-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PuZINKEtjoqv9Jgno2m8tuViKI7oi0dfaJLkj9pjk++9GigRB4KSBmqGfsKR91T2 zXTlG3j27zmnxYJy9O3fiw== 0000908605-05-000025.txt : 20050405 0000908605-05-000025.hdr.sgml : 20050405 20050405123209 ACCESSION NUMBER: 0000908605-05-000025 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050405 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050405 DATE AS OF CHANGE: 20050405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASTELLE \CA\ CENTRAL INDEX KEY: 0000908605 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 770164056 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22020 FILM NUMBER: 05732898 BUSINESS ADDRESS: STREET 1: 855 JARVIS DRIVE CITY: MORGAN HILL STATE: CA ZIP: 95037 BUSINESS PHONE: 408-852-8000 MAIL ADDRESS: STREET 1: 855 JARVIS DRIVE CITY: MORGAN HILL STATE: CA ZIP: 95037 FORMER COMPANY: FORMER CONFORMED NAME: CASTELLE INC DATE OF NAME CHANGE: 19930702 8-K 1 cstl8k_040505.txt FORM 8-K REPORT ON RESULTS OF OPERATIONS Q4 04 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): April 4, 2005 ----------------------- Castelle (Exact Name of Registrant as Specified in Its Charter) California (State or Other Jurisdiction of Incorporation) 000-22020 77-0164056 (Commission File Number) (IRS Employer Identification No.) 855 Jarvis Drive Suite 100 Morgan Hill, California 95037 (Address of Principal Executive Offices) (Zip Code) (408) 852-8000 (Registrant's Telephone Number, Including Area Code) Not Applicable (Former Name or Former Address, if Changed Since Last Report) Section 2.02 - Results of Operations and Financial Condition. (a) The information contained in this Section 2.02, and the exhibit hereto, are being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed incorporated by reference in any filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934 or the Securities Act of 1933, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. On April 5, 2005, Castelle issued a press release regarding its financial results for its fourth fiscal quarter and year ended December 31, 2004. A copy of Castelle's press release is attached hereto as Exhibit 99.1. Section 9.01 - Financial Statements and Exhibits (c) Exhibits The following exhibit is being furnished herewith: Exhibit Number Description ======== ============================================== 99.1 Text of press release issued by Castelle dated April 4, 2005.* * This information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed incorporated by reference in any filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934 or the Securities Act of 1933, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: April 4, 2005 Castelle By: /s/ Paul W. Cheng Paul W. Cheng Vice President, Chief Financial Officer and Secretary ================================================================================ EXHIBIT INDEX Exhibit Number Description ========= ============================================= 99.1 Text of press release issued by Castelle dated April 4, 2005. * * This information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed incorporated by reference in any filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934 or the Securities Act of 1933, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. EX-99 2 cstl8k_040505ex99-1.txt EXHIBIT 99.1 TEST OF PRESS RELEASE DATED 04-04-05 FOR IMMEDIATE RELEASE APRIL 4, 2005 Castelle Reports Financial Results for Fourth Quarter, Full Year 2004 Company Continues Transition to New Generation of Network Fax Servers MORGAN HILL, CA - April 4, 2005 - Castelle (Nasdaq: CSTL), a market leader in fax solutions for small to medium-sized workgroups and enterprise applications, today announced financial results for the fourth quarter and year ended December 31, 2004. Sales for the fourth quarter of 2004 were $2.54 million. Net income for the fourth quarter of 2004 was $1.71 million, or $0.39 per fully diluted share. Before a non-cash tax benefit of $1.38 million, or $0.31 per fully diluted share, income for the fourth quarter was $333,000. This represented the Company's 14th straight profitable quarter. For the year ended December 31, 2004, Castelle reported sales of $10.46 million. Sales for the year were primarily impacted by the Company's divestiture of its legacy products. Net income for 2004 was $2.12 million, or $0.48 per fully diluted share. Before a non-cash tax benefit of $1.07 million, or $0.24 per fully diluted share, income in 2004 was $1.05 million. "We are pleased to report another year of steady sales, solid profitability and, perhaps most importantly, continued progress in our expansion into enterprise-level applications with our new FaxPress PremierTM fax servers," said Scott C. McDonald, President and CEO of Castelle. "As part of this strategy, we have successfully divested our legacy products, such as our print servers and storage servers, and have extended our family of network fax servers to include both analog and digital capabilities. Our commitment to our fax server family allows us to focus on customer needs within the fax server market. We have already achieved positive results in Europe and North America, and are optimistic that we can achieve similar successes in Asia, where we recently launched our FaxPress Premier product line," concluded Mr. McDonald. As a result of the pending restatement announced by Castelle on March 31, 2005 in its Current Report on Form 8-K, the Company is not currently providing historical data for comparison purposes until such restated