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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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|  |                                                                                          | 
|- | ---------------------------------------------------------------------------------------- | 
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  |                                                                                         
|  | For the quarterly period ended September 30, 2002                                       
|  |                                                                                         
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  |                                                                                         
|  | For the transition period from _______ to _______                                       

Commission file number
000-30083

QUALSTAR CORPORATION

|Incorporated under the laws of the State of California |  | (I.R.S. Employer Identification No.) 95-3927330
|------------------------------------------------------ |  | -----------------------------------------------
|                                                       |  |                                                
|3990-B Heritage Oak Court                             
|Simi Valley, CA  93063                                
|                                                      
|(805) 583-7744                                        

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

|x | Yes | o | No
|- | --- | - | --

The total shares of common stock without par value outstanding at November 11, 2002 is
12,656,101.

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Table of Contents

|PART I.
FINANCIAL INFORMATION                                                                 |                                                                                                                  
|--------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------
|                                                                                              |                                                                                                                  
|ITEM 1.
Financial Statements                                                                  | 3                                                                                                                
|                                                                                              | Condensed consolidated balance sheets as of June 30, 2002 and September 30, 2002                                 
|                                                                                              | Condensed consolidated statements of income for the three months ended September 30, 2001 and 2002               
|                                                                                              | Condensed consolidated statements of cash flows for the three months ended September 30, 2001 and 2002           
|                                                                                              | Condensed consolidated statement of changes in shareholders equity for the three months ended September 30, 2002
|                                                                                              | Notes to interim condensed consolidated financial statements                                                     
|                                                                                              |                                                                                                                  
|ITEM.2.
Managements Discussion and Analysis of Financial Condition and Results of Operations | 9                                                                                                                
|                                                                                              |                                                                                                                  
|ITEM 3.
Qualitative and Quantitative Disclosures About Market Risk                            | 11                                                                                                               
|                                                                                              |                                                                                                                  
|ITEM 4.
Controls and Procedures                                                               | 11                                                                                                               
|                                                                                              |                                                                                                                  
|PART.II
OTHER INFORMATION                                                                     |                                                                                                                  
|                                                                                              |                                                                                                                  
|ITEM 6.
Exhibits and Reports on Form 8-K                                                      | 11                                                                                                               
|                                                                                              |                                                                                                                  
|                                                                                              | Signatures                                                                                                       
|                                                                                              |                                                                                                                  
|                                                                                              | Certification of Principal Executive Officer                                                                     
|                                                                                              |                                                                                                                  
|                                                                                              | Certification of Principal Financial Officer                                                                     
|                                                                                              |                                                                                                                  



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PART I -
FINANCIAL INFORMATION

ITEM 1. 
FINANCIAL STATEMENTS

QUALSTAR CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND SEPTEMBER 30, 2002 (in thousands)

