Metabolon,
Inc.
|
|
890,719
|
|
|
Series
D Convertible Preferred Stock
|
|
Mode
Media Corporation
(2)
|
|
1,196,315
|
|
|
Series
F Convertible Preferred Stock
|
|
Suniva,
Inc.
(3)
|
|
2,844
|
|
|
Class
A Common Stock
|
|
Zoosk,
Inc.
(4)
|
|
715,171
|
|
|
Series
E Convertible Preferred Stock
|
|
(1)
|
On
January 28, 2019, Deem completed a merger transaction and the Trust’s 46,461 shares of common stock were canceled.
|
(2)
|
Mode
Media ceased operations and subsequently announced the assignment of substantially all the assets of Mode Media to its liquidating
agent in September 2016.
|
(3)
|
Suniva
filed for Chapter 11 bankruptcy in April 2017.
|
(4)
|
On
March 21, 2019, Zoosk entered into a definitive agreement for its acquisition by Spark Networks SE (NYSE: LOV).
|
The
Trust did not have any portfolio company activity during the year ended December 31, 2018.
The
following table summarizes the estimated liquidation value of our portfolio company holdings as of December 31, 2018 and 2017
and the change in estimated liquidation value, proceeds received and the net change in net assets in liquidation for our portfolio
company investments for the year ended December 31, 2018.
|
|
Estimated
Liquidation
Value
|
|
|
For
the Year Ended
December
31, 2018
|
|
|
|
As
of
December
31, 2017
|
|
|
As
of
December
31, 2018
|
|
|
Net
Change in Estimated Liquidation Value
|
|
|
Total
Proceeds
Received
|
|
|
Net
Change in Net
Assets
in Liquidation
|
|
Portfolio
Company Investments
|
|
$
|
6,650,687
|
|
|
$
|
6,027,000
|
|
|
$
|
(623,687
|
)
|
|
$
|
—
|
|
|
$
|
(623,687
|
)
|
The
Trust had the following portfolio company activity during the period June 23, 2017 to December 31, 2017:
On
August 29, 2017, the Trust acquired a $13,902 senior secured promissory note in BrightSource Energy, Inc. as part of a rights
offering to BrightSource Energy’s Series 1 Preferred Stock and note holders. The maturity date of the note is March
1, 2018 or a later date as approved by a majority of the noteholders, or upon the consummation of certain actions as detailed
therein.
On
November 13, 2017, Harvest Power, Inc. completed a merger transaction that resulted in the receipt of $7,044 in total proceeds
in exchange for the cancellation of the Trust’s Series B convertible preferred and Series A-2 preferred shares.
On
December 8, 2017, funds held in escrow from the sale of the prior Xtime investment totaling $103,148 were released to the Trust
without any offset for indemnity claims.
Crossroads
Liquidating Trust
Notes
to Financial Statements
(Unaudited)
The
following table summarizes the estimated liquidation value of the Trust’s portfolio company holdings as of June 23, 2017
and December 31, 2017 and the change in estimated liquidation value, proceeds received and the net change in net assets in liquidation
for the Trust’s portfolio company investments for the period June 23, 2017 through December 31, 2017.
|
|
Estimated
Liquidation
Value
|
|
|
For
the Period
June
23, 2017 through December 31, 2017
|
|
|
|
As
of
June
23,
2017
|
|
|
As
of
December
31, 2017
|
|
|
Net
Change in Estimated Liquidation Value
|
|
|
Total
Proceeds
Received
|
|
|
Net
Change in Net
Assets
in Liquidation
|
|
Portfolio
Company Investments
|
|
$
|
8,060,505
|
|
|
$
|
6,650,687
|
|
|
$
|
(1,409,818
|
)
|
|
$
|
7,044
|
|
|
$
|
(1,402,774
|
)
|
Funds
Held in Escrow from Sale of Investment
|
|
|
95,768
|
|
|
|
—
|
|
|
|
(95,768
|
)
|
|
|
103,148
|
|
|
|
7,380
|
|
Total
|
|
|
8,156,273
|
|
|
|
6,650,687
|
|
|
|
(1,505,586
|
)
|
|
|
110,192
|
|
|
|
(1,395,394
|
)
|
Note
4 - Distributions
The
Plan provides that liquidating distributions will be made at such times as determined by the Trustees in their sole discretion.
Consideration of potential liquidating distributions shall occur no less frequently than annually and in any event within a reasonable
period of time following the disposition of the Liquidating Trust’s assets.
The
Trust did not make any liquidating distributions during 2018.
On
July 12, 2017, the Trust made an initial liquidating distribution of $1.60 per Trust Unit to the holders of beneficial interest
in the Trust, pursuant to the Plan. This initial liquidating distribution was apportioned pro rata according to the beneficial
unit holders’ respective interest in the Trust.
Note
5 - Net Assets in Liquidation
Net
assets in liquidation were $8,093,375 and $8,684,201 as of December 31, 2018 and 2017, respectively.
Assets
As
of December 31, 2018, the Trust held seven portfolio company invesetments and had total assets of $9,303,072 which were comprised
of $6,027,000 in portfolio company investments at estimated liquidation value, $3,246,072 in cash and cash equivalents and $30,000
in prepaid expenses and other assets.