financial statements are available. Please see below and refer to the Form 8-K for additional details. Company Strengthens Balance Sheet with Strong Gains in Cash Mr. McDonald further noted that the Company has significantly strengthened its balance sheet - and its potential for internally financed expansion - during the past year. Cash and cash equivalents rose 21% to $5.60 million as of December 31, 2004. Castelle continues to operate with virtually zero long-term debt. Deferred Tax Asset Treatment Due to the Company's continued profitability and a determination that it is likely that certain future tax benefits will be realized, a portion of the Company's deferred tax assets were recognized in the fourth quarter of 2004 in addition to the portion recorded in the fourth quarter of 2003, resulting in recorded deferred tax assets of $1.52 million as of December 31, 2004. The Company had approximately $13 million of available federal Net Operating Loss (NOL) carry-forwards as of December 31, 2004 and does not expect to utilize significant amounts of cash for income tax payments until the NOLs have been utilized. Internal Controls and Restatement of Historical Financial Statements Historically, Castelle has classified certain costs of service revenues as a component of sales and marketing expenses, which, under generally accepted accounting principles, should have been classified as cost of service revenues. Based on a preliminary analysis, the Company expects to reclassify approximately $700,000 in each of fiscal 2002 and 2003, and approximately $800,000 for the nine-months ended September 30, 2004 out of sales and marketing and include these amounts within cost of service revenues in its statements of operations. The reclassifications will have no impact on reported revenue, net income and earnings per share for the respective periods. The Company has concluded that the internal control deficiency that led to the errors in the historical classification of cost of service revenues is a "material weakness" as defined by the Public Company Accounting Oversight Board's Accounting Standard No. 2. The Company has also determined, based on a preliminary analysis, that service revenues attributable to extended support contracts were overstated by approximately $50,000, $35,000 and $40,000 for the nine-months ended September 30, 2004, fiscal 2003 and fiscal 2002, respectively. The revenue overstatements represent less than 1% of the Company's total sales for the respective periods. The Company's independent auditors, Grant Thornton LLP, concluded that the internal control deficiency that led to the aforementioned revenue recognition errors is a "material weakness" as defined by the Public Company Accounting Oversight Board's Accounting Standard No. 2. Since then, the Company has remedied the process and believes that its internal controls over financial reporting relating to the recognition of sales from extended support contracts were effective as of March 31, 2005. The Company has also identified an error that resulted in an overstatement of its accrual for paid-time-off beginning in 2002 and continuing through 2004. Based on a preliminary analysis, the Company believes that the error resulted in the overstatement of expenses by approximately $25,000 in the aggregate during fiscal 2002, 2003 and for the nine-months ended September 30, 2004. The Company will restate its consolidated financial statements for fiscal 2002 and 2003 and the nine months ended September 30, 2004 to correct all these errors. For a more detailed explanation, please refer to the Current Report on Form 8-K, which was filed by the Company on March 31, 2005. Castelle has notified the SEC that it will need to delay the filing of its Annual Report on Form 10-K for the year ended December 31, 2004. The notification provides an extension to file the Form 10-K no later than 15 calendar days after its original due date of March 31. If filed within that time frame, Castelle will have satisfied the SEC's requirement for a timely submission of its Form 10-K. 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 over local area networks and the Internet. Castelle's network fax servers, FaxPress and FaxPress Premier, provide a simple way to integrate fax with email, desktop and back-end applications. Castelle products are an all-in-one fax solution 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. Its products are available through a worldwide network of distributors, resellers, online retailers, and the Castelle Online Store. Visit Castelle online at www.castelle.com. FaxPress(TM) and FaxPress Premier(TM) are trademarks of Castelle. If you would like to be added to Castelle's investor email list, please contact Karin Smith at ksmith@castelle.com. Forward-Looking Statements This press release contains forward-looking statements including but not limited to references to sales growth and our ability to successfully expand our product offering and remain profitable. 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, the timely development, acceptance and pricing of new products, the effectiveness of our cost control and productivity improvement procedures, the success and timeliness of the remediation of internal controls over financial reporting, completion of our restatement of our 2002 and 2003 financial statements and general economic conditions as they affect our 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. We assume no obligation to update the forward-looking information.
