Qualstar Corp (QBAK)

[Enterprising Investor]

Qualstar Reports Fiscal 2014 First Quarter Results (2/13/14)

SIMI VALLEY, CA--(Marketwired - Nov 13, 2013) - Qualstar® Corporation (NASDAQ: QBAK), a manufacturer of data storage solutions and high-efficiency power supplies, today reported financial results for its first fiscal quarter ended September 30, 2013.

Fiscal 2014 First Quarter Financial Results

Revenues for the first quarter of fiscal 2014 were $2.2 million, compared to $3.4 million for the same quarter of fiscal 2013, a decrease of $1.2 million or 36.5 percent. Loss from operations was $2.5 million compared to $1.9 million in the first quarter of fiscal 2013. Net loss was $0.21 per basic and diluted share compared with $0.16 in the prior year.

Storage revenues were $1.2 million for the first quarter compared to $1.9 million in the first quarter of fiscal 2013, a decrease of $0.7 million, or 35.1 percent. This year-over-year decrease in revenues was attributable to weak demand generally. N2Power revenues were $1.0 million for the quarter, compared to $1.5 million in the prior year quarter, a decrease of $0.5 million, or 38.3 percent. The decrease in revenues was due to weak demand overall, but especially in the telecom and network equipment markets.

Gross profit declined to $0.5 million, from $0.9 million, and gross margins decreased to 21.0 percent of revenues, compared with 27.3 percent of revenues, for the three months ended September 30, 2013 compared with the three months ended September 30, 2012. The decrease resulted from an increase in inventory reserves, partially offset by a higher proportion of revenues coming from higher margin service contracts.

Engineering expenses for the first quarter of fiscal 2014 were $874,000, or 39.9 percent of revenues, compared with $666,000 or 19.3 percent of revenues, for the first quarter of fiscal 2013. Sales and marketing expenses were $733,000, or 33.5 percent of revenues, compared to $531,000 or 15.4 percent of revenues, in the corresponding period last year. The increase was due to compensation, advertising and promotional expenses. General and Administrative expenses ("G & A") were $1,394,000 or 63.7 percent of revenues, compared to $740,000, or 21.4 percent of revenues, for the same period last year. The increase in G&A expenses was attributed to reimbursement of $395,000 to BKF Capital Group, Inc., for fees previously incurred by it in the Proxy Contest, and an increase in professional fees.

Cash, cash equivalents and marketable securities were $11.8 million at September 30, 2013, down $2.0 million from $13.8 million at June 30, 2013.

Since July 2013, under the leadership of new CEO, Steven N. Bronson, major cost reduction actions have taken place. Mr. Bronson stated: "The quarter just ended has been a transition period. Cost cutting and internal restructuring have resulted in headcount being reduced by about 30% and the majority of the consultants being eliminated. By January 1, 2014, we believe that by current actions and commitments, the effects of these cost savings are expected to reduce operating expenses by about 40% compared with the previous year.

"In addition to internal cost saving actions, the outsourced manufacturing contract with CTS is in the process of being terminated over the next few months. Qualstar will be bringing inventory and manufacturing in-house, and by so doing, we believe that we will be more responsive to our customers in terms of quality and delivery times, and will be able to manage our costs more effectively."

About Qualstar Corporation

Qualstar, founded in 1984, is a diversified electronics manufacturer specializing in data storage and power supplies. Qualstar is a leading provider of high efficiency and high density power supplies marketed under the N2Power™ brand, and of data storage systems marketed under the Qualstar™ brand. Our N2Power power supply products provide compact and efficient power conversion for a wide variety of industries and applications including, but not limited to telecom, networking, broadcast, industrial, lighting, gaming and test equipment. Our Qualstar data storage products are used to provide highly scalable and reliable solutions to store and retrieve very large quantities of electronic data. Qualstar's products are known throughout the world for high quality and Simply Reliable™ designs that provide years of trouble-free service. More information is available at www.qualstar.com or www.n2power.com or by phone at 805-583-7744.

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