Stock News Shark Alerts: BKF Capital Group endorsed to Unseat Qualstar Directors

SAN FRANCISCO - June 22, 2013 - PRLog -- Steven Bronson, BKF’s chief executive officer, remarked: “As the contest for the future of Qualstar approaches its final stages, shareholders should focus on the real facts and issues, and not be swayed by the Company’s assurances of recovery at some unspecified future time, or the formulaic analyses of the proxy advisory services which we believe are simply wrong.”

“The facts are that the Company is burning through its cash and does not have a large runway for recovery. Qualstar’s results for the nine months ended March 31, 2013, under the Company’s new CEO Lawrence Firestone, were the worst ever. Unlike BKF, the current Board has only a nominal investment in Qualstar. Its strategy is to throw money at a problem—the continuing drain of the tape storage business—that cannot be solved by money alone.”


“BKF’s nominees are highly skilled and experienced and are incentivized to run the Company for its owners, because BKF is a substantial owner. We want what you want—prudent cash management, a strategy for the tape storage business that is based on market realities and a return to profitability in the very near turn.”

Mr. Bronson concluded: “We ask our fellow shareholders to read this release in full, together with BKF’s other materials, and vote to elect BKF’s nominees on the GOLD proxy card.”

Money: The Board is Spending the Company’s Money Like It Belongs to Somebody Else

As BKF has been saying for well over a year, there are serious challenges facing Qualstar, particularly in its tape storage business. The solution of the Board and CEO Lawrence Firestone has been to throw money at the problem, substantially increasing G&A, increasing Sales and Marketing costs, and increasing Engineering costs. The consequence of this strategy has been a staggering cash burn of over $6 million in the past nine months, even with the Board’s highly touted outsourcing of manufacturing operations.

The Company’s approach to this proxy contest is just one example of the disregard that the Board and Mr. Firestone have for shareholder money. After spending over $600,000 to thwart BKF’s non-coercive partial tender offer in January, the Company says it will be spending $500,000 in this proxy contest. That’s a total of over $1.1 million!

In this proxy contest, BKF sent out one mailing. The Company sent out three. BKF did a simple homegrown investor presentation. The Company posted two versions of a graphically enhanced, professionally designed presentation. And why not? It’s not their money.

Is Qualstar a Start-Up Company? The Current Chairman of the Board Seems to Think So

On the Company’s investor call this week, the current Chairman of the Board, Allen Ally said “Qualstar has the feeling of a very exciting startup company.” What does that mean? It means a company that can run through its cash, with the anticipation that somebody, somehow is going to come up with more. It means a company that’s under no pressure to earn a profit. It means a company that expects its stock price to be buoyed by promises of future success and is not grounded in current performance.

If that’s what the Company’s current Chairman believes, then shareholders can begin to understand why Qualster is headed in a direction of unconstrained spending, no profitability and promises instead of performance.

Of course, Qualstar is not a startup. It has been in business for almost 30 years. The markets and shareholders rightfully want to see profits and performance now.

Unfortunately, ISS Got It Wrong—Shareholders Should Not Make the Same Mistake

The Company is touting its ISS recommendation. Unfortunately, ISS is wrong in its analysis, and were shareholders to make the same mistake, BKF believes they will see the value of their investment in the Company continue to erode.

ISS looked at TSR (Total Shareholder Return) for the 12 month period ending June 2012, noted that the Company’s TSR rose from November 2012 to May 2013 and attributed this to the actions of the current Board. But of course on May 14, 2013—when the Company released its third quarter and nine month numbers with record losses—the Company’s stock price plummeted to its November 2012 levels.

ISS says “There is little doubt the company’s restructuring efforts combined with uncertainty surrounding a myriad of events, particularly, BKF’s tender offer and the ensuing proxy contest, were distractions that may have impacted negatively on the company’s TSR since May 2013.”

Really? This is the Company’s story. The abysmal nine month numbers are the fault of BKF. Shareholders should be the judge of whether this makes any sense. In the view of BKF—and BKF believes that other shareholders agree—it does not. The Company’s stock price simply reflects the fundamental flaws in the overdrive spending strategy of the current Board that was revealed in the Company’s third quarter results.

So What Is the Fundamental Flaw in the Strategy of the Current Board?

As BKF has repeatedly explained, no matter how much of the Company’s remaining cash—which has already been substantially depleted—the Board throws at the tape storage business, it will not cure the basic problem. The Company cannot go it alone in this business. Technology is moving away from tape storage, customers are bundling their tape storage with other hardware purchases and other players in this space—think for example IBM and Oracle—are far larger and have many times the resources of the Company. That is why the Company’s most direct competitors—Overland Storage and Quantum Corp., which are larger than Qualstar—are hurting.

To compound the issue, according to the Company’s recent investor presentation, Qualstar is now proposing to move to the higher end tape storage market where it would be competing directly with the likes of IBM and Oracle. This, we believe, is a recipe for disaster"

The rest of the article can be read in detail at the link attached below:

The reprinting of this article is from an interested of party to BKF Capital Group,
without BKF Capital Group's involvement in any way.

Qualstar's board of directors are advised to step aside and allow new energy to take the company forward.

http://www.fortmilltimes.com/2013/06/21/2775872/bkf-urges...