CASTELLE Condensed Consolidated Statements of Earnings (in thousands, except per share data) Three Months Ended Twelve Months Ended 12/31/2004 12/31/2004 Sales: Products $ 1,830 $ 8,011 Services 712 2,446 --------------------------------------------------------- Net sales 2,542 10,457 Cost of sales: Products 634 2,539 Services 205 826 --------------------------------------------------------- Cost of sales 839 3,365 --------------------------------------------------------- Gross profit 1,703 7,092 Operating expenses: Research and development 405 1,717 Sales and marketing 591 2,476 General and administrative 377 1,833 --------------------------------------------------------- Total operating expenses 1,373 6,026 Operating income 330 1,066 Other income/(expenses), net 3 (14) --------------------------------------------------------- Income before income taxes 333 1,052 Benefit from income taxes (1,381) (1,067) --------------------------------------------------------- Net income $ 1,714 $ 2,119 ========================================================= Net income per common share: Basic $ 0.46 $ 0.59 ========================================================= Diluted $ 0.39 $ 0.48 ========================================================= Shares used in per share calculation: Basic 3,742 3,616 ========================================================= Diluted 4,420 4,417 =========================================================
As a percentage of net sales: Sales: Products 72% 77% Services 28% 23% --------------------------------------------------------- Net sales 100% 100% Cost of sales: Products 25% 24% Services 8% 8% --------------------------------------------------------- Cost of sales 33% 32% Gross profit 67% 68% Operating expenses: Research and development 16% 16% Sales and marketing 23% 24% General and administrative 15% 18% --------------------------------------------------------- Total operating expenses 54% 58% Operating income 13% 10% Other income/(expenses), net --% --% -------------------------------------------------------- Income before income taxes 13% 10% Benefit from income taxes (54%) (10%) --------------------------------------------------------- Net income 67% 20% =========================================================
CASTELLE Condensed Consolidated Balance Sheets (in thousands) 12/31/2004 --------------------- Assets Current assets: Cash and cash equivalents $ 5,599 Accounts receivable, net 857 Inventories 1,785 Prepaid and other current assets 130 Deferred taxes 231 --------------------- Total current assets 8,602 Property and equipment, net 203 Other assets 50 Deferred taxes, non-current 1,292 --------------------- Total assets $ 10,147 ===================== Liabilities & shareholders' equity Current liabilities: Long-term debt, current portion $ 15 Accounts payable 511 Accrued liabilities 1,073 Deferred revenue 1,253 --------------------- Total current liabilities 2,852 Long-term debt 14 --------------------- Total liabilities 2,866 Shareholders' equity 7,281 --------------------- Total liabilities and shareholders' equity $ 10,147 =====================
# # # # # Castelle Contact Information: Scott C. McDonald President & Chief Executive Officer Tel. 408.852.8000 Fax 408.852.8100 Karin Smith Director of Marketing Tel. 408.852.8034 Fax 408.852.8134 -----END PRIVACY-ENHANCED MESSAGE-----