Qualstar: Fiscal 3Q08 Financial Results

Qualstar Corporation, a manufacturer of automated tape storage solutions,reported financial results for the third quarter of fiscal 2008 ended March 31, 2008.

Revenues for the third quarter of fiscal 2008 were $5.2 million, compared to $4.9 million for the same quarter of fiscal 2007, an increase of $287,000 or 5.9 percent. Loss from operations was $700,000 compared to $931,000 in fiscal 2007. Net loss was $322,000, or $(0.03) per basic and diluted share, compared to a net loss of $667,000, or $(0.05) per basic and diluted share for the third quarter of fiscal 2007.

Tape library segment revenues were $4.1 million for the quarter, essentially unchanged from the same quarter of the prior year. Power supply segment revenues increased 35.1 percent, or $279,000, to $1.07 million for the quarter from $794,000 for the same quarter of the prior year.

Gross margin percentage in the fiscal 2008 third quarter was 34.5 percent, compared to 27.4 percent in the year-ago quarter. The increase in gross margin percentage was primarily attributable to efficiencies achieved in material and labor management and a favorable mix of power supply products sold in the most current quarter due the availability of the Company’s new 275-watt product line.

Research and development expenses for the third quarter of fiscal 2008 were $772,000, or 14.9 percent of revenues, compared to $846,000 or 17.3 percent of revenues, for the third quarter of fiscal 2007. Sales and marketing expenses were $810,000, or 15.7 percent of revenues, compared to $659,000 or 13.5 percent of revenues, in the corresponding period last year. General and administrative expenses in the third quarter of fiscal 2008 were $904,000 or 17.5 percent of revenues, compared to $764,000, or 15.6 percent of revenues, for the same period last year.

Cash, cash equivalents and marketable securities were $33.3 million at March 31, 2008, unchanged from June 30, 2007. Inventory at December 31, 2007 was $5.9 million, also unchanged from June 30, 2007.

Commenting on the third quarter results, Bill Gervais, president and chief executive officer of Qualstar said, "Although revenues of $5.2 million were at the low-end of our guidance range, I continue to be encouraged by our ability to improve operating efficiencies and manage expenses. In fact, this past quarter marked the third quarter in a row where we generated a sequential increase in gross margin percentage. During the period, we shipped four additional XLS units and we are pleased to report that all units in the field are meeting or exceeding our customers’ expectations. The sales cycles are longer for the XLS product line, however, we continue to see the XLS appealing to a broad array of end users and we are pleased with the excellent pipeline of potential customers."

Mr. Gervais concluded, "Our N2Power business appears to be resuming its growth profile after successfully transitioning production from the 250-watt unit to a new compact 275-watt product line. During the third quarter, N2Power generated record revenues of $1.07 million–a 35 percent improvement compared to the same period last year. N2Power is an important part of Qualstar’s overall business and we believe N2Power products will continue to generate strong demand due to worldwide requirements for smaller and more energy efficient power supplies."

Fiscal 2008 Nine-Month Financial Results
Qualstar reported revenues of $16.6 million for the first nine months of fiscal 2008, compared with $14.8 million for the first nine months of fiscal 2007. The Company’s net loss for the first nine months of fiscal 2008 was $587,000 or $(0.05) per basic and diluted share, compared with a net loss of $1.7 million or $(0.14) per basic and diluted share, in the first nine months of fiscal 2007.