|                                     |                                                                                                                                       | JUNE 30,2002 |        | SEPTEMBER 30,2002 |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------ | ----------------- | -
|                                     |                                                                                                                                       |              |        |                   |  
|                                     |                                                                                                                                       |              |        | (Unaudited)       |  
|ASSETS                               |                                                                                                                                       |              |        |                   |  
|Current assets:                      |                                                                                                                                       |              |        |                   |  
|                                     | Cash and cash equivalents                                                                                                             |              | $      | 16,363            |  
|                                     | Marketable securities                                                                                                                 |              |        | 14,482            |  
|                                     | Accounts receivable, net of allowances of $2,100 at June 30 and September 30                                                          |              |        | 6,695             |  
|                                     | Inventories                                                                                                                           |              |        | 9,652             |  
|                                     | Prepaid expenses and other current assets                                                                                             |              |        | 355               |  
|                                     | Prepaid income taxes                                                                                                                  |              |        | 148               |  
|                                     | Deferred income taxes                                                                                                                 |              |        | 1,501             |  
|                                     |                                                                                                                                       |              |        |                   |  
|                                     | Total current assets                                                                                                                  |              |        | 49,196            |  
|                                     |                                                                                                                                       |              |        |                   |  
|Property and equipment, net          |                                                                                                                                       |              | 1,324  |                   |  
|Other assets                         |                                                                                                                                       |              | 238    |                   |  
|                                     |                                                                                                                                       |              |        |                   |  
|                                     |                                                                                                                                       | $            | 50,758 |                   | $
|                                     |                                                                                                                                       |              |        |                   |  
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                       |              |        |                   |  
|Current liabilities:                 |                                                                                                                                       |              |        |                   |  
|                                     | Accounts payable                                                                                                                      |              | $      | 1,590             |  
|                                     | Accrued payroll and related liabilities                                                                                               |              |        | 308               |  
|                                     | Other accrued liabilities                                                                                                             |              |        | 693               |  
|                                     | Income taxes payable                                                                                                                  |              |        | 98                |  
|                                     |                                                                                                                                       |              |        |                   |  
|                                     | Total current liabilities                                                                                                             |              |        | 2,689             |  
|                                     |                                                                                                                                       |              |        |                   |  
|Deferred income taxes                |                                                                                                                                       |              | 96     |                   |  
|Shareholders equity:                |                                                                                                                                       |              |        |                   |  
|                                     | Preferred stock, no par value; 5,000 shares authorized; no shares issued                                                              |              |        |                  |  
|                                     | Common stock, no par value; 50,000 shares authorized, 12,656 shares issued and outstanding at June 30, and September 30, respectively |              |        | 20,751            |  
|                                     | Deferred compensation                                                                                                                 |              |        | (631              | )
|                                     | Notes from directors                                                                                                                  |              |        | (387              | )
|                                     | Accumulated other comprehensive income(loss)                                                                                          |              |        | (31               | )
|                                     | Retained earnings                                                                                                                     |              |        | 28,271            |  
|                                     |                                                                                                                                       |              |        |                   |  
|                                     | Total liabilities and shareholders equity                                                                                            |              |        | 47,973            |  
|                                     |                                                                                                                                       |              |        |                   |  
|                                     |                                                                                                                                       | $            | 50,758 |                   | $
|                                     |                                                                                                                                       |              |        |                   |  
|                                     |                                                                                                                                       |              |        |                   |  

See the accompanying notes to these condensed consolidated financial statements.

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QUALSTAR CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002 (in thousands, except per share amounts) (UNAUDITED)

|                                           |                            | THREE MONTHS ENDED SEPTEMBER 30, |       
|------------------------------------------ | -------------------------- | -------------------------------- | ------
|                                           |                            |                                  |       
|                                           |                            | 2001                             |       
|                                           |                            |                                  |       
|Net revenues                               |                            | $                                | 8,797 
|Cost of goods sold                         |                            |                                  | 5,467 
|                                           |                            |                                  |       
|                                           | Gross profit               |                                  |       
|                                           |                            |                                  |       
|Operating expenses:                        |                            |                                  |       
|                                           | Research and development   |                                  |       
|                                           | Sales and marketing        |                                  |       
|                                           | General and administrative |                                  |       
|                                           |                            |                                  |       
|                                           | Total operating expenses   |                                  |       
|                                           |                            |                                  |       
|Income from operations                     |                            |                                  | 1,524 
|Interest income                            |                            |                                  | 298   
|                                           |                            |                                  |       
|Income before provision for income taxes   |                            |                                  | 1,822 
|Provision for income taxes                 |                            |                                  | 655   
|                                           |                            |                                  |       
|Net income                                 |                            | $                                | 1,167 
|                                           |                            |                                  |       
|Basic earnings per share                   |                            | $                                | 0.09  
|                                           |                            |                                  |       
|Diluted earnings per share                 |                            | $                                | 0.09  
|                                           |                            |                                  |       
|Shares used to compute earnings per share: |                            |                                  |       
|Basic                                      |                            |                                  | 12,439
|                                           |                            |                                  |       
|Diluted                                    |                            |                                  | 12,643
|                                           |                            |                                  |       

See the accompanying notes to these condensed consolidated financial
statements.

