Castelle Announces First Quarter of 1999 Results.

SANTA CLARA, Calif.--(BUSINESS WIRE)--May 13, 1999--

Castelle (Nasdaq:CSTLC) announced today financial results for the first quarter ended April 2, 1999.

Net sales for the first quarter of 1999 were $4.5 million down from $6.6 million for the corresponding period in fiscal 1998. This compares to net sales in the fourth quarter of 1998 of $3.6 million ($4.6 million excluding the one-time sales return adjustment). The Company recorded a net loss for the first quarter of 1999 of $1.4 million or $0.33 per share, compared to a net income of $183,000 or $0.04 per share for the corresponding period in fiscal 1998.

Donald L. Rich, President and CEO, stated, "The net loss of $1.4 million reflects the continuing decline in print server sales, primarily due to the business conditions in the Asia Pacific region. This first quarter loss includes an $880,000 reserve primarily for excess inventory related to the print server product line. Excluding the additional inventory reserved in the first quarter of 1999, net loss for the period would have been $531,000. This $531,000 loss was primarily due to lower margin sales for print server products and lower fax server sales to domestic and European distributors. The lower sales to distributors supports our continued effort to manage down the inventory levels in the distribution channel to allow the Company to operate more efficiently. Our cash collections for the quarter were strong. We increased our cash balance to $4.2 million at the end of the first quarter of 1999 from $3.9 million at the end of the fourth quarter of 1998 and reduced days sales outstanding to 54 days from 87 days."

"Over the last two quarters we have repositioned the business to allow the Company to operate more efficiently in the print server market going forward and to focus on the Company's higher-margin fax server product line and its market opportunity. We are committed to our strategic focus on the fax server market, which requires continued investments in marketing to generate end-user demand for newly introduced FaxPress models. We expect our marketing investments to show results in the second half of the year," continued Rich.

Founded in 1987, Castelle is an industry leader and pioneer of network fax and print servers that increase productivity in workgroups and the enterprise. Castelle products are available through a worldwide network of distributors and Value Added Resellers. Castelle is headquartered in Santa Clara, Calif. and can be reached at 800/289-7555; 408/496-0474; or www.castelle.com.

This press release contains forward-looking statements that involve risks and uncertainties, relating to the future events, including the Company's strategy to operate more efficiently in the print server market, the affect of improved business conditions in the Asia Pacific Region on the results of the print server sales and the effect of the Company's marketing investments for new products on actual results. Actual events or the Company's results may differ materially from the events or results discussed in the forward-looking statements for a number of reasons including, without limitation, the timely development, acceptance and pricing of new products and the general economic conditions as they affect the Company's customers. The Company assumes no obligation to update the forward-looking information. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the Company's 10-K for the fiscal year ended Dec. 31, 1998. -0-

                               CASTELLE
                 Condensed Consolidated Balance Sheets
                            (in thousands)

                                                  April 2, Dec. 31,
                                                    1999     1998
                                               (unaudited)(audited)
Assets

    Current assets:
      Cash and cash equivalents                  $ 4,235  $ 3,924
      Restricted cash                                125      125
      Accounts receivable, net                     2,678    3,472
      Inventories                                  3,051    3,739
      Prepaids and other assets                      459      398
                                                 -------  -------
        Total current assets                      10,548   11,658

      Property, plant & equipment, net               611      666
      Other assets, net                              129      170
                                                 -------  -------
        Total assets                             $11,288  $12,494
                                                 =======  =======
Liabilities & shareholders'  equity

    Current liabilities:
      Long-term debt, current                    $    96  $    96
      Accounts payable                             2,456    2,084
      Accrued liabilities                          2,556    2,715
                                                 -------  -------
        Total current liabilities                  5,108    4,895

    Other long-term liabilities                       75       98
                                                 -------  -------
        Total liabilities                          5,183    4,993

    Shareholders' equity                           6,105    7,501
                                                 -------  -------
        Total liabilities &
           shareholders' equity                  $11,288  $12,494
                                                 =======  =======

                               CASTELLE
            Condensed Consolidated Statements of Operations
                 (in thousands, except per share data)
                              (unaudited)

                                               Three months ended
                                                4/2/99      4/3/98

Net sales                                      $ 4,468     $ 6,601
Cost of sales                                    2,849       3,101
                                               --------    --------
       Gross profit                              1,619       3,500
                                               --------    --------
Operating expenses:
       Research and development                    684         650
       Sales and marketing                       1,854       2,132
       General and administrative                  459         479
       Amortization of intangible assets            40           -
                                               --------    --------
             Total operating expenses            3,037       3,261
                                               --------    --------

Income/(Loss) from operations                   (1,418)        239
Other income, net                                    7          65
                                               --------    --------
Income/(Loss) before income taxes               (1,411)        304
Provision for/ (benefit from) income taxes           -         121
                                               --------    --------
Net Gain/(loss)                                $(1,411)      $ 183
                                               ========    ========
Net Gain/(loss) per share - basic and diluted  $ (0.33)     $ 0.04
                                               ========    ========
Shares used in per share calculation -
       basic and diluted                         4,340       4,493
                                               ========    ========

As a percentage of net sales:
Net sales                                       100.0%      100.0%
Cost of sales                                    63.8%       47.0%
                                               --------    --------
       Gross profit                              36.2%       53.0%
                                               --------    --------
Operating expenses:
       Research and development                  15.3%        9.8%
       Sales and marketing                       41.5%       32.3%
       General and administrative                10.3%        7.3%
       Amortization of intangible assets          0.9%           -
                                               --------    --------
             Total operating expenses            68.0%       49.4%
                                               --------    --------
Income/(Loss) from operations                   (31.7%)       3.5%
Other income, net                                 0.1%        1.0%
                                               --------    --------
Income/(Loss) before income taxes               (31.6%)       4.6%
Provision for/ (benefit from) income taxes        0.0%        1.8%
                                               --------    --------
Net Gain/(loss)                                 (31.6%)       2.8%
                                               --------    --------