QUALSTAR CORP (Form: 10-Q, Received: 08/13/2019 17:13:05)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For t he q uarterly p eriod ended June 30 , 2019

☐

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 001-35810

QUALSTAR CORPORATION

(Exact name of registrant as specified in its charter)

CALIFORNIA

95-3927330

(State or other jurisdiction of incorporation or organization)

1267 Flynn Road, Camarillo, CA

(Address of principal executive offices)

(I.R.S. Employer Identification No.)

93012

(Zip Code)

Registrant’s telephone number, including area code: (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 ☑ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller reporting company ☑
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock	QBAK	The NASDAQ Capital Market

At August 8, 2019 the issuer had 1,923,752 shares of common stock, no par value, issued and outstanding.

QUALSTAR CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30 , 2019

INDEX

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

		●	Condensed Consolidated Balance Sheets — June 30, 2019 (unaudited) and December 31, 2018	1

		●	Unaudited Condensed Consolidated Statements of Operations — Three and six months ended June 30, 2019 and 2018	2

		●	Unaudited Condensed Consolidated Statements of Shareholders’ Equity — Three and six months ended June 30, 2019 and 2018	3

		●	Unaudited Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2019 and 2018	4

		●	Notes to unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			17

Item 3.	Qualitative and Quantitative Disclosures About Market Risk			22

Item 4.	Controls and Procedures			22

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

	Signatures	26

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

QUALSTAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands , except share amounts )

	June 30 , 201 9			December 31, 201 8
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,376		$	4,781
Restricted cash		100			100
Accounts receivables, net		2,238			1,809
Inventories, net		2,744			2,897
Prepaid expenses and other current assets		131			180
Total current assets		9,589			9,767
Non-current assets:
Property and equipment, net		106			112
Right-of-use		822			-
Other assets		129			119
Total non-current assets		1,057			231
Total assets	$	10,646		$	9,998

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,365		$	1,023
Accrued payroll and related liabilities		203			185
Deferred service revenue, short-term		618			736
Lease liabilities, current		303			-
Other accrued liabilities		453			559
Total current liabilities		2,942			2,503
Long-term liabilities:
Other long-term liabilities		52			40
Lease liabilities, long term		545			-
Deferred service revenue		168			127
Total long-term liabilities		765			167
Total liabilities		3,707			2,670

Shareholders’ equity:
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued		-			-
Common stock, no par value; 50,000,000 shares authorized, shares issued and outstanding 1,937,310 at June 30, 2019 and 2,030,017 shares at December 31, 2018		18,907			19,426
Accumulated deficit		(11,968	)		(12,098	)
Total shareholders’ equity		6,939			7,328
Total liabilities and shareholders’ equity	$	10,646		$	9,998

See notes to condensed consolidated financial statements.

QUALSTAR CORPORATION AND SUBSIDIAR IES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019		2018
Net revenues	$	3,439		$	3,231	$	6,295	$	6,166
Cost of goods sold		2,634			1,809		4,570		3,316
Gross profit		805			1,422		1,725		2,850
Operating expenses:
Engineering		228			128		351		249
Sales and marketing		306			354		614		649
General and administrative		298			466		651		888
Total operating expenses		832			948		1,616		1,786
Income (loss) from operations		(27	)		474		109		1,064
Other income		16			-		21		-
Income (loss) before income taxes		(11	)		474		130		1,064
Provision for income taxes		-			-		-		-
Net income (loss)	$	(11	)	$	474	$	130	$	1,064
Earnings per share:
Basic	$	(0.01	)	$	0.23	$	0.07	$	0.52
Diluted	$	(0.01	)	$	0.23	$	0.07	$	0.51
Shares used in per share calculation:
Basic		1,952			2,048		1,972		2,048
Diluted		1,952			2,094		1,972		2,098

See notes to condensed consolidated financial statements.

QUALSTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

	Three Months Ended June 30, 2019
	Common Stock						Accumulated Other Comprehensive Income		Accumulated
	Shares			Amount			(Loss)		Deficit			Total
Balances at December 31, 2018		2,030		$	19,426		$	—	$	(12,098	)	$	7,328
Stock repurchase		(59	)		(329	)		—		—			(329	)
Net income		—			—			—		141			141
Balances at March 31, 2019		1,971		$	19,097		$	—	$	(11,957	)	$	7,140
Stock repurchase		(34	)		(190	)		—		—			(190	)
Net income (loss)		—			—			—		(11	)		(11	)
Balances at June 30, 2019		1,937		$	18,907		$	—	$	(11,968	)	$	6,939

	Three Months Ended June 30, 2018
	Common Stock				Accumulated Other Comprehensive Income		Accumulated
	Shares		Amount		(Loss)		Deficit			Total
Balances at December 31, 2017		2,043	$	19,480	$	—	$	(13,584	)	$	5,896
Exercise of stock options		5		34		—		—			34
Net income		—		—		—		590			590
Balances at March 31, 2018		2,048	$	19,514	$	—	$	(12,994	)	$	6,520
Exercise of stock options		—		5		—		—			5
Net income		—		—		—		474			474
Balances at June 30, 2018		2,048	$	19,519	$	—	$	(12,520	)	$	6,999

	Six Months Ended June 30, 2019
	Common Stock						Accumulated Other Comprehensive Income		Accumulated
	Shares			Amount			(Loss)		Deficit			Total
Balances at December 31, 2018		2,030		$	19,426		$	—	$	(12,098	)	$	7,328
Stock repurchase		(93	)		(519	)		—		—			(519	)
Net income		—			—			—		130			130
Balances at June 30, 2019		1,937		$	18,907		$	—	$	(11,968	)	$	6,939

	Six Months Ended June 30, 2018
	Common Stock				Accumulated Other Comprehensive Income		Accumulated
	Shares		Amount		(Loss)		Deficit			Total
Balances at December 31, 2017		2,043	$	19,480	$	—	$	(13,584	)	$	5,896
Exercise of stock options		5		39		—		—			39
Net income		—		—		—		1,064			1,064
Balances at June 30, 2018		2,048	$	19,519	$	—	$	(12,520	)	$	6,999

See notes to condensed consolidated financial statements.

QUALSTAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six months Ended June ,
	201 9			201 8
Cash flows from operating activities :
Net income	$	130		$	1,064
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		24			52
Loss on disposal of assets		26			-
Provision for recovery of bad debts and returns, net		-			(4	)
Provision for inventory obsolescence		137			133
Amortization of right of use		137			-
Changes in operating assets and liabilities:
Accounts receivable		(429	)		(142	)
Inventories		16			(248	)
Prepaid expenses and other current assets		39			(12	)
Accounts payable		342			(9	)
Accrued payroll and related liabilities		18			127
Deferred service revenue		(77	)		(138	)
Lease liabilities		(133	)		-
Other accrued liabilities		(72	)		(3	)
Total adjustments		28			(244	)
Net cash provided by operating activities		158			820

Cash flows from investing activities :
Purchases of equipment		(44	)		(10	)
Net cash used in investing activities		(44	)		(10	)

Cash flows from financing activities :
Proceeds from the exercise of stock options		-			39
Purchase of common stock		(519	)		-
Net cash provided by (used in) financing activities		(519	)		39

Net increase (decrease) in cash, restricted cash and cash equivalents		(405	)		849

Cash, restricted cash and cash equivalents at beginning of period		4,881			4,798

Cash, restricted cash and cash equivalents at end of period	$	4,476		$	5,647

Supplemental cash flow disclosures :

Income taxes paid	$	10		$	24

See notes to condensed consolidated financial statements.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2018, has been derived from audited consolidated financial statements. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as our annual audited consolidated financial statements and in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

Preparing condensed consolidated financial statements 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, share-based compensation, forfeiture rates, the potential outcome of future tax consequences of events that have been recognized in our 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.

Qualstar has established two additional subsidiaries to aid in the Company’s global expansion. On July 4, 2018, a wholly-owned subsidiary of Qualstar Corporation, Qualstar Limited, was created to operate the Company’s data storage business in Europe and Africa. On September 5, 2018, a wholly-owned subsidiary of Qualstar Corporation, Q-Smart Data Private Limited, was created to operate the Company’s data storage business in Asia.

We design our products at our facilities in California and Singapore. We sell our products globally through authorized resellers and directly to OEMs. N2Power utilizes contract manufacturers in Asia to produce our power solutions products. Our storage products are manufactured by us at our factory in Simi Valley, California and by our OEM suppliers in other parts of the world.

The Company's significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 7, 2019 (the “Annual Report”). There were no material changes to the significant accounting policies during the three months ended June 30, 2019, apart from the Company's accounting policy related to the accounting for leases, as discussed below.

Principles of Consolidation

The condensed consolidated financial statements include our accounts and the accounts of each of our wholly owned subsidiaries that were in existence during the periods presented: Qualstar Corporation Singapore Private Limited, N2Power, Inc., Qualstar Limited and Q-Smart Data Private Limited. All significant intercompany accounts and transactions have been eliminated in consolidation.

Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s Annual Report.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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, we defer revenue recognition until such events occur. We derive revenues from two primary sources: products and services. Product revenue includes the shipment of product according to the agreement with our customers for data storage products and power supplies. Services include customer support (technical support), installations, consulting, and design services. A contract may include both product and services. Rarely, contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices are typically estimated based on observable transactions when these services are sold on a standalone basis.

