Castelle Reports Financial Results for Third Quarter 2004; Sales Remain Stable, Company Records 13th Straight Profitable Quarter and Balance Sheet Strengthens.MORGAN Morgan, American family of financiers and philanthropists. Junius Spencer Morgan, 1813–90, b. West Springfield, Mass., prospered at investment banking. HILL, Calif. -- Castelle (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CSTL CSTL Chemical Science and Technology Laboratory CSTL Clinical Study Team Leader ), a market leader in fax solutions for small to medium-sized Me´di`um-sized` a. 1. Having a medium size; as, a medium-sized man s>. Adj. 1. medium-sized - intermediate in size medium-size, moderate-size, moderate-sized workgroups See workgroup, workgroup-based network and Windows for Workgroups. and enterprise applications, today announced financial results for the third quarter ended September September: see month. 30, 2004. Sales for the third quarter of 2004 reached $2.70 million, compared to $2.57 million reported in the third quarter of 2003. Net income in the third quarter of 2004 was $142,000, or $0.03 per fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, which included a provision for income taxes of $95,000. This compares to net income of $241,000, or $0.06 per fully diluted share, in the year-ago quarter, which did not include an equivalent income tax provision. On a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma basis, including the tax provision, net income in the third quarter of 2003 would have been $146,000, or $0.03 per fully diluted share. Sales and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the three and nine months ended September 30, 2004 included a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta benefit of $126,000 from an adjustment of certain accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. related to a sales development program. For the nine months ended September 30, 2004, sales totaled $7.97 million, compared to the year-earlier figure of $7.58 million. Net income for the first nine months of 2004 was $460,000, or $0.10 per fully diluted share, compared to $712,000, or $0.17 per fully diluted share, in the comparable period of 2003. The 2003 net income figure did not include a comparable income tax provision of $314,000 included in the nine months of 2004. On a pro forma basis with the tax provision included, net income for the nine months of 2003 would have been $431,000, or $0.10 per fully diluted share. Sales Remain Stable; Company Records 13th Straight Profitable Quarter "Castelle's third-quarter 2004 results reflect continued market demand for our line of network fax servers for business and enterprise," said Scott C. McDonald, President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "This demand has enabled Castelle to increase sales, maintain profitability and strengthen our balance sheet, which now has over $5 million in cash with virtually zero debt." Mr. McDonald also noted that Castelle has now had 13 straight profitable quarters. Balance Sheet Strengthens Castelle reported cash and cash equivalents totaling $5.03 million as of September 30, 2004. This is an increase from $4.61 million as of December December: see month. 31, 2003 and $4.84 million as of June June: see month. 30, 2004. Cash and cash equivalents as of September 30, 2004 equaled approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.16 per fully diluted share. The Company remained virtually debt-free as of the end of the third quarter of 2004. Use of Pro Forma Operating Results Prior to the fourth quarter of 2003, Castelle showed little or no income tax expense because it was utilizing available Net Operating Loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. (NOL NOL - Never Offline ) and tax credit carry-forwards to determine its GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). operating results. For financial reporting purposes, the NOLs were fully reserved by a valuation allowance due to uncertainty as to whether they would be realized. However, the Company's continued profitability led it to determine that it is likely to realize certain future tax benefits as required by GAAP. For that reason, a portion of those deferred tax assets were recognized in the fourth quarter of 2003. Also, beginning with the first quarter of 2004 and continuing in the latest quarter, the Company is providing for income taxes at an effective tax rate of 40%. However, because it still had $12.9 million of available NOLs available as of December 31, 2003 to offset future taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. , it does not expect to use significant amounts of cash for income-tax payments until those NOLs have been utililized. The reconciliation of GAAP statement-of-operations amounts to the respective pro forma figures, for the third quarter and nine month period ending September 30, 2003, is set forth at the end of this press release. About Castelle Castelle, a market leader in fax solutions for small to medium-sized workgroups and enterprise applications, develops office automation systems that allow organizations to easily implement faxing and printing over local area networks and the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . Castelle's network fax servers, FaxPress and FaxPress Premier, provide a simple way to integrate fax with email, desktop and back-end (programming) back-end - Any software performing either the final stage in a process, or a task not apparent to the user. A common usage is in a compiler. A compiler's back-end generates machine language and performs optimisations specific to the machine's architecture. applications. Castelle products are designed to be easy to use and maintain, and provide an economical way for companies to share resources over the network. Castelle was founded in 1987 and is headquartered in Morgan Hill, California Morgan Hill (IPA: /ˈmɔrgɨn ˈhɪl/) is a city located in the southern part of Santa Clara County, California, USA. . Its products are available through a worldwide network of distributors, resellers, and online retailers. Visit Castelle online at www.castelle.com. If you would like to be added to Castelle's investor email list, please contact Karin Karin is a common feminine given name in various Germanic languages (geographically including Germany, Scandinavia, and Holland), Japanese, and in some French-speaking areas. Smith at ksmith@castelle.com. FaxPress(TM) and FaxPress Premier(TM) are trademarks of Castelle. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release may contain forward-looking statements. These statements are subject to risks and uncertainties, including but not limited to the impact on our results from fluctuations in demand for our products, introduction of new products by our competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. , the timely development, acceptance and pricing of new products, the effectiveness of our cost control and productivity improvement procedures and general economic conditions as they affect the Company's customers. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements as contained in our reports to the Securities and Exchange Commission, including our Forms 10-K and 10-Q. The Company assumes no obligation to update the forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information.
