Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes o No þ
As
of
December 31, 2006, the aggregate market value of the common equity held by
non-affiliates of the registrant was approximately $24,478,000.
The
total
shares of common stock without par value outstanding at September 13, 2007
is 12,253,117.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of registrant’s definitive proxy statement for its annual meeting of
shareholders to be held in 2008 are incorporated by reference into Part III
of this Form 10-K.
QUALSTAR
CORPORATION
FORM 10-K
FOR
THE FISCAL YEAR ENDED JUNE 30, 2007
INDEX
|
PART I
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|
Item 1.
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3
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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|
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K 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. 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 “ITEM 1A — 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,” “will,” “expects,” “intends,” “estimates,” “anticipates,”
“plans,” “seeks,” or “continues,” or the negative thereof or variations thereon
or similar terminology. Forward looking statements also include the assumptions
underlying or relating to any such statements. Forward looking statements
contained within this document represent a good-faith assessment of Qualstar’s
future performance for which management believes there is a reasonable
basis.
Qualstar disclaims any obligation to update the forward looking statements
contained herein, except as may be required by law.
PART I
ITEM 1.
BUSINESS
INTRODUCTION
We
design, develop, manufacture and sell automated magnetic tape libraries
used to
store, retrieve and manage electronic data primarily in network computing
environments. Tape libraries consist of cartridge tape drives, tape cartridges
and robotics to move the cartridges from their storage locations to the
tape
drives under software control. Our tape libraries provide data storage
solutions
for organizations requiring backup, recovery and archival storage of
critical
data. Our products are compatible with commonly used operating systems,
including UNIX, Windows, and Linux. Our tape libraries are also compatible
with
a wide range of storage management software packages, such as those supplied
by
Computer Associates, EMC/Legato, Tivoli, Symantec, CommVault and BakBone
Software. We currently offer tape libraries for two popular tape drive
technologies, LTO and AIT. We have discontinued sales of libraries with
Super
AIT and DLT tape drives due to declining demand for those tape drive
technologies.
We
sell
our tape libraries worldwide, primarily to value added resellers and
original
equipment manufacturers. These customers typically integrate our tape
libraries
with software from third party vendors and related hardware such as servers
and
network components to provide complete storage solutions, which are then
sold to
end users. We configure our libraries based on each customer’s individual
requirements, with a normal delivery time of one to five working days.
This
rapid fulfillment of customer orders allows our resellers to minimize
their
inventory levels and allows us to compete effectively with distribution
channels
used by our competitors.
Qualstar
was incorporated in California in 1984. In 1995, we entered the tape
automation
market with a series of tape libraries incorporating 8mm tape drives.
Since that
time, we have introduced a succession of tape library models designed
to work
with the leading automation-capable tape drive technologies. Automated
tape
libraries and related products, such as tape drives and tape media, represented
approximately 66.6% of revenues for fiscal 2007, approximately 66.2%
of revenues
for fiscal 2006, and approximately 75.1% of revenues for fiscal 2005.
Sales of
power supplies, services and other products accounted for the balance
of our
revenues.
In
July
2002, we purchased the assets of N2Power, Incorporated, a supplier of
ultrasmall
high efficiency open-frame switching power supplies. Power supplies provided
by
N2Power are utilized within some of our tape library products as well
as sold to
original equipment manufacturers and contract manufacturers for incorporation
into their products. N2Power products are sold under the N2Power brand
name as
well as under a private label brand name through independent sales
representatives and distributors. Revenues from N2Power products totaled
approximately 14.6% of revenues for fiscal 2007, 11.9% of revenues for
fiscal
2006 and 5.0% of revenues for fiscal 2005.
Our
power
supplies are used to convert common alternating current (AC) line
voltages found in buildings and to direct current (DC) voltages that
are needed
internally to operate most electronic equipment. Since purchasing N2Power
we
have continued to develop and market additional models and model families
to
broaden the product line and increase potential business
prospects.
DATA
STORAGE INDUSTRY BACKGROUND
Storing,
managing and protecting data has become critical to the operation of
many
enterprises and governments as the world economy becomes increasingly
information dependent. The data storage industry is growing in response
to the
increase in the amount of data that is generated and that must be preserved.
