Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

 

Accounting Principles

The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Use of Estimates, Policy [Policy Text Block]

Estimates and Assumptions

Preparing financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples include estimates of loss contingencies, product life cycles and inventory obsolescence, bad debts, sales returns, warranty costs, share-based compensation forfeiture rates, the potential outcome of future tax consequences of events that have been recognized in our consolidated financial statements or tax returns, and determining when investment impairments are other-than-temporary. Actual results and outcomes

may

differ from management’s estimates and assumptions.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

We recognize revenue when there is persuasive evidence that an arrangement exists, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured.  Title and risk of loss generally pass to our customers upon shipment.  In limited circumstances where either title or risk of loss pass upon destination or acceptance or when collection is not reasonably assured, we defer revenue recognition until such events occur. In general, customers are allowed to return the product, free of penalty, within

thirty

days of shipment, if the product does not conform to its specifications.

We record an allowance for estimated sales returns based on past experience and current knowledge of our customer base. Our experience has been such that only a very small percentage of products are returned. Should our experience change, however, we

may

require additional allowances for sales returns.

Revenue for established products that have previously satisfied a customer’s acceptance requirements and provide for full payment tied to shipment is generally recognized upon shipment and passage of title.  In limited cases where a prior history of customer acceptance cannot be demonstrated or sales where customer payment dates are not determinable or when collection is not reasonably assured, revenue is deferred until customer acceptance occurs or payment has been received.  On the limited shipments where sales are not recognized, gross profit is generally recorded as deferred profit in our balance sheet representing the difference between the receivable recorded and the inventory shipped. 

At

December

31,

2016,

we had deferred revenue of approximately

$892

,000

and no deferred profit. At

December

31,

2015,

we had deferred revenue of approximately

$1,098,000

and no deferred profit.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

Qualstar classifies as cash equivalents only cash and those investments that are highly liquid, interest-earning investments with original maturities of

three

months or less from the date of purchase.

Restricted Cash

At

December

31,

2016

and

2015,

$100,000

is restricted for use as collateral for the corporate credit cards.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk, Other Concentration Risks and Significant Customers

Qualstar sells its products primarily through value added resellers located worldwide. Ongoing credit evaluations of customers’ financial condition are performed by Qualstar, and generally, collateral is not required. Potential uncollectible accounts have been provided for in the financial statements.

We are exposed to foreign currency and interest rate risks.  Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since all of our investments are in US fixed income securities. We have no outstanding debt nor do we utilize auction rate securities or derivative financial instruments in our investment portfolio. Cash and other investments

may

be in excess of FDIC insurance limits.

Our financial results could be affected by changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Sales outside North America represented approximately

46.1%

of net revenues for the

twelve

months ended

December

31,

2016,

50.3%

(unaudited) of net revenues for the

twelve

months ended

December

31,

2015,

41.9%

of net revenues for the

six

months ended

December

31,

2015,

and

54.0%

for the

twelve

months ended

June

30,

2015.

  

Revenues from Qualstar’s largest customer totaled approximately

10.6%

and

14.8%

(unaudited) of revenues for the

twelve

months ended

December

31,

2016

and

2015,

respectively. Revenues from Qualstar’s largest customer totaled approximately

10.7%

and

11.1%

of revenues for the

six

months ended

December

31,

2015

and the year ended

June

30,

2015

, respectively. At

December

31,

2016,

the largest customer’s accounts receivable balance, net of specific allowances, totaled approximately

22.3%

of net accounts receivable. At

December

31,

2015,

the largest customer’s accounts receivable balance, net of specific allowances, totaled approximately

8.2%

(unaudited) of net accounts receivable.

Suppliers, Policy [Policy Text Block]

Suppliers

The primary suppliers of our power supplies segment,

N2Power,

are located in China. The primary supplier of our tape storage products is located in California and Germany. If a manufacturer should be unable to deliver products to us in a timely basis or at all, our power supply or data storage business could be adversely affected. Though we have many years of favorable experience with these suppliers, there can be no assurance that circumstances might not change and compel a supplier to curtail or terminate deliveries to us.

Receivables, Policy [Policy Text Block]

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts was as follows (in thousands):

Description	Balance at Beginning of Period		Charged to Costs and Expenses			Charged to Other Accounts		Deductions (1)			Balance at End of Period
Twelve months ended December 31, 2016	$	99		(38	)		—		—		$	61
Twelve months ended December 31, 2015 (unaudited)	$	73		71			—		(45	)	$	99
Six months ended December 31, 2015	$	15		84			—		—		$	99
Twelve months ended June 30, 2015	$	92		—			—		(77	)	$	15

  (1) Uncollectible accounts written off, net of recoveries.

Inventory, Policy [Policy Text Block]

Inventories, net

Inventories are stated at the lower of cost

(first

-in,

first

-out basis) or market. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment, net

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the term of the lease. Estimated useful lives are as follows:

Machinery and equipment (in years)	5	-	7
Furniture and fixtures (in years)	5	-	7
Leasehold Improvements (in years)	3	-	5
Computer equipment (in years)	3	-	5

Expenditures for normal maintenance and repairs are charged to expense as incurred, and improvements are capitalized. Upon the sale or retirement of property or equipment, the asset cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in the results of operations.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Long-Lived Assets

Qualstar reviews the impairment of long-lived assets whenever events or changes in circumstances indicate the carrying amount of any asset

may

not be recoverable. An impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount. If impairment is indicated, the amount of the loss to be recorded is based upon an estimate of the difference between the carrying amount and the fair value of the asset. Fair value is based upon discounted cash flows expected to result from the use of the asset and its eventual disposition and other valuation methods. No impairment losses of long-lived assets were recognized during the periods presented.

Shipping and Handling Cost, Policy [Policy Text Block]

Shipping and Handling Costs

Qualstar records all customer charges for outbound shipping and handling to freight revenue. All inbound and outbound shipping and fulfillment costs are classified as costs of goods sold.

Standard Product Warranty, Policy [Policy Text Block]

Warranty Obligations

We provide a

three

year advance replacement warranty on all XLS and RLS models that includes replacement of components, or if necessary, complete libraries. XLS libraries sold in North America also include

one

year of onsite service. Customers

may

purchase extended replacement service coverage and on-site service if they are located in the United States, Canada, and selected countries in Europe, Asia Pacific and Latin America. All customers

may

purchase extended replacement or on-sight (where applicable) service coverage after the

three

year warranty has ended.

We provide a

three

year warranty on all power supplies that includes repair or if necessary, replacement of the power supply.

A provision for costs related to warranty expense is recorded when revenue is recognized, which is estimated based on historical warranty costs incurred. Customers

may

purchase extended advance replacement service coverage and on-site service if they are located in the United States, Canada and most countries within Europe.

Activity in the liability for product warranty (included in other accrued liabilities) for the periods presented is as follows (in thousands):

	December 31,
	2016			2015
	Audited			Unaudited
Beginning balance	$	187		$	168
Cost of warranty claims		(157	)		(141	)
Accruals for product warranties		206			160
Ending balance	$	236		$	187

Research, Development, and Computer Software, Policy [Policy Text Block]

Engineering

All engineering costs are charged to expense as incurred. These costs consist primarily of engineering salaries, benefits, outside consultant fees, purchased parts and supplies directly involved in the design and development of new products, and facilities and other internal costs.

Advertising Costs, Policy [Policy Text Block]

Advertising

Advertising and promotion expenses include costs associated with direct and indirect marketing, trade shows and public relations. Qualstar expenses all costs of advertising and promotion as incurred. Advertising and promotion expenses for the years ended

December

31,

2016

and

2015

(unaudited) were approximately

$73,000

and

$69,000,

respectively. Advertising and promotion expenses for the

six

months ended

December

31,

2015

were approximately

$58,000

and for the year ended

June

 

30,

2015

were approximately

$150

,000.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Share-Based Compensation

Share-based compensation cost is measured at the grant date based on fair value of the award and is recognized as expense over the applicable vesting period of the stock award (generally

four

years) using the straight-line method.

Income Tax, Policy [Policy Text Block]

Income Taxes

Income taxes are accounted for using the liability method. Under this method, deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax credits and loss carry forwards. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. A valuation allowance is established when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Loss

Comprehensive loss includes unrealized gains and losses on debt and equity securities classified as available-for-sale and included as a component of shareholders’ equity.

