SECURITIES AND EXCHANGE COMMISSION
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 December 31, 2003
| [ ] |
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 of the State of California | (I.R.S. Employer Identification 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.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Total shares of common stock without par value outstanding at February 6, 2004 is 12,576,699.
QUALSTAR CORPORATION
FORM 10-Q
For the quarterly period ended December 31, 2003
Table of Contents
| Page | |||||
PART I – FINANCIAL INFORMATION |
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ITEM 1. Financial Statements: |
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Consolidated Condensed Balance Sheets – December 31, 2003 and June 30, 2003 |
3 | ||||
Consolidated Condensed Statements of Operations – Three months and six months ended December 31, 2003 and 2002 |
4 | ||||
Consolidated Condensed Statements of Cash Flows – Six months ended December 31, 2003 and 2002 |
5 | ||||
Consolidated Condensed Statement of Changes in Shareholders’ Equity – Six months ended December 31, 2003 |
6 | ||||
Notes to Interim Consolidated Condensed Financial Statements |
7 | ||||
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||||
ITEM 3. Qualitative and Quantitative Disclosures About Market Risk |
14 | ||||
ITEM 4. Controls and Procedures |
15 | ||||
PART II OTHER INFORMATION |
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ITEM 1. Legal Proceedings |
16 | ||||
ITEM 6. Exhibits and Reports on Form 8-K |
16 | ||||
Signatures |
17 | ||||
2
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
QUALSTAR CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 2003 AND JUNE 30, 2003
(in thousands)
| DECEMBER 31, | JUNE 30, | ||||||||||
| 2003 | 2003 | ||||||||||
| (unaudited) | |||||||||||
ASSETS |
|||||||||||
Current assets: |
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Cash and cash equivalents |
$ | 2,894 | $ | 6,236 | |||||||
Marketable securities |
32,972 | 29,857 | |||||||||
Receivables, net of allowances of $360 and $260 at December 31
and June 30, respectively |
4,628 | 4,535 | |||||||||
Inventories |
6,462 | 7,091 | |||||||||
Prepaid expenses and other current assets |
533 | 234 | |||||||||
Prepaid income taxes |
945 | 1,336 | |||||||||
Deferred income taxes |
939 | 939 | |||||||||
Total current assets |
49,373 | 50,228 | |||||||||
Property and equipment, net |
1,460 | 1,557 | |||||||||
Other assets |
273 | 311 | |||||||||
Total assets |
$ | 51,106 | $ | 52,096 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 622 | $ | 1,136 | |||||||
Accrued payroll and related liabilities |
493 | 432 | |||||||||
Other accrued liabilities |
1,495 | 1,469 | |||||||||
Total current liabilities |
2,610 | 3,037 | |||||||||
Deferred income taxes |
191 | 191 | |||||||||
Total liabilities |
2,801 | 3,228 | |||||||||
Shareholders’ equity: |
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Preferred stock, no par value; 5,000 shares authorized; no shares issued |
— | — | |||||||||
Common stock, no par value; 50,000 shares authorized, 12,577 and 12,640
shares issued and outstanding at December 31 and June 30, respectively |
20,052 | 20,366 | |||||||||
Deferred compensation |
(11 | ) | (140 | ) | |||||||
Notes from directors |
(81 | ) | (156 | ) | |||||||
Accumulated other comprehensive income (loss) |
(106 | ) | (22 | ) | |||||||
Retained earnings |
28,451 | 28,820 | |||||||||
Total shareholders’ equity |
48,305 | 48,868 | |||||||||
Total liabilities and shareholders’ equity |
$ | 51,106 | $ | 52,096 | |||||||
See the accompanying notes to these interim consolidated condensed financial statements.
3
QUALSTAR CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
(UNAUDITED)
(in thousands, except per share data)
| THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||||||
| DECEMBER 31, | DECEMBER 31, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net revenues |
$ | 9,556 | $ | 8,408 | $ | 15,532 | $ | 17,200 | |||||||||
Cost of goods sold |
5,962 | 5,260 | 9,698 | 10,874 | |||||||||||||
Gross profit |
3,594 | 3,148 | 5,834 | 6,326 | |||||||||||||
Operating expenses: |
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Research and development |
1,064 | 934 | 2,221 | 1,767 | |||||||||||||
Sales and marketing |
1,038 | 1,049 | 1,738 | 1,905 | |||||||||||||
General and administrative |
1,428 | 1,043 | 2,787 | 1,940 | |||||||||||||
Total operating expenses |
3,530 | 3,026 | 6,746 | 5,612 | |||||||||||||
Income (loss) from operations |
64 | 122 | (912 | ) | 714 | ||||||||||||
Investment income |
192 | 102 | 346 | 386 | |||||||||||||
Income (loss) before provision for income taxes |
256 | 224 | (566 | ) | 1,100 | ||||||||||||
Provision (benefit) for income taxes |
49 | 145 | (197 | ) | 519 | ||||||||||||
Net income (loss) |
$ | 207 | $ | 79 | $ | (369 | ) | $ | 581 | ||||||||
Earnings per share: |
|||||||||||||||||
Basic earnings (loss) per share |
$ | 0.02 | $ | 0.01 | $ | (0.03 | ) | $ | 0.05 | ||||||||
Diluted earnings (loss) per share |
$ | 0.02 | $ | 0.01 | $ | (0.03 | ) | $ | 0.05 | ||||||||
Shares used to compute earnings (loss) per share: |
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Basic |
12,550 | 12,576 | 12,568 | 12,562 | |||||||||||||
Diluted |
12,604 | 12,688 | 12,568 | 12,626 | |||||||||||||
See the accompanying notes to these interim consolidated condensed financial statements.