CASTELLE
Condensed Consolidated Statements of Earnings
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept.30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales $2,698 $2,566 $7,973 $7,577
Cost of sales 674 555 1,905 1,825
--------- --------- --------- ---------
Gross profit 2,024 2,011 6,068 5,752
--------- --------- --------- ---------
Operating expenses:
Research and development 470 427 1,312 1,211
Sales and marketing 820 846 2,506 2,341
General and administrative 486 497 1,459 1,463
--------- --------- --------- ---------
Total operating expenses 1,776 1,770 5,277 5,015
--------- --------- --------- ---------
Operating income 248 241 791 737
Other income/(expenses), net (11) 2 (17) (19)
--------- --------- --------- ---------
Income before income taxes 237 243 774 718
Provision for income taxes 95 2 314 6
--------- --------- --------- ---------
Net income $142 $241 $460 $712
========= ========= ========= =========
Net income per common share :
Basic $0.04 $0.07 $0.13 $0.22
========= ========= ========= =========
Diluted $0.03 $0.06 $0.10 $0.17
========= ========= ========= =========
Shares used in per share
calculation:
Basic 3,647 3,286 3,573 3,260
========= ========= ========= =========
Diluted 4,353 4,344 4,414 4,154
========= ========= ========= =========
As a percentage of net sales:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 25.0% 21.6% 23.9% 24.1%
--------- --------- --------- ---------
Gross profit 75.0% 78.4% 76.1% 75.9%
--------- --------- --------- ---------
Operating expenses:
Research and development 17.4% 16.6% 16.5% 16.0%
Sales and marketing 30.4% 33.0% 31.4% 30.9%
General and administrative 18.0% 19.4% 18.3% 19.3%
--------- --------- --------- ---------
Total operating expenses 65.8% 69.0% 66.2% 66.2%
--------- --------- --------- ---------
Operating income 9.2% 9.4% 9.9% 9.7%
Other income/(expenses), net (0.4%) 0.1% (0.2%) (0.2%)
--------- --------- --------- ---------
Income before income taxes 8.8% 9.5% 9.7% 9.5%
Provision for income taxes 3.5% 0.1% 3.9% 0.1%
--------- --------- --------- ---------
Net income 5.3% 9.4% 5.8% 9.4%
========= ========= ========= =========
CASTELLE
Pro Forma Condensed Consolidated Statements of Earnings
Including Provision for Income Taxes in Prior Period
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept.30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales $2,698 $2,566 $7,973 $7,577
Cost of sales 674 555 1,905 1,825
--------- --------- --------- ---------
Gross profit 2,024 2,011 6,068 5,752
--------- --------- --------- ---------
Operating expenses:
Research and development 470 427 1,312 1,211
Sales and marketing 820 846 2,506 2,341
General and administrative 486 497 1,459 1,463
--------- --------- --------- ---------
Total operating expenses 1,776 1,770 5,277 5,015
--------- --------- --------- ---------
Operating income 248 241 791 737
Other income/(expenses), net (11) 2 (17) (19)
--------- --------- --------- ---------
Income before income taxes 237 243 774 718
Provision for income taxes 95 97 314 287
--------- --------- --------- ---------
Net income $142 $146 $460 $431
========= ========= ========= =========
Net income per common share :
Basic $0.04 $0.04 $0.13 $0.13
========= ========= ========= =========
Diluted $0.03 $0.03 $0.10 $0.10
========= ========= ========= =========
Shares used in per share
calculation:
Basic 3,647 3,286 3,573 3,260
========= ========= ========= =========
Diluted 4,353 4,344 4,414 4,154
========= ========= ========= =========
CASTELLE
GAAP To Pro Forma Reconciliation
Including Provision for Income Taxes in Prior Period
(in thousands, except per share data)
Three Months Ended
September 30, 2004 September 30, 2003
------------------------ ------------------------
Pro Pro
GAAP Included forma GAAP Included forma
Net sales $2,698 $2,698 $2,566 $2,566
Cost of sales 674 674 555 555
------- -------- ------- ------- -------- -------
Gross profit 2,024 0 2,024 2,011 0 2,011
