10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended December 31, 2007

OR

£ 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

CALIFORNIA	95-3927330
(State of incorporation)	(I.R.S. Employer
	Identification No.)

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 þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

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

Total shares of common stock without par value outstanding at December 31, 2007 is 12,253,117.

QUALSTAR CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2007

INDEX

	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	·   Condensed Consolidated Balance Sheets — December 31, 2007 and June 30, 2007	1
	·   Condensed Consolidated Statements of Operations — Three and Six Months ended December 31, 2007 and 2006	2
	·   Condensed Consolidated Statements of Cash Flows — Six Months ended December 31, 2007 and 2006	3
	·   Condensed Consolidated Statement of Changes in Shareholders’ Equity — Six months ended December 31, 2007	4
	·   Notes to Interim Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	17
Item 4T.	Controls and Procedures	17
	PART II — OTHER INFORMATION
Item 6.	Exhibits	18
	Signatures	19

PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

QUALSTAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31, 2007		June 30, 2007
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,656	$	7,697
Marketable securities, short-term		8,145		9,574
Receivables, net of allowances of $183 at December 31, 2007, and $170 at June 30, 2007		3,532		3,462
Inventories, net		5,264		5,928
Prepaid expenses and other current assets		659		576
Prepaid income taxes		134		137
Total current assets		28,390		27,374
Property and equipment, net		538		601
Marketable securities, long-term		15,278		15,994
Other assets		94		94
Total assets	$	44,300	$	44,063
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	954	$	654
Accrued payroll and related liabilities		469		455
Other accrued liabilities		1,092		1,113
Total current liabilities		2,515		2,222
Other long-term liabilities		45		—
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 5,000 shares authorized; no shares issued		—		—
Common stock, no par value; 50,000 shares authorized, 12,253 shares issued and outstanding at December 31, 2007 and June 30, 2007		18,653		18,593
Accumulated other comprehensive income (loss)		85		(55	)
Retained earnings		23,002		23,303
Total shareholders’ equity		41,740		41,841
Total liabilities and shareholders’ equity	$	44,300	$	44,063

See the accompanying notes to these interim condensed consolidated financial statements.

1

QUALSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except per share data)

	Three Months Ended December 31,						Six Months Ended December 31,
	2007			2006			2007			2006
Net revenues	$	6,049		$	5,283		$	11,381		$	9,942
Cost of goods sold		4,004			3,649			7,712			7,006
Gross profit		2,045			1,634			3,669			2,936
Operating expenses:
Research and development		770			756			1,498			1,507
Sales and marketing		840			883			1,600			1,650
General and administrative		918			812			1,656			1,556
Total operating expenses		2,528			2,451			4,754			4,713
Loss from operations		(483	)		(817	)		(1,085	)		(1,777	)
Investment Income		424			371			837			752
Loss before income taxes		(59	)		(446	)		(248	)		(1,025	)
Provision for income taxes		—			—			17			—
Net loss	$	(59	)	$	(446	)	$	(265	)	$	(1,025	)
Loss per share:
Basic	$	(0.00	)	$	(0.04	)	$	(0.02	)	$	(0.08	)
Diluted	$	(0.00	)	$	(0.04	)	$	(0.02	)	$	(0.08	)
Shares used to compute loss per share:
Basic		12,253			12,253			12,253			12,253
Diluted		12,253			12,253			12,253			12,253

See the accompanying notes to these interim condensed consolidated financial statements.

2

QUALSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)(In thousands)

	Six Months Ended December 31,
	2007			2006
OPERATING ACTIVITIES:
Net loss	$	(265	)	$	(1,025	)
Adjustments to reconcile net loss to net cash provided by (used in) operating       activities:
Share based compensation		60			25
Realized gain on marketable securities		(2	)		—
Depreciation and amortization		153			216
(Recovery of) provision for bad debts and returns, net of recoveries		(11	)		31
Changes in operating assets and liabilities:
Accounts receivable		(59	)		(384	)
Inventories, net		664			791
Prepaid and other assets		(83	)		15
Prepaid income taxes		3			(7	)
Accounts payable		300			90
Accrued payroll and related liabilities		14			(44	)
Other accrued liabilities		(12	)		(157	)
Net cash provided by (used in) operating activities		762			(449	)
INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements		(90	)		(14	)
Proceeds from sale of marketable securities		16,874			4,052
Purchases of marketable securities		(14,587	)		(4,548	)
Net cash provided by (used in) investing activities		2,197			(510	)
Net change in cash and cash equivalents		2,959			(959	)
Cash and cash equivalents, beginning of period		7,697			6,845
Cash and cash equivalents, end of period	$	10,656		$	5,886
Supplemental cash flow disclosure:
Income taxes paid	$	7		$	7

See the accompanying notes to these interim condensed consolidated financial statements.

3

QUALSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED DECEMBER 31, 2007

(Unaudited) (In thousands)

					Accumulated
					Other
	Common Stock				Comprehensive			Retained
	Shares		Amount		(Loss) Income			Earnings			Total
Balance at July 1, 2007		12,253	$	18,593	$	(55	)	$	23,303		$	41,841
Share based compensation		—		60		—			—			60
Cumulative effect of change in accounting principle		—		—		—			(36	)		(36	)
Comprehensive loss:
Net loss		—		—		—			(265	)		(265	)
Change in unrealized gains (losses) on investments		—		—		140			—			140
Comprehensive loss		—		—		—			—			(125	)
Balance at December 31, 2007		12,253	$	18,653	$	85		$	23,002		$	41,740

See the accompanying notes to these condensed consolidated financial statements.

4

QUALSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation and Consolidation

Basis of Presentation

In the opinion of management, the accompanying condensed consolidated financial statements, including balance sheets and related interim statements of operations, cash flows, and shareholders’ equity, include all adjustments, consisting primarily of normal recurring items, which are necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Preparing 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.

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 Management’s Discussion and Analysis and the financial statements and notes thereto included in the Qualstar Corporation Annual Report on Form 10-K for the fiscal year ended June 30, 2007.

Basis of Consolidation

The consolidated financial statements include the accounts and operations of Qualstar and its wholly owned subsidiary, Qualstar Sales and Service Corporation.  All significant intercompany accounts have been eliminated.

Note 2 – Loss Per Share

Qualstar calculates loss per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share.”  Basic earnings per share has been computed by dividing net loss by the weighted average number of common shares outstanding.  Diluted loss per share has been computed by dividing net loss 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.

5

QUALSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table sets forth the computation of basic and diluted net loss per share for the three and six months ended December 31, 2007 and 2006:

	(In thousands, except per share amounts)
	Three Months Ended December 31,						Six Months Ended December 31,
	2007			2006			2007			2006
Net loss (a)	$	(59	)	$	(446	)	$	(265	)	$	(1,025	)
Weighted average outstanding shares of common stock (b)		12,253			12,253			12,253			12,253
Dilutive potential common shares from employee stock options		—			—			—			—
Common stock and common stock equivalents (c)		12,253			12,253			12,253			12,253
Loss per share:
Basic net loss per share (a)/(b)	$	(0.00	)	$	(0.04	)	$	(0.02	)	$	(0.08	)
Diluted net loss per share  (a)/(c)	$	(0.00	)	$	(0.04	)	$	(0.02	)	$	(0.08	)

Stock options are excluded for the three months and six months ended December 31, 2007, and 2006, from the computation of diluted loss per share as the effect would have been antidilutive.

Note 3 – Marketable Securities

Marketable securities consist primarily of high-quality U.S. corporate securities and U.S. federal government and state government debt securities. These securities are classified in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities which Qualstar has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. All of Qualstar’s marketable securities were classified as available-for-sale at December 31, 2007 and June 30, 2007.