4
QUALSTAR CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
(UNAUDITED)
(in thousands)
| Six Months Ended | |||||||||||
| December 31, | |||||||||||
| 2003 | 2002 | ||||||||||
OPERATING ACTIVITIES: |
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Net income (loss) |
$ | (369 | ) | $ | 581 | ||||||
Adjustments to reconcile net income (loss) to cash
provided by operating activities: |
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Depreciation and amortization |
208 | 180 | |||||||||
Amortization of deferred compensation |
129 | 172 | |||||||||
Provision for (recovery of) bad debts and returns |
101 | (28 | ) | ||||||||
Accrued interest on directors’ notes |
(4 | ) | (11 | ) | |||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(194 | ) | 2,904 | ||||||||
Inventories |
629 | 2,612 | |||||||||
Prepaid expenses and other assets |
(285 | ) | (34 | ) | |||||||
Prepaid income taxes and income taxes payable |
391 | (28 | ) | ||||||||
Accounts payable |
(514 | ) | (719 | ) | |||||||
Accrued liabilities |
87 | (129 | ) | ||||||||
Net cash provided by operating activities |
179 | 5,500 | |||||||||
INVESTING ACTIVITIES: |
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Purchases of property and equipment |
(87 | ) | (344 | ) | |||||||
Sale of marketable securities |
25,455 | 16,407 | |||||||||
Purchase of marketable securities |
(28,654 | ) | (17,031 | ) | |||||||
Purchase of assets of N2Power, Inc. |
— | (288 | ) | ||||||||
Net cash used in investing activities |
(3,286 | ) | (1,256 | ) | |||||||
FINANCING ACTIVITIES: |
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Proceeds from exercise of stock options |
— | 135 | |||||||||
Repurchase of common stock |
(314 | ) | — | ||||||||
Principal and interest payments on directors’ notes |
79 | 38 | |||||||||
Net cash (used in) provided by financing activities |
(235 | ) | 173 | ||||||||
Net (decrease) increase in cash and cash equivalents |
(3,342 | ) | 4,417 | ||||||||
Cash and cash equivalents at beginning of period |
6,236 | 4,859 | |||||||||
Cash and cash equivalents at end of period |
$ | 2,894 | $ | 9,276 | |||||||
Supplemental cash flow disclosure: |
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Income taxes paid |
$ | — | $ | 260 | |||||||
See the accompanying notes to these interim consolidated condensed financial statements.
5
QUALSTAR CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
SIX MONTHS ENDED DECEMBER 31, 2003
(UNAUDITED)
(in thousands)
| ACCUMULATED | ||||||||||||||||||||||||||||||
| COMMON STOCK | NOTES | OTHER | ||||||||||||||||||||||||||||
| DEFERRED | FROM | COMPREHENSIVE | RETAINED | |||||||||||||||||||||||||||
| SHARES | AMOUNT | COMPENSATION | DIRECTORS | LOSS | EARNINGS | TOTAL | ||||||||||||||||||||||||
Balance at July 1, 2003 |
12,640 | $ | 20,366 | $ | (140 | ) | $ | (156 | ) | $ | (22 | ) | $ | 28,820 | $ | 48,868 | ||||||||||||||
Amortization of deferred compensation |
— | — | 129 | — | — | — | 129 | |||||||||||||||||||||||
Retirement of shares pursuant to
stock repurchase |
(63 | ) | (314 | ) | — | — | — | — | (314 | ) | ||||||||||||||||||||
Accrued interest on directors’ notes |
— | — | — | (4 | ) | — | — | (4 | ) | |||||||||||||||||||||
Principal and interest payments
on directors’ notes |
— | — | — | 79 | — | — | 79 | |||||||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||
Change in unrealized losses on
investments |
— | — | — | — | (84 | ) | — | (84 | ) | |||||||||||||||||||||
Net loss |
— | — | — | — | — | (369 | ) | (369 | ) | |||||||||||||||||||||
Comprehensive loss |
(453 | ) | ||||||||||||||||||||||||||||
Balance at December 30, 2003 |
12,577 | $ | 20,052 | $ | (11 | ) | $ | (81 | ) | $ | (106 | ) | $ | 28,451 | $ | 48,305 | ||||||||||||||
See the accompanying notes to these interim consolidated condensed financial statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(in thousands, except per share data)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited, except for the balance sheet at June 30, 2003 which is derived from our audited financial statements, and should be read in conjunction with the consolidated 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 26, 2003. In the opinion of management, these unaudited consolidated condensed financial statements include all adjustments, consisting primarily of normal recurring items, which are necessary for the fair presentation of Qualstar’s consolidated financial position as of December 31, 2003, consolidated results of operations for the three months and six months ended December 31, 2003 and 2002, and consolidated cash flows for the six months ended December 31, 2003 and 2002. Operating results for the three and six month periods ended December 31, 2003 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 and six months ended December 31, 2003 and 2002:
| THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||||||
| DECEMBER 31, | DECEMBER 31, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Numerator: |
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Net income (loss) |
$ | 207 | $ | 79 | $ | (369 | ) | $ | 581 | ||||||||
Denominator: |
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Denominator for basic net income (loss) per
share — weighted average shares |
12,550 | 12,576 | 12,568 | 12,562 | |||||||||||||
Dilutive potential common shares from employee
stock options and restricted stock |
54 | 112 | — | 64 | |||||||||||||
Denominator for diluted net income (loss) per
share — adjusted weighted average shares and
assumed conversions |
12,604 | 12,68 | |||||||||||||||