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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended March 31, 2003

[   ]

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

For the transition period from _______ to _______

Commission file number 000-30083

QUALSTAR CORPORATION

Incorporated under the laws of the State of California		(I.R.S. Employer Identification No.) 95-3927330

3990-B Heritage Oak Court
Simi Valley, CA 93063
(805) 583-7744

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    [X]               No    [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes    [   ]               No    [X]

The total shares of common stock without par value outstanding at May 12, 2003 is 12,638,409.

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PART. I FINANCIAL INFORMATION
ITEM 1. Financial Statements				3
	Condensed consolidated balance sheets as of June 30, 2002 and March 31, 2003			3
	Condensed consolidated statements of income for the three months and nine months ended March 31, 2002 and 2003			4
	Condensed consolidated statements of cash flows for the nine months ended March 31, 2002 and 2003			5
	Condensed consolidated statement of changes in shareholders’ equity for the nine months ended March 31, 2003			6
	Notes to interim condensed consolidated financial statements			7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				10
ITEM 3. Qualitative and Quantitative Disclosures About Market Risk				12
ITEM 4. Controls and Procedures				12
PART. II OTHER INFORMATION
ITEM 1. Legal Proceedings				13
ITEM 4. Submission of Matters to a Vote of Security Holders				13
ITEM 6. Exhibits and Reports on Form 8-K				13
Signatures				14
Certification of Principal Executive Officer				15
Certification of Principal Financial Officer				16

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

QUALSTAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND MARCH 31, 2003
(in thousands)

				JUNE 30,				MARCH 31,
				2002				2003
								(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	16,363			$	27,899
	Marketable securities				14,482				8,007
	Receivables, net of allowances of $2,100 at June 30, 2002 and $1,943 at March 31, 2003				6,695				3,571
	Inventories				9,652				7,160
	Prepaid expenses and other current assets				355				472
	Prepaid income taxes				148				416
	Deferred income taxes				1,501				1,501
		Total current assets			49,196				49,026
Property and equipment, net					1,324				1,514
Other assets					238				362
				$	50,758			$	50,902
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	1,590			$	844
	Accrued payroll and related liabilities				308				549
	Other accrued liabilities				693				720
	Income taxes payable				98				—
		Total current liabilities			2,689				2,113
Deferred income taxes					96				96
Shareholders’ equity:
	Preferred stock, no par value; 5,000 shares authorized; no shares issued				—				—
	Common stock, no par value; 50,000 shares authorized, 12,656 and 12,638 shares issued and outstanding at June 30, 2002 and March 31, 2003, respectively				20,751				20,407
	Deferred compensation				(631	)			(217	)
	Notes from directors				(387	)			(236	)
	Accumulated other comprehensive loss				(31	)			(124	)
	Retained earnings				28,271				28,863
		Total shareholders’ equity			47,973				48,693
	Total liabilities and shareholders’ equity			$	50,758			$	50,902

See the accompanying notes to these condensed consolidated financial statements.

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QUALSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2002 AND 2003
(in thousands, except per share amounts)
(UNAUDITED)

			THREE MONTHS ENDED								NINE MONTHS ENDED
			MARCH 31,								MARCH 31,
			2002				2003				2002				2003
Net revenues			$	8,603			$	8,189			$	27,431			$	25,389
Cost of goods sold				5,412				5,085				17,112				15,959
	Gross profit			3,191				3,104				10,319				9,430
Operating expenses:
	Research and development			533				1,138				1,523				2,905
	Sales and marketing			860				921				2,168				2,826
	General and administrative			946				1,143				2,672				3,083
	Total operating expenses			2,339				3,202				6,363				8,814
Income (loss) from operations				852				(98	)			3,956				616
Interest income				256				116				882				502
Income before provision for income taxes				1,108				18				4,838				1,118
Provision for income taxes				413				7				1,768				526
Net income			$	695			$	11			$	3,070			$	592
Basic earnings per share			$	0.06			$	0.00			$	0.25			$	0.05
Diluted earnings per share			$	0.05			$	0.00			$	0.24			$	0.05
Shares used to compute earnings per share:
	Basic			12,513				12,614				12,470				12,579
	Diluted			12,743				12,641				12,665				12,667

See the accompanying notes to these condensed consolidated financial statements.