Available-for-sale securities are recorded at market value. Unrealized holding gains and losses, net of the related income tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of shareholders’ equity until realized. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings when the underlying securities are sold and are derived using the specific identification method for determining the cost of securities sold.

Note 4 – Inventories

Inventories are stated at the lower of cost (first-in, first-out basis) or market. Inventory is comprised as follows (in thousands):

	December 31, 2007		June 30, 2007
Raw materials, net	$	4,820	$	5,234
Finished goods		444		694
	$	5,264	$	5,928

6

QUALSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

(Unaudited)

Note 5 – Warranty Obligations

The Company follows the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others, which clarifies the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies, relating to a guarantor’s accounting for disclosures for certain guarantees. FIN 45 requires enhanced disclosures, among other things, for certain guarantees, including warranty accruals. Qualstar does not issue third party guarantees, as defined, and therefore only the disclosure provisions of FIN 45 apply.

Activity in the liability for product warranty for the periods presented were as follows (in thousands):

	Three Months Ended December 31, 2007			Six Months Ended December 31, 2007
Beginning balance	$	191		$	174
Cost of warranty claims		(16	)		(35	)
Accruals for product warranties		9			45
Ending balance	$	184		$	184

Note 6 – Comprehensive Loss

For the six months ended December 31, 2007 and 2006, comprehensive loss amounted to approximately $125,000 and $764,000, respectively. The difference between net loss and comprehensive loss relates to the changes in the unrealized losses or gains the Company recorded for its available-for-sale securities.

Note 7 – Legal Proceedings

We are from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business.  At this time, we are not aware of any pending or threatened litigation against us that we expect will have a material adverse effect on our business, financial condition, liquidity or operating results.  Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings.

Note 8 – Income Taxes

On July 1, 2007, the Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN 48, 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 on 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. FIN 48 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.

7

QUALSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

(Unaudited)

Adopting FIN 48 had the following impact on our financial statements: increased long-term liabilities by $45,000, and reduced our retained earnings by $36,000. In addition, $144,000 was recorded as a FIN 48 contingent liability and offset against our net deferred tax assets.  As of July 1, 2007, we had $3.3 million of gross unrecognized tax benefits offset by a full valuation allowance.  Thus, future changes in the unrecognized tax benefit will have no impact on our effective tax rate due to the existence of the valuation allowance. Our policy is to include interest and penalties on unrecognized tax benefits in income tax expense, but is not significant at December 31, 2007.  The Company reasonably estimates that the unrecognized tax benefit will not change significantly within the next twelve months.  The Company files its tax returns by the laws of the jurisdictions in which it operates.  The Company’s federal tax returns after 2002 and California tax returns after 2003 are still subject to examination.  Various state jurisdictions tax years remain open to examination as well, though the Company believes any additional assessment will be immaterial to its consolidated financial statements.

Note 9 – Segment Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. This standard requires segmentation based on our internal organization and reporting of revenue and operating income based upon internal accounting methods. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer. Our two segments are Tape Libraries and Power Supplies. The two segments discussed in this analysis are presented in the way we internally manage and monitor performance. Our financial reporting systems present various data for management to operate the business, including internal profit and loss statements prepared on a basis consistent with U.S. GAAP. The tape library business has dominated our operations, thus, our operations and reporting have been set up to accommodate a single segment and attribute all revenues and expenses to the tape library side, with the power supply business being an ancillary part of overall operations. As the power supply segment grew in the last two years to represent greater than 10% of combined revenues, a framework for internal resource allocations has been implemented for the three months and six months ended December 31, 2007 and December 31, 2006.  Certain assets are tracked separately by the power supplies segment, and all others are recorded in the tape library segment for internal reporting presentations. Cash is not segregated between the two segments, but retained by the library segment.

The types of products and services provided by each segment are summarized below:

Tape Libraries — We design, develop, manufacture and sell automated magnetic tape libraries used to store, retrieve and manage electronic data primarily in network computing environments. Tape libraries consist of cartridge tape drives, tape cartridges and robotics to move the cartridges from their storage locations to the tape drives under software control. Our tape libraries provide data storage solutions for organizations requiring backup, recovery and archival storage of critical data.

Power Supplies — We design, manufacture, and sell small, open frame, high efficiency switching power supplies. These power supplies are used to convert AC line voltage to DC voltages for use in a wide variety of electronic equipment such as telecommunications equipment, machine tools, routers, switches, wireless systems and gaming devices.

8

QUALSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

(Unaudited)

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

	Three Months Ended December 31				Six Months Ended December 31,
	2007		2006		2007		2006
Revenue
Tape Libraries:
Product	$	4,379	$	3,604	$	8,331	$	6,751
Service		624		813		1,280		1,538
Total Tape Libraries		5,003		4,417		9,611		8,289
Power Supplies		1,046		866		1,770		1,653
Consolidated Revenue	$	6,049	$	5,283	$	11,381	$	9,942

	Three Months Ended December 31						Six Months Ended December 31,
	2007			2006			2007			2006
Income (Loss) before Taxes
Tape Libraries	$	(220	)	$	(499	)	$	(325	)	$	(1,089	)
Power Supplies		161			53			60			64
Consolidated Loss before Taxes	$	(59	)	$	(446	)	$	(265	)	$	(1,025	)

	December 31		June 30,
	2007		2007
Total Assets
Tape Libraries	$	43,378	$	43,228
Power Supplies		922		835
Consolidated Assets	$	44,300	$	44,063

Note 10 – Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, Fair Value Measurements.  SFAS No. 157 defines fair value and provides guidance on measuring fair value in generally accepted accounting principles, and expands disclosure requirements associated with fair value.  SFAS 157 is effective for our fiscal year beginning July 1, 2008.  We do not expect the adoption of SFAS 157 to have a material impact on our financial statements.

9

QUALSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

(Unaudited)

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 gives us the irrevocable option to carry many financial assets and liabilities at fair values, with changes in fair value recognized in earnings. SFAS No. 159 is effective for us beginning July 1, 2008, although early adoption is permitted. We do not expect the adoption of SFAS 159 to have a material impact on our financial statements.

10

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 Qualstar, 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 our Annual Report on Form 10-K for the fiscal year ended June 30, 2007 in “ITEM 1 Business,” “Item 1A Risk Factors,” and in “ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You generally can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “may,” “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

We design, develop, manufacture and sell automated magnetic tape libraries used to store, retrieve and manage electronic data primarily in network computing environments. We currently offer tape libraries for two popular tape drive technologies including LTO (Linear Tape-Open tape format) and AIT (Advanced Intelligent Tape).  We have discontinued sales of libraries with SAIT (Super Advanced Intelligent Tape), and DLT (Digital Linear Tape) tape drives due to declining demand for those tape drive technologies.

We have developed a network of value added resellers who specialize in delivering complete storage solutions to end users. End users of our products range from small businesses requiring simple automated backup solutions to large organizations needing complex storage management solutions. We also sell our products to original equipment manufacturers that incorporate our products with theirs, which they sell as a complete system or solution. We assist our customers with marketing and technical support.

We also design, develop, manufacture and sell small high-efficiency open-frame switching power supplies for original equipment manufacturers of telecommunications equipment, servers, routers, switches, RAIDs, and other equipment. Our power supplies are sold under the N2Power brand name and private label brand names through independent sales representatives and distributors. The primary customers are original equipment manufacturers and contract manufacturers.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer promotional offers, sales returns, bad debts, inventories, warranty costs, investments, share based compensation, and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

11

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services have been rendered, the fee is fixed or determinable and collectibility is reasonably assured (less estimated returns, for which provision is made at the time of sale) in accordance with SAB 104, Revenue Recognition.  For product sales, title and risk of loss transfer to the customer when the product leaves our dock in Simi Valley, California, or another shipping location designated by us. Customers are allowed to return the product within thirty days of shipment if the product does not meet specifications.

We record an allowance for estimated sales returns based on past experience and current knowledge of our customer base. Our experience has been such that only a very small percentage of libraries are returned. Should our experience change, however, we may require additional allowances for sales returns.

Revenues from technical support services and other services are recognized at the time services are performed.  Revenues from service contracts entered into with third party service providers are recognized at the time of sale, net of costs.

Marketable Securities

All of Qualstar’s marketable securities were classified as available-for-sale as it is possible that some securities will be sold prior to maturity.  Available-for-sale securities are recorded at market value. Unrealized holding gains and losses, net of the related income tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of shareholders’ equity until realized. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings when the underlying securities are sold and are derived using the specific identification method for determining the cost of securities sold.

Allowance for Doubtful Accounts

We estimate our allowance for doubtful accounts based on an assessment of the collectibility of specific accounts and the overall condition of accounts receivable. In evaluating the adequacy of the allowance for doubtful accounts, we analyze specific trade receivables, historical bad debts, customer credits, customer credit-worthiness and changes in customers’ payment terms and patterns. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make additional payments, then we may need to make additional allowances. Likewise, if we determine that we could realize more of our receivables in the future than previously estimated, we would adjust the allowance to increase income in the period we made this determination.

Inventory Valuation

We record inventories at the lower of cost or market value. We assess the value of our inventories periodically based upon numerous factors including expected product or material demand, current market conditions, technological obsolescence, current cost and net realizable value. If necessary, we write down our inventory for estimated obsolescence, potential shrinkage, or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If technology changes more rapidly than expected, or market conditions become less favorable than those projected by management, additional inventory write-downs may be required.

Warranty Obligations

We provide for the estimated cost of product warranties at the time revenue is recognized. We engage in extensive product quality programs and processes, including active monitoring and evaluation of product failure rates, material usage and estimation of service delivery costs incurred in correcting a product failure. However, should actual product failure rates, material usage, or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. Historically our warranty costs have not been significant.

12

Share-Based Compensation

Share-based compensation is accounted for in accordance with SFAS 123R, “Share-Based Payment.” We use the Black-Scholes option pricing model to determine fair value of the award at the date of grant and recognize compensation expense over the vesting period. The inputs we use for the model require the use of judgment, estimates and assumptions regarding the expected volatility of the stock, the expected term the average employee will hold the option prior to the date of exercise, and the amount of share-based awards that are expected to be forfeited. Changes in these inputs and assumptions could occur and actual results could differ from these estimates, and our results of operations could be materially impacted.

Accounting for Income Taxes

We adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48) in the first quarter of fiscal year 2008. See Note 8 – Income Taxes to the condensed consolidated financial statements included in this Form 10-Q for further discussion.

We estimate our tax liability based on current tax laws in the statutory jurisdictions in which we operate. 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 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.

13

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of net revenues for the periods indicated:

	Three Months Ended December 31,						Six Months Ended December 31,
	2007			2006			2007			2006
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		66.2			69.1			67.8			70.5
Gross profit		33.8			30.9			32.2			29.5
Operating expenses:
Research and development		12.7			14.3			13.2			15.2
Sales and marketing		13.9			16.7			14.1			16.6
General and administrative		15.2			15.4			14.6			15.7
Total operating expenses		41.8			46.4			41.9			47.5
Loss from operations		(8.0	)		(15.5	)		(9.7	)		(18.0	)
Investment income		7.0			7.0			7.4			7.6
Loss before income taxes		(1.0	)		(8.5	)		(2.3	)		(10.4	)
Provision (benefit) for income taxes		—			—			0.1			—
Net loss		(1.0	)%		(8.5	)%		(2.4	)%		(10.4	)%

We have two operating segments for financial reporting purposes: tape libraries and power supplies, as discussed in      Note 9 of the Notes to Condensed Consolidated Financial Statements in Item 1 of this report. The following table summarizes our revenue by major product line and by operating segment:

	Three Months Ended December 31						Six Months Ended December 31
	2007			2006			2007			2006
Tape Library revenues:
TLS		33.1	%		35.3	%		32.9	%		34.7	%
RLS		10.6			6.8			10.8			8.5
XLS		8.8			5.7			7.7			5.4
		52.5			47.8			51.4			48.6
Other library revenues:
Service		10.3			15.4			11.3			15.5
Media		15.1			14.8			16.1			13.6
Miscellaneous		4.8			5.6			5.7			5.7
		30.2			35.8			33.1			34.8
Total Library revenues		82.7			83.6			84.4			83.4
Power Supply revenues		17.3			16.4			15.6			16.6
		100.0	%		100.0	%		100.0	%		100.0	%

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Three Months Ended December 31, 2007 Compared to Three Months Ended December 31, 2006

Net Revenue.  Net revenues increased to $6.0 million for the three months ended December 31, 2007 from $5.3 million for the three months ended December 31, 2006, an increase of $0.7 million, or 14.5%. No single customer accounted for more than ten percent of the Company’s consolidated revenue for the three month periods ended December 31, 2007 or December 31, 2006.

Segment Revenue.  Revenues reported for the segments shown below are presented on a basis consistent with U.S. GAAP.  Revenues reported in Note 9 – Segment Information, in Notes to Condensed Consolidated Financial Statements included in Item 1 of this report, are presented in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information.

Tape Libraries – Net revenues increased to $5.0 million for the three months ended December 31, 2007 from $4.4 million for the three months ended December 31, 2006, an increase of $0.6 million, or 13.3%.  The increase is attributed to higher revenues from our XLS, TLS and RLS tape libraries and from media, partially offset by lower service revenues.  No single customer accounted for more than ten percent of tape library revenues for the three-month periods ended December 31, 2007 or December 31, 2006.

Power Supplies – Net revenues increased to $1,046,000 for the three months ended December 31, 2007 from $866,000 for the three months ended December 31, 2006, an increase of $180,000, or 20.8%.  The increase in revenues is attributed primarily to growth in sales to contract manufacturers.  Two customers on a standalone basis accounted for 28.9%, and 15.0%, respectively, or 43.9% in the aggregate, of power supply sales for the three months ended December 31, 2007.  Three customers on a standalone basis accounted for 36.0%, 16.5% and 13.1%, respectively, or 65.6% in the aggregate, of power supply sales for the three months ended December 31, 2006.

Gross Profit.  Gross profit represents the difference between our net revenues and cost of goods sold. Cost of goods sold consists primarily of purchased parts, direct and indirect labor costs, rent, technical support costs, depreciation of plant and equipment, utilities, and packaging costs. Gross profit increased to $2.0 million for the three months ended December 31, 2007 from $1.6 million for the three months ended December 31, 2006.  The increase of $0.4 million, or 25.2%, is primarily due to efficiencies achieved in material management.

Research and Development.  Research and development expenses consist of engineering salaries, benefits, outside consultant fees, and purchased parts and supplies used in development activities. Research and development expenses increased to $770,000 for the three months ended December 31, compared to $756,000 for the three months ended December 31, 2006.  The increase of $14,000 or 1.9% is primarily due to higher prototype material and engineering salaries expenses, partially offset by lower consulting expenses.

Sales and Marketing.  Sales and marketing expenses consist primarily of employee salaries and benefits, sales commissions, trade show costs, advertising and travel related expenses. Sales and marketing expenses decreased to $840,000 for the three months ended December 31, 2007 from $883,000 for the three months ended December 31, 2006.  The decrease of $42,000, or 4.8% is primarily due to the closure of our UK office and lower advertising and promotion expenses partially offset by increased commissions and recruitment expenses.

General and Administrative.  General and administrative expenses include employee salaries and benefits and professional service fees. General and administrative expenses increased to $918,000 for the three months ended December 31, 2007 from $812,000 for the three months ended December 31, 2006. The increase of $105,000, or 12.9% is primarily due to increased accounting consulting expenses attributed to Sarbanes Oxley compliance efforts partially offset by lower depreciation and amortization and bad debt expenses.

Investment Income.  Investment income increased to $424,000 for the three months ended December 31, 2007 from $371,000 for the three months ended December 31, 2006. The increase of $53,000, or 14.3% is primarily due to the reinvestment of proceeds from the maturities of longer-term securities into higher yielding securities.

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Provision (Benefit) for Income Taxes.  We did not record a provision or benefit for income taxes for either the three months ended December 31, 2007 or for the three months ended December 31, 2006. We have recorded a full valuation allowance against our net deferred tax assets based on our assessment regarding the realizability of these net deferred tax assets in future periods.

Six Months Ended December 31, 2007 Compared to Six Months Ended December 31, 2006

Net Revenue.  Net revenues increased to $11.4 million for the six months ended December 31, 2007 from $9.9 million for the six months ended December 31, 2006, an increase of $1.4 million, or 14.5%. No single customer accounted for more than ten percent of the Company’s consolidated revenue for the six-month periods ended December 31, 2007 and December 31, 2006.

Segment Revenue.  Revenues reported for the segments shown below are presented on a basis consistent with U.S. GAAP.  Revenues reported in Note 9 – Segment Information, in Notes to Condensed Consolidated Financial Statements included in Item 1 of this report, are presented in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information.

Tape Libraries – Net revenues increased to $9.6 million for the six months ended December 31, 2007 from $8.3 million for the six months ended December 31, 2006, an increase of $1.3 million, or 15.9%.  The increase in revenues is attributed to higher revenues from our XLS, TLS and RLS tape libraries and from media, partially offset by lower service revenues. No single customer accounted for more than ten percent of tape library revenues for the six-month periods ended December 31, 2007 or December 31, 2006.

Power Supplies – Net revenues increased to $1.8 million for the six months ended December 31, 2007 from $1.7 million for the six months ended December 31, 2006, an increase of $0.1 million, or 7.1%.  The increase in revenues is attributed primarily to growth in sales to contract manufacturers.  Two customers on a standalone basis accounted for 20.9% and 14.3%, respectively, or 35.2% in the aggregate, of power supply sales for the six months ended December 31, 2007.  Two customers on a standalone basis accounted for 29.1% and 13.4%, respectively, or 42.5% in the aggregate, of power supply sales for the six months ended December 31, 2006.

Gross Profit.  Gross profit increased to $3.7 million for the six months ended December 31, 2007 from $2.9 million for the six months ended December 31, 2006.  The increase of $0.7 million, or 25.0%, is primarily due to efficiencies achieved in material management.

Research and Development.   Research and development expenses remained comparable at $1.5 million for the six months ended December 31, 2007 and for the six months ended December 31, 2006.

Sales and Marketing.  Sales and marketing expenses decreased to $1.6 million for the six months ended December 31, 2007 from $1.7 million for the six months ended December 31, 2006.  The decrease of $0.1 million, or 3.0% is primarily due to closure of our United Kingdom office and lower advertising and promotion expenses partially offset by increased commissions, travel and recruitment expenses.

General and Administrative.  General and administrative expenses increased to $1.7 million for the six months ended December 31, 2007 from $1.6 million for the six months ended December 31, 2006. The increase of $0.1 million, or 6.4% is primarily due to increased salaries and related expenses and accounting consulting expenses attributed to Sarbanes Oxley compliance efforts partially offset by lower depreciation and amortization and bad debt expenses.

Investment Income.  Investment income increased to $837,000 for the six months ended December 31, 2007 from $752,000 for the six months ended December 31, 2006. The increase of $85,000, or 11.3% is primarily due to the reinvestment of proceeds from the maturities of longer-term securities into higher yielding securities.

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Provision (Benefit) for Income Taxes.We recorded a provision for income taxes of $17,000 for the six months ended December 31, 2007 relating to state income taxes paid during the three months ended September 30, 2007 and interest expense accrued as part of our liability resulting from our adoption on July 1, 2007 of FIN 48, Accounting for Uncertainties in Income Taxes – an Interpretation of FASB Statement No. 109.  See Note 8 of Notes to Condensed Consolidated Financial Statements in Item 1 of this report for a further discussion of FIN 48. We did not record a provision or benefit for income taxes for the six months ended December 31, 2006.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $762,000 in the six months ended December 31, 2007, primarily attributed to a decrease in inventories and an increase in accounts payable, partially offset by an increase in prepaids and other assets and the net loss from operations.  Cash used in operating activities was $449,000 in the six months ended December 31, 2006, primarily attributed to the net loss from operations and an increase in receivables, partially offset by a decrease in inventories and prepaids and other assets, and an increase in accounts payable.

Cash provided by investing activities was $2.2 million in the six months ended December 31, 2007, primarily attributed to the sale of marketable securities, partially offset by the purchase of marketable securities and the purchase of fixed assets.  Cash used in investing activities was $510,000 in the six months ended December 31, 2006, primarily attributed to the purchase of marketable securities, partially offset by the sale of marketable securities.

Cash was not used in or provided by financing activities during the six months ended December 31, 2007 or the six months ended December 31, 2006.

As of December 31, 2007, we had $10.7 million in cash and cash equivalents and $23.4 million in marketable securities.  We believe that our existing cash and cash equivalents and anticipated cash flows from our operating activities, plus funds available from the sale of our marketable securities, will be sufficient to fund our working capital and capital expenditure needs for at least the next 12 months. We may utilize cash to invest in businesses, products or technologies that we believe are strategic. We regularly evaluate other companies and technologies for possible investment by us. 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 acquisition of other businesses or technologies.

ITEM 3.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We develop products in the United States and sell them worldwide. As a result, our financial results could be affected by factors such as 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 U.S. dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. We have no outstanding debt nor do we utilize derivative financial instruments. Therefore, no quantitative tabular disclosures are required.

ITEM 4T.CONTROLS AND PROCEDURES

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 Qualstar’s disclosure controls and procedures as of December 31, 2007, pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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We did not make any changes in our internal control over financial reporting during the quarter ended December 31, 2007 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 6.   EXHIBITS

Exhibit No.	Exhibit Index
3.2	Bylaws, as amended and restated January 14, 2000.
3.3	Amendment to Bylaws, adopted December 21, 2007.
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.

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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: February 14, 2008	By:	/s/    WILLIAM J. GERVAIS
		William J. Gervais
		Chief Executive Officer, President and Director
		(Principal Executive Officer)
	By:	/s/    ANDREW A. FARINA
		Andrew A. Farina
		Chief Financial Officer
		(Principal Financial Officer)

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EX-3.2

EXHIBIT 3.2

BYLAWS OF QUALSTAR CORPORATION A CALIFORNIA CORPORATION

As Amended and Restated as of January 14, 2000

ARTICLE I

Offices

Section 1.  Principal Executive Office.  The principal executive office of the Corporation shall be located at such place as the Board of Directors may from time to time authorize.  If the principal executive office is located outside this state, and the Corporation has one or more business offices in this state, the Board of Directors shall fix and designate a principal business office in the State of California.

Section 2.  Other Offices.  Additional offices of the Corporation shall be located at such place or places, within or outside the State of California, as the Board of Directors may from time to time authorize.

ARTICLE II

Meetings of Shareholders

Section 1.  Place of Meetings.  All annual or other meetings of shareholders shall be held at the principal executive office of the Corporation, or at any other place within or without the State of California, which may be designated from time to time by the Board of Directors.

Section 2.  Annual Meetings.  Annual meetings of shareholders shall be held on such date and at such time as may be designated from time to time by the Board of Directors.  At such meetings, directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders.  Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such shareholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice.  If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the Corporation for a period of one year from the date of the giving of the notice or report to all other shareholders.  If a shareholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal executive office of the Corporation is situated, or if published at least once in some newspaper of general circulation in the county in which said principal executive office is located.

All such notices shall be given to each shareholder entitled thereto not less than ten (10) days nor more than sixty (60) days before each annual meeting.  Any such notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication.  An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the secretary, assistant secretary or any transfer agent of the Corporation, shall be prima facie evidence of the giving of the notice.

Such notices shall specify:

the place, the date, and the hour of such meeting;

1

those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders;

if directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election;

the general nature of a proposal, if any, to take action with respect to approval of (i) a contract or other transaction with an interested director, (ii) amendment of the Articles of Incorporation, (iii) a reorganization of the Corporation as defined in Section 181 of the General Corporation Law, (iv) voluntary dissolution of the Corporation, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any; and

such other matters, if any, as may be expressly required by statute.

Section 3.  Special Meetings.  Special meetings of the shareholders, for the purpose of taking any action permitted by the shareholders under the General Corporation Law and the Articles of Incorporation of this Corporation, may be called at any time by the chairman of the Board or the president, or by the Board of Directors, or by one or more shareholders holding not less than ten percent (10%) of the votes at the meeting.  Upon request in writing that a special meeting of shareholders be called for any proper purpose, directed to the chairman of the Board, president, vice president or secretary by any person (other than the Board) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after receipt of the request.  Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for the annual meetings of shareholders.  In addition to the matters required by items (a) and, if applicable, (c) of the preceding Section, notice of any special meeting shall specify the general nature of the business to be transacted, and no other business may be transacted at such meeting.

Section 4.  Quorum.  The presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business.  The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

Section 5.  Adjourned Meeting and Notice Thereof.  Any shareholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum no other business may be transacted at such meeting, except as provided in Section 4 above.

When any shareholders’ meeting, either annual or special, is adjourned for forty-five days or more, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting.  Except as provided above, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement of the time and place of the adjourned meeting or of the business to be transacted thereat, at the meeting at which such adjournment is taken.

Section 6.  Nomination of Directors.  Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, dissolution or winding up of the Corporation, nominations for the election of directors shall be made by a nominating committee of the Board of Directors if then constituted pursuant to these Bylaws, or if no nominating committee has been constituted, by the Board of Directors.  In addition, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at an annual meeting of shareholders, but only if written notice of such shareholder's intent to make such nomination or nominations has been received by the secretary of the Corporation not less than sixty (60) nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting of shareholders.  In the event that the date of the annual meeting of shareholders is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary, notice by the shareholder to be timely must be received by the secretary of the Corporation not earlier than the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of (a) the sixtieth (60th) day prior to such annual meeting or (b) the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure thereof was made by the Corporation, whichever first occurs.  Each such notice by a shareholder shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at a meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder or any person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such shareholder (an "Affiliate" of such shareholder) and each nominee and any other person or persons (naming such person or persons) relating to the nomination or nominations; (d) the class and number of shares of the Corporation that are beneficially owned by such shareholder and the person to be nominated as of the date of such shareholder's notice and by any other shareholders known by such shareholder to be supporting such nominees as of the date of such shareholder's notice; (e) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (f) the written consent of each nominee to serve as a director of the Corporation if so elected.  The shareholder also shall comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder, with respect to the matters set forth in this Section 6.

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In addition, in the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a special meeting only if written notice of such shareholder's intent to make such nomination or nominations, setting forth the information and complying with the form described in the immediately preceding paragraph, has been received by the secretary of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of (i) the sixtieth (60th) day prior to such special meeting or (ii) the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure thereof was made by the Corporation, whichever comes first.  The shareholder also shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 6.

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 6.  The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 6, and if he or she should so determine, the defective nomination shall be disregarded.

Section 7.  Proposals of Shareholders.  At any meeting of the shareholders, only such business shall be conducted as shall have been properly brought before such meeting. To be brought properly before an annual meeting of shareholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or the chairman of the meeting, or (c) otherwise properly brought before the meeting by a shareholder.  For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the Corporation.  To be timely, a shareholder's notice must be received no less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting of shareholders; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary, notice by the shareholder, to be timely, must be received not earlier than the ninetieth (90th) day prior to such annual meeting of shareholders and not later than the close of business on the later of (a) the sixtieth (60th) day prior to such annual meeting or (b) the tenth (10th) day following the date on which notice of the date of the annual meeting was mailed or public disclosure thereof was made, whichever first occurs.  Each such notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting of shareholders:  (a) a brief description of the business desired to be brought before the annual meeting of shareholders and the reasons for conducting such business at such meeting, (b) the name and address of the shareholder proposing such business, (c) the class, series, and number of shares of the Corporation that are beneficially owned by the shareholder, and (d) any material interest of the shareholder or any Affiliate of the shareholder in such business.  The shareholder also shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 7.

3

To be properly brought before a special meeting, business must be specified in the notice of meeting (or any supplement thereto) given in accordance with the provisions of Section 3 or Section 6 of this Article.  No other business may be brought before a special meeting.

No business shall be conducted at any meeting of the shareholders except in accordance with the procedures set forth in this Section 7.  The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 7, and if he or she should so determine, any such business not properly brought before the meeting shall not be transacted.  Nothing herein shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or any successor provision.

Section 8.  Voting.  Unless a record date for voting purposes be fixed as provided in Section 1 of Article V of these bylaws, then, subject to the provisions of Sections 702 and 704, inclusive, of the Corporations Code of California (relating to voting of shares held by a fiduciary, in the name of a Corporation, or in joint ownership), only persons in whose names shares entitled to vote stand on the stock records of the Corporation at the close of business on the business day next preceding the day on which notice of the meeting is given or if such notice is waived, at the close of business on the business day next preceding the day on which the meeting of shareholders is held, shall be entitled to vote at such meeting, and such day shall be the record date for such meeting.  Such vote may be via voice or by ballot; provided, however, that all elections for directors must be by ballot upon demand made by a shareholder at any election and before the voting begins.

If a quorum is present, except with respect to election of directors, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the General Corporation Law or the Articles of Incorporation.  This Corporation eliminates cumulative voting with respect to the election of directors.  If a quorum is present, the candidates receiving the highest number of affirmative votes of the shares represented at the meeting and entitled to be voted for them, up to the number of directors to be elected by such shares, shall be elected.  The elimination of cumulative voting shall become effective only when the Corporation becomes a “listed corporation” within the meaning of Section 301.5 of the Corporations Code of California, and shall apply for so long as this Corporation is a listed corporation.  If the Corporation ceases to be a listed corporation, the shareholders shall be entitled to cumulate their votes pursuant to Section 708 of the Corporations Code of California at any election of directors occurring while the Corporation is not a listed corporation.

Section 9.  Validation of Defectively Called or Noticed Meetings.  The transactions of any meeting of shareholders, either annual or special, however called and noticed, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, or who, though present, has, at the beginning of the meeting, properly objected to the transaction of any business because the meeting was not lawfully called or convened, or to particular matters of business legally required to be included in the notice, but not so included, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof.  All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 10.  Action Without Meeting.  Directors may be elected without a meeting by a consent in writing, setting forth the action so taken, signed by all of the persons who would be entitled to vote for the election of directors, provided that, without notice except as hereinafter set forth, a director may be elected at any time to fill a vacancy not filled by the directors by the written consent of persons holding a majority of the outstanding shares entitled to vote for the election of directors.

Any other action which, under any provision of the California General Corporation Law, may be taken at a meeting of the shareholders, may be taken without a meeting, and without notice except as hereinafter set forth, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  Unless the consents of all shareholders entitled to vote have been solicited in writing,

4

(a) Notice of any proposed shareholder approval of (i) a contract or other transaction with an interested director, (ii) indemnification of an agent of the Corporation as authorized by Section 15 of Article III of these bylaws, (iii) a reorganization of the Corporation as defined in Section 181 of the General Corporation Law, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any, without a meeting by less than unanimous written consent, shall be given at least ten (10) days before the consummation of the action authorized by such approval; and

(b) Unless, as provided in Section 1 of Article V of these bylaws, the Board of Directors has fixed a record date for the determination of shareholders entitled to notice of and to give such written consent, the record date for such determination shall be the day on which the first written consent is given.  All such written consents shall be filed with the secretary of the Corporation.

