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Deficient management leads INDITEX on the verge of fail BUCHAREST, ROMANIA - Zara wants to cover losses from theft with employees’ money. The management, theft and losses give headaches to the Spanish group INDITEX, the owner of the ZARA chain. Only 10 months before, on July 25th, 2011, the publication Ziarul Financiar announced the fact that “INDITEX takes the manager from the Douglas perfumeries” pointing at Paul Cuza, who previously had the function of General Manager for Parfumerie Douglas SRL. Currently, the Romanian INDITEX group performs salary and structural changes without precedent, which the management team from Bucharest doesn’t want to explain. The problem of the clothes theft is a known phenomenon, especially when it comes to expensive brands such as ZARA or Massimo Dutti. The phenomenon was publicly recognized even by the management of the INDITEX Group Romania, two years before. Probably worried by this fact, Mihai Cioltea, the development manager of the INDITEX Group from Romania, also named by the press as “the Zara man”, stated in 2010 for the economic website InCont the following: “They steal a lot. Only for the stores in Bucharest we have 10 cases of stealing per day, which we discover and, depending on the severity, we call the police”.[...] Read the rest of the article... |
We respect intellectual property rights and will take appropriate steps to protect these rights.
UNITED STATES
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
For the quarterly period ended June 30, 2000
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
Commission File Number: 0-220-20
CASTELLE
(Address of principal executive offices, including zip code)
(408) 496-0474
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No __ The number of shares of the Registrant's Common Stock outstanding as of August 6, 2000 was 4,741,060.
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Part I - Financial Information Item 1. Financial Statements
See accompanying notes to condensed consolidated financial statements.
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See accompanying notes to condensed consolidated financial statements.
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See accompanying notes to condensed consolidated financial statements.
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CASTELLE AND SUBSIDIARIES
Notes To Condensed Consolidated Financial Statements
1. Basis of Presentation: The accompanying unaudited consolidated financial statements include the accounts of Castelle and its wholly owned subsidiaries in the United Kingdom and the Netherlands, and have been prepared in accordance with generally accepted accounting principles. All intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated have been included. The result of operationS for the interim period presented is not necessarily indicative of the results for the year ending December 31, 2000. Because all of the disclosures required by generally accepted accounting principles are not included in the accompanying consolidated financial statements and related notes, they should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's Form 10-K for the fiscal year-ended December 31, 1999. The year ended condensed balance sheet data was derived from our audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The income statements for the periods presented are not necessarily indicative of results that we expect for any future period, nor for the entire year. 2. Net Income/(Loss) Per Share
Basic net income/(loss) per share is computed by dividing net income/(loss)
available to common shareholders by the weighted average number of common
shares outstanding for that period. Diluted net income/(loss) per share
reflects the potential dilution from the exercise or conversion of other
securities into common stock that were outstanding during the period.
Shares that are potentially dilutive consist of incremental common shares
issuable upon exercise of stock options and warrants. In March 2000,
warrants to purchase 133,332 shares of common stock were exercised
whereby the holders of these warrants, netted, in cash-less exchanges,
68,997 shares of common stock.There are warrants to purchase 100,000 shares
of common stock outstanding, which have a strike price of $8.40 and
expire in December 2000. These warrants are not included in the diluted
share calculation.
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Basic and diluted earnings per share are calculated as follows for the second quarter and first six months of 2000 and 1999:
The calculation of diluted shares outstanding for the three months ended July 2, 1999 excludes 27,201 stock options to purchase the Company's common stock, as their effect was antidilutive in the period. The calculation of diluted shares outstanding for the six months ended July 2, 1999 excludes 21,967 stock options to purchase the Company's common stock, as their effect was antidilutive in the period. At June 30, 2000 warrants to purchase 100,000 shares of the Company's common stock were excluded, because their exercise price is greater than the average common stock market price for the period. 3. Inventory: Inventory is stated at the lower of standard cost (which approximates cost on a first-in, first-out basis) or market. Inventory details are as follows (in thousands):
4. Revenue Recognition: Product revenue is recognized upon shipment if a signed contract exists, the fee is fixed or determinable, collection of the resulting receivables is probable and product returns are reasonably estimable.The Company enters into agreements with certain of its distributors which permit limited stock rotation rights.These stock rotation rights allow the distributor to return products for credit but require the purchase of additional products of equal value. Revenues subject to stock rotation rights are reduced by management's estimates of anticipated exchanges. Provisions for estimated warranty costs and anticipated retroactive price adjustments are recorded at the time products are shipped. The Company recognizes revenue from the sale of extended warranty contracts ratably over the period of the contracts. 5. Segments Disclosure: The Company has adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 31, 1997. SFAS No. 131 supersedes SFAS No. 14, " Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 changes current practice under SFAS No. 14 by establishing a new framework on which to base segment reporting and introduces requirements for interim reporting of segment information. The Company has determined that it operates in one segment. 6. Comprehensive Income: Comprehensive income is the change in equity from transactions and other events and circumstances other than those resulting from investments by owners and distributions to owners. There are no significant components of comprehensive income excluded from net income, therefore, no separate statement of comprehensive income has been presented.