A variety of technical services can be contracted by our customers for a designated period of time. The service contracts allow customers to call Qualstar for technical support, replace defective parts and to have onsite service provided by Qualstar’s third party contract service provider. We record revenue for contract services at the amount of the service contract, but such amount is deferred at the beginning of the service term and amortized ratably over the life of the contract.

Deferred service revenue is shown separately in the condensed consolidated balance sheets as current and long term. At June 30, 2019 we had deferred service revenue of approximately $786,000. At December 31, 2018, we had deferred service revenue of approximately $863,000.

Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When legal costs that the entity expects to incur in defending itself in connection with a loss contingency accrual are expected to be material, the loss should factor in all costs and, if the legal costs are reasonably estimable, they should be accrued in accordance with ASC 450, regardless of whether a liability can be estimated for the contingency itself. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. Changes in these factors could materially impact our condensed consolidated financial statements. At June 30, 2019 we had a loss contingency of $2,000. At December 31, 2018, we had a loss contingency reserve of $100,000.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, which include cash equivalents, accounts receivable, accounts payable, related party, and other long-term liabilities, approximate their fair values.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Accounting for Income Taxes

We estimate our tax liabilities based on current tax laws in the statutory jurisdictions in which we operate in accordance with ASC 740, “Income Taxes.” These estimates include judgments about deferred tax assets and liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, as well as about the realization of deferred tax assets. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

We maintain a valuation allowance to reduce our deferred tax assets due to the uncertainty surrounding the timing of realizing the benefits of net deferred tax assets in future years. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for such a valuation allowance. In the event we were to determine that we would be able to realize all or part of our net deferred tax asset in the future, the valuation allowance would be decreased accordingly.

We may periodically undergo examinations by the federal and state regulatory authorities and the Internal Revenue Service. We may be assessed additional taxes and/or penalties contingent on the outcome of these examinations. Our previous examinations have not resulted in any unfavorable or significant assessments. No provision has been made, as the Company has net operating loss carryforwards available to offset taxable income.

Leases

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases . Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under ASC Topic 840.

Operating Segments

The Company operates in two segments, Data Storage and Power Supplies. Operating segments are identified as functional groups within an enterprise in which discrete financial information is utilized by the chief operating decision maker in allocating resources and assessing performance. In the case of Qualstar, the chief operating decision maker is its President and Chief Executive Officer. This position maintains decision-making control over, and assesses the performance of, the two divisional levels of the Company.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting guidance adopted

FASB issued ASU 2016-02, ASU 2018-09, ASU 2018-10, 2018-11, and 2019-01 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 and to provide guidance related to accounting for leases, such as the application of an implicit rate, lessee reassessment of lease classification and certain transition adjustments. The Company elected ASU-11’s alternative transition approach of recording lease liabilities and right-of-use assets via a cumulative effect adjustment to retained earnings at the date of adoption. Effective January 1, 2019, the Company adopted ASU 2016-02, ASU 2018-09, ASU 2018-10, 2018-11 and 2019-0. The result is the recording of the lease liability and the right-of-use asset to the balance sheet and it did not have a material effect on our consolidated results of operations or consolidated cash flows.

In June 2018, the FASB issued ASU 2018-07 as a simplification for the accounting for non-employee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation. This standard is effective for fiscal years beginning after December 15, 2018. Effective January 1, 2019, the Company adopted ASU 2018-07 and it did not have a material effect on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02 to provide guidance related to adjustments for deferred tax assets and liabilities based on the changes created by the U.S. federal government tax bill enacted December 22, 2017. This standard is effective for fiscal years beginning after December 15, 2018. Effective January 1, 2019, the Company adopted ASU 2018-02 and it did not have a material effect on our consolidated financial statements.

NOTE 3 - BALANCE SHEET DETAILS

The following tables provide details of selected balance sheet accounts (in thousands):

Inventories

Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. Inventories are comprised as follows (in thousands):

	June 30 , 201 9		December 31, 201 8
	(unaudited)
Raw materials	$	251	$	136
Finished goods		2,493		2,761
Net inventory balance	$	2,744	$	2,897

Property and equipment, net

The components of property and equipment are as follows (in thousands):

	June 30 , 201 9			December 31, 201 8
	(unaudited)
Leasehold improvements	$	133		$	114
Furniture and fixtures		281			286
Machinery and equipment		635			844
		1,049			1,244
Less accumulated depreciation and amortization		(943	)		(1,132	)
Property and equipment, net	$	106		$	112

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Depreciation and amortization expense for the three months ended June 30, 2019 and 2018 was $11,000 and $22,000 (unaudited), respectively, and for the six months ended June 30, 2019 and 2018 was $24,000 and $52,000 (unaudited), respectively.

Other Accrued Liabilities

The components of other liabilities are as follows (in thousands):

	June 30, 2019		December 31 , 201 8
	(unaudited)
Accrued warranty	$	354	$	365
Accrued outside commissions		35		41
Accrued contingent legal fees		2		100
Deferred rent		23		22
Other accrued liabilities		39		31
Total other accrued liabilities	$	453	$	559

NOTE 4 –CONTINGENCIES

Accrued Warranty

We provide a three-year advance replacement warranty on all XLS and RLS libraries and a two-year warranty on our Q-Series libraries. This includes replacement of components, or if necessary, complete libraries. XLS libraries sold in North America also include one year of on-site service. Customers may purchase 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 warranty service coverage upon expiration of the standard warranty.

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.

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

	Six months Ended June 30 , 2019			Year Ended December 31, 201 8
	(unaudited)
Beginning balance	$	365		$	322
Cost of warranty claims		(12	)		(15	)
Accruals for product warranties		1			58
Ending balance	$	354		$	365

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

NOTE 5 – NET EARNINGS PER SHARE

Basic net earnings per share has been computed by dividing net income by the weighted average number of common shares outstanding. Diluted net earnings per share has been computed by dividing net earnings 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.

The following table sets forth the computation of basic and diluted net income or loss per share for the periods indicated, in thousands, except per share amounts.

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019		2018
In thousands (except per share amounts):
Net income (loss)	$	(11	)	$	474	$	130	$	1,064
Weighted average outstanding shares of common stock		1,952			2,048		1,972		2,048
Dilutive potential common shares from employee stock options		-			46		-		50
Common stock and common stock equivalents		1,952			2,094		1,972		2,098
Income (loss) per share:
Basic net income (loss) per share	$	(0.01	)	$	0.23	$	0.07	$	0.52
Diluted net income (loss) per share	$	(0.01	)	$	0.23	$	0.07	$	0.51

Outstanding stock options that were excluded from the calculation of diluted net income per share, as their inclusion would have been anti-dilutive, were 178,000 and 1,333 stock options for the three and six months ended June 30, 2019 and 2018, respectively.

N OTE 6 – STOCKHOLDERS’ EQUITY

On December 5, 2018, the board of directors approved a stock repurchase program (the “Stock Repurchase Program”) to repurchase shares of the Company’s common stock. The program permitted repurchases of up to a maximum aggregate purchase price of $2,400,000 and the number of shares of Common Stock repurchased shall not exceed 409,000. Under the Stock Repurchase Program, during the three and six months ended June 30, 2019 a total of 33,972 and 92,706 shares were repurchased, with a total of 110,808 shares having been repurchased since the program began. The program expires December 5, 2019.

NOTE 7 – STOCK INCENTIVE PLANS AND S HARE- BASED COMPENSATION

Share-Based Compensation

The Company did not incur an expense for share-based compensation associated with outstanding stock options for the three and six months ended June 30, 2019 and 2018. No income tax benefit was recognized in the condensed consolidated statements of operations for share-based arrangements in any period presented. At June 30, 2019, the Company did not have any unrecognized compensation costs related to share-based compensation.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Stock Option Plan

The Company has two share-based compensation plans as described below.

Qualstar adopted the 2008 Stock Incentive Plan (the “2008 Plan”) under which incentive and nonqualified stock options and restricted stock could be granted for shares of common stock. The 2008 Plan has expired and no additional options may be granted under that plan. However, 20,000 options that were previously granted under the 2008 Plan will continue under their terms.

The 2017 Stock Incentive Plan (the “2017 Plan”) permits the award of stock options (both incentive and non-qualified options), stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance shares, dividend equivalent rights and cash-based awards to employees (including executive officers), directors and consultants of the Company and its subsidiaries. The 2017 Plan authorizes the issuance of an aggregate of 300,000 shares of common stock and the plan is administered by the Compensation Committee of the Company’s Board of Directors.

With respect to options, the fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses various assumptions, such as volatility, expected term and risk-free interest rate. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination in determining forfeiture rates. The expected term of options granted is estimated based on the vesting term of the award, historical employee exercise behavior, expected volatility of the Company’s stock and an employee’s average length of service. The risk-free interest rate used in this model correlates to a U.S. constant rate Treasury security with a contractual life that approximates the expected term of the option award.

The following table summarizes stock option activity:

Options	Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2018		178,000	$	7.19		8.63		—
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited, canceled or expired		—		—		—		—
Outstanding at March 31, 2019		178,000		7.19		7.51		—
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited, canceled or expired		—		—		—		—
Outstanding at June 30, 2019		178,000		7.19		7.26		—


Exercisable at June 30, 2019		178,000	$	7.19		7.26	$	—

NOTE 8 – INCOME TAXES

We did not record a provision or benefit for income taxes for the three and six months ended June 30, 2019 and 2018, as the Company has net operating loss carryforwards available to offset taxable income. The Company has recorded a full valuation allowance against its net deferred tax assets based on the Company’s assessment regarding the realizable nature of these net deferred tax assets in future periods. The 2017 federal tax return is currently subject to examination by the Internal Revenue Service.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

NOTE 9 – SIGNIFICANT CUSTOMERS, CONCENTRATION OF CREDIT RISK, AND GEOGRAPHIC INFORMATION

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.