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QUALSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2002 AND 2003
(in thousands)
(UNAUDITED)

					2002				2003
OPERATING ACTIVITIES:
	Net income				$	3,070			$	592
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				205				278
		Amortization of deferred compensation				322				237
		Provision for bad debts and returns				70				(25	)
		Accrued interest on directors’ notes				(23	)			(15	)
		Changes in operating assets and liabilities:
			Accounts receivable			(753	)			3,149
			Inventories			498				2,540
			Prepaid expenses and other assets			(18	)			(41	)
			Prepaid income taxes and income taxes payable			895				(366	)
			Accounts payable			(1,298	)			(746	)
			Accrued liabilities			(30	)			268
Net cash provided by operating activities						2,938				5,871
INVESTING ACTIVITIES:
	Purchases of equipment and leasehold improvements					(226	)			(428	)
	Sales (purchases) of marketable securities, net					(5,394	)			6,382
	Purchase of assets of N2Power, Inc.					—				(288	)
Net cash provided by (used in) investing activities						(5,620	)			5,666
FINANCING ACTIVITIES:
	Proceeds from exercise of stock options					26				145
	Repurchase of common stock					—				(312	)
	Principal and interest payments on directors’ notes					152				166
Net cash provided by (used in) financing activities						178				(1	)
Net increase (decrease) in cash and cash equivalents						(2,504	)			11,536
Cash and cash equivalents at beginning of period						20,809				16,363
Cash and cash equivalents at end of period					$	18,305			$	27,899
Supplemental cash flow disclosure:
	Income taxes paid				$	873			$	340

See the accompanying notes to these condensed consolidated financial statements.

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QUALSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
NINE MONTHS ENDED MARCH 31, 2003
(in thousands)
(UNAUDITED)

																											ACCUMULATED
			PREFERRED STOCK								COMMON STOCK												NOTES				OTHER
																			DEFERRED				FROM				COMPREHENSIVE				RETAINED
			SHARES				AMOUNT				SHARES				AMOUNT				COMPENSATION				DIRECTORS				LOSS				EARNINGS				TOTAL
Balance at July 1, 2002				—			$	—				12,656			$	20,751			$	(631	)		$	(387	)		$	(31	)		$	28,271			$	47,973
Amortization of deferred compensation				—				—				—				—				237				—				—				—				237
Forfeiture of stock options				—				—				—				(177	)			177				—				—				—				—
Exercise of stock options				—				—				52				145				—				—				—				—				145
Repurchase of common stock												(70	)			(312	)																			(312	)
Accrued interest on directors’ notes				—				—				—				—				—				(15	)			—				—				(15	)
Receipt of principal and interest payments on directors’ notes				—				—				—				—				—				166				—				—				166
Comprehensive income:
	Change in unrealized losses on investments			—				—				—				—				—				—				(93	)							(93	)
	Net income			—				—				—				—				—				—				—				592				592
Comprehensive income																																				499
Balance at March 31, 2003				—			$	—				12,638			$	20,407			$	(217	)		$	(236	)		$	(124	)		$	28,863			$	48,693

See the accompanying notes to these condensed consolidated financial statements.

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QUALSTAR CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except per share amounts)
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements are unaudited, except for the balance sheet at June 30, 2002 which is derived from our audited financial statements, and should be read in conjunction with the consolidated financial statements and related notes included in Qualstar Corporation’s (“Qualstar,” “us,” “we,” or “our”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on September 30, 2002. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting primarily of normal recurring items, which are necessary for the fair presentation of Qualstar’s consolidated financial position as of March 31, 2003, consolidated results of operations for the three months and nine months ended March 31, 2002 and 2003, and consolidated cash flows for the nine months ended March 31, 2003. Operating results for the three month and nine month periods ended March 31, 2003 are not necessarily indicative of results to be expected for a full year.

NOTE 2. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted net income per share for the three months and nine months ended March 31, 2002 and 2003: