Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d)
Date of Report (Date of earliest event reported): March 6, 1998
CASTELLE
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
0-220-20 77-0164056
(Commission File Number) (IRS Employer Identification No.)
3255-3 Scott Boulevard
Santa Clara, CA 95054
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 496-0474
<PAGE>
Item 5. Other Events
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On March 6, 1998, Castelle issued a press release announcing fourth quarter
and 1997 annual results and the restatement of earnings for 1996 and the first
three quarters of 1997, which is filed herewith as Exhibit 99.1 and incorporated
herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
(c) Exhibits.
Exhibit
Number Description
99.1 Press Release, dated March 6, 1998.
<PAGE>
SIGNATURES
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.
Castelle
Dated: March 6, 1998 By: /s/ Randall I. Bambrough
Randall I. Bambrough
Chief Financial Officer, Vice President of
Finance and Administration and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release, dated March 6, 1998.
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
CONTACT:
Art Bruno, Chairman (408) 496-0474
Randall Bambrough, Vice President Finance & CFO (408) 496-0474
Santa Clara, California, March 6, 1998 - CASTELLE (Nasdaq-CSTL) today announced
financial results for the fourth quarter and full year ended December 31, 1997,
and a restatement of results for 1996 and the first three quarters of 1997 due
to a change in the method of accounting from pooling-of-interest accounting to
purchase accounting on the instructions from the Securities and Exchange
Commission ("SEC") for the acquisition of Ibex Technologies, Inc. ("Ibex") in
November 1996. The restatement, discussed in more detail below, resulted in
certain amortization, restructuring and other charges being taken by the Company
in the fourth quarter of 1996 and the first three quarters of 1997, but had no
impact on cash or cash equivalent balances for these periods or on the financial
results for the fourth quarter of 1997.
Net sales in the fourth quarter of 1997 were $5.3 million down from $8.1 million
in the same period in 1996 (as restated). The company recorded a net loss for
the fourth quarter of 1997 of $930,000 or $0.21 per share (diluted) on 4.5
million shares, compared to net income of $3.5 million or $0.84 per share
(diluted) on 4.2 million shares for the comparable period of 1996 (as restated).
Net income for the fourth quarter of 1996, excluding restructuring and other
charges of $1.1 million and a one-time net tax benefit of $3.7 million, was
$894,000 or $.21 per share (as restated).
Net sales for the year ended December 31, 1997 were $25.3 million compared to
$29.5 million for the same period in 1996 (as restated). Net loss for the year
ended December 31, 1997 was $6.9 million or $1.54 per share (diluted) on 4.5
million shares, compared to net income of $5.7 million or $1.45 per share
(diluted) on 3.9 million shares for the comparable period of 1996 (as restated).
Net loss for 1997, excluding restructuring and other charges of $6.2 million, a
one-time net year-to date tax benefit of $732,000 and amortization of intangible
assets of $574,000, was $829,000 or $.19 per share. Net income for 1996,
excluding restructuring and other charges of $1.1 million and a one-time net
year-to-date tax benefit of $3.7 million, was $3.1 million or $.79 per share (as
restated).
"Castelle's fourth quarter revenues fell below our expectations," said Arthur
Bruno, Chairman. "The Company's print server sales to the Pacific Rim were
adversely impacted by a component shortage and business conditions in Asia that
resulted in a significant revenue shortfall. In addition, our European sales
continue below expectations and as such, a restructure of our sales efforts in
that region is being implemented."
During the quarter, the Company successfully introduced FaxPress Version 4.0,
the industry's first NT and NetWare fax server to support Internet faxing. The
Company continues to solidify its Internet fax and print strategy with the
release of an SMTP-based Internet email-to-fax gateway, the release of an
Internet print server and the development of strategic alliances with ISPs.
Castelle has recently won awards in the Internet arena, including the Editors'
Choice Award for FaxPress from Internet Telephony magazine, and the "Best
Web-Fax-Enabling Software" Award for InfoPress from The Kauffman Group.
The above results for 1996 and 1997 reflect the impact of a restatement of the
manner in which the Company has accounted for the acquisition of Ibex in
November 1996. Previously, the Company had accounted for the acquisition using
pooling-of-interest accounting. However, the SEC has advised the Company that in
its view the acquisition did not qualify as a pooling-of-interests for technical
reasons and must be accounted for as a purchase. This conclusion was reached
following initial questions raised by the SEC after a review of the Company's
financial statements in the fourth quarter of 1997 and extensive subsequent
discussions between the Company and the SEC which continued through February
1998. Due to the SEC's conclusions, the Company has now restated its financial
statements for the fourth quarter of 1996, for the year 1996 as a whole and for
the first three quarters of 1997 to account for the November 1996 Ibex
acquisition as a purchase as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
THREE NINE
MONTHS YEAR THREE MONTHS ENDED MONTHS
ENDED ENDED ---------------------------- ENDED
12/31/96 12/31/96 3/28/97 6/27/97 9/26/97 9/26/97
--------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
As reported $ 8,525 $ 32,725 $ 6,419 $ 7,002 $ 6,597 $ 20,018
As restated $ 8,111 $ 29,461 $ 6,419 $ 7,002 $ 6,597 $ 20,018
Net Income (loss):
As reported $ 3,166 $ 5,643 $ 367 $ 74 $ (1,490) $ (1,049)
As restated $ 3,499 $ 5,724 $ 80 $ (213) $ (5,832) $ (5,965)
Net Income (loss) per share:
As reported $ 0.68 $ 1.20 $ 0.08 $ 0.02 $ (0.33) $ (0.24)
As restated $ 0.84 $ 1.45 $ 0.02 $ (0.05) $ (1.30) $ (1.34)
</TABLE>
In connection with the restatement of the Ibex acquisition as a purchase instead
of a pooling-of-interests, the Company recorded in the fourth quarter of 1996
net tangible assets and identified intangible assets acquired from Ibex at their
fair market value at that time of $142,000 and $2.7 million, respectively, and
recorded goodwill in the amount of $3.0 million. In addition, a charge of $1.1
million (or $0.26 per share) was taken in the same quarter to reflect a
write-off of Ibex's in-process research and development. A charge of $1.4
million relating to the acquisition costs of Ibex, originally booked in the
fourth quarter of 1996, was reversed and included as part of the purchase price.
1996 net sales were reduced to reflect only one month of Ibex revenues rather
than the 12 months previously recorded. Amortization charges with respect to the
assets and goodwill acquired from Ibex were recorded in December 1996 and the
first and second quarters of 1997, resulting in decreases in the net income
previously reported in the amounts of $96,000, $287,000 and $287,000,
respectively. Subsequently, the balance of the goodwill, $2.7 million, and the
remaining value of intangible assets, $2.4 million, were entirely written off
during the third quarter of 1997. This was done when the Company suffered
significant losses on its current Ibex products due to increasing competition
from Internet based applications and determined that the primary product under
development by Ibex was not economically feasible. As a result, a restructuring
charge previously taken in the third quarter of 1997 was increased from $1.2
million (or $0.26 per share) to $6.2 million (or $1.39 per share). Further, as a
result of the restructuring write-off for the Ibex intangible assets and
goodwill, the Company booked a benefit from taxes of $732,000 (or $0.16 per
share) in the third quarter of 1997.
Castelle strongly advises users of its financial statements to consider the
above facts and avoid relying on the previously issued (and now recalled)
financial statements.
Because the intangible assets and goodwill recorded in connection with the Ibex
acquisition as restated were entirely written-off by the end of the third
quarter of 1997, the restatement had no impact on the financial results for the
fourth quarter of 1997 and will not have any impact on the Company's financial
results for 1998 or subsequent years. Furthermore, the restatement had no impact
on cash or cash equivalent balances during the previous reporting periods nor
will it have any impact on cash flow for future periods.
The Company is continuing to explore alternatives for enhancing stockholder
value, including the possibility of merging with another company. C.E.
Unterberg, Towbin is continuing to advise the Company with respect to potential
opportunities in this regard.
Castelle, founded in 1987, designs, develops, markets and supports specialized
network servers for increased productivity in workgroups and distributed
enterprise applications. Products include: internetwork fax and print servers
for workgroups, fax and e-mail on demand, fax gateways, plus fax broadcast and
Web fax systems. Products are available through a worldwide network of
distributors. The Company also has relationships with selected original
equipment manufacturers and system integrators and sells software enhancements
and upgrades directly to end users. The Company, publicly traded on the
over-the-counter market under the NASDAQ symbol CSTL, is headquartered in Santa
Clara, California. For more information, call 1-800-289-7555 or visit Castelle's
web site at http://www.castelle.com.
Except for the historical information contained herein, this news release
contains forward-looking statements that involve risks and uncertainties,
including timely development, acceptance and pricing of new products and general
economic conditions as they affect the Company's customers, as well as the other
risks detailed from time to time in the Company's SEC reports, including the
report on form 10-KSB for the year ended December 31, 1996.
<PAGE>
CASTELLE
Condensed Consolidated Balance Sheets
(audited)
(in thousand)
DECEMBER 31, DECEMBER 31,
1997 1996*
-------------- ---------------
Assets:
Current Assets:
Cash and cash equivalents and
restricted cash $6,329 $8,161
Accounts receivable, net 3,273 5,783
Inventories 3,786 2,841
Prepaid expense and other assets 573 626
Deferred incomes taxes 874 1,439
-------------- ---------------
Total Current Assets 14,835 18,850
Property, plant & equipment, net 938 593
Goodwill, net -- 2,955
Other assets, net 93 2,777
Deferred incomes taxes 3,060 2,128
-------------- ---------------
Total Assets $18,926 $27,303
============== ===============
Liabilities & Shareholders' Equity:
Current Liabilities:
Long-term debt, current $87 --
Accounts payable 1,312 $1,862
Accrued liabilities 2,620 3,825
-------------- ---------------
Total Current Liabilities 4,019 5,687
Other long-term liabilities 52 --
-------------- ---------------
Total Liabilities 4,071 5,687
Shareholders' equity 14,855 21,616
-------------- ---------------
Total Liabilities & Shareholders'
Equity $18,926 $27,303
============== ===============
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*as restated
<PAGE>
CASTELLE
Condensed Consolidated Statement of Operations
(in thousand, except per share amounts)
<TABLE>
THREE MONTHS TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
(UNAUDITED (AUDITED)
.................. ....................
<S> <C> <C> <C> <C>
1997 1996* 1997 1996*
-------- -------- --------- ---------
Net Sales $ 5,325 $ 8,111 $ 25,343 $ 29,461
Cost of Sales 2,644 3,608 11,836 14,993
-------- -------- --------- ---------
Gross Profit 2,681 4,503 13,507 14,468
Operating Expenses:
Research & Development 727 722 3,141 2,357
Sales & Marketing 2,699 2,268 9,180 7,357
General & Administrative 603 518 2,296 1,566
Amort. of Intangible Assets -- 96 574 96
Restructuring & Other Charges -- 1,079 6,224 1,079
-------- -------- --------- ---------
Total Operating Expense 4,029 4,683 21,415 12,455
-------- -------- --------- ---------
Income/(Loss) from Operations (1,348) (180) (7,908) 2,013
-------- -------- --------- ---------
Other Income, net 124 47 281 183
-------- -------- --------- ---------
Income/(Loss) before Taxes (1,224) (133) (7,627) 2,196
Benefit from Taxes 294 3,632 732 3,528
-------- -------- --------- ---------
Net Income/(Loss) $ (930) $ 3,499 $ (6,895) $ 5,724
======== ======== ========= =========
Net Income/(Loss) per share $ (0.21) $ 0.84 $ (1.54) $ 1.45
Weighted average shares
outstanding - diluted 4,489 4,161 4,470 3,942
As a Percentage of Net Sales:
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 49.7% 44.5% 46.7% 50.9%
-------- -------- --------- ---------
Gross Profit 50.3% 55.5% 53.3% 49.1%
Operating Expenses:
Research & Development 13.7% 8.9% 12.4% 8.0%
Sales & Marketing 50.6% 28.0% 36.2% 25.0%
General & Administrative 11.3% 6.4% 9.1% 5.3%
Amort. of Intangible Assets -- 1.1% 2.2% 0.3%
Restructuring & Other Charges -- 13.3% 24.6% 3.7%
-------- -------- --------- ---------
Total Operating Expense 75.6% 57.7% 84.5% 42.3%
-------- -------- --------- ---------
Income/(Loss) from Operations (25.3%) (2.2%) (31.2%) 6.8%
-------- -------- --------- ---------
Other Income, net 2.3% 0.6% 1.1% 0.7%
-------- -------- --------- ---------
Income/(Loss) before Taxes (23.0%) (1.6%) (30.1%) 7.5%
Benefit from Taxes 5.5% 44.7% 2.9% 11.9%
-------- -------- --------- ---------
Net Income/(Loss) (17.5%) 43.1% (27.2%) 19.4%
======== ======== ========= =========
</TABLE>
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*as restated