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7. New accounting pronouncements: In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Standards No.133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. Changes in fair value shall be recognized currently in earnings. Management believes the impact of SFAS No. 133 will not have a material impact on the financial position or results of operations of the Company. The company will adopt SFAS No. 133 as amended by SFAS 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" for its third quarterly filing of fiscal 2000. In December 1999 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements" which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company will adopt SAB 101 for its first quarterly filing of fiscal 2001. Management believes the impact of SAB 101 will not have a material impact on the financial position or results of operations of the Company. In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No.25" ("FIN 44"). This Interpretation clarifies (i) the definition of employee for purposes of applying APB Opinion No. 25, (ii) the criteria for determining whether a plan qualifies as a noncompensatory plan, (iii) the accounting consequence of various modifications to the terms of the previously fixed stock option or award, and (iv) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that FIN 44 covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1,2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. The company believes that the adoption of FIN 44 will not have a material effect on the company's financial positions or results of operation. The company is currently evaluating the impact of the remaining provisions of FIN 44 on its positions and the results of operations.
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Item 2. Management's Discussion and Analysis of Financial Condition and
This Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. The Company's operating results may vary significantly from quarter to quarter due to a variety of factors, including changes in the Company's product and customer mix, constraints in the Company's manufacturing and assembling operations, shortages or increases in the prices of raw materials and components, changes in pricing policy by the Company or its competitors, a slowdown in the growth of the networking market, seasonality, timing of expenditures and economic conditions in the United States, Europe and Asia. Words such as "believes," "anticipates," "expects," "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Readers are cautioned that the forward-looking statements reflect management's analysis only as of the date hereof, and the Company assumes no obligation to update these statements. Actual events or results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to the risks and uncertainties discussed herein, as well as other risks set forth under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The following discussion should be read in conjunction with the Financial Statements and the Notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and in the Company's Form 10-K for the fiscal year ended December 31, 1999.
* Less than 1%
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Results of Operations Net Sales Net sales for the second quarter of 2000 were $3.8 million compared to $3.7 million for the same period in 1999. The modest increase was largely due to the Company's highest sales of the enhanced fax server products of $214,000, or 7%, offset in part by the continued decline in the sales of the print server products by $191,000, or 35%, mainly to customers in the Asia Pacific Region. Net sales were $7.9 million and $8.2 million for the first six months of 2000 and 1999, respectively. The shortfall in sales was largely due to the continued decline in demand for our print server product line of $490,000, or 31%, mainly to customers in the Asia Pacific region and a decrease in sales from the Traffic Software Object Fax line of products of $74,000, which has since been discontinued. The reduction was offset partially by an increase in the fax server product line of $220,000, or 3%. International sales in the second quarter of 2000 decreased to $768,000 from $1 million for the same period in 1999, representing 20% and 28%, respectively, of total net sales. International sales for the first six month of 2000 and 1999 were $1.9 million and $2.7 million, representing 25% and 33%,respectively, of total net sales. This decline in international sale was mainly the result of reduced demand for the Company's print server products. Domestic sales in the second quarter of 2000 were $3 million, as compared to $2.7 million in the same period in 1999. For the six months of 2000, domestic sales were $5.9 million, as compared to $5.5 million, an increase of 7%, mostly in the fax server product line. Gross Profit Gross profit of $2.5 million, or 65% for the second quarter of fiscal 2000 increased compared to $2 million, or 53% for the same period in 1999. The increase was primarily attributable to a higher percentage of sales of fax server products, which yield higher margins. Gross profits for the first six months of 2000 and 1999 were $4.9 million, or 62% and $3.6 million, or 44%, respectively. Excluding an excess inventory provision of $1.1 million recorded in 1999, the gross margin in the first six months of 1999 would have been $4.7 million, or 58%. This provision was primarily associated with excess inventory of print server products targeted for the Asian market and inventory of fax server products made obsolete by the newer FaxPress models. The increase in gross profit for the six months of 2000 was chiefly due to the higher shipments of the fax server products. Research & Development Research and product development expenses were $489,000, or 13% of net sales for the second quarter of 2000 as compared to $948,000, or 25% of net sales for the same period in 1999. Research and product development expenses for the first six months were $994,000, or 13% of net sales in 2000 as compared to $1.6 million, or 20% of net sales for the same period in 1999. The decrease was mostly due to staff reductions by the Company of $496,000 and the reduction of outside consulting expenses of $66,000.
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Sales & Marketing Sales and marketing expenses were $1.3 million, or 35% of net sales for the second quarter of 2000, as compared to $2 million, or 54% of net sales for the same period in 1999. For the first six months of 2000, the expenses were $2.6 million, or 34% of net sales, as compared to $3.9 million, or 47% of net sales for the same period in 1999. The decrease of sales and marketing expenses was chiefly associated with lower sales personnel costs of $524,000 and further controlling of promotional expenses of $546,000. General & Administrative General and administrative expenses were $416,000, or 11% of net sales for the second quarter of 2000, as compared to $494,000, or 13% of net sales for the same period in 1999. The first six months expenses were $882,000, or 11% of net sales in 2000, as compared to $953,000, or 12% of net sales for the same period in 1999. The reduction in expenses was largely attributable to lower personnel-related expenses. Liquidity and Capital Resources As of June 30, 2000, the Company had approximately $4.6 million of cash and cash equivalents, and $4.7 million at December 31, 1999. However, working capital increased to $4.1 million at June 30, 2000 from $3.6 million at December 31, 1999. The increase in working capital was primarily due to the Company's net income for the first six months of 2000 and focus on controlling expenses. The Company has a $3 million secured revolving line of credit with a bank from which the Company may borrow 100% against pledges of cash at the bank's prime rate and at June 30, 2000 had no borrowings under this line of credit. In December 1997,the Company entered into a loan and security agreement with a finance company for an amount of $288,000. The amounts borrowed are subject to interest of 10.11%, are repayable by December 2000, and are partially collateralized by a certificate of deposit of $125,000, which is classified as restricted cash on the Company's balance sheet. As of June 30, 2000, the outstanding balance of the loan under this agreement was $39,000. As of June 30, 2000, net accounts receivable were $1.9 million, up from $1.5 million at December 31, 1999. The increase in net accounts receivable was largely attributable to an increase in net sales in the first quarter and slower collection in the second quarter resulting in a lengthening of the number of days for which payment for sales is outstanding from 35 days at December 31, 1999 to 46 days at June 30, 2000. Net inventory as of June 30, 2000 was $1.4 million, comparable to that of December 31, 1999. The Company did not make any material capital commitments during the first six months ended June 30, 2000. Although the Company believes that its existing capital resources, anticipated cash flows from operations and available lines of credit will be sufficient to meet its capital requirements at least through the next 12 months, the Company may be required to seek additional equity or debt financing. The timing and amount of such capital requirements cannot be determined at this time and will depend on a number of factors, including demand for the Company's existing and new products and the pace of technological change in the networking industry. There can be no assurance that such additional financing will be available on satisfactory terms when needed, if at all. Management believes that, for the periods presented, inflation has not had a material effect on the Company's operations.
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Other Matters In compliance with the new Audit Committee structure and composition requirements promulgated by the Nasdaq Stock Market, the Company has complied with Marketplace Rules 4310(c)(26)(B) for SmallCap Issuers and has certified that it has and that it will continue to have, an Audit Committee of at least three members,comprised solely of independent directors, each of whom is able to read and understand fundamental financial statements, or will become able to do so within a reasonable period of time after his or her appointment. In addition, the Company has established and will continue to require that, at least one member of the Audit Committee must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication. The Company's Common Stock has been listed on the Nasdaq SmallCap Market since April 1999. In order to maintain its listing on the Nasdaq SmallCap Market, the Company must maintain total assets, capital and public float at specified levels, and generally must maintain a minimum bid price of $1.00 per share. If the Company fails to maintain the standard necessary to be quoted on the Nasdaq SmallCap Market, the Company's Common Stock could become subject to delisting. If the Common Stock is delisted, trading in the Common Stock could be conducted on the OTC Bulletin Board or in the over-the-counter market in what is commonly referred to as the "pink sheets." If this occurs, a shareholder will find it more difficult to dispose of the Common Stock or to obtain accurate quotations as to the price of the Common Stock. Lack of any active trading market would have an adverse effect on a shareholder's ability to liquidate an investment in the Company's Common Stock easily and quickly at a reasonable price. It might also contribute to volatility in the market price of the Company's Common Stock and could adversely effect the Company's ability to raise additional equity or debt financing on acceptable terms or at all. Failure to obtain desired financing on acceptable term could adversely affect the Company's business, financial condition and results of operations. These and other risk factors are discussed in more detail in the Company's Form 10-K for the fiscal year ended December 31, 1999 under the section "Risk Factors."
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PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Quantitative and Qualitative Disclosure About Market Risk None. Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Shareholders on May 10, 2000 (the "Annual Meeting").At the Annual Meeting, the Company's shareholders elected four directors nominated by the Board of Directors by the votes indicated:
The proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ending December 31, 2000 was approved. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27.1 Financial Data Schedule 99.1 Press Release dated July 27, 2000 (b) Reports on Form 8-K
None
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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, thereunto duly authorized. CASTELLE
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Exhibit 99.1 FOR IMMEDIATE RELEASE July 27, 2000 CONTACT: Donald L. Rich, President & CEO 408-496-0474 Castelle Reports Second Quarter 2000 Results: 3 Consecutive Quarters of Profitability SANTA CLARA, Calif., July 27, 2000 - CASTELLE (Nasdaq: CSTL) today announced financial results for the second fiscal quarter ended June 30, 2000. Net sales for the second quarter of 2000 were $3.8 million, compared to $3.7 million for the same period in 1999. The Company recorded net income for the second quarter of 2000 of $211,000 or earnings of $0.04 per share, on a fully diluted basis, compared to a net loss of $1.5 million or a loss of $0.31 per share for the same period in 1999. This compares to net income in the fourth quarter of 1999 and first quarter of 2000 of $114,000 and $169,000,respectively, or earnings of $0.02 and $0.03 per share, respectively. Net sales for the first six months of 2000 were $7.9 million compared with $8.2 million for the same period of 1999. Net income for the six-month period was $380,000 or $0.07 per share compared to a net loss of $2.9 million or $0.64 per share for the 1999 period, resulting from higher margins and reduced operating expenses. The shortfall in sales was largely due to the continued decline in demand for our print server product line, mainly in the Asia Pacific Region. The loss in 1999 included a $1.1 million reserve for excess inventory related to the print serve product line. Excluding the reserve, the net loss for the period would have been $1.7 million, or $0.38 per share. Donald L. Rich, President and CEO, stated, "Our strategy over the past 18 months has been to stabilize the business, return to profitability and develop new products to grow our revenues. We are pleased with our third consecutive profitable quarter and the healthy trend of increasing earnings per share. Our higher-margin fax server product line has continued to do well with a slight increase in shipments over the same period last year as well as the first quarter of this year, offsetting lower print server product sales. During the third quarter we will enter new markets by introducing the OfficeDirect product family of unified email/fax messaging and network attached storage server appliances for small and medium size offices." About Castelle Founded in 1987, Castelle develops and markets products that enable organizations to easily implement Internet and Intra-office messaging, data storage and printing over local area networks. Castelle is one of the pioneers of application server appliances and has developed expertise to integrate most complex functions into very easy-to-use and maintain, "plug-& -forget" shared devices. We believe Castelle's products are more economical than comparable software-only solutions, as they do not require a large technical staff to install, operate and maintain. Castelle products are utilized by industry leaders including Fortune 1000 companies and also by small and medium- sized business worldwide and are available through a worldwide network of distributors, value-added resellers, systems integrators, e-commerce retailers, and the Castelle On-Line Store. Castelle is headquartered in Santa Clara and can be reached at 408-496-0474, fax 408-496-0502 or www.castelle.com.
Forward-Looking Statements
E-2
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