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QUALSTAR CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002 (in thousands) (UNAUDITED)

|                                                    |                                                                                   | 2001 |        | 2002   |  
|--------------------------------------------------- | --------------------------------------------------------------------------------- | ---- | ------ | ------ | -
|                                                    |                                                                                   |      |        |        |  
|OPERATING ACTIVITIES:                               |                                                                                   |      |        |        |  
|                                                    | Net income                                                                        |      | $      | 1,167  |  
|                                                    | Adjustments to reconcile net income to net cash provided by operating activities: |      |        |        |  
|                                                    | Depreciation and amortization                                                     |      |        | 69     |  
|                                                    | Amortization of deferred compensation                                             |      |        | 107    |  
|                                                    | Provision for bad debts and returns                                               |      |        | 78     |  
|                                                    | Accrued interest on directors notes                                              |      |        | (7     | )
|                                                    | Changes in operating assets and liabilities:                                      |      |        |        |  
|                                                    | Accounts receivable                                                               |      |        | (282   | )
|                                                    | Inventories                                                                       |      |        | 321    |  
|                                                    | Prepaid expenses and other assets                                                 |      |        | (60    | )
|                                                    | Prepaid income taxes and income taxes payable                                     |      |        | (655   | )
|                                                    | Accounts payable                                                                  |      |        | (1,476 | )
|                                                    | Accrued liabilities                                                               |      |        | (96    | )
|                                                    |                                                                                   |      |        |        |  
|Net cash provided by operating activities           |                                                                                   |      | 476    |        |  
|                                                    |                                                                                   |      |        |        |  
|INVESTING ACTIVITIES:                               |                                                                                   |      |        |        |  
|                                                    | Purchases of equipment and leasehold improvements                                 |      |        | (109   | )
|                                                    | Purchases of marketable securities, net                                           |      |        | (7,304 | )
|                                                    | Purchase of assets of N2Power, Inc                                                |      |        |       |  
|                                                    |                                                                                   |      |        |        |  
|Net cash used in investing activities               |                                                                                   |      | (7,413 | )      |  
|                                                    |                                                                                   |      |        |        |  
|FINANCING ACTIVITIES:                               |                                                                                   |      |        |        |  
|                                                    | Principal and interest payments on directors notes                               |      |        | 9      |  
|                                                    |                                                                                   |      |        |        |  
|Net cash provided by financing activities           |                                                                                   |      | 9      |        |  
|                                                    |                                                                                   |      |        |        |  
|Net increase(decrease) in cash and cash equivalents |                                                                                   |      | (6,928 | )      |  
|Cash and cash equivalents at beginning of period    |                                                                                   |      | 20,809 |        |  
|                                                    |                                                                                   |      |        |        |  
|Cash and cash equivalents at end of period          |                                                                                   | $    | 13,881 |        | $
|                                                    |                                                                                   |      |        |        |  
|Supplemental cash flow disclosures:                 |                                                                                   |      |        |        |  
|                                                    | Income taxes paid                                                                 |      | $      |       |  
|                                                    |                                                                                   |      |        |        |  
|                                                    |                                                                                   |      |        |        |  

See the accompanying notes to these condensed consolidated financial statements.

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QUALSTAR CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY THREE MONTHS ENDED SEPTEMBER 30, 2002 (in thousands) (UNAUDITED)

|                                                               |                                            | PREFERRED STOCK |   | COMMON STOCK |   | DEFERRED COMPENSATION |   | NOTES FROM DIRECTORS |        | ACCUMULATED OTHER COMPREHENSIVE LOSS |   | RETAINED EARNINGS |   | TOTAL |     
|-------------------------------------------------------------- | ------------------------------------------ | --------------- | - | ------------ | - | --------------------- | - | -------------------- | ------ | ------------------------------------ | - | ----------------- | - | ----- | ----
|                                                               |                                            |                 |   |              |   |                       |   |                      |        |                                     
|                                                               |                                            | SHARES          |   | AMOUNT       |   | SHARES                |   | AMOUNT               |        |                                      |   |                   |   |      
|                                                               |                                            |                 |   |              |   |                       |   |                      |        |                                      |   |                   |   |       |     
|Balance at July 1, 2002                                        |                                            |                 |  |              | $ |                      |   |                      | 12,656 