The
amount of data has been increasing due to the growth in the number of
computers,
the number, size and complexity of computer networks and software applications,
and the emergence of new applications such as image processing, internet
services, medical image storage, video and motion picture image storage,
and
other multi-media applications. In addition, businesses continue to generate
increasing amounts of traditional business information with respect to
their
products, customers and financial data. This increase in the amount of
data that
is generated stimulates increases in the demand for data storage and
the
management of this data.
FACTORS
DRIVING GROWTH IN DATA STORAGE
|
|
•
|
Increased
demand from Internet businesses. The growth in the
Internet has created businesses that depend on the creation,
access to and
archival storage of data. We believe this demand will continue
to grow as
individuals and businesses increase their reliance on the Internet
for
communications, commerce and data
retrieval.
|
|
|
•
|
Growth
in new types of data. New types of data are also
fueling the growth in data storage. For example, graphics,
audio, video,
medical and security images, and multi-media uses such as video
on demand,
require far greater storage capacity than text and financial
data.
|
|
|
•
|
Recognition
of the critical importance
ofdata. Corporate databases contain
useful information about customer records, order patterns and
other
factors that can be analyzed and transformed into a valuable
asset and a
competitive advantage. The ability to efficiently store, manage
and
protect this information is important to the value and success
of many
businesses. The usefulness of past and present data is further
enhanced by
sophisticated data mining software applications that can access
and
analyze large databases.
|
|
|
•
|
Growing
awareness of the need for
disasterprotection. Companies are
recognizing that without their data they may not survive. Natural
disasters, as well as overt and covert actions targeted at
individual
companies or classes of users, can destroy data and entire
data centers,
threatening a company’s very existence. Systematic replication and secure
off-site storage of corporate data is recognized as the best
defense
against catastrophic data loss. Tape libraries are a key technology
in
most corporate data disaster protection
plans.
|
|
|
•
|
Compliance
with new regulatory requirements for
recordsretention. Many businesses now
must deal with new regulatory requirements from various governmental
agencies that require businesses to retain data for longer
periods of
time. The regulations that have received the most visibility
include HIPAA
requirements covering medical records; Sarbanes-Oxley, which
addresses
corporate governance; and Rule 17a under the Securities Exchange Act
of 1934, regarding recordkeeping requirements for the securities
industry.
These regulations and others are projected to increase demand
for
long-term storage capacity over the next few
years.
|
|
|
•
|
Growth
in network computing applications
anddata. The use of computer networks
has shifted critical information and applications to network
servers to
allow more people to gain access to stored data as well as
to create new
data. As the speed of network computing has increased, numerous
new
applications have become feasible such as computer fax and
e-mail, all of
which generate progressively more data. Organizations are increasingly
aware of the need to protect this data, as networks become
a
mission-critical element of many
operations.
|
|
|
•
|
Decrease
in the costs of storing data. The costs of data
storage have decreased with advances in technology and improved
manufacturing processes. We expect these costs to continue
to decrease.
The decrease in the cost of data storage encourages the storage
of more
data and makes it more cost effective to simply add more storage
capacity
than to remove old data, which in the past may have been purged
periodically.
|
ADVANCES
IN DATA STORAGE MANAGEMENT TECHNOLOGIES
The
growth in data is contributing to an evolution in traditional storage
solutions.
New technologies are designed to provide high-speed connectivity for
data-intensive applications across multiple operating systems. These
new methods
of storage and data management technologies include the
following:
|
|
•
|
Fibre
Channel. Fibre Channel is an interface technology
based on industry standards for the connection of storage devices
to
networks. Interface is the term used to describe the electronics,
cabling
and software used to facilitate communications between devices.
