-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bn7pQ871i9fvy2tOofbL6WqXk1IFXZTtY5z5j98N+Jir70RSZnu9jpUS5nP7NLPt t/cMTB6ekXQtOBdPAO4FLg== 0000898430-01-503558.txt : 20020410 0000898430-01-503558.hdr.sgml : 20020410 ACCESSION NUMBER: 0000898430-01-503558 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUALSTAR CORP CENTRAL INDEX KEY: 0000758938 STANDARD INDUSTRIAL CLASSIFICATION: MAGNETIC & OPTICAL RECORDING MEDIA [3695] IRS NUMBER: 953927330 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30083 FILM NUMBER: 1790752 BUSINESS ADDRESS: STREET 1: 3990-B HERITAGE OAK COURT CITY: SIMI VALLEY STATE: CA ZIP: 93063 BUSINESS PHONE: 805-583-7744 MAIL ADDRESS: STREET 1: 3990-B HERITAGE OAK COURT CITY: SIMI VALLEY STATE: CA ZIP: 93063 10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q --------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission file number 000-30083 QUALSTAR CORPORATION Incorporated under the laws (I.R.S. Employer Identification of the State of California No.) 95-3927330 3990-B Heritage Oak Court Simi Valley, CA 93063 (805) 583-7744 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. [X] Yes [ ] No The total shares of common stock without par value outstanding at November 12, 2001 is 12,600,751. Table of Contents - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements............................................... 3 Condensed balance sheets as of June 30, 2001 and September 30, 2001.............................................................. 3 Condensed statements of income for the three months ended September 30, 2000 and 2001....................................... 4 Condensed statements of cash flows for the three months ended September 30, 2000 and 2001....................................... 5 Condensed statement of changes in shareholders' equity for the three months ended September 30, 2001............................. 6 Notes to interim condensed financial statements.................... 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 8 ITEM 3. Qualitative and Quantitative Disclosures About Market Risk......... 10 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K................................... 10 Signatures......................................................... 11 - -------------------------------------------------------------------------------- Page 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS QUALSTAR CORPORATION CONDENSED BALANCE SHEETS JUNE 30, 2001 AND SEPTEMBER 30, 2001 (in thousands)
JUNE 30, SEPTEMBER 30, 2001 2001 ------------- ------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents................................ $20,809 $13,881 Marketable securities.................................... 6,278 13,473 Accounts receivable, net of allowances of $470 at June 30, 2001 and $540 at September 30, 2001........ 6,379 6,583 Inventories.............................................. 10,632 10,311 Prepaid expenses and other current assets................ 400 468 Prepaid income taxes..................................... 927 272 Deferred income taxes.................................... 1,041 1,041 ------- ------- Total current assets................................... 46,466 46,029 ------- ------- Property and equipment, net................................. 1,126 1,166 Other assets................................................ 286 278 ------- ------- $47,878 $47,473 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable......................................... $ 2,374 $ 898 Accrued payroll and related liabilities.................. 227 342 Other accrued liabilities................................ 483 272 ------- ------- Total current liabilities............................ 3,084 1,512 ------- ------- Deferred income taxes....................................... 105 105 Shareholders' equity: Preferred stock, no par value; 5,000 shares authorized; no shares issued....................................... -- -- Common stock, no par value; 50,000 shares authorized, 12,601 shares issued and outstanding at June 30, 2001 and September 30, 2001................................. 20,691 20,691 Deferred compensation.................................... (1,061) (954) Notes from directors..................................... (512) (510) Accumulated other comprehensive income(loss)............. 60 (49) Retained earnings........................................ 25,511 26,678 ------- ------- Total shareholders' equity........................... 44,689 45,856 ------- ------- $47,878 $47,473 ======= =======
See the accompanying notes to these condensed financial statements. 3 QUALSTAR CORPORATION CONDENSED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001 (in thousands, except per share amounts) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ---------------------- 2000 2001 ------- ------- Net revenues................................. $13,853 $ 8,797 Cost of goods sold........................... 8,732 5,467 ------- ------- Gross profit.............................. 5,121 3,330 ------- ------- Operating expenses: Research and development.................. 195 469 Selling and marketing..................... 775 505 General and administrative................ 669 832 ------- ------- Total operating expenses.................. 1,639 1,806 ------- ------- Income from operations....................... 3,482 1,524 Interest income.............................. 311 298 ------- ------- Income before provision for income taxes..... 3,793 1,822 Provision for income taxes................... 1,480 655 ------- ------- Net income................................... $ 2,313 $ 1,167 ======= ======= Basic earnings per share..................... $0.19 $0.09 ======= ======= Diluted earnings per share................... $0.18 $0.09 ======= ======= Shares used to compute earnings per share: Basic........................................ 12,331 12,439 ======= ======= Diluted...................................... 12,633 12,643 ======= =======