Any shareholder giving a written consent, or the shareholder’s proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the secretary of the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the Corporation, but may not do so thereafter.  Such revocation is effective upon its receipt by the secretary of the Corporation.

Section 11.  Proxies.  Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the secretary of the Corporation.  Any proxy duly executed is not revoked and continues in full force and effect until (i) an instrument revoking it or a duly executed proxy bearing a later date is filed with the secretary of the Corporation prior to the vote pursuant thereto, (ii) the person executing the proxy attends the meeting and votes in person, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the Corporation before the vote pursuant thereto is counted; provided that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless the person executing it specifies therein the length of time for which such proxy is to continue in force.

Section 12.  Inspectors of Election.  In advance of any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment thereof.  If inspectors of election be not so appointed, the chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting.  The number of inspectors shall be either one or three.  If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed.  In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may, and on the request of any shareholder or a shareholder’s proxy shall, be filled by appointment by the Board of Directors in advance of the meeting, or at the meeting by the chairman of the meeting.

The duties of such inspectors shall be as prescribed by Section 707 of the General Corporation Law and shall include determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders.  In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution of the proxies, regardless of the postmark dates on the envelopes in which they are mailed.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical.  If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.  Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

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ARTICLE III

Directors

Section 1.  Powers.  Subject to limitations of the Articles of Incorporation and of the California General Corporation Law as to action to be authorized or approved by the shareholders, and subject to the duties of directors as prescribed by the bylaws, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be controlled by, the Board of Directors.  Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the following powers, to wit:

First - To select and remove all the officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the Articles of Incorporation or the bylaws, fix their compensation and require from them security for faithful service.

Second - To conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, or with the Articles of Incorporation or the bylaws, as they may deem best.

Third - To change the principal executive office and principal office for the transaction of the business of the Corporation from one location to another as provided in Article I, Section 1, hereof; to fix and locate from time to time one or more subsidiary offices of the Corporation within or without the State of California, as provided in Article I, Section 2, hereof; to designate any place within or without the State of California for the holding of any shareholders’ meeting or meetings; and to adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, as in their judgment they may deem best, provided such seal and such certificates shall at all times comply with the provisions of law.

Fourth - To authorize the issue of shares of stock of the Corporation from time to time, upon such terms as may be lawful.

Fifth - To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor.

Sixth - By resolution adopted by a majority of the authorized number of directors, to designate an executive and other committees, each consisting of two or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committee shall be conducted.  The Board may also designate, by resolution adopted by a majority of the authorized number of directors, one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee.  Unless the Board of Directors shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by any two members thereof; otherwise, the provisions of these bylaws with respect to notice and conduct of meetings of the Board shall govern.  Any such committee, to the extent provided in a resolution of the Board, shall have all of the authority of the Board, except with respect to:

(i) the approval of any action for which the General Corporation Law or the Articles of Incorporation also require shareholder approval;

(ii) the filling of vacancies on the Board or in any committee;

(iii) the fixing of compensation of the directors for serving on the Board or on any committee;

(iv) the adoption, amendment or repeal of bylaws;

(v) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable;

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(vi) any distribution to the shareholders, except at a rate or in a periodic amount or within a price range determined by the Board; and

(vii) the appointment of other committees of the Board or the members thereof.

Section 2.  Number and Qualification of Directors.  The authorized number of directors shall be not less than four (4) nor more than seven (7).  The exact number of authorized directors shall be six (6) until changed, within the limits specified above, by an amendment to this bylaw or by a resolution duly adopted by the Board of Directors or the shareholders.  The limits specified above may be changed, or a definite number fixed without provision for a variable number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this bylaw adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that a proposal to reduce a fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3 percent of the outstanding shares entitled to vote.

Section 3.  Election and Term of Office.  The directors shall be elected at each annual meeting of shareholders but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose.  All directors shall hold office until their respective successors are elected, subject to the General Corporation Law and the provisions of these bylaws with respect to vacancies on the Board.

Section 4.  Vacancies.  A vacancy in the Board of Directors shall be deemed to exist in case of the (i) death of a director, (ii) resignation or removal of any director with or without cause, (iii) pursuant to Section 302 of the California Corporations Code if a director has been declared of unsound mind by order of court or convicted of a felony, (iv) if the authorized number of directors be increased, or (v) if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting.

Vacancies in the Board of Directors, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the shareholders.  A vacancy in the Board of Directors created by the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares.

The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors.  Any such election by written consent shall require the consent of holders of a majority of the outstanding shares entitled to vote.

Any director may resign effective upon giving written notice to the chairman of the Board, the president, the secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation.  If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office.

Section 5.  Place of Meeting.  Regular meetings of the Board of Directors shall be held at any place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board.  In the absence of such designation, regular meetings shall be held at the principal executive office of the Corporation.  Special meetings of the Board may be held either at a place so designated or at the principal executive office.

Section 6.  Organization Meeting.  Immediately following each annual meeting of shareholders, the Board of Directors shall hold a regular meeting at the place of said annual meeting or at such other place as shall be fixed by the Board of Directors, for the purpose of organization, election of officers, and the transaction of other business.  Call and notice of such meetings are hereby dispensed with.

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Section 7.  Other Regular Meetings.  Other regular meetings of the Board of Directors shall be held without call as provided in a resolution adopted by the Board of Directors from time to time; provided, however, should said day fall upon a legal holiday, then said meeting shall be held at the same time on the next day thereafter ensuing which is a full business day.  Notice of all such regular meetings of the Board of Directors is hereby dispensed with.

Section 8.  Special Meetings.  Special meetings of the Board of Directors for any purpose or purposes shall be called at any time by the chairman of the Board, the president, any vice president, the secretary or by any two directors.

Written notice of the time and place of special meetings shall be delivered personally to each director or communicated to each director by telephone or by telegraph or mail, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation or, if it is not so shown on such records or is not readily ascertainable, at the place at which the meetings of the directors are regularly held.  In case such notice is mailed, it shall be deposited in the United States mail in the place in which the principal executive office of the Corporation is located at least four days’ prior to the time of holding the meeting.  In case such notice is delivered, personally or by telephone or telegraph, as above provided, it shall be so delivered at least forty-eight hours prior to the time of the holding of the meeting.  Such mailing, telegraphing or delivery, personally or by telephone, as above provided, shall be due, legal and personal notice to such director.

Section 9.  Action Without Meeting.  Any action by the Board of Directors may be taken without a meeting if all members of the Board shall individually or collectively consent in writing to such action.  Such written consent or consents shall be filed with the minutes of the proceedings of the Board and shall have the same force and effect as a unanimous vote of such directors.

Section 10.  Action at a Meeting:  Quorum and Required Vote.  Presence of a majority of the authorized number of directors at a meeting of the Board of Directors constitutes a quorum for the transaction of business, except as hereinafter provided.  Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another.  Participation in a meeting as permitted in the preceding sentence constitutes presence in person at such meeting.  Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number, or the same number after disqualifying one or more directors from voting, is required by law, by the Articles of Incorporation, or by these bylaws.  A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action taken is approved by at least a majority of the required quorum for such meeting.

Section 11.  Validation of Defectively Called or Noticed Meetings.  The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present or who, though present, has, prior to the meeting or at its commencement, protested the lack of proper notice to him, signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof.  All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 12.  Adjournment.  A quorum of the directors may adjourn any directors’ meeting to meet again at a stated day and hour; provided, however, that in the absence of a quorum a majority of the directors present at any directors’ meeting, either regular or special, may adjourn from time to time until the time fixed for the next regular meeting of the Board.