	Three Months Ended June 30,										Six Months Ended June 30,
	2019					2018					2019					2018
Revenue – geographic activity (in thousands):	(unaudited)					(unaudited)					(unaudited)					(unaudited)
	$		%			$		%			$		%			$		%
North America	$	2,231		64.9	%	$	1,783		55.2	%	$	3,917		62.2	%	$	3,358		54.5	%
Europe		234		6.8	%		570		17.7	%		777		12.3	%		882		14.3	%
Asia Pacific		950		27.6	%		864		26.7	%		1,559		24.8	%		1,887		30.6	%
Other		24		0.7	%		14		0.4	%		42		0.7	%		39		0.6	%
	$	3,439		100.0	%	$	3,231		100.0	%	$	6,295		100.0	%	$	6,166		100.0	%

Two customers accounted for 18.7% and 11.7% of the Company’s net revenue for the three-month period ended June 30, 2019. At June 30, 2019, the same two customers were 21.7% of the accounts receivable balance. The accounts receivable balances totaled 6.3% of net accounts receivable for the same two customers as of December 31, 2018.

Two customers accounted for 23.5% and 11.0% of the Company’s net revenue for the six-month period ended June 30, 2019. At June 30, 2019, the same two customers were 26.8% of the accounts receivable balance.

NOTE 10 – CO MMITMENTS

Lease Agreements

The Company has entered into a new lease in Camarillo, California for its headquarters beginning June 1, 2019. The facility is 9,910 square feet and is a 5 year and two-month lease, expiring July 31, 2024. The rent on this facility is $9,910 per month with a 3% step-up annually. Qualstar subleases a portion of the warehouse space to Interlink Electronics, Inc. (“Interlink”) and BKF Capital Group, Inc. (“BKF”) and is reimbursed for the space and other related expenses on a monthly basis. As described in Note 12, Interlink and BKF are related parties.

Qualstar leases a 15,160 square foot facility located in Simi Valley, California. The three-year lease began December 15, 2014 and has been renewed for an additional three years, expiring February 28, 2021. Rent on this facility is $11,000 per month with a step-up of 3% annually. Prior to the assignment Qualstar subleased a portion of the warehouse space to Interlink Electronics, Inc. (“Interlink”) and was reimbursed for the space and other related expenses on a monthly basis. As described in Note 12, Interlink is a related party. On May 22, 2019, Qualstar entered into a Standard Sublease Multi-Tenant (the “Sublease”), with Stillwater Agency, Inc., a California corporation (“Stillwater”), for the Simi Valley location, which previously served as Qualstar’s head office location and principal executive office. The term of the Sublease commences on July 15, 2019 and ends on February 28, 2021 (the “Term”). The base rent under the Sublease is approximately $12,886.00 per month. Stillwater is also responsible for approximately nine percent (9%) of certain operating expenses and taxes associated with the office building in which the leased premises are located.

Qualstar also leases approximately 5,400 square feet of office space in Westlake Village, California, that expires January 31, 2020. Rent on this facility is $11,000 per month, with a step-up of 3% annually. Effective March 21, 2016, Qualstar entered into a sublease agreement for the Westlake Village facility. The term of the sublease expires at the same time as the term of the master lease and the tenant pays Qualstar $12,000 per month with a step-up of 3% annually.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Effective April 1, 2016, a two-year lease was signed for 1,359 square feet for $2,500 per month in Singapore, which has been renewed until March 31, 2020.

Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any leases classified as financing leases.

The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right of use (ROU) assets and lease liabilities during the three months ended June 30, 2019 was 6.75%, derived from borrowing rate quotes as obtained from the Company’s business bank. We have certain contracts for real estate which may contain lease and non-lease components which we have elected to treat as a single lease component.

Right of use assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of June 30, 2019, we have not recognized any impairment losses for our ROU assets.

We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

At June 30, 2019, the Company had current and long-term operating lease liabilities of $303,000 and $545,000, respectively, and right of use assets of $822,000.

Future minimum lease payments under these leases are as follows, in thousands, (unaudited):

Years Ending December 31,	Minimum Lease Payment			Sublease Revenue			Net Minimum Lease Payment
Remainder of 2019	$	199		$	(171	)	$	28
2020		277			(167	)		110
2021		148			(26	)		122
2022		129			-			129
2023		133			-			133
After		79			-			79
Total undiscounted future non-cancelable minimum lease payments		965			(364	)		601
Less: Imputed interest		(118	)		-			(118	)
Present value of lease liabilities	$	847		$	(364	)	$	483

In the Company's financial statements for periods prior to January 1, 2019, the Company accounts for leases under ASC 840, and provides for rent expense on a straight-line basis over the lease terms. Net rent expense for the three and six months ended June 30, 2019 was $46,000 and $84,000, respectively.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

Other information related to our operating leases is as follows:

	Six Months Ended June 30, 2019
Weighted average remaining lease term in years		1.92
Weighted average discount rate		6.75	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	148
Operating cash flows from finance leases		-
Financing cash flows from finance leases		-

NOTE 1 1 – SEGMENT INFORMATION

In its operation of the business, management reviews certain financial information, including segmented internal profit and loss statements prepared on a basis consistent with U.S. GAAP. Our two segments are Power Supplies and Data Storage. The two segments discussed in this analysis are presented in the way we internally manage and monitor performance for the three and six months ended June 30, 2019 and 2018. Our allocations of internal resources were made to the two business segments for the three and six months ended June 30, 2019 and 2018. The types of products and services provided by each segment are summarized below:

Power Supplies — The Company designs and markets high-efficiency switching power supplies. We utilize contract manufacturers in Asia to produce the power supply products. These power supplies are used to convert AC line voltage to DC voltages, or DC voltages to other DC voltages for use in a wide variety of electronic equipment such as communications equipment, industrial machine tools, wireless systems, as well as medical and gaming devices. We sell our products globally through authorized resellers and directly to original equipment manufacturers (“OEMs”).

Storage — The data storage industry is experiencing a tremendous increase in newly generated digital data due to Rich Media Content, Internet of Things, Data Mining and the Cloud. Tape based storage solution providers enable businesses to manage the massive growth of digital data assets in a cost-effective manner. Our tape-based data storage product lines address long-term archive, backup and recovery of electronic data. These products consist of networked libraries that store and move high-density tape cartridges and high-speed tape drives that stream data to and from the tape cartridges. These optimized solutions allow the video centric markets such as media and entertainment, oil and gas, surveillance, digital security and medical imaging to achieve targeted data workflows.

Segment revenue, income before taxes and total assets were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	201 9		201 8		201 9		201 8
Revenue
Power Supplies	$	1,297	$	1,671	$	2,667	$	2,986
Storage:
Product		1,129		668		1,912		1,184
Service		1,013		892		1,716		1,996
Total storage	$	2,142	$	1,560	$	3,628	$	3,180
Revenue	$	3,439	$	3,231	$	6,295	$	6,166

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

	Three Months Ended June 30,					Six Months Ended June 30,
	201 9			201 8		201 9			201 8
Income (Loss) before Taxes
Power Supplies	$	(346	)	$	73	$	(356	)	$	17
Storage		335			401		486			1,047
Income (loss) before taxes	$	(11	)	$	474	$	130		$	1,064

	June 30 , 201 9		December 31, 201 8
	( unaudited )
Total Assets
Power Supplies
Cash and cash equivalents	$	537	$	381
Accounts receivable, net		698		1,048
Inventories, net		1,534		1,576
Property and equipment, net		14		47
Other assets		124		102
Total power supply assets		2,907		3,154
Storage
Cash and cash equivalents	$	3,839	$	4,400
Restricted cash		100		100
Accounts receivable, net		1,540		761
Inventories, net		1,210		1,321
Prepaid expenses and other current assets		120		168
Property and equipment, net		92		65
Other assets		838		29
Total storage assets		7,739		6,844
Total Assets	$	10,646	$	9,998

NOTE 1 2 – RELATED PARTY TRANSACTIONS

Steven N. Bronson is the Company’s CEO and is also the President and CEO and a majority shareholder of Interlink Electronics, Inc. (“Interlink”) and BKF Capital Group, Inc. (“BKF”). Interlink reimburses Qualstar for leased space at the Simi Valley facility and for other administrative expenses paid by or on behalf of the Company. The total amount charged to Interlink for the three months ended June 30, 2019 and 2018 was $4,000 and $4,000, respectively and $10,000 and $8,000 for the six months ended June 30, 2019 and 2018. Interlink owed Qualstar $1,000 and $2,000 at June 30, 2019 and December 31, 2018, respectively.

QUALSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-(Continued)

The Company reimburses Interlink for expenses paid on the Company’s behalf. Interlink occasionally pays travel, consulting and other expenses incurred by Qualstar. The Company reimbursed Interlink $60,000 and $74,000 for the three months ended June 30, 2019 and 2018, respectively and $4,000 and $130,000 for the six months ended June 30, 2019 and 2018, respectively. Qualstar owed Interlink $1,000 as of June 30, 2019. At December 31, 2018, Qualstar owed Interlink $2,000.

The Company reimburses BKF for expenses paid on the Company’s behalf. BKF occasionally pays consulting expenses incurred by Qualstar. BKF did not incur any expenses on behalf of Qualstar during the three months ended June 30, 2019 and no expenses were reimbursed by the Company to BKF during such period. The Company did reimburse BKF $2,000 for the six months ended June 30, 2018 for expenses incurred on the Company’s behalf. Qualstar did not owe BKF any monies at June 30, 2019 and owed $2,000 as of December 31, 2018.

NOTE 1 3 – SUBSEQUENT EVENTS

None.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements in this Quarterly Report on Form 10-Q concerning the future business, operating results and financial condition of the Company including estimates, projections, statements relating to our business plans, objectives and operating results, and the assumptions upon which those statements are based, are 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. These 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 Part II, Item 1A of this report and in our Annual Report on Form 10-K for the year ended December 31, 2018 in “Item 1 Business,” “Item 1A Risk Factors,” and in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements are generally identified by the use of forward-looking terminology such as “believes,” “may,” “expects,” “intends,” “estimates,” “anticipates,” “plans,” “seeks,” or “continues,” or the negative thereof or variations thereon or similar terminology. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect the occurrence of events or circumstances in the future.

OVERVIEW

Qualstar Corporation and its Subsidiaries (“Qualstar”, the “Company”, “we”, “us” or “our”) manufactures and markets data storage system products and compact, high efficiency power solutions. Our data storage devices include highly scalable automated magnetic tape libraries used to store, retrieve and manage electronic data primarily in the network computing environment. Our data storage devices include models ranging from entry level to enterprise and are a cost-effective solution for organizations requiring backup, recovery and archival storage of critical electronic information. The distribution channels for our data storage devices include resellers, system integrators, and original equipment manufacturers (“OEMs”). In addition, the Company is a leading provider of standard, semi-custom and custom power solutions marketed under the N2Power brand. Our power solution products provide OEM designers increased functionality while reducing thermal loads and cooling requirements and lowering operating costs. Our power solution products are currently sold to OEMs in a wide range of markets, including telecom/networking equipment, audio/visual, industrial, gaming and now medical with our new product offerings.

The Company is focused on expanding sales in both business units in two key areas: adding key customers and expanding its product portfolio. The data storage business is adding more strategic partners that will expand our geographic footprint and increase our reach to additional industries. The power supply business unit is expanding its customer base in specific market verticals, such as the gaming industry. In addition to adding new internally designed and private label products, the power supply business is focusing on providing value add services in establishing itself as an optimized product development manufacturer (OPDM) for current and future new customers. This will allow N2Power to act as a one-stop shop providing solutions for more complex power assembly units and chassis solutions for their OEM customers.

The Company continues to expand its product portfolio through internal development, private labeling and establishing worldwide partnerships with other power supply and data storage related companies. These new relationships will increase our product development engineering capabilities and help us stay at the forefront of both the data storage and power supply industries.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We describe our significant accounting policies in Note 1, “Summary of Significant Accounting Policies” of the accompanying Notes to Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS - (Unaudited)

The following table is presented in thousands, except for percentages. The percentages in the table are based on net revenues.

	Three Months Ended June 30,											Six Months Ended June 30,
	201 9						201 8					201 9					201 8
	$			%			$		%			$		%			$		%
Power supply revenues	$	1,297			37.7	%	$	1,671		51.7	%	$	2,667		42.4	%	$	2,986		48.4	%
Storage revenues		2,142			62.3	%		1,560		48.3	%		3,628		57.6	%		3,180		51.6	%
Net revenues		3,439			100.0	%		3,231		100.0	%		6,295		100.0	%		6,166		100.0	%
Cost of goods sold		2,634			76.6	%		1,809		56.0	%		4,570		72.6	%		3,316		53.8	%
Gross profit		805			23.4	%		1,422		44.0	%		1,725		27.4	%		2,850		46.2	%
Operating expenses:
Engineering		228			6.6	%		128		4.0	%		351		5.6	%		249		4.0	%
Sales and marketing		306			8.9	%		354		11.0	%		614		9.8	%		649		10.5	%
General and administrative		298			8.7	%		466		14.4	%		651		10.3	%		888		14.4	%
Total operating expenses		832			24.2	%		948		29.3	%		1,616		25.7	%		1,786		29.0	%
Income (loss) from operations		(27	)		(0.8	)%		474		14.7	%		109		1.7	%		1,064		17.3	%
Other income		16			0.5	%		-		-	%		21		0.3	%		-		-	%
Net income (loss)	$	(11	)		(0.3	)%	$	474		14.7	%	$	130		2.0	%	$	1,064		17.3	%

Comparison of the Three M onths Ended June 30 , 2019 and 201 8 (unaudited)

Change in Net Revenues :

	Three months Ended June 30,
	2019					2018					Change
	Amount		% of net revenue			Amount		% of net revenue			Amount			%
Power supply revenues	$	1,297		37.7	%	$	1,671		51.7	%	$	(374	)		(22.4	)%
Storage revenues		2,142		62.3	%		1,560		48.3	%		582			37.3	%
Net revenues	$	3,439		100.0	%	$	3,231		100.0	%	$	208			6.4	%

The increase in net revenues for the three months ended June 30, 2019 compared to the prior year period is attributable to the segment-specific factors described below.

Segment Revenue

Power Supplies – The decrease in power supply sales in the three months ended June 30, 2019 compared to the prior year period is primarily attributable to the decreased orders from existing customers. Key customers that incorporate our power supplies have variable life cycles and production demands. Revenues generated from one key customer decreased significantly during the period, as their demand for our product fell. As some projects reach end - of - life, the timing of new production creates a fluctuation in sales.

Storage – For the three months ended June 30, 2019 compared to the prior year period we experienced growth in our storage product sales as we attracted new customers. Service revenue also increased as a result of an increase in revenue received from our partnership with Sony Imaging Products & Solutions Inc. for the development of an enterprise class optical disk archive (“ODA”) library, which revenue was offset with a slight decline in technical support revenue. The service revenue from our relationship with Sony will fluctuate during various phases of the project.

Gross Profit :

	Three months Ended June 30 ,
	201 9					201 8					Change
	Amount		% of net revenue			Amount		% of net revenue			Amount			%
Gross profit	$	805		23.4	%	$	1,422		44.0	%	$	(617	)		(43.4	)%

The gross profit decrease for the three months ended June 30, 2019 compared to the prior year period is primarily attributed to our power supply business, as the Company terminated one of its contract manufacturers and purchased unused raw materials from the manufacturer. The value of those raw materials required a one-time write down of $190,000, which decreased gross profit. Gross profit also decreased as a result of the Company’s project development service contract with Sony, which arrangement mandates different levels of gross profit during various phases of the project. The current phase allows a gross profit limit of 10% with a maximum profit of $250,000.

Operating Expenses:

	Three months Ended June 30 ,
	201 9					201 8					Change
	Amount		% of net revenue			Amount		% of net revenue			Amount			%
Engineering	$	228		6.6	%	$	128		4.0	%	$	100			78.1	%
Sales and marketing	$	306		8.9	%	$	354		11.0	%	$	(48	)		(13.6	)%
General and administrative	$	298		8.7	%	$	466		14.4	%	$	(168	)		(36.1	)%

Engineering

Engineering expenses increased in the three months ended June 30, 2019 from the prior year period due to an increase in compliance testing expense as we certified our power supplies to the new UL safety standards.

Sales and Marketing

Sales and marketing expenses decreased during the three months ended June 30, 2019 from the prior year period, primarily from a decrease in sales commissions, tradeshows and promotion material expenses.

General and Administrative

General and administrative costs decreased during the three months ended June 30, 2019 from the prior year period as a result of a decline in bonus expenses and as a result of a decrease in legal expenses.

Other income

Other income increased as a result of interest earned during the three months ended June 30, 2019.

Provision for Income Taxes

We did not record a provision or benefit for income taxes for each of the three months ended June 30, 2019 and 2018, due to our net operating loss carryforwards (NOL’s). There were no changes to the valuation allowance during the three months ended June 30, 2019.

Comparison of the Six Months Ended June 30, 201 9 and 201 8 (unaudited)

Change in Net Revenues:

	Six months Ended June 30,
	201 9					201 8					Change
	Amount		% of net revenue			Amount		% of net revenue			Amount			%
Power supply revenues	$	2,667		42.4	%	$	2,986		48.4	%	$	(319	)		(10.7	)%
Storage revenues		3,628		57.6	%		3,180		51.6	%		448			14.1	%
Net revenues	$	6,295		100.0	%	$	6,166		100.0	%	$	129			2.1	%

The increase in net revenues for the six months ended June 30, 2019 compared to the prior year period is attributable to the segment-specific factors described below.

Segment Revenue

Power Supplies – The decrease in power supply sales in the six months ended June 30, 2019 compared to the prior year period is primarily attributable to the decreased orders from existing customers. Key customers that incorporate our power supplies have variable life cycles and production demands. Revenues generated from one key customer decreased significantly during the period, as their demand for our product fell. As some projects reach end - of - life, the timing of new production creates a fluctuation in sales.

Storage – For the six months ended June 30, 2019 compared to the prior year period we experienced revenue growth from data storage product sales, offset by a decline in services revenues relating to storage products. The increase in product revenues is attributed to new reseller relationships focused on media and entertainment, which resellers have a high demand for tape technology. Our service revenue decreased compared to the prior year period, primarily due to a decrease in the product development service revenue received from our partnership with Sony Imaging Products & Solutions Inc. for the development of an enterprise class optical disk archive (“ODA”) library and a decrease in our technical support revenue.