See the accompanying notes to these condensed financial statements. 4 QUALSTAR CORPORATION CONDENSED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001 (in thousands) (UNAUDITED)
2000 2001 ------- ------- OPERATING ACTIVITIES: Net income......................................... $ 2,313 $ 1,167 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 50 69 Amortization of deferred compensation.......... 111 107 Provision for bad debts and returns............ -- 78 Accrued interest on directors' notes........... (9) (7) Changes in operating assets and liabilities: Accounts receivable.......................... 34 (282) Inventories.................................. (380) 321 Prepaid expenses and other assets............ (82) (60) Prepaid income taxes......................... 1,679 655 Accounts payable............................. 589 (1,476) Accrued liabilities.......................... (324) (96) ------- ------- Net cash provided by operating activities............. 3,981 476 ------- ------- INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements.. (7) (109) Purchases of marketable securities................. -- (7,304) ------- ------- Net cash used in investing activities................. (7) (7,413) ------- ------- FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of offering costs.......................... 2,284 -- Proceeds from exercise of stock options............ 5 -- Interest payment on directors' note................ -- 9 ------- ------- Net cash provided by financing activities............. 2,289 9 ------- ------- Net increase(decrease) in cash and cash equivalents... 6,263 (6,928) Cash and cash equivalents at beginning of period...... 18,976 20,809 ------- ------- Cash and cash equivalents at end of period............ $25,239 $13,881 ======= ======= Supplemental cash flow disclosures: Income taxes paid.................................. $ -- $ -- ======= =======
See the accompanying notes to these condensed financial statements. 5 QUALSTAR CORPORATION CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY THREE MONTHS ENDED SEPTEMBER 30, 2001 (in thousands) (UNAUDITED)
ACCUMULATED PREFERRED STOCK COMMON STOCK NOTES OTHER --------------- --------------- DEFERRED FROM COMPREHENSIVE RETAINED SHARES AMOUNT SHARES AMOUNT COMPENSATION DIRECTORS INCOME EARNINGS TOTAL ------ ------ ------ ------ ------------ --------- ------------- -------- ----- Balance at July 1, 2001.... -- $ -- 12,601 $20,691 $(1,061) $(512) $ 60 $25,511 $44,689 Amortization of deferred compensation.............. -- -- -- -- 107 -- -- -- 107 Accrued interest on directors' notes.......... -- -- -- -- -- (7) -- -- (7) Receipt of interest, payment on directors notes..................... -- -- -- -- -- 9 -- -- 9 Comprehensive Income: Change in unrealized gains on investments............ -- -- -- -- -- -- (109) -- (109) Net income................. -- -- -- -- -- -- -- 1,167 1,167 ---- ----- ------ ------- ------- ------ ----- ------- ------- Comprehensive Income....... -- -- -- -- -- -- -- -- 1,058 ---- ----- ------ ------- ------- ------ ----- ------- ------- Balance at September 30, 2001...................... -- $ -- 12,601 $20,691 $ (954) $(510) $ (49) $26,678 $45,856 ==== ===== ====== ======= ======= ====== ===== ======= =======
See the accompanying notes to these condensed financial statements. 6 QUALSTAR CORPORATION NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (in thousands, except per share amounts) (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying condensed financial statements are unaudited, except for the balance sheet at June 30, 2001 which is derived from our audited financial statements, and should be read in conjunction with the financial statements and related notes included in Qualstar Corporation's ("Qualstar," "us," "we," or "our") Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on September 28, 2001. In the opinion of management, these unaudited condensed financial statements include all adjustments, consisting primarily of normal recurring items, which are necessary for the fair presentation of Qualstar's financial position as of September 30, 2001, results of operations for the three months ended September 30, 2000 and 2001, and cash flows for the three months ended September 30, 2000 and 2001. Operating results for the three month period ended September 30, 2001 are not necessarily indicative of results to be expected for a full year. NOTE 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted net income per share for the three months ended September 30, 2000 and 2001:
THREE MONTHS ENDED September 30, ------------------ 2000 2001 ------- -------- Numerator: Net income...................................... $ 2,313 $ 1,167 Denominator: Denominator for basic net income per share -- weighted average shares..................... 12,331 12,439 Dilutive potential common shares from employee stock options and restricted stock............. 302 204 ------- ------- Denominator for diluted net income per share -- adjusted weighted average shares and assumed conversions............................ 12,633 12,643 ------- ------- Basic net income per share....................... $ 0.19 $ 0.09 ======= ======= Diluted net income per share..................... $ 0.18 $ 0.09 ======= =======
NOTE 3. MARKETABLE SECURITIES Marketable securities consist primarily of high-quality U.S. corporate securities. These securities are classified in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to- maturity securities are those securities which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. All of the Company's marketable securities were classified as available-for-sale at September 30, 2001. 7 Available-for-sale securities are recorded at market value. Unrealized holding gains and losses, net of the related income tax effect, on available- for-sale securities are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings when the underlying securities are sold and are derived using the specific identification method for determining the cost of securities sold. NOTE 4. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out basis) or market. Inventory is comprised as follows:
JUNE 30, 2001 SEPTEMBER 30, 2001 ------------- ------------------ Raw materials.... $ 9,001 $ 8,431 Finished goods... 1,631 1,880 ------- ------- $10,632 $10,311 ======= =======
NOTE 5. COMPREHENSIVE INCOME For the three months ended September 30, 2001 and 2000, comprehensive income amounted to approximately $1.1 million and $2.3 million, respectively. The difference between net income and comprehensive income relates to the changes in the unrealized losses or gains the Company recorded for its available-for-sale securities. NOTE 6. CREDIT FACILITY Qualstar has an unsecured line of credit with a bank that allows for borrowings of up to $0.8 million at the bank's reference rate (6.75% as of June 30, 2001 and 6.0% as of September 30, 2001), plus 1.25%. The line of credit agreement expired on November 1, 2001 and was not renewed. As of June 30, 2001 and September 30, 2001, Qualstar had not borrowed against the line of credit. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements inherently are subject to risks and uncertainties, some of which we cannot predict or quantify. Our actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference, include, but are not limited to, those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2001 in "ITEM 1 Business," including the section therein entitled "Risk Factors," and in ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." You generally can identify forward-looking statements by the use of forward-looking terminology such as "believes," "may," "expects," "intends," "estimates," "anticipates," "plans," "seeks," or "continues," or the negative thereof or variations thereon or similar terminology. We disclaim any obligation to update or revise these forward-looking statements to reflect the occurrence of events or circumstances in the future. RESULTS OF OPERATIONS Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000. NET REVENUES. Revenues are recognized upon shipment of the product to the customer, less estimated returns, for which provision is made at the time of sale. 8 Net revenues for the three months ended September 30, 2001 were $8.8 million, a decrease of 36.5% compared to net revenues of $13.9 million for the three months ended September 30, 2000. This decrease in revenues was due primarily to a slow down in market spending on internet infrastructure, telecommunication and storage back-up solutions. This slow down was partially evident following the terrorist attacks on September 11, 2001. Orders for our products dropped significantly during the last three weeks of the quarter ended September 30, 2001, but have returned to pre-attack levels during October 2001. Although the selling prices of our tape libraries remained relatively stable during both periods, the selling prices of tape media and drives declined during the third and fourth quarter of the fiscal year ended June 30, 2001, resulting in an overall lower price for our libraries. The decline in the selling prices of tape drives and media is the result of these items being placed in general distribution by the manufacturer. GROSS PROFIT. Gross profit was $3.3 million or 37.9% of net revenues for the three months ended September 30, 2001 compared to $5.1 million or 37.0% for the three months ended September 30, 2000, representing a decrease of 35.0%. The increase in gross profit margin as a percentage of net revenues is primarily the result of higher sales of larger tape libraries. In general, larger tape libraries have higher gross profit margins as a percentage of sales. Partially offsetting the increased margin on sales of our larger libraries, was a general decrease in the selling prices of tape media and tape drives. We expect our gross margins to decline slightly during future periods as a result of our entry into the rack mount library market. Rack mount libraries are generally smaller libraries that have lower profit