Section 13.  Notice of Adjournment.  If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of adjournment.  Otherwise notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned.

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Section 14.  Fees and Compensation.  Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board.

Section 15.  Indemnification of Agents of the Corporation; Purchase of Liability Insurance.

(a)       For the purposes of this Section, “agent” means any person who is or was a director, officer, employee or other agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; “executive officer” means any person who is or was a director or an officer serving a chief policy making function, or is or was serving at the request of the Corporation as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director or officer serving a chief policy making function of a foreign or domestic corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of the corporation;  “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and “expenses” includes, without limitation, attorneys’ fees and any expenses of establishing a right to indemnification under subsection (d) or paragraph (3) of subsection (e) of this section.

(b)       This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this Corporation) by reason of the fact that such person is or was an officer or director of the Corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful.  This Corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this Corporation) by reason of the fact that such person is or was an agent of the Corporation by a majority vote of a quorum consisting of directors who are not a party to such proceeding, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation and, in the case of a criminal proceeding, had no reason to believe the conduct of such person was unlawful.  The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this Corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful.

(c)       This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this Corporation to procure a judgment in its favor by reason of the fact that such person is or was an officer or director of this Corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed to be in the best interests of this Corporation and its shareholders.  No indemnification shall be made under subsection (b) and/or (c):

(1)       in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to this Corporation in the performance of such person’s duty to this Corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine;

(2)       Of amounts paid in settling or otherwise disposing of a pending action without court approval; or

(3)       Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.

(d)       To the extent that an officer, director or other agent of this Corporation has been successful on the merits in defense of any proceeding referred to in subsection (b) or (c) or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.

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(e)       Except as provided in subsection (d), any indemnification under this section shall be made by this Corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subsection (b) or (c), by:

(1)       A majority vote of a quorum consisting of directors who are not a party to such proceeding;

(2)       If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion;

(3)       Approval or ratification by the affirmative vote of a majority of the shares of this Corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote.  For such purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or

(4)       The court in which such proceeding is or was pending upon application made by this Corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney or other person is opposed by this Corporation.

(f)       Expenses incurred in defending any proceeding may be advanced by the Corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in this section.

(g)       The indemnification provided by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent such additional rights to indemnification are authorized in the articles of this Corporation.  The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of the person.  Nothing contained in this section shall affect any right to indemnification to which persons other than such directors and officers may be entitled by contract or otherwise.

(h)       No indemnification or advance shall be made under this section, except as provided in subsection (d) or paragraph

(3) of subsection (e), in any circumstance where it appears:

(1)       That it would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders or an agreement in effect at the time the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

(2)       That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

(i)       This Corporation may purchase and maintain insurance on behalf of any agent of this Corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent’s status as such, whether or not this Corporation would have the power to indemnify the agent against such liability under the provisions of this section.  The fact that this Corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subsection inapplicable if either of the following conditions are satisfied:

(1)       If authorized in the Articles of Incorporation of this Corporation, any policy issued is limited to the extent provided by subdivision (d) of Section 204 of the California Corporations Code; or

(2)       (A)           The company issuing the insurance policy is organized, licensed, and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization,

(B)      The company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the Corporation that purchased that policy, and

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(C)      The policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or re-insurer.

(j)        This Section 15 does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person’s capacity as such, even though such person may also be an agent of the Corporation as defined in subsection (a) of this Section.  This Corporation shall have power to indemnify such a trustee, investment manager or other fiduciary to the extent permitted by subdivision (f) of Section 207 of the California General Corporation Law.

ARTICLE IV

Officers

Section 1.  Officers.  The officers of the Corporation shall be a President, a Secretary and a Chief Financial Officer.  The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents, one or more Assistant Secretaries, one or more assistant financial officers and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article.

Section 2.  Election.  The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his office at the pleasure of the Board or until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified.

Section 3.  Subordinate Officers, Etc.  The Board of Directors may appoint, and may empower the Chief Executive Officer or the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office, for such period, have such authority and perform such duties as are provided in the bylaws or as the Board of Directors may from time to time determine.

Section 4.  Removal and Resignation.  Any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors (subject, in each case, to the rights, if any, of an officer under any contract of employment).

Any officer may resign at any time by giving written notice to the Board of Directors, without prejudice, however, to the rights, if any, of the Corporation under any contract to which such officer is a party.  Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.  Vacancies.  A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to such office.

Section 6.  Chairman of the Board.  The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the bylaws.

Section 7.  Chief Executive Officer.  The Chief Executive Officer of the Corporation, if there shall be such an officer, shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business of the Corporation.  He shall exercise the duties usually vested in the chief executive officer of a corporation and perform such other powers and duties as may be assigned to him from time to time by the Board of Directors or prescribed by the bylaws.  In the absence of the Chairman of the Board, the Chief Executive Officer shall preside at meetings of the Board of Directors.

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Section 8.  President.  Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chief Executive Officer, if there shall be such an officer, the President shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business of the Corporation.   He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the bylaws.  In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at meetings of the Board of Directors.

Section 9.  Vice President.  In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President.  The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, the Chief Executive Officer, the President or the bylaws.

Section 10.  Secretary.  The Secretary shall record or cause to be recorded, and shall keep or cause to be kept, at the principal executive office and such other place as the Board of Directors may order, a book of minutes of actions taken at all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at shareholders’ meetings, and a summary of the proceedings thereof.

The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation’s transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the bylaws or by law to be given, and he shall keep the seal of the Corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the bylaws.

Section 11.  Chief Financial Officer.  The Chief Financial Officer of the Corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation.  The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors.  He shall make such disbursements of the funds of the Corporation as may be authorized by the Board of Directors, shall render to the Chief Executive Officer, the President and the directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws.

Section 12.  Officer Loans and Guarantees.  If the Corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California General Corporation Law) on the date of approval by the Board of Directors, the Corporation may make loans of money or property to, or guarantee the obligation of, any officer of the Corporation or its parent or any subsidiary, whether or not the officer is a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties, upon the approval of the Board of Directors alone, by a vote sufficient without counting the vote of any interested director or directors, if the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the Corporation.

ARTICLE V

Miscellaneous

Section 1.  Record Date.  The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to give consent to corporate action in writing without a meeting, to receive any report, to receive any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any change, conversion or exchange of shares.  The record date so fixed shall be not more than sixty (60) days nor less than ten (10) days prior to the date of any meeting, nor more than sixty (60) days prior to any other event for the purposes of which it is fixed.  When a record date is so fixed, only shareholders of record at the close of business on that date are entitled to notice of and to vote at any such meeting, to give consent without a meeting, to receive any report, to receive a dividend, distribution or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided in the Articles of Incorporation or bylaws.

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Section 2.  Inspection of Corporate Records.  The accounting books and records, the record of shareholders, and minutes of proceedings of the shareholders and the Board and committees of the Board of this Corporation and any subsidiary of this Corporation shall be open to inspection upon the written demand on the Corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder’s interests as a shareholder or as the holder of such voting trust certificate.  Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts.

A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of the Corporation or who hold at least 1 percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the Corporation shall have (in person, or by agent or attorney) the right to inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the Corporation and to obtain from the transfer agent for the Corporation, upon written demand and upon the tender of its usual charges, a list of the shareholders’ names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand.  The list shall be made available on or before the later of five business days after the demand is received or the date specified therein as the date as of which the list is to be compiled.

Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the Corporation.  Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts.

Section 3.  Checks, Drafts, Etc.  All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors.