With Fibre
Channel, users are better able to share stored information
with other
storage devices and servers over longer distances, with faster
data
transfer speeds, thereby increasing the importance of storage
area
networks.
|
|
|
•
|
Storage
Area Networks. Storage Area Network, or SAN,
architecture applies the inherent benefits of a networked approach
to data
storage applications, which allows data to move efficiently
and reliably
between multiple storage devices and servers. The benefits
of SAN
architecture also include increasing the expandability of existing
storage
solutions and providing a higher level of connectivity than
exists with
traditional technologies. Additionally, SANs are able to provide
these
benefits across multiple operating
systems.
|
|
|
•
|
Advanced
storage management software. This software
automatically migrates infrequently accessed data to the lower
cost
storage medium such as a tape library. A user’s request for this data at
some later date will recall the data automatically from the
tape library.
This process reduces the overall storage cost by using the
least expensive
storage medium to store data that is not expected to be needed
on a
frequent basis. Advances in storage management software have
increased the
ability of businesses to more cost-effectively store, manage
and retrieve
data, which in turn allows businesses to operate more
efficiently.
|
|
|
•
|
Network
Attached Storage. Current storage devices are
dependent on a file server for all commands and control. Network
attached
storage devices give storage devices file server functionality,
which
allow users to plug a storage device directly into a network
without
requiring a separate file server. This allows users to maintain,
or even
enhance, system performance while saving on both time and
cost.
|
TYPES
OF DATA STORAGE
Current
non-volatile storage solutions are based primarily on two technologies:
magnetic
disk and magnetic tape. These technologies represent a compromise among
a
variety of competing factors including capacity, cost, speed, portability
and
data reliability. Magnetic tapes are removable, which allows them to
be
transported easily to an off-site location for security or protection
from
physical harm. Magnetic disks provide quicker access to stored data and
generally are used when speed is important. Less frequently used data
is often
migrated from magnetic disks to tape storage. Tape libraries provide
an online
solution, where less frequently used data files are stored on tape at
substantially lower cost compared to disk while still providing automated
access.
TAPE
LIBRARIES AND APPLICATIONS
Tape
libraries automate the tape loading process, eliminate errors induced
by human
operators, and enhance security compared to tapes that must be retrieved
and
loaded manually. Tape libraries can also be operated from remote locations
around the clock, thus, eliminating the need for an operator. Automated
tape
libraries are a key component in a company’s overall storage solution and data
protection strategy.
Tape
drives and tape media are the two key components of tape libraries. The
costs of
tape drives and tape media have declined with advances in technology,
and we
expect this trend to continue. As prices decline, new applications for
automated
storage become justified, further increasing the number of applications
that can
benefit from the use of tape libraries. We believe that continued technological
improvements in tape drives and tape media will continue to reduce overall
storage costs in the future.
Current
and emerging applications for tape libraries include:
|
•
|
Automated
backup. Backup is the creation of a duplicate copy of
current data for the purpose of recovering the data in the
event the
original is lost or damaged. An automated tape library, in
conjunction
with storage management software, can backup network data at
any time
without human intervention. A library with multiple tape drives
can backup
data using all of its drives simultaneously, thus significantly
speeding
up the recording process. Backup tapes can be removed from
the library and
stored in an off-site location for protection against a loss
of the
primary site.
|
|
•
|
Archiving. Archiving
is the storage of data for historical purposes. When information
is stored
on tape, automated tape libraries, under application control,
can catalog
tapes for future retrieval and prevent unauthorized removal
or corruption
of data by using password or key lock protection. Archival
tapes provide a
historic record for use in fraud detection, audit, legal and
other
processes. Tape libraries are also used for archiving due to
benefits
offered by the tape medium, such as long-term data integrity,
resistance
to environmental contamination, ease of relocation and low
cost.
|
|
•
|
Image
management. Storage-intensive applications such as
satellite mapping and medical image management systems are
turning to tape
libraries because of the cost advantage over traditional storage
methods.
X-ray images or MRI results, for instance, must frequently
be kept on file
for years. Storing a digitized image in a tape library costs
considerably
less than storing a film copy, and can be retrieved years later
with the
click of a mouse.
|
DISTRIBUTION
OF TAPE LIBRARY PRODUCTS
The
requirements for storage solutions vary depending on the size of an enterprise,
the type of data generated and the amount of data to be stored. With
the
increased dependence on stored data, most organizations, regardless of
their
size, have a heightened need for storage solutions that integrate devices
such
as tape drives, tape libraries and storage management software. Those
organizations with sufficient in-house information technology resources
can rely
on their internal infrastructure and expertise to design, purchase and
implement
their own storage solutions. These organizations may elect to purchase
equipment
from distributors or directly from the original equipment manufacturers.
Many
organizations, however, do not have sufficient in-house resources but
have the
same need for data storage solutions. These organizations often look
to value
added resellers to design, supply and install their storage
solutions.
Value
added resellers develop and install storage solutions for enterprises
that face
complex storage needs but lack the in-house capability of designing and
implementing the proper solution or have chosen to outsource these functions.
Typically, the value added reseller will select among a variety of different
hardware technologies and software options, as well as provide installation
and
other services, to deliver a complete storage solution for the end user.
Value
added resellers require rapid turnaround of orders, custom configuration
of tape
libraries, drop shipment to their customer’s site, software, and marketing and
technical support.
Original
equipment manufacturers generally resell products made by others under
their own
brand name and typically assume responsibility for product sales, service
and
support. Original equipment manufacturers enable manufacturers, such
as
Qualstar, to reach end users not served by other channels and to serve
select
vertical markets where specific original equipment manufacturers have
exceptional strength. Original equipment manufacturers require special
services
such as product configuration control, extensive qualification testing,
custom
colors and private labeling.
OUR
TAPE LIBRARY SOLUTIONS
We
offer
storage solutions that respond to the growing data management challenges
facing
businesses today, while addressing the unique needs of value added resellers
and
original equipment manufacturers.
We
believe that high reliability is important to the end users of our products
due
to the critical nature of the data that is being stored, shorter time
periods
available for the back-up operations, and the operation of backup systems
during
hours when personnel may not be available to respond to problems. To
address
these concerns, we emphasize quality and reliability in the design,
manufacturing and testing of our products which reduces the potential
for
product failures and results in products that require little
maintenance.
The
technology utilized in automated tape libraries is continuously evolving
due to
advances in data recording methods, component cost reductions, advances
in
semiconductor and microprocessor technologies, and a general trend toward
miniaturization in the electronics industry. This changing technology
requires
that we continuously develop and market new products to prevent our product
lines from becoming obsolete.
Our
tape
libraries are compatible with over 45 third-party storage management
software
packages, including those supplied by Computer Associates, EMC/Legato,
Tivoli,
Symantec, CommVault and BakBone Software. Storage management software
enables
network administrators to allocate the use of storage technologies among
user
groups or tasks, to manage data from a central location, and to retrieve,
transfer and backup data between multiple workstations. We believe that
storage
management software is a crucial component of any automated storage
installation, and lack of compatibility is a significant barrier to entry
for
new tape library competitors. To ensure compatibility, our engineers
work with
independent software vendors during the product development cycles. We
do not
have contracts with any independent software vendors, nor do we need
access to
their software code to design our products. We maintain relationships
with them
by making tape libraries available so they can qualify their software
to work
with our tape libraries and by evaluating their software for compatibility
with
our tape libraries. We also support our relationships with them by keeping
them
informed about current and anticipated changes to our products and by
referring
business to them when value added resellers or end users inquire about
storage
management software sources.
STRATEGY
Our
goal
is to enhance our position as a supplier of automated tape libraries
and to
maintain or increase our market share in each of the product categories
in which
we compete. To achieve this goal, we intend to:
|
•
|
Focus
our development efforts on higher margin product
categories. Early in Fiscal 2007 we began shipments
of a newly-developed library system referred to as the XLS
family of
products. The XLS expands the breadth of our product line into
the
enterprise computing environment where tape capacities may
range into the
thousands of tapes. We intend to continue to build on this
product
category with future product releases and enhancements in order
to pursue
this market segment where the potential margins are higher
than we have
traditionally enjoyed.
|
|
•
|
Focus
on value added reseller channels. We sell our products
primarily through selected value added resellers who have a
strong market
presence, have demonstrated the ability to work directly with
end users,
and who maintain relationships with major vendors of storage
management
software. Because we market our products primarily through
this channel,
we have implemented a variety of programs to support and enhance
our
relationships with our reseller partners. These programs are
designed to
benefit the reseller and increase the likelihood of selling
our products.