margins. RESEARCH AND DEVELOPMENT. Research and development expenses consist of engineering salaries, benefits, purchased parts and supplies used in development activities. Research and development expenses for the three months ended September 30, 2001 were $0.5 million or 5.3% of revenues as compared to $0.2 million and 1.4% of revenues for the three months ended September 30, 2000. Our higher research and development spending reflects our efforts to increase the rate of flow of new products to market. SELLING AND MARKETING. Selling and marketing expenses consist primarily of employee salaries and benefits, sales commissions, trade show costs, advertising, technical support and travel related expenses. Selling and marketing expenses for the three months ended September 30, 2001 were $0.5 million, a decrease of $0.3 million compared to the three months ended September 30, 2000. Selling and marketing expenses as a percentage of net sales was 5.7% for the three months ended September 30, 2001 as compared to 5.6% for the three months ended September 30, 2000. We anticipate selling and marketing expenses will remain stable as a percentage of sales for the second quarter of fiscal year 2002. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of employee salaries and benefits, deferred compensation related to equity incentives, provisions for doubtful accounts and returns and professional service fees. General and administrative expenses for the three months ended September 30, 2001 increased to $0.8 million, or 9.5% of revenues, as compared to $0.7 million or 4.8% of revenues, for the three months ended September 30, 2000. Although total general and administrative expenses did not increase significantly, the level of general and administrative expenses as a percentage of revenues did notably increase. This increase is primarily due to an overall decrease in sales levels without corresponding reductions in general and administrative spending. We do not anticipate that general and administrative expenses will significantly increase in the second fiscal quarter. PROVISION FOR INCOME TAXES. The provision for income taxes was $0.7 million or 35.9% of pre-tax income, for the three months ended September 30, 2001, compared to $1.5 million, or 39.0% of pre-tax income, for the three months ended March, 2000. LIQUIDITY AND CAPITAL RESOURCES Historically, we have funded our capital requirements with cash flows from operations. Cash flows provided by operating activities were $0.5 million and $4.0 9 million for the first three months of fiscal 2002 and 2001, respectively. In each of these periods, operating cash was primarily provided by net income. Cash flows used in investing activities have increased in the first three months of fiscal year 2001 to $7.4 million. For the three months ended September 30, 2000, there were no significant cash flows used in investing activities. This increase was due to significant purchases of marketable securities in the first quarter of fiscal year 2002 with no such purchases made during the three months ended September 30, 2000. There were no significant cash flows used or provided from financing activities during the first three months of fiscal 2002. Cash flows provided by financing activities during the first three months of fiscal 2001 were $2.3 million, and were primarily the result of the sale by Qualstar in July, 2000 of 375,000 shares of our common stock at $7.00 per share pursuant to the exercise by the underwriters of our initial public offering of their over-allotment option. Due to our strong cash position, we allowed our $0.8 million unsecured line of credit to expire on November 1, 2001. We did not renew this credit line. We believe our existing cash and cash equivalents, and anticipated cash flows from operating activities, will be sufficient to fund our working capital and capital expenditure needs for at least the next 12 months. We may utilize cash to invest in businesses, products or technologies we believe are strategic. We regularly evaluate other companies and technologies for possible investment by us. In addition, we have made and expect to make investments in companies with whom we have identified potential synergies. However, we have no present commitments or agreements with respect to any material acquisition of other businesses or technologies. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk We develop products in the United States and sell them worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since all sales are currently made in U.S. dollars, a strengthening of the U.S. dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. We have no outstanding debt nor do we utilize derivative financial instruments. Therefore, no quantitative tabular disclosures are required. PART II - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K. (b) No Reports on Form 8-K were filed during the fiscal quarter ended September 30, 2001. 10 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. QUALSTAR CORPORATION Dated: November 14, 2001 /s/ William J. Gervais --------------------------------------- William J. Gervais, President and Chief Executive Officer Dated: November 14, 2001 /s/ Matthew Natalizio --------------------------------------- Matthew Natalizio, Chief Financial Officer 11 -----END PRIVACY-ENHANCED MESSAGE-----