Section 4.  Annual Report to Shareholders.  The annual report to shareholders referred to in Section 1501 of the California General Corporation Law is expressly waived so long as the Corporation has fewer than 100 shareholders, but nothing herein shall be interpreted as prohibiting the Board from issuing annual or other periodic reports to shareholders.

A shareholder or shareholders holding at least five percent of the outstanding shares of any class of the Corporation may make a written request to the Corporation for an income statement of the Corporation for the three-month, six-month or nine-month period of the current fiscal year ended more than 30 days prior to the date of the request and a balance sheet of the Corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the annual report for the last fiscal year.  The Corporation shall use its best efforts to deliver on the statement to the person making the request within 30 days thereafter.  A copy of any such statements shall be kept on file in the principal executive office of the Corporation for 12 months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder.

The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the Corporation or the certificate of an authorized officer of the Corporation that such financial statements were prepared without audit from the books and records of the Corporation.

Section 5.  Contracts, Etc., How Executed.  The Board of Directors, except as in the bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount.

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Section 6.  Certificate for Shares.  Every holder of shares in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman or vice chairman of the Board or the president or vice president and by the chief financial officer or an assistant financial officer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder.  Any of the signatures on the certificate may be facsimile, provided that in such event at least one signature, including that of either officer or the Corporation’s registrar or transfer agent, if any, shall be manually signed.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

Any such certificate shall also contain such legend or other statement as may be required by Section 418 of the General Corporation Law, the Corporate Securities Law of 1968, the federal securities laws, and any agreement between the Corporation and the issuer thereof.

Certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the Board of Directors or the bylaws may provide; provided, however, that any such certificate so issued prior to full payment shall state on the face thereof the amount remaining unpaid and the terms of payment thereof.

No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate will be issued without the surrender and cancellation of the old certificate if (1) the old certificate is lost, apparently destroyed or wrongfully taken; (2) the request for the issuance of the new certificate is made within a reasonable time after the owner of the old certificate has notice of its loss, destruction or theft; (3) the request for the issuance of a new certificate is made prior to the receipt of notice by the Corporation that the old certificate has been acquired by a bona fide purchaser; (4) the owner of the old certificate files a sufficient indemnity bond with or provides other adequate security to the Corporation; and (5) the owner satisfies any other reasonable requirements imposed by the Corporation.  In the event of the issuance of a new certificate, the rights and liabilities of the Corporation, and of the holders of the old and new certificates, shall be governed by the provisions of Section 8104 and 8405 of the California Uniform Commercial Code.

Section 7.  Representation of Shares of Other Corporations.  The president or any vice president and the secretary or any assistant secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation.  The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers.

Section 8.  Inspection of Bylaws.  The Corporation shall keep in its principal executive office in California, or, if its principal executive office is not in California, then at its principal business office in California (or otherwise provide upon Written request of any shareholder) the original or a copy of the bylaws as amended or otherwise altered to date, certified by the secretary, which shall be open to inspection by the shareholders at all reasonable times during office hours.

Section 9.  Construction and Definitions.  Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the California General Corporation Law shall govern the construction of these bylaws.  Without limiting the generality of the foregoing, the masculine gender includes the feminine and neuter, the singular number includes the plural and the plural number includes the singular, and the term “person” includes a corporation as well as a natural person.

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ARTICLE VI

Amendments

Section 1.  Power of Shareholders.  New bylaws may be adopted or these bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by the written assent of shareholders entitled to vote such shares, except as otherwise provided by law or by the Articles of Incorporation.

Section 2.  Power of Directors.  Subject to the right of shareholders as provided in Section 1 of this Article VI to adopt, amend or repeal bylaws, bylaws may be adopted, amended or repealed by the Board of Directors; provided, however, after issuance of shares, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the outstanding shares as provided herein.

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EX-3.3

EXHIBIT 3.3

CERTIFICATE OF AMENDMENT OF THE BYLAWS OF QUALSTAR CORPORATION

The undersigned, who is the duly elected and acting Secretary of Qualstar Corporation, a California corporation (the “Corporation”), does hereby certify as follows:

1.  By resolutions duly adopted by the unanimous written consent of the Directors of the Corporation, effective as of December 21, 2007, the Board of Directors of the Corporation amended and restated Article V, Section 6 of the Bylaws of the Corporation to read in its entirety, as follows:

“Section 6.  Certificates for Shares; Uncertificated Shares.  Shares of capital stock of the Corporation may be certificated or uncertificated, as hereinafter provided.

Every holder of shares in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the chairman or vice chairman of the Board or the president or vice president and by the chief financial officer or an assistant financial officer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder.  Any of the signatures on the certificate may be facsimile, provided that in such event at least one signature, including that of either officer or the Corporation’s registrar or transfer agent, if any, shall be manually signed.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

Any such certificate shall also contain such legend or other statement as may be required by Sections 417 and 418 of the California General Corporation Law, the Corporate Securities Law of 1968, the federal securities laws, and any agreement between the Corporation and the purchaser thereof.

This Corporation may adopt a system of issuance, recordation and transfer of its shares by electronic or other means not involving any issuance of certificates.  To the extent and at such times as may be required by applicable law, the Corporation shall send or cause to be sent to the registered owner of uncertificated shares a written notice containing the information required to be set forth or stated on certificates representing shares of the same class or series of stock.

Shares may be issued prior to full payment under such restrictions and for such purposes as the Board of Directors or the bylaws may provide; provided, however, that any certificate issued to represent shares prior to full payment, or, for uncertificated shares, the initial transaction statement for such partly paid shares, shall state on the face thereof the amount remaining unpaid and the terms of payment thereof.

No new certificate for shares or uncertificated shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate or uncertificated shares will be issued without the surrender and cancellation of the old certificate if (1) the old certificate is lost, apparently destroyed or wrongfully taken; (2) the request for the issuance of the new certificate or uncertificated shares is made within a reasonable time after the owner of the old certificate has notice of its loss, destruction or theft; (3) the request for the issuance of a new certificate or uncertificated shares is made prior to the receipt of notice by the Corporation that the old certificate has been acquired by a bona fide purchaser; (4) the owner of the old certificate files a sufficient indemnity bond with or provides other adequate security to the Corporation; and (5) the owner satisfies any other reasonable requirements imposed by the Corporation.  In the event of the issuance of a new certificate or uncertificated shares, the rights and liabilities of the Corporation, and of the holders of the old and new certificates and of uncertificated shares, shall be governed by the provisions of Section 8104 and 8405 of the California Uniform Commercial Code.”

2.  The foregoing amendment to the Bylaws of the Corporation has not been modified, amended, rescinded, or revoked and remains in full force and effect on the date hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name on this 21st day of December, 2007.

/s/ RICHARD A. NELSON

Richard A. Nelson

Secretary

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EX-31.1

EXHIBIT 31.1

SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, William J. Gervais, certify that:

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

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;

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;

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)) for the registrant and have:

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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

[Paragraph (b) is omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

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

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

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):

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

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: February 14, 2008	/s/   WILLIAM J. GERVAIS
	William J. Gervais
	Principal Executive Officer

EX-31.2

EXHIBIT 31.2

SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Andrew A. Farina, certify that:

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

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;

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;

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)) for the registrant and have:

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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

[Paragraph (b) is omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

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

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

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):

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

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: February 14, 2008	/s/   ANDREW A. FARINA
	Andrew A. Farina
	Principal Financial Officer

EX-32.2

EXHIBIT 32.1

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

I, William J. Gervais, 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 December 31, 2007 (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

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

Dated: February 14, 2008	/s/   WILLIAM J. GERVAIS
	William J. Gervais
	Principal Executive Officer

EX-32.1

EXHIBIT 32.2

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

I, Andrew A. Farina, 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:

(1) the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended December 31, 2007 (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: February 14, 2008	/s/   ANDREW A. FARINA
	Andrew A. Farina
	Principal Financial Officer