Costar Technologies, Inc. Announces Financial Results For the Second Quarter Ended June 30, 2020

COPPELL, Texas, Aug. 13, 2020 /PRNewswire/ -- Costar Technologies, Inc. (the "Company") (OTC Markets Group: CSTI) announced today its financial results for the second quarter ended June 30, 2020 that have been reviewed by the independent accounting firm BKD, LLP.

Financial Results for the Quarter Ended June 30, 2020

    --  Revenues of $14,640, a 28.3% decrease compared to the second quarter of
    --  Operating expenses, net of restructuring costs, were down 29.7% to
        $5,321, compared to $7,564 in the second quarter of 2019.
    --  GAAP net loss of $498, or ($0.31) per diluted share, compared to GAAP
        net income of $561, or $0.35 per diluted share, in the second quarter of
    --  Adjusted earnings of $508, or $0.32 per diluted share, compared to $972,
        or $0.60 per diluted share for the quarter ended June 30, 2019. Adjusted
        earnings of $664, or $0.42 per diluted share for the six months ended
        June 30, 2020, compared to ($1,250), or ($0.80) per diluted share for
        the six months ended June 30, 2019. Adjusted earnings, a non-GAAP
        measure, is defined below.
    --  Adjusted EBITDA of $650 compared to $1,593 for the quarter ended June
        30, 2019. Adjusted EBITDA of $1,150 compared to ($1,106) for the six
        months ended June 30, 2019 Adjusted EBITDA, a non-GAAP measure, is
        defined below.

Scott Switzer, the Company's Interim Chief Executive Officer, stated, "Challenges from the COVID-19 pandemic have impacted many businesses in the second quarter of 2020, and ours was no exception. The effects of business restrictions, temporary shutdowns and closures on our customers resulted in a decline in demand for our products. During the second quarter we launched a 'One Costar' initiative to unify our organization which resulted in significant cost savings, increased efficiencies, and improved employee collaboration across all our subsidiaries. As restrictions and closures ease, we are beginning to see increased quotation activity which we are confident will drive third quarter revenue wins. In addition, in the second quarter we released four new cameras that completes our family of mid-range products and will position us to enter new markets. Finally, in July we hired a Chief Revenue Officer to better leverage our sales team, improve our channel partner programs, and enhance our ability to meet the needs of our customers."

Sarah Ryder, the Company's Chief Financial Officer, went on to say, "During this unprecedented time we successfully restructured the organization, improving efficiency and reducing operating expenses by 30%. These efforts helped offset softness in revenue during the quarter resulting from the COVID-19 pandemic. We continue to have constructive conversations with our bank, UMB, as we work to obtain a waiver and modify our covenants to facilitate future compliance. Strong financial performance in the first quarter, combined with material cost reductions achieved in the second quarter, have better positioned the Company to navigate throughout this uncertain economic environment." For more information regarding the Company's loan agreements, see Note 7 of the Company's financial statements.

The Company's independent auditors completed their analysis of the Company's financial condition. The Independent Auditor's Review Report, including financial statements and applicable footnote disclosures, is available on our website at

Non-GAAP Financial Measures

The Company defines adjusted earnings, a non-GAAP measure, as net income (loss) excluding stock-based compensation and amortization of acquisition-related intangible assets. The Company defines adjusted EBITDA, a non-GAAP measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation. The following tables reconcile the non-GAAP financial measures disclosed in this release to GAAP net income (loss):

           Six Months    
           Six Months
                                   Ended             Ended                Ended                   Ended
                                         6/30/20           6/30/2019                6/30/20                 6/30/19

              Adjusted Earnings           508                  972                     664                  (1,250)


         Stock-Based Compensation          (53)                (87)                   (85)                   (173)

         Intangible Amortization          (318)               (324)                  (635)                   (648)

         Restructuring Costs              (635)                                      (635)

              Net Income (Loss)         (498)                 561                   (691)                 (2,071)

           Six Months    
           Six Months
                                   Ended             Ended                Ended                   Ended
                                         6/30/20           6/30/2019                6/30/20                 6/30/19

              Adjusted EBITDA             650                1,593                   1,150                  (1,106)


         Interest                         (207)               (348)                  (498)                   (656)

         Income Taxes (Benefit)             178                (157)                    243                      729

         Depreciation                     (113)               (116)                  (231)                   (217)

         Intangible Amortization          (318)               (324)                  (635)                   (648)

         Stock-Based Compensation          (53)                (87)                   (85)                   (173)

         Restructuring Costs              (635)                                      (635)

              Net Income (Loss)         (498)                 561                   (691)                 (2,071)

These reconciliations of GAAP to non-GAAP measures should be considered together with the Company's financial statements. These non-GAAP measures are not meant as a substitute for GAAP, but are included solely for informational and comparative purposes. The Company's management believes that this information can assist investors in evaluating the Company's operational trends, financial performance, and cash generating capacity. Management believes these non-GAAP measures allow investors to evaluate the Company's financial performance using some of the same measures as management. However, the non-GAAP financial measures should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP measures.

About Costar Technologies, Inc.

Costar Technologies, Inc. develops, designs, manufactures and distributes a range of security solution products including surveillance cameras, lenses, digital video recorders and high-speed domes. The Company also develops, designs and distributes industrial vision products to observe repetitive production and assembly lines, thereby increasing efficiency by detecting faults in the production process. Headquartered in Coppell, Texas, the Company's shares currently trade on the OTC Markets Group under the ticker symbol "CSTI". Costar was ranked as the 35(th) largest company in a&s magazine's Security 50 for 2019. Security 50 is an annual ranking by the magazine of the world's largest security manufacturers in the areas of video surveillance, access control and intruder alarms, based on sales revenue.