Earnings Per Share, Policy [Policy Text Block]

Net Loss per Share

Basic net loss per share has been computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per share has been computed by dividing net loss by the weighted average common shares outstanding plus dilutive securities or other contracts to issue common stock as if these securities were exercised or converted to common stock.

Shares issuable under stock options of

23,333,

40,000

and

43,000

as of

December

31,

2016,

2015

and

June

 

30,

2015,

respectively, have been excluded from the computation of diluted loss per share as the effect would be antidilutive.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain prior year amounts have been reclassified to conform to the current period presentation, with no changes to previously reported stockholders equity or comprehensive loss.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Guidance

Recent accounting guidance not yet adopted

In

May

2014,

the FASB issued ASU

2014

-

09

to clarify the principles for recognizing revenue and to develop a common revenue standard that will remove inconsistencies and weaknesses in revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provide more useful information to users of financial statements through improved disclosure requirements, and simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. In

August

2015,

the FASB issued ASU

2015

-

14

as an update of ASU

2014

-

09.

The purpose is to allow more time to implement the guidance in Update

2014

-

09.

This Update defers the effective date of Update

2014

-

09

to annual reporting periods beginning after

December

15,

2017.

The Company is still evaluating the impact on the consolidated financial statements.

In

July

2015,

the FASB issued ASU

2015

-

11

to simplify the measurement of inventory. The objective is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The standard is effective for fiscal years beginning after

December

15,

2016

, and is not expected to impact our consolidated financial statements

.

 

In

February

2016,

the FASB issued ASU

2016

-

02

to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For related party leases, the basis will be the legally enforceable terms and conditions of the arrangement. This standard is effective for fiscal years beginning after

December

15,

2018.

The Company is evaluating the impact it

may

have on our consolidated financial statements.

In

August

2016,

the FASB issued ASU

2016

-

15

to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard is effective for fiscal years beginning after

December

15,

2017,

and is not expected to materially impact our consolidated financial statements.

In

October

2016,

the FASB issued ASU

2016

-

16

to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This standard is effective for fiscal years beginning after

December

15,

2017,

and is not expected to materially impact our consolidated financial statements.

In

January

2017,

the FASB issued ASU

2017

-

01

clarifying the definition of a business and adding guidance to evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This standard is effective for fiscal years beginning after

December

15,

2017,

and is not expected to materially impact our consolidated financial statements.

Recent accounting guidance adopted

In

November

2016,

the FASB issued ASU

2016

-

18

to require restricted cash or restricted cash equivalents presented on the statement of cash flows. These amounts should be included within cash and cash equivalents when reconciling the beginning and ending balances for the period shown on the statement of cash flows. Early adoption is permitted, the Company has chosen to adopt this presentation on the current cash flow statement.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

All financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). ASC

820

“Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC

820

defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.

In addition to defining fair value, ASC

820

expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into

three

levels based on the extent to which inputs used in measuring fair value is observable in the market. Each fair value measurement is reported in

one

of the

three

levels that are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

• Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

In general, and where applicable, we use quoted prices in active markets for identical assets to determine fair value. This pricing methodology applies to our Level

1

investments such as U.S. treasuries and agency securities and exchange-traded mutual funds. If quoted prices in active markets for identical assets are not available to determine fair value, then we use quoted prices for similar assets or inputs other than the quoted prices that are observable either directly or indirectly. These investments are included in Level

2

and consist primarily of corporate bonds, mortgage-backed securities, and certain agency securities.  

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents our assets and liabilities measured at fair value on a recurring basis at

December

31,

2016

and

2015

(in thousands):

	December 31, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash & Cash Equivalents
Level 1:
Cash	$	3,691	$	-	$	-	$	3,691	$	3,691
Restricted Cash		100		-		-		100		100
Money Market Funds		-		-		-		-		-
Total	$	3,791	$	-	$	-	$	3,791	$	3,791

	December 31, 2015
	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash & Cash Equivalents
Level 1:
Cash	$	828	$	-	$	-	$	828	$	828
Restricted Cash		100		-		-		100		100
Money Market Funds		3,035		-		-		3,035		3,035
Total	$	3,963	$	-	$	-	$	3,963	$	3,963

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash and short-term marketable securities approximate their fair values due to the short term nature of these financial instruments.