Gross Profit :

	Six months Ended June 30,
	2019					2018					Change
	Amount		% of net revenue			Amount		% of net revenue			Amount			%
Gross profit	$	1,725		27.4	%	$	2,850		46.2	%	$	(1,125	)		(39.5	)%

The gross profit decrease for the six months ended June 30, 2019 compared to the prior year period is primarily attributed to the decreased gross profit of power supplies and data storage service. Power supply gross profit declined due to a decrease in sales in our power supply segment and a $190,000 one-time charge for the write down of raw material inventory repurchased from our terminated contract manufacturer. Gross profit in our data storage segment declined during the period as a result of reduced revenue from service contracts. In addition, gross profit in our data storage segment decreased during the period as a result of our contract with Sony, which arrangement mandates different levels of gross profit during various phases of the project. The current phase allows a gross profit limit of 10% with a maximum profit of $250,000.

Operating Expenses:

	Six months Ended June 30,
	201 9					201 8					Change
	Amount		% of net revenue			Amount		% of net revenue			Amount			%
Engineering	$	351		5.6	%	$	249		4.0	%	$	102			41.0	%
Sales and marketing	$	614		9.8	%	$	649		10.5	%	$	(35	)		(5.4	)%
General and administrative	$	651		10.3	%	$	888		14.4	%	$	(237	)		(26.7	)%

Engineering

Engineering expenses increased in the six months ended June 30, 2019 from the prior year period as a result of an increase in compliance testing expense as we certified our power supplies to the new UL safety standards.

Sales and Marketing

Sales and marketing expenses decreased during the six months ended June 30, 2019 from the prior year period, primarily as a result of decreased sales commissions and promotional expenses.

General and Administrative

General and administrative costs decreased during the six months ended June 30, 2019 from the prior year period. General and administrative costs decreased primarily due to a decrease in bonus expense, travel expenses, and professional services and legal fees.

Provision for Income Taxes: We did not record a provision or benefit for income taxes for each of the six months ended June 30, 2019 and 2018, due to our prior year operating losses. There were no changes to the valuation allowance during the six months ended June 30, 2019.

CONTRACTUAL OBLIGATIONS

On March 15, 2019, we entered into a Standard Industrial/Commercial Multi-Tenant Lease – Gross dated February 14, 2019 (the “ Lease ”), with Flynn-Adolfo Associates, LP, a California limited partnership, for approximately 9,910 square feet of office and warehouse space at 1267 Flynn Road in Camarillo, California (the “ Premises ”). Beginning June 1, 2019, the Premises will serve as our head office location and will also be used for research and development, manufacturing, storage and other ancillary business purposes. The initial base rent under the Lease is approximately $9,910 per month and is subject to escalation over the term of the Lease. We are also responsible for our pro-rata share of certain operating expenses and taxes associated with the office building in which the Premises are located. The term of the Lease will commence on June 1, 2019 and will expire on July 31, 2024. We have an option to renew the Lease for two (2) additional thirty-six (36) month terms.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report on Form 10-Q, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Our principal source of liquidity is cash generated from operations. Net cash provided by operating activities was $158,000 for the six months ended June 30, 2019 compared to the net cash provided by operating activities of $820,000 for the six months ended June 30, 2018.

The cash provided by operating activities for the six months ended June 30, 2019 of $158,000 consisted of the operating income for the period of $130,000, decreased by non-cash adjustments of $239,000 and an increase in the changes of operating assets and liabilities of $267,000.

Investing Activities

Cash used for investing activities for the six months ended June 30, 2019 was $44,000 relating to the upgrade of computer equipment and the installation of new warehouse fixtures. Cash used for investing activities for the six months ended June 30, 2018 of $10,000 was to purchase computer equipment.

Financing Activities

Cash used by financing activities was $519,000 relating to the purchase of common stock under the Company’s buy back program during the six months ended June 30, 2019.

As of June 30, 2019, cash, restricted cash and cash equivalents decreased $405,000 to $4,476,000 from $4,881,000 at December 31, 2018.

We believe that our existing cash and cash equivalents and cash flows from our operating activities will be sufficient to fund our working capital and capital expenditure needs for at least twelve months from the date of this report. We may utilize cash to invest in or acquire businesses, products or technologies that we believe are additive to the strategic expansion of the Company. We periodically evaluate other companies and technologies for possible investment or acquisition. In addition, we have made, and may in the future make, investments in companies with whom we have identified potential synergies. However, we have no present commitments or agreements with respect to any material investment in or acquisition of other businesses or technologies. In the event that we require additional capital to meet our business needs, there can be no assurance that additional funding will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms.

ITEM 3. Qualitative and Quantitative Disclosures about Market Risk

Not applicable.

ITEM 4 . Controls and Procedures

We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as applicable, to allow timely decisions regarding required disclosure.

Evaluation of disclosure and controls and procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that our disclosure controls and procedures are operating in an effective manner to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Changes in internal controls over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

Qualstar is subject to a variety of claims and legal proceedings that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in the aggregate, will not have a material adverse impact on our financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. We accrue loss contingencies in connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated.

ITEM 1A. Risk Factors

During the three months ended June 30, 2019, there have been no significant changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. Unregistered Sale s of Equity Securities and Use o f Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We initiated a Stock Repurchase Program on December 5, 2018 (see Note 6 for further information). The following table presents the information about purchases by us of our common stock for the three months ended June 30, 2019:

Period:	Total number of shares purchased		Average price paid per share		Total number of shares purchased as a result of publicly announced plans or programs		Maximum or approximate dollar value of shares yet to be purchased under the plans or programs
April 1 – April 30, 2019		11,561	$	5.229		88,397	$	1,911,714
May 1 – May 31, 2019		10,950	$	5.264		99,347	$	1,853,413
June 1 – June 30, 2019		11,461	$	5.709		110,808	$	1,787,986

ITEM 3. Defaults upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File Number

Exhibit

Filing Date

Filed
Herewith

10.1 ⁺

Amendment to Qualstar Corporation 2017 Stock Option and Incentive Plan

10.2

Standard Industrial Commercial Multi-Tenant Lease – Gross, dated as of May 20, 2019 between the Registrant and Stillwater Agency, Inc.

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

**Furnished herewith

+Each a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	QUALSTAR CORPORATION



Dated: August 13, 2019	By:	/s/STEVEN N. BRONSON
		Steven. N. Bronson
		Chief Executive Officer and President
		(Principal Executive Officer)

Exhibit 10.1

A MENDMENT NO. 1 TO THE

QUALSTAR CORPORATION

201 7 STOCK OPTION AND INCENTIVE PLAN

This Amendment to the Qualstar Corporation 2017 Stock Option and Incentive Plan (this “ Amendment ”) is made and entered into effective as of July 8, 2019 (the “ Effective Date ”), by Qualstar Corporation, a California corporation (the “ Company ”).

RECITALS

WHEREAS , the Company previously adopted the Qualstar Corporation 2017 Stock Option and Incentive Plan (the “ Plan ”), effective as of June 13, 2017;

WHEREAS , pursuant to Section 18 of the Plan, the Company’s Board of Directors (the “ Board ”) may amend or discontinue the Plan, at any time, subject to approval by the Company’s stockholders entitled to vote at a meeting;

WHEREAS , on May 23, 2019, the Board approved an increase to the number of shares of the Company’s Common Stock reserved for issuance under the Plan by 100,000 shares to a total of 300,000 shares (the “ Plan Reserve Increase ”), to be made effective upon the requisite approval by the Company’s stockholders (the “ Stockholders ”);

WHEREAS , on July 8, 2019, the Stockholders approved the Plan Reserve Increase, pursuant to a vote held at the Company’s 2019 Annual Meeting of Stockholders; and

WHEREAS , to record and effectuate the adoption of the Plan Reserve Increase, the Company has caused its authorized officer to execute this Amendment.

AGREEMENT

NOW THEREFORE , the Company hereby agrees as follows:

1. Section 3(a) of the Plan is hereby amended and restated in its entirety as follows:

“(a) Stock Issuable . The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 300,000 shares subject to adjustment as provided in Section 3(c). Subject to such overall limitation, the maximum aggregate number of shares of Stock that may be issued in the form of Incentive Stock Options shall not exceed 300,000, subject in all cases to adjustment as provided in Section 3(c). For purposes of this limitation, the shares of Stock underlying any Awards under the Plan or the shares of common stock of the Company under the Company’s 2008 Stock Incentive Plan, as amended, that are forfeited, canceled or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. Notwithstanding the foregoing, the following shares shall not be added to the shares authorized for grant under the Plan: (i) shares tendered or held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, and (ii) shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right upon exercise thereof. In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 100,000 shares of Stock may be granted to any one individual grantee during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.”

2. Except as expressly modified by this Amendment, the Plan remains in full force and effect pursuant to its terms. All references to the Plan in other documentation shall be deemed to be a reference to the Plan as amended by this Amendment.

3. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to the conflict of laws provisions thereof.

[ Signature Page Follows ]

IN WITNESS WHEREOF , the undersigned has caused this Amendment to be duly executed effective as of the date first written above.

Qualstar Corporation

By: /s/STEVEN N. BRONSON

Name: Steven N. Bronson

Title: Chief Executive Officer

Signature Page to Qualstar Corporation 2017 Stock option and Incentive Plan Amendment

Exhibit 10.2

LEE &

. ASSOCIATES

A I R CR !

S T ANDARD SUBLEASE MU L TI-TENANT

1. Basic Provisions ("Basic provisions").

1.1 Parties: This Sublease ("Sublease"), dated for reference purposes only May 20, 2019 , Is made by and between Oualstar Corporation ("Sublessor") and Stillwater Agency, I nc. ("Sublessee"), (collectively the "Parties", or Individually a "Party").

1.2(a) Premises: That certain portion of the Project (as defined below), commonly known as (street address, unit/suite, city, state) 1 30 W. Cochran Street. Unit C . Simi Valley; CA 93065 ("Premises"). The Premises are located In the County of Ventura and consist of approximately15,160 square feet. In addition to Sublessee's rights to use and occupy the Premises as hereinafter specified, Sublessee shall have nonexclusive rights to the Common Areas (as defined below) as hereinafter specified, but shall not ha11e any rights to the roof, the exterior walls, or the utility raceways of the building containing the Premises ("Building") or to any other buildings In the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and Improvements thereon, are herein collectively referred to as the "Project."

1.2(b) Parking: Forty-Fjye ( 45) unreserved vehicle par king spaces.

Term: One (1) years and Seyen and One-half (7 1/2 ) months commencing luly 15, 2019 ("Commencement Date") and ending February 28. 2021 ("Expiration Date").

Early Possession: If the Premises are available Sublessee may have non-exclusive possession of the Premises commencing July 1 5, 2019 ("Early Possession Date").

Base Rent: $12,886.00 per month ("Base Rent"), payable on the first (lst) day of each month commencing

September 1 , 2019 .

l0If this box Is checked, there are provisions In this Sublease for the Base Rent to be adjusted.

Sublessee's Share of Operating Expenses; Nine and fourteen One-Hundreths percent ( 9.1383%)

("Sublessee's Share"). In the event that that size of the Premises and/or the Project are modified during the term of this

Lease, lessor shall recalculate late lessee's Share to reflect such modification .

Base Rent and other Monies Paid Upon Execution:

Base Rent: Sl9,329.00 for the period August 15, 2019 - September 31, 2019.

Security Deposit: $12,886.00 ("Security Deposit").

(d) Total Due Upon Execution of this lease: $36,142.00.

Agreed Use: The Premisesshall be used and occupied only for design, marketing, production, general office and re lat ed legal uses and for no other purposes.

Real Estate Brokers:

Representation: Each Party acknowledges receiving a Disclosure Regarding Real Estate Agency Relationship, confirms and consents to the following agency relationships In this Sublease with the following real estate brokers ("Broker(s)") and/or their agents ("Agent(s)"):

Sublessor's Brokerage Firm Lee & Associate LA North /Ventura, lnc. License N o . 0 1 0 1 3724 / 0 1483890 Is the broker of (check one):X the Sublessor; or both the Sublessee and Sublessor (dual agent).

Sublessor's Agent Mike Tingus I Grant Fulke r so n . SJOR License No. 0 1 0 1 3724 I 0 1 483890 Is (check one): the Sublessor's Agent (salesperson or broker associate); or both the Sublessee's Agent and the Sublessor's Agent (dual agent).

Sublessee's Brokerage Firm Lee & Associates - LA No r th Nentura . In c . license No. 008754 1 3 Is the broker of (check one): X the Sublessee; or both the Sublessee and Sublessor (dual agent).

Sublessee's A gent Joe Jusko License No. 008754 1 3 Is (check one): X the Sublessee's Agent (salesperson or broker associate); or both the Sublessee's Agent and the Sublessor's Agent (dual agent).

Payment to Brokers: Upon execution and delivery of this Sublease by both Parties, Sublessor shall pay to the Brokers the brokerage fee agreed to In a separate written agreement (or If there Is no such agreement, the sum of

or _% of the total Base Rent) for the brokerage services rendered by the Brokers. - 1.10 Guarantor. The obligations of the Sublessee under this Sublease shall be guaranteed by L ance Wilson

("Guarantor").

1.11 Attachments. Attached hereto are the following, all of which constitute a part of this Sublease: X an Addendum consisting of Paragraphs _1_ through 2;

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X other (specify): Exhibit "N ' (Personal Guaranty) .	Exhibit “A” Personal Guaranty
2. Premises.

Letting. Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Sublease. While the approximate square footage of the Premises may have been used In the marketing of the Premises for purposes of comparison, the Base Rent stated herein Is NOT tied to square footage and Is not subject to adjustment should the actual size be determined to be different Note: Sublessee Is advised to verify the actual size prior to executing this Sublease.

Condition. Sublessor shall deliver the Premises to Sublessee broom clean and, free of debris and shall provide a, one time, janitorial service which shall Include sanitation of the restrooms on the Commencement Date or the Early Possession Date, whichever first occurs ("Start Date"), and warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), and any Items which the Sublessor Is obligated to construct pursuant to the Work Letter attached hereto, If any, other than those constructed by Sublessee, shall be In good operating condition on said date. If a non-compliance with such warranty exists as of the Start Date, or If one of such systems or elements should malfunction or fall within the appropriate warranty period, Sublessor shall, as Sublessor's sole obligation with respect to such matter, except as otherwise provided In this Sublease, promptly after receipt of written notice from Sublessee setting forth with specificity the nature and extent of such non-compliance,

malfunction or failure, rectify same at Sublessor's expense. The warranty periods shall be as follows: (I) 6 months as to the HVAC systems, and (II) 30 days as to the remaining systems and other elements. If Sublessee does not give Sublessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Sublessee at Sublessee's sole cost and expense.

Compliance. Sublessor warrants that any Improvements, alterations or utility Installations made or Installed by or on behalf of Sublessor to or on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances ("Applicable Requirements") In effect on the date that they were made or Installed. Sublessor makes no warranty also the use to which Sublessee will put the Premises or to modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Sublessee's use. NOTE: Sublessee Is responsible for determining whether or not the zoning and other Applicable Requirements are appropriate for Sublessee's Intended use, and acknowledges that past uses of the Premises may no longer be

allowed. If the Premises do not comply with said warranty, Sublessor shall, except as otherwise provided, promptly after receipt of written notice from Sublessee setting forth with specificity the nature and extent of such non-compliance, rectify the same.

Acknowledgements. Sublessee acknowledges that: (a) It has been given an opportunity to Inspect and measure

the Premises, (b) It has been advised by Sublessor and/or Brokers to satisfy Itself with respect to the condition of the Premises (Including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Sublessee's Intended use, (c) Sublessee has made such Investigation as It deems necessary with reference to such

matters and assumes all responsibility therefor as the same relate to Its occupancy of the Premises, (d) It Is not relying on any representation as to the size of the Premises made by Brokers or Sublessor,(e) the square footage of the Premises was not material to Sublessee's decision to sublease the Premises and pay the Rent stated herein, and (f ) neither Sublessor, Sublessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth In this Sublease. In addition, Sublessor acknowledges that: (I) Brokers have made no representations, promises or warranties concerning Sublessee's ability to honor the Sublease or suitability to occupy the Premises, and (II) It Is Sublessor's sole responsibility to Investigate the financial capability and/or suitability of all

proposed tenants.

Americans with Disabilities Act. In the event that as a result of Sublessee's use, or Intended use, of the Premises the Americans with Disabilities Act or any similar law requires modifications or the construction or Installation of Improvements In or to the Premises, Building, Project and/or Common Areas, the Parties agree that such modifications, construction or Improvements shall be made at: Sublessor's expense; X Sublessee's expense.

Vehicle Parking. Sublessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified In Paragraph 1.2(b) on those portions of the Common Areas designated from time for parking . Sublessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pickup trucks, herein called "Permitted Size Vehicles." Sublessor may regulate the loading and un loading of vehicles by adopting Rules and Regulations as provided In

Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked In the Common Area without the prior written permission of Sublessor.

Sublessee shall not permit or allow any vehicles that belong to or are controlled by Sublessee or Sublessee's employees, suppliers, shippers, customers, contractors or Invitees to be loaded, unloaded, or par ked In areas other than those designated by Sublessor for such activities.

Sublessee shall not service or store any vehicles In the Common Areas.

If Sublessee permits or allows any of the prohibited activities desert in this Paragraph 2.6, then Sublessor shall have the right, without notice, In addition to such other rights and remedies that It may have, to remove or tow

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away the vehicle Involved and charge the cost to Sublessee, which cost shall be Immediately payable upon demand by Sublessor. ●

Common Areas- Definition. The term "Common Areas" Is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and Interior utility raceways and Installations within the Premises that are provided and designated by the Sublessor from time to time for the general nonexclusive use of Sublessor, Sublessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and Invitees, Including parking areas, loading and unload Ing areas, trash areas, roofs, roadways, walkways, driveways and landscaped areas.

2.B Common Areas - Sublessee's Rights. Sublessor grants to Sublessee, for the benefit of Sublessee and Its employees, suppliers, shippers, contractors, customers and Invitees, during the term of this Sublease, the nonexclusive right to use, In common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Sublessor under the terms hereof or under the terms of any rules and

regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to Include the right to store any property, temporarily or permanently, In the Common Areas. Any such storage shall be permitted only by the prior written consent of Sublessor or Sublessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Sublessor shall have the right, without notice, in addition to such other rights and remedies that It may have, to remove the property and charge the cost to Sublessee, which cost shall be Immediately payable upon demand by Sublessor.

Common Areas - Rules and Regulations. Sublessor or such other person(s) as Sublessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("Rules and Regulations") for the management, safety,

care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their Invitees. Sublessee agrees to abide by and conform to all such Rules and Regulations, and to cause Its employees, suppliers, shippers, customers, contractors and Invitees to so abide and conform. Sublessor shall not be responsible to Sublessee for the noncompliance with said Rules and Regulations by other tenants of the Project.

