Qualstar: Fiscal 1Q14 Financial Results

Qualstar Corporation reported financial results for its first fiscal quarter ended September 30, 2013.

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%.

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%. 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% of revenues, compared with 27.3% 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% of revenues, compared with $666,000 or 19.3% of revenues, for the first quarter of fiscal 2013. Sales and marketing expenses were $733,000, or 33.5% of revenues, compared to $531,000 or 15.4% of revenues, in the corresponding period last year. The increase was due to compensation, advertising and promotional expenses. General and Administrative expenses were $1,394,000 or 63.7% of revenues, compared to $740,000, or 21.4% 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 new CEO, Steven N. Bronson, major cost reduction actions have taken place.

He 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.”