As
of December 31, 2017, the Trust held seven portfolio company invesetments and had total assets of $10,367,865 which were comprised
of $3,697,634 in cash and cash equivalents, $6,650,687 in portfolio company investments at estimated liquidation value and $19,544
in prepaid expenses and other assets.
Liabilities
As
of December 31, 2018, the Trust had $1,209,697 in total liabilities, comprised of $26,373 in accounts payable and accrued expenses
and $1,183,324 in estimated costs related to the liquidation, including legal expenses, portfolio selling costs, accounting expenses,
tax reporting expenses, contractor services, and miscellaneous other expected future costs. As of December 31, 2018, the
liability for estimated costs during liquidation included a total of $90,000 of fees to be paid to our Board of Trustees over
the remaining liquidation period.
As
of December 31, 2017, the Trust had $1,683,664 in total liabilities, comprised of $41,324 in accounts payable and
accrued expenses and $1,642,340 in estimated costs related to the liquidation. As of December 31, 2017, the liability
for estimated costs during liquidation included a total of $150,000 of fees to be paid to the Board of Trustees over the
remaining liquidation period.
Changes
in Net Assets
Net
assets in liquidation decreased $590,826, or $0.06 per Trust Unit, for the year ended December 31, 2018. This decrease in
our net assets was due primarily to: (i) a net decrease of $623,687, or $0.06 per Trust Unit, in the net estimated liquidation
value of our portfolio company investments during the period, and (ii) an increase of $32,861, or a de minimis amount per Trust
Unit, as a result of current operating expenses and other operating activities.
Net
assets in liquidation decreased $16,885,510, or $1.76 per Trust Unit, during the period June 23, 2017 to December 31, 2017.
This decrease in our net assets was due primarily to a liquidating distribution of $15,301,008, or $1.60 per Trust Unit, in July
2017, a decrease of $1,505,586, or $0.16 per Trust Unit, in the net estimated liquidation value of the Trust’s portfolio
company investments during the period and a decrease of $78,916, a de minimis amount per Trust Unit, as a result of the payment
of current operating expenses and other operating activities.
Crossroads
Liquidating Trust
Notes
to Financial Statements
(Unaudited)
Note
6 – Estimated Costs of Liquidation
Under
the liquidation basis of accounting, the Trust is required to estimate the cash flows from operations and accrue the costs associated
with completing the Plan, including legal expenses, portfolio selling costs, accounting expenses, tax reporting expenses, contractor
services, and miscellaneous other expected future costs. For the year ended December 31, 2018 and for the period June 23,
2017 to December 31, 2017, the Trust completed cash payments, and therefore reversed the related accrual, for $459,016 and $230,808,
respectively, of liquidation costs. The Trustees believe that the estimated costs of liquidation determined upon Conversion
are still applicable as of December 31, 2018. As a result, the Trust estimates that $1,183,324 of liquidation expenses are
expected to be paid over the remaining liquidation period.
Note
7 - Commitments and Contingencies
On
November 13, 2017, Harvest Power completed a merger transaction with a third party. In connection with the merger transaction,
the Trust entered into a Contingent Payment and Release Agreement with the company, the acquirers and certain other stockholders
entitling the Trust to its pro rata interest of certain contingent payments over a four-year period in consideration of and as
a condition to the release of certain actions and claims related to Harvest Power.
The
Trust maintains a directors and officers liability insurance policy which provides liability insurance coverage for its Trustees
and other specified parties. The Trust has also agreed to indemnify its Trustees to the maximum extent permitted by Maryland
law subject to the restrictions in the 1940 Act.
As
of December 31, 2018, neither the Trust nor its Trustees was a party to any material legal proceedings. However, from time
to time, the Trust may be party to certain legal proceedings incidental to the normal course of its business including the enforcement
of its rights under contracts with its portfolio companies.
Note
8 - Subsequent Events
In
preparing these financial statements, the Trust has evaluated events after December 31, 2018. Except as set forth below,
there were no subsequent events since December 31, 2018 that would require adjustment to or additional disclosure in these
financial statements.
Portfolio
Company Activity
On
January 28, 2019, Deem completed a merger transaction and the 46,461 shares of common stock held by the Trust were canceled.
The Trust did not receive any proceeds or recognize any realized gain or loss as a result of the merger transaction.
On
March 21, 2019, Zoosk, Inc. (“Zoosk”) entered into a definitive agreement for its acquisition by Spark Networks SE
(“Spark”) (NYSE: LOV) (the “Transaction”). The Transaction, which is expected to close early in
the third quarter of 2019, would provide the Trust a combination of cash and Spark American Depository Shares (“ADSs”)
in exchange for its Series E convertible preferred stock in Zoosk, in addition to a deferred, contingent cash payment expected
to be paid on or around December 31, 2020. The total value of the consideration expected to be received by the Trust as
a result of the Transaction, if the Transaction closes, will not be known until receipt of the cash and ADS consideration at closing,
and the receipt of the deferred cash payment, if any. Because a portion of the expected consideration is in the form of
Spark ADSs, the value of the consideration is materially dependent upon the market performance of Spark between now and the ultimate
liquidation of the ADSs once received, in addition to other factors, including: (i) the amount of cash on Zoosk’s balance
sheet at closing, and (ii) other payments related to the Transaction, which may be material.