10.

Common Areas ●Changes. Sublessor shall have the right, In Sublessor's sole discretion, from time to time:

To make changes to the Common Areas, Including, without limitation, changes In the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

To add additional buildings and Improvements to the Common Areas;

To use the Common Areas while engaged In making addition aI Improvements, repairs or alterations to the Project, or any portion thereof; and

To do and perform such other acts and make such other changes In, to or with respect to the Common Areas and Project as Sublessor may, In the exercise of sound business Judgment. deem to be appropriate.

Possession.

Early Possession. Any provision herein granting Sublessee Early Possession of the Premises Is subject to and conditioned upon the Premises being available for such possession prior to the Commencement Date. Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. If Sublessee totally or partially occupies the

Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such Ear ly Possession. All other terms of this Sublease (Including but not limited to the obligations to pay Sublessee's Share of Common Area Operating Expenses, Real Property Taxes and Insurance premiums and to maintain the Premises) shall, however, be In effect during such period. Any such Early Possession shall not affect the Expiration Date.

Delay In Commencement. Sublessor agrees to use Its best commercially reasonable efforts to deliver possession of the Premises by the Commencement Date. If, despite said efforts, Sublessor Is unable to deliver possess ion as agreed, the rights and obligations of Sublessor and Sublessee shall be as set forth In Paragraph 3.3 of the Master Lease (as

modified by Paragraph 6.3 of this Sublease).

Sublessee Compliance. Sublessor shall not be required to tender possession of the Premises to Sublessee until Sublessee complies with Its obligation to provide evidence of Insurance. Pending delivery of such evidence, Sublessee shall be required to perform all of Its obligations under this Sublease from and after the Start Date, including the payment of Rent, notwithstanding Sublessor's election to withhold possession pending receipt of such evidence of Insurance. Further, if Sublessee Is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Sublessor may elect to withhold possession until such conditions are satisfied .

Rent and Other Charges.

Rent Defined. All monetary obligations of Sublessee to Sublessor under the terms of this Sublease (except for the Security Deposit} are deemed to be rent ("Rent"). Rent shall be payable In lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate In writing.

Common Area Operating Expenses. Sublessee shall pay to Sublessor during the term hereof, In addition to the Base Rent, Sublessee's Share of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Sublease, In accordance with the following provisions:

"Common Area Operating Expenses" are defined, for the purposes of this Sublease, as those costs Incurred by

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Sublessor relating to the operation of the Project, which are Included In the following list:

Costs related to the operation, repair and maintenance, In neat, clean, good order and condition, but not the replacement of the following:

(aa)The Common Areas and Common Area Improvements, Including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, Irrigation systems, Common Area lighting faculties, fences and gates, elevators, roofs, and roof drainage systems.

(bb) Exterior signs and any tenant directories. (cc) Any fire sprinkler systems.

II.

The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.

(Ill) The cost of trash disposal, pest control services, property management, security services, and the costs of any environmental Inspections.

(Iv) Reserves set aside for maintenance and repair of Common Areas.

Real Property Taxes.

vi.

Insurance premiums.

vii.

Any deductible portion of an Insured loss concerning the Building or the Common Areas.

The Inclusion of the Improvements, facilities and services set forth In Subparagraph 4.2(a) shall not be deemed to Impose an obligation upon Sublessor to either have said Improvements or facilities or to provide those services unless Sublessor already provides the services, or Sublessor has agreed elsewhere In this Sublease to provide the same or some of them.

Sublessee's Share of Common Area Operating Expenses Is payable mont ly on the same day as the Base Rent Is due hereunder. The amount of such payments shall be based on Sublessor's estimate of the Common Area Operating Expenses. Within 60 days after written request (but not more than once each year) Sublessor shall deliver to Sublessee a reasonably detailed statement showing Sublessee's Share of the actual Common Area Operating Expenses Incurred

during the preceding year. If Sublessee's payments under this Paragraph 4.2(c) during the preceding year exceed Sublessee's Share as Indicated on such statement, Sublessor shall credit the amount of such overpayment against Sublessee's Share of Common Area Operating Expenses next becoming due. If Sublessee's payments under this Paragraph 4.2(c) during the preceding year were less than Sublessee's Share as Indicated on such statement, Sublessee shall pay to Sublessor the amount of the deficiency within 10 days after delivery by Sublessor to Sublessee of the statement.

Utilities . Sublessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, If at any time In Sublessor's sole judgment, Sublessor determines that Sublessee Is using a disproportionate amount

of water, electricity or other commonly metered utilities, or that Sublessee Is generating such a large volume of trash as to require an Increase In the size ot the dumpster and/or an Increase In the number ot t1mes per month that the dumpster Is emptied, then Sublessor may Increase Sublessee's Base Rent by an amount equal to such Increased costs.

Security Deposit. The rights and obligations of Sublessor and Sublessee asto said Security Deposit shall be as set

forth In Paragraph 5 of the Master Lease (as modified by Paragraph 7.3 of this Sublease).

Master Lease.

Sublessor Is the lessee of the Premises by virtue of the "Master Lease•, wherein Cypress P ointe , Simi V alley, LLC Is the lessor, hereinafter the "Master Lessor".

This Sublease Is and shall be at all times subject and subordinate to the Master Lease.

The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contradicted by this Sublease In which event the terms of this Sublease document shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever In the Master Lease the word "Lessor" ls used It shall be deemed to mean the Sublessor herein and wherever In the Master Lease the word "Lessee" ls used It shall be deemed to mean the Sublessee herein.

During the term of this Sublease and for all periods subsequent for obligations which have arisen prior to the

termination of this Sublease, Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master Lessor, each and every obligation of Sublessor under the Master Lease except for the following paragraphs which are excluded therefrom : None .

The obligations that Sublessee has assumed under paragraph 6.4 hereof are hereinafter referred to asthe "Sublessee's Assumed Obllg1tlons". The obligations that sublessee has not assumed under paragraph 6.4 hereof are hereinafter referred to as the "Sublessor's Remaining Obligations''.

Sublessee shall hold Sublessor free and harmless from all liability, judgments, costs, damages, claims or

demands, including reasonable attorney’s fees, arising out of Sublessee's failure to comply with or perform Sublessee's Assumed Obligations.

Sublessor agrees to maintain the Master Lease during the entire term of this Sublease, subject, however, to any

earlier termination of the Master Lease without the fault of the Sublessor, and to comply with or perform Sublessor's Remaining Obligations and to hold Sublessee free and harmless from all liability, judgments, costs, damages, claims or demands arising out of Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.

Sublessor represents to Sublessee that the Master Lease Is In full force and effect and that no default exists on

The part of any Party to the Master Lease.

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5.Assignment of Sublease and Default.

Sublessor hereby assigns and transfers to Master Lessor the Sublessor's Interest In this Sublease, subject however to the provisions of Paragraph 8.2hereof.

Master Lessor, by executing this document, agrees that until a Default shall occur In the performance of Sublessor's Obligations under the Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing under this Sublease. However, If Sublessor shall Default In the performance of Its obligations to Master Lessor then Master Lessor may, at Its option, receive and collect, directly from Sublessee, all Rent owing and to be owed under this Sublease. Master Lessor shall not, by reason of this assienment of the Sublease nor by reason of the collection of the Rent from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with Sublessor's Remaining Obligations.

Sublessor hereby Irrevocably authorizes and directs Sublessee upon receipt of any written notice from the Master Lessor stating that a Defa ult exists In the performance of Sublessor's obligations under the Master Lease, to pay to Master Lessor the Rent due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request from Master Lessor, and that Sublessee shall pay such Rent to Master Lessor without any obligation or right to Inquire as to whether such Default exists and notwithstanding any notice from

or claim from Sublessor to the contrary and Sublessor shall have no right or claim against Sublessee for any such Rent so paid by Sublessee.

No changes or modifications shall be made to this Sublease without the consent of Master Lessor.

B. Consent of Master Lessor.

In the event that the Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor then, this Sublease shall not be effective unless, within 10 days of the date hereof, Master Lessor signs this Sublease thereby giving Its consent to this Subletting.

In the event that the obligations of the Sublessor under the Master Lease have been guaranteed by third parties, then neither this Sublease, nor the Master Lessor's consent, shall be effective unless, within 10 days of the date hereof, said guarantors sign this Sublease thereby giving their consent to this Sublease.

In the event that Master Lessor does give such consent then:

Such consent shall not release Sublessor of Its obligations or alter the primary liability of Sublessor to pay the Rent and perform and comply with all of the obligations of Sublessor to be performed under the Master Lease.

The acceptance of Rent by Master Lessor from Sublessee or anyone else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provisions of the Master Lease.

The consent to this Sublease shall not constitute a consent to any subsequent subletting or assignment.

In the event of any Default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors or anyone else liable under the Master Lease or this Sublease without first exhausting Master Lessor's remedies against any other person or entity liable thereon to Master Lessor.

Master Lessor may consent to subsequent subletting and assignments of the Master Lease or this Sublease or any amendments or modifications thereto without notifying Sublessor or anyone else Liable under the Master Lease and without obtaining their consent and such action shall not relieve such persons from liability.

(f) In the event that Sublessor shall Default in Its obligations under the Master Lease, then Master Lessor, at Its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor In which event Master Lessor shall undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option to termination of this Sublease but Master lessor shall not be liable for any prepaid Rent nor any Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any other Defaults of the Sublessor under the Sublease.