We intend to maintain our marketing presence in support of
this channel.
We conduct business with our value added resellers on an individual
purchase order basis and no long-term purchase commitments
are
involved.
|
|
•
|
Maintain
and strengthen original equipment
manufacturerrelationships. We sell
our products to several companies under private label or original
equipment manufacturer relationships. Original equipment manufacturer
sales enable us to reach some end users not served by our value
added
resellers. The same product characteristics that make our tape
libraries
attractive to value added resellers also are important to original
equipment manufacturers. We conduct business with our original
equipment
manufacturer customers on an individual purchase order basis
and no
long-term purchase commitments are
involved.
|
Our
strategy for the power supply business is to selectively pursue market
opportunities where we can command a premium price for high-efficiency
products
rather than becoming a commodity supplier. As electronic devices continue
to
shrink in size, many designers are forced to consider our high-density,
high-efficiency approach.
We
believe that our experience, efficiency and control over the development
and
manufacture of new products are key factors in the successful execution
of our
strategy. We design our tape libraries with a high percentage of common
parts,
use quality components and minimize the number of moving parts. We utilize
proprietary techniques in the design, production and testing of our libraries
in
order to simplify the manufacturing process and reduce our costs. We
manufacture
all of our products at a single facility and we control our inventory
closely to
provide rapid delivery to our customers. These steps allow us to design
and
bring to market new products in response to changing technology.
PRODUCTS
Tape
Libraries
We
offer
a number of tape library families, each capable of incorporating one
or more
tape drive technologies, as summarized in the following table:
|
Product
Family
|
Tape
Drive Technology
|
Range
of Tape Cartridges
|
Maximum
Capacity in Terabytes(1)
|
||||
|
TLS-4000
|
Sony
AIT
|
12
to 600
|
|
||||
|
TLS-8000
|
LTO
|
11
to 264
|
|
||||
|
RLS-4000
|
Sony
AIT
|
22
to 70
|
|
||||
|
RLS-8000
|
LTO
|
12
to 44
|
|
||||
|
XLS
Series
|
LTO
|
295-2805
|
(2) |
2,244
|
(2) | ||
____________
|
(1)
|
A
Terabyte is one million megabytes, or one thousand gigabytes.
The table
shows native capacity and excludes gains from data
compression, which can increase capacity by more than
100%.
|
|
(2)
|
2,805
tapes and 2,244 terabytes reflect the product configuration
at its initial
release stage. Planned future releases of internal firmware
will allow
expansion to as high as 6,265 tapes and 5,012 terabytes using
LTO tape
technology.
|
Our
tape
library families include a number of models that differ in storage capacity,
price and features. Our libraries are installed in network computing
environments ranging from small departmental networks to enterprise-wide
networks supporting hundreds of users. We believe that selling products
for
multiple tape drive technologies insulates us somewhat from the dynamics
of the
marketplace as various tape standards compete for market share. This
helps our
products appeal to the broadest possible range of end user market segments.
This
wide range of products makes us a one-stop supplier for our value added
reseller
and original equipment manufacturer customers, enabling them to meet
most end
user requirements for a specific tape format or data capacity.
Tape
libraries generally contain two or more tape drives and from ten to thousands
of
tapes. We design our tape libraries for continuous, unattended operation.
Multiple tape drives allow simultaneous access to different data files
by
different users on the network, and increase the rate at which data can
move on
to, out of, or within the network. A library with multiple tape drives
can back
up data using multiple drives simultaneously, significantly speeding
up the
recording process. In some of our libraries, tape cartridges are stored
in
removable magazines, allowing for easy bulk removal of the tapes. Our
libraries
also offer features such as barcode readers to scan cartridge labels
and an
input/output port for importing and exporting tapes under system control.
Several of our library models are expandable in the field by increasing
the
number of tape storage positions. This feature provides the end user
with the
ability to increase data capacity as storage needs grow.