Cautionary Statement Regarding Forward Looking Statements

This press release contains forward-looking statements, including statements regarding the Company's ability to grow revenue and earnings, that are subject to substantial risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, including but not limited to risks related to the ability to diversify business across vertical markets, secure new customer wins, and launch new products. You can often identify forward-looking statements by words such as "believe," "may," "estimate," "continue," "anticipate," "intend," "plan," "expect," "predict," "potential," or the negative of these terms or other comparable terminology. These forward-looking statements are based on management's current expectations but they involve risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of the risks and uncertainties.

You should not place undue reliance on any forward-looking statements. The Company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable laws.




                                                                                                  June 30, 2020                     December 31, 2019

                                                                                                    (Reviewed)                          (Audited)


                Current assets

        Cash and cash equivalents                                                                                  $
             1                            $

         Accounts receivable, less allowance for
          doubtful accounts of $292 and $396 in 2020
          and 2019, respectively                                                                                           8,076                                    9,056

         Inventories, net of reserve for obsolescence
              of $1,167 and $1,264 in 2020 and
                    2019, respectively                                                                                    20,285                                   20,196

         Prepaid expenses and other current assets                                                                         2,728                                    2,295

      Total current assets                                           31,090                                   31,548

                Non-current assets

        Property and equipment, net                                                                                         742                                      910

        Deferred financing costs, net                                                                                        39                                       59

        Deferred tax asset, net                                                                                           4,514                                    4,514

        Trade names, net                                                                                                  2,017                                    2,198

        Distribution agreements, net                                                                                        749                                      801

        Customer relationships, net                                                                                       3,848                                    4,187

        Covenants not to compete, net                                                                                        45                                       60

        Patents, net                                                                                                        154                                      169

        Technology, net                                                                                                     235                                      268

        Goodwill                                                                                                          6,513                                    6,513

        Right of use assets                                                                                               2,664                                    3,131

        Other non-current assets                                                                                            149                                      149

      Total non-current assets                                       21,669                                   22,959

      Total assets                                        $
             52,759                       $


                Current liabilities

        Accounts payable                                                                                       $
             4,784                        $

        Accrued expenses and other                                                                                        6,803                                    5,879

        Line of credit                                                                                                   13,570                                   15,953

         Current maturities of long-term debt, net of
              financing fees                                                                            3,984                                      781

        Contingent purchase price                                                                                           990                                    1,490

         Current maturities of notes payable,
          unrelated party                                                                                                     83                                      583

         Current maturities of lease liabilities                                                                           1,021                                      990

      Total current liabilities                                      31,235                                   31,315

                Long-Term liabilities

         Long-term debt, net of current maturities
          and unamortized financing fees                                                                                                          3,592

        Payroll Protection Program loan                                                                                   3,025

         Non-current maturities of lease liabilities                                                                       1,871                                    2,389

      Total long-term liabilities                                     4,896                                    5,981

      Total liabilities                                              36,131                                   37,296

                Stockholders' Equity

        Preferred stock

        Common stock                                                                                                          3                                        3

        Additional paid-in capital                                                                                      157,586                                  157,478

        Accumulated deficit                                                                                           (136,440)                               (135,749)

      Less common stock held in treasury, at cost                                                                        (4,521)                                 (4,521)

      Total stockholders' equity                                     16,628                                   17,211

                                                              Total liabilities and stockholders'
                                                               equity                                             $
             52,759                       $




                                                                                                                 Three Months Ended June 30,                               Six Months Ended June 30,

                                                                                                      2020                                          2019                2020                                  2019

                                                                                                (Reviewed)                                   (Reviewed)         (Reviewed)                           (Reviewed)

       Net revenues                                                                                       $
             14,640                             $
             20,425                                         $
        31,668       $

       Cost of revenues                                                                                               9,154                                        11,796                                               19,532              21,473

                     Gross profit                                                                                      5,486                                         8,629                                               12,136              13,341

        Selling, general and
         administrative expenses                                                                                       4,198                                         6,024                                                9,383              12,537

        Engineering and development
         expense                                                                                                       1,123                                         1,540                                                2,555               2,949

       Restructuring costs                                                                 635                                                                                       635

                                                                                                                        5,956                                         7,564                                               12,573              15,486

                     Income (loss) from operations                                                                     (470)                                        1,065                                                (437)            (2,145)

       Other expenses

              Interest expense                                          (207)                                        (348)                                               (498)              (656)

                                                                Other income (expense), net                                   1                                             1                                                    1                   1

        Total other expenses, net                                                                                      (206)                                        (347)                                               (497)              (655)

        Income (loss) before taxes                                                                                     (676)                                          718                                                (934)            (2,800)

        Income tax provision (benefit)                                                                                 (178)                                          157                                                (243)              (729)

                     Net income (loss)                                                                      $
             (498)                               $
             561                                          $
        (691)     $

                     Net income (loss) per share:


              Basic                                         $
             (0.31)                              $
             0.36                                         $
        (0.43)      $

              Diluted                                       $
             (0.31)                              $
             0.35                                         $
        (0.43)      $

                     Weighted average shares


              Basic                                                     1,597                                         1,579                                                1,593               1,572

              Diluted                                                   1,597                                         1,611                                                1,593               1,572

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SOURCE Costar Technologies, Inc.