The signatures of the Master Lessor and any Guarantors of Sublessor at the end of this document shall constitute their consent to the terms of this Sublease.

B.5 Master Lessor acknowledges that, to the best of Master Lessor's knowledge, no Default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease Is In full force and effect.

8.6 In the event that Sublessor Defaults under Its obligations to be performed under the Master Lease by Sublessor, Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any Default of Sublessor described In any notice of default If Sublessee does so within the same number of days set forth In the notice of default given to Sublessor. If such Default Is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor.

Additional Brokers Commissions .

Sublessor agrees that if Sublessee exercises any option or right of first refusal as granted by Sublessor herein , or any option or right substantially similar thereto, either to extend the term of this Sublease, to renew this Sublease, to purchase the Premises, or to lease or purchase adjacent property which Sublessor may own or In which Sublessor has an Interest, then Sublessor shall pay to Broker a fee In accordance with the schedule of Broker In effect at the time of the execution of this Sublease. Notwithstanding the foregoing, Sublessor's obligation under this Paragraph Is limited to a transaction In which Sublessor Is acting as a Sublessor, lessor or seller.

If a separate brokerage fee agreement Is attached then Master Lessor agrees that If Sublessee shall exercise any option or right of first refusal granted to Sublessee by Master Lessor In connection with this Sublease, or any option or

right substantially similar thereto, either to extend or renew the Master Lease, to purchase the Premises or any part

thereof, or to lease or purchase adjacent property which Master Lessor may own or In which Master Lessor has an

Interest, or If Broker Is the procuring cause of any other lease or sale entered into between Sublessee and Master Lessor

Pertaining to the Premises, any part thereof, or any adjacent property which Master Lessor owns or In which It has an

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Interest, then as to any of said transactions, Master Lessor shall pay to Broker a fee, In cash, In accordance with the schedule attached to such brokerage fee agreement.

Any fee due from Sublessor or Master Lessor hereunder shall be due and payable upon the exercise of any option to extend or renew, upon the execution of any new lease, or, In the event of a purchase, at the close of escrow.

Any transferee of Sublessor's Interest In this Sublease, or of Master Lessor's Interest In the Master Lease, by accepting an assignment thereof, shall be deemed to have assumed the respective obligations of Sublessor or Master Lessor under this Paragraph 9. Broker shall be deemed to be a third-party beneficiary of this paragraph 9.

10. Representations and Indemnities of Broker Relationships. The Parties each represent and warrant to the other that It has had no dealings with any person, firm, broker, agent or finder (other than the Brokers and Agents, If any) In connection with this Sublease, and that no one other than said named Brokers and Agents Is entitled to any commission or finder's fee In connection herewith. Sublessee and Sublessor do each hereby agree to Indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the Indemnifying Party, Including any costs, expenses, attorneys' fees reasonably Incurred with respect thereto.

11. Attorney's fees. If any Party or Broker brings an action or proceeding Involving the Premises whether founded In tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) In any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded In the same suit or recovered In a separate suit, whether or not such action or proceeding Is pursued to decision or judgment. The term, "Prevailing Party" shall Include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment , or the abandonment by the other Party or Broker of Its claim or defense. The attorneys' fees award shall not be computed In accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably Incurred. In addition, Sublessor shall be entitled to attorneys' fees, costs and expenses Incurred In the preparation and service of notices of Default and consultations In connection therewith, whether or not a legal action is subsequently commenced In connection with

such Default or resulting Breach ($200 Is a reasonable minimum per occurrence for such services and consultation).

12. No Prior or Other Agreements; Broker Disclaimer. This Sublease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Sublessor and Sublessee each represents and warrants to the Brokers that It has made, and Is relying solely upon, Its own Investigation as to the nature, quality, character and financial responsibility of the other Party to this Sublease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (Including court costs and attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Sublessor or Sublessee under this Sublease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Sublease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

13.

Accessibility; Americans with Disabilities Act.

The Premises:

X have not undergone an Inspection by a Certified Access Specialist (CASp). Note: A Certified Access Specialist (CASp) can Inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp Inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp Inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, If requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp Inspection, the payment of the fee for the CASp Inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.

_have undergone an Inspection by a Certified Access Specialist (CASp) and It was determined that the Premises met all

applicable construction-relate d accessibility standards pursuant to California Civil Code §55.51 et seq. Lessee

acknowledges that It received a copy of the Inspection report at least 48 hours prior to executing this Lease and agrees to keep such report confidential.

_have undergone an Inspection by a Certlfled Access Specialist (CASp) and It was determined that the Premises did not meet all applicable construction-related accessibility standards pursuant to C&llforn la Civil Code §55.51 et seq. Lessee acknowledges that It received a copy of the Inspection report at least 48 hours prior to executing this Lease and agrees to keep such report confidential except as necessary to complete repairs and corrections of violations of construction

related accessibility standards.

In the event that the Premises have been Issued an Inspection report by a CASp the Lessor shall provide a copy of the disability access Inspection certificate to Lessee within 7 days of the execution of this Lease.

Since compliance with the Americans with Disabilities Act (ADA) or other state and local accessibility statutes are dependent upon lessee's specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee's of the Premises requires modifications or additions to the Premises In order to be In compliance with AD other accessibility statutes, Lessee agrees to make any such necessary modifications and/or addition

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ATTENT I ON : NO REPRESENTATION OR RECOMMENDATION IS MADE BY AIR CRE OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL SUFFCIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTIO N TO WHICHIT RELATES,THE PARTIES ARE URGED TO:

SEEK ADVICE OF COUNSEL AS TO THE LEGALAND TAX CONSEQUENCES OF THIS SUBLEASE.

RETAINAPPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD!NCWDE BUT NOT BE LIMITEDTO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OFTHE PROPERTY, THE STRUCTURAL INTEGRITY,THE CONDITION OF THE ROOF AND OPERATING SYSTEMS,AND THE SUITABILITY OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.

WARNI N G : IF THE SUBJECT PROPERTY IS LOCATED, I STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE

iTH THE LAWS OF THE STATE IN WHICHTHE PROPERTY IS LOCATED.

Executed At:

On: _

By:

Name Printed: _

Title: Phone: Fax: EmaII:

Address:

Federal ID No.: _

BROKER

Lee & Associates- LA North/Ventura,Inc.

Attn: Mike Tlngus I Grant Fulkerson, SIOR

Tltle: Pres i d e nt I P r i n cipal

Address: 26050 Mureau Road,Suite 101

Calabasas, CA 91302

Phone: 818-223-4388

Fax: 818-591-1450

Emal!: mtlngus@lee-re.com I gfulkerson@lee-re.com Federal ID No.:_

Broker/AGENT DRE license #: 0 1 0 1 3724 I 01483890

Consent to the above Sublease Is hereby given. Executed At:

Executed On:

IBy Master Lessor:

C y p r ess Pointe Simi Valley, LLC

Fax:

Emal!: sophla@stlllwateragency.com

Address: Federal ID No.:

BROKER

Lee &Associates● LA North/Ventura, Inc.

Attn: (oe Jusko Title: Principal

Address : 26050 Mureau Road. S uite 101

Calabasas, CA 91302

Phone: 019-223-4388

Fax: 818-591-1450

Email: !lusko@lee-re.com Federal ID No.:

Broker/AGENT DRE License #: 00875413

Executed At: Executed On:

By:

Name Printed: B ri a n L. Haryey

By:

Tttle: President

Phone: 310-208-8077

iTitle:_-

INITIALS

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ADDENDUM TO AIR STANDARD SUBLEASE MULTI-TENANT

Sublease dated: May 20, 2019

Sublessor: Qualstar Corporation

Lessee: Stillwater Agency, Inc.

Property Address: 130 W. Cochran, Unit C, Simi Valley, CA 93065

IN THB E VENT OF ANY CONFLICT BETWEEN THE PRINTED PROVISIONS OP THE LEASE AND THIS ADDENDUM, THE PROVISIONS OF THIS ADDENDUM SHALL CONTROL.

Base Rent (1.5 Cont.).

The monthly Base Rent shall be abated from July 15 , 2019 to August 15,2019.

2. Operating Expenses/Triple Net Expenses (1.7 C Cont.).

The Operating Expense and Triple Net expenses are $2,618.00 per month.

APPROVAL OF LEASE ADDENDUM PARAGRAPHS 1 THROUGH 2

SUBLESSOR:

Tltle:. ..,

Title:. President.

Date:

5-22-19

MASTER LESSOR:

Cypress Pointe Simi Valley, LLC

By:

Name: Brian Harvey

___ Titlo: _c. o o _

Date:__ 5-21-19 - -

Title:. _

Date : _

EXHIBIT 31.1

SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Steven N. Bronson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Qualstar Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 13, 2019			/s/ STEVEN N. BRONSON
			Steven N. Bronson
			Principal Executive Officer and President

EXHIBIT 31.2

SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Louann Negrete, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Qualstar Corporation;

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this report is being prepared;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 13, 2019			/s/ LOUANN NEGRETE
			Louann Negrete
			Principal Financial Officer

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven N. Bronson, Chief Executive Officer of Qualstar Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended June 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 13, 2019			/s/ STEVEN N. BRONSON
			Steven N. Bronson
			Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Louann Negrete, Chief Financial Officer of Qualstar Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 13, 2019			/s/ LOUANN NEGRETE
			Louann Negrete
			Chief Financial Officer