We
continue to develop and release new libraries to expand our product offerings
to
meet the changing demands of the marketplace. In addition, we continue
to
enhance and improve our existing products to maintain our competitive
position.
Some
of
our tape libraries incorporate a number of specialized features that
we believe
improve reliability, serviceability and performance, including:
|
•
|
Rapid
tape drive replacement. We design our libraries so that a tape
drive can be replaced quickly without special tools. This feature
minimizes the off-line time required when a tape drive must
be replaced,
and frequently avoids the high cost and delays of a service
call.
|
|
•
|
Fibre
Channel connectivity. We offer a Fibre Channel option on many
of our models for connection to Storage Area Networks and other
high
performance applications.
|
|
•
|
Closed-loop
servo control. Our tape libraries use digital closed-loop servo
control for robotic motion to provide precise tape handling.
This yields
motion that is smooth, repeatable and highly
reliable.
|
|
•
|
Brushless
motors. Motors are a key component in any robotic system. We
use only brushless electric motors in our tape libraries. Brushless
motors
provide longer life and less electrical noise compared to conventional
brush-type motors. We build many of our own motors in order
to obtain
optimum performance and
reliability.
|
|
•
|
Remote
management. Many larger companies with global back-up
requirements or disaster management programs require tape libraries
that
can be located off-site in various regions, but that must be
administered
from a single location. With our remote library manager, customers
can put
libraries anywhere in the world and manage them from a single
administrative hub using a standard web
browser.
|
Our
RLS
Series of tape libraries are designed to fit efficiently in equipment
racks and
provide back-up capacity in only five standard units, or a total of
8.75 inches of rack space. In addition, some models in the RLS series are
designed to support dual-redundant power supplies and hot-swappable tape
drives.
Our
XLS
family of tape libraries is designed to be expandable from 300 to over
6000
tapes and is focused on the needs of large enterprises. The XLS product
is
feature rich and is intended to provide the customer with a highly reliable
and
high efficiency solution. Initial customer shipments commenced in July
2006.
Power
Supplies
In
addition to tape libraries, we design and sell ultrasmall, open frame,
high
efficiency switching power supplies. These power supplies are used to
convert AC
line voltage to DC for use in a wide variety of electronic equipment
such as
telecommunications equipment, servers, routers, switches, wireless systems
and
gaming devices.
Our
power
supplies are sold under the N2 Power brand. We have specialized in units
that
are less than 1¾ inches high and that are optimized for high efficiency
operation. The high efficiency allows the units to be operated in confined
spaces without heating up the surrounding equipment. These products are
manufactured for us in China and sold to original equipment manufacturers
(OEM)
and contract manufacturers as well as to distributors.
We
believe that as worldwide energy concerns and energy costs rise, our
high
efficiency approach will become more important. Additionally,
these power supplies are utilized within some of our tape library
products. We have developed a line of power supply products that
deliver up to twice the power in half the space of competitive
products. Manufacturers of servers, routers, switches, telecom gear,
and other
process-based equipment continuously pursue smaller, more powerful, and
more
efficient power sources for their equipment to remain competitive.
Each
power supply undergoes a complete functional test and a multi hour burn-in
to
insure that every unit meets our stringent quality requirements. We
believe our high power factor design reduces loads on both generating
stations
and air-cooling systems.
Other
Products
We
also
sell ancillary products related to our tape libraries, such as tape media,
tape
magazines, cables, bar code labels and fiber channel adapters.
SALES
AND MARKETING
Sales
We
sell
our tape library products primarily through value added resellers. Our
sales
force will initiate contact with value added resellers who are candidates
to
sell our tape libraries. We strive to develop relationships with resellers
who
have expertise in storage management applications, established relationships
with end users and the experience to understand and satisfy their customers’
needs.
We
believe that by selling directly to value added resellers, we have an
advantage
over competitors who will often sell directly to end users, thereby competing
with their resellers. Some of the advantages of our strategy include
the
following:
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Higher
profit margins. Focusing on this channel, we achieve economies
that result in higher profit margins to be shared by both the
reseller and
us.
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