------- -------- ------- ------- -------- -------
Operating expenses:
Research and
development 470 470 427 427
Sales and marketing 820 820 846 846
General and
administrative 486 486 497 497
------- -------- ------- ------- -------- -------
Total operating
expenses 1,776 0 1,776 1,770 0 1,770
------- -------- ------- ------- -------- -------
Operating income 248 0 248 241 0 241
Other income/(expenses),
net (11) (11) 2 2
------- -------- ------- ------- -------- -------
Income before income
taxes 237 0 237 243 0 243
Provision for income
taxes 95 0 95 2 95 97
------- -------- ------- ------- -------- -------
Net income $142 $0 $142 $241 $(95) $146
======= ======== ======= ======= ======== =======
Net income(loss) per
common share:
Basic $0.04 $0.00 $0.04 $0.07 $(0.03) $0.04
======= ======== ======= ======= ======== =======
Diluted $0.03 $0.00 $0.03 $0.06 $(0.02) $0.03
======= ======== ======= ======= ======== =======
Shares used in per
share calculation:
Basic 3,647 3,647 3,647 3,286 3,286 3,286
======= ======== ======= ======= ======== =======
Diluted 4,353 4,353 4,353 4,344 4,344 4,344
======= ======== ======= ======= ======== =======
CASTELLE
GAAP To Pro Forma Reconciliation
Including Provision for Income Taxes in Prior Period
(in thousands, except per share data)
Nine Months Ended
September 30, 2004 September 30, 2003
------------------------ ------------------------
Pro Pro
GAAP Included forma GAAP Included forma
Net sales $7,973 $7,973 $7,577 $7,577
Cost of sales 1,905 1,905 1,825 1,825
------- -------- ------- ------- -------- -------
Gross profit 6,068 0 6,068 5,752 0 3,741
------- -------- ------- ------- -------- -------
Operating expenses:
Research and
development 1,312 1,312 1,211 1,211
Sales and marketing 2,506 2,506 2,341 2,341
General and
administrative 1,459 1,459 1,463 1,463
------- -------- ------- ------- -------- -------
Total operating
expenses 5,277 0 5,277 5,015 0 5,015
------- -------- ------- ------- -------- -------
Operating income 791 0 791 737 0 737
Other income/(expenses),
net (17) (17) (19) (19)
------- -------- ------- ------- -------- -------
Income before income
taxes 774 0 774 718 0 718
Provision for income
taxes 314 0 314 6 281 287
------- -------- ------- ------- -------- -------
Net income $460 $0 $460 $712 $(281) $431
======= ======== ======= ======= ======== =======
Net income(loss) per
common share:
Basic $0.13 $0.00 $0.13 $0.22 ($0.09) $0.13
======= ======== ======= ======= ======== =======
Diluted $0.10 $0.00 $0.10 $0.17 ($0.07) $0.10
======= ======== ======= ======= ======== =======
Shares used in per
share calculation:
Basic 3,573 3,573 3,573 3,260 3,260 3,260
======= ======== ======= ======= ======== =======
Diluted 4,414 4,414 4,414 4,154 4,154 4,154
======= ======== ======= ======= ======== =======
CASTELLE
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
September 30, 2004 December 31, 2003
------------------ ------------------
(unaudited)
Assets:
Current Assets:
Cash and cash equivalents $5,032 $4,614
Accounts Receivable, net 948 873
Inventories 1,532 1,177
Prepaid Expenses and other
current assets 187 134
Deferred Taxes 212 380
------------------ ------------------
Total current assets 7,911 7,178
Property and equipment, net 243 376
Other assets 103 103
Deferred taxes, non-current -- 146
------------------ ------------------
Total assets $8,257 $7,803
================== ==================
Liabilities and Shareholders'
Equity
Current liabilities:
Long-term debt, current portion $14 $16
Accounts payable 338 314
Accrued liabilities 1,250 1,759
Deferred revenue 1,114 909
------------------ ------------------
Total current liabilities 2,716 2,998
Long-term debt 18 29
------------------ ------------------
Total liabilities 2,734 3,027
Shareholders' equity 5,523 4,776
------------------ ------------------
Total liabilities and
shareholder's equity $8,257 $7,803
================== ==================
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