Costar Technologies, Inc. Announces Financial Results For the First Quarter Ended March 31, 2018

COPPELL, Texas, May 15, 2018 /PRNewswire/ — Costar Technologies, Inc. (the “Company”) (OTC Markets Group: CSTI) announced today its financial results for the first quarter ended March 31, 2018 that have been reviewed by the independent accounting firm BKD, LLP.

Financial Highlights for the First Quarter Ended March 31, 2018

Revenue of $10,917, an increase of $1,346 or 14.1% from the quarter ended March 31, 2017.
GAAP net income of $50 or $0.03 per share based on 1,589 fully diluted shares outstanding, compared to GAAP net loss of ($159) or ($0.11) per share based on 1,493 fully diluted shares for the quarter ended March 31, 2017.
Adjusted earnings of $399 or $0.25 per diluted share compared to $252 or $0.17 per diluted share for the quarter ended March 31, 2017, an increase per share of 47.1%. (Adjusted earnings, a non-GAAP measure, is defined below.)
Adjusted EBITDA of $551 compared to $316 for the quarter ended March 31, 2017, an increase of 74.4%. (Adjusted EBITDA, a non-GAAP measure, is defined below.)

“The first quarter is typically a seasonally slow period for our Company; however, this year we are off to a solid start,” said James Pritchett, the Company’s President and CEO. “The shipment of a $1 million sale out of the CohuHD business segment, an increase in purchases by one of Costar Video Systems’ largest customers and the continued expansion of our general security business all contributed to our year-over-year revenue growth.”

Mr. Pritchett continued, “Solid financial results were driven by operational performance with ongoing improvements in cost and production efficiency. The rapid acceptance of our RISE product line enabled us to discontinue older models more quickly than anticipated, resulting in an increased inventory reserve for the end-of-life products, which negatively impacted our gross profit margin for the quarter by 210 basis points. Aside from the effect of that program, our gross profit margin improved 120 basis points.”

“We head into the second quarter with a solid backlog and higher growth in our general security markets. I am optimistic that 2018 will be another positive year showing year-over-year growth for our Company,” concluded Mr. Pritchett.

The Company’s outside 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 www.costartechnologies.com.

Non-GAAP Financial Measures

The Company defines adjusted earnings, a non-GAAP measure, as net income excluding stock-based compensation, amortization of acquisition-related intangible assets, adjustments to the fair value of acquisition-related contingent consideration, transaction related expenses and the income tax effect relating to the revaluation of the Company’s deferred tax asset. The Company defines adjusted EBITDA, a non-GAAP measure, as earnings before interest, taxes, depreciation, amortization, transaction and related expenses and adjustments to the fair value of acquisition-related contingent consideration. The following tables reconcile the non-GAAP financial measures disclosed in this release to GAAP net income (loss):

	Quarter Ended 3/31/18	Quarter Ended 3/31/17
Adjusted Earnings	399	252
Less:
Stock Based Compensation	(42)	(25)
Intangible Amortization	(307)	(318)
Contingent Consideration Fair Value Adjustment
Transaction and Related Expenses		(68)
Revaluation of Deferred Tax Asset
Net Income (Loss)	50	(159)

	Quarter Ended 3/31/18	Quarter Ended 3/31/17
Adjusted EBITDA	551	316
Less:
Interest	(89)	(123)
Income Taxes	(18)	88
Depreciation	(87)	(54)
Amortization	(307)	(318)
Transaction and Related Expenses		(68)
Contingent Consideration Fair Value Adjustment
Net Income (Loss)	50	(159)

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 40^th largest company in a&s magazine’s Security 50 for 2017. 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.

COSTAR TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
(AMOUNTS SHOWN IN THOUSANDS)


		March 31, 2018		December 31, 2017
		(Reviewed)		(Audited)
ASSETS

Current assets
Cash and cash equivalents		$	17	$	196
Accounts receivable, less allowance for doubtful accounts of $164 and $97 in 2018 and 2017, respectively			7,180		7,246
Inventories, net of reserve for obsolescence of $1,052 and $815 in 2018 and 2017, respectively			10,318		9,529
Prepaid expenses			772		790
	Total current assets		18,287		17,761

Non-current assets
Property and equipment, net			857		861
Deferred financing costs, net			23		26
Deferred tax asset, net			2,916		2,916
Trade names, net			2,582		2,667
Distribution agreement, net			606		624
Customer relationships, net			5,421		5,600
Covenant not to compete, net			118		126
Patents, net			7		7
Technology, net			385		402
Goodwill			5,574		5,574
Other non-current assets			96		96
	Total non-current assets		18,585		18,899
	Total assets	$	36,872	$	36,660

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable		$	4,002	$	3,829
Accrued expenses and other			1,914		2,532
Line of credit			961
Current maturities of long-term debt			991		740
Contingent purchase price			346		346
Current maturities of notes payable, related party			766		753
	Total current liabilities		8,980		8,200

Long-Term liabilities
Long-term debt, net of current maturities			3,978		4,476
Contingent purchase price, net of current portion			1,101		1,101
Notes payable, related party, net of current maturities			608		805
	Total long-term liabilities		5,687		6,382

	Total liabilities		14,667		14,582


Stockholders’ Equity
Preferred stock
Common stock			3		3
Additional paid-in capital			156,844		156,767
Accumulated deficit			(130,121)		(130,171)
Less common stock held in treasury, at cost			(4,521)		(4,521)
	Total stockholders’ equity		22,205		22,078
	Total liabilities and stockholders’ equity	$	36,872	$	36,660

COSTAR TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS SHOWN IN THOUSANDS, EXCEPT NET INCOME PER SHARE)


			Three Months Ended March 31,
			2018		2017
			(Reviewed)		(Reviewed)

Net revenues		$	10,917	$	9,571
Cost of revenues			6,782		5,857

Gross profit			4,135		3,714

Selling, general and administrative expenses			3,291		3,129

Engineering and development expense			689		644

Transaction and related expense					68

			3,980		3,841

Income (loss) from operations			155		(127)

Other income (expenses)
	Interest expense		(89)		(123)
	Other income, net		2		3
Total other expenses, net			(87)		(120)

Income (loss) before taxes			68		(247)
Income tax provision (benefit)			18		(88)

Net income (loss)		$	50	$	(159)

Net income (loss) per share:
	Basic	$	0.03	$	(0.11)

	Diluted	$	0.03	$	(0.11)

Weighted average shares outstanding
	Basic		1,546		1,493

	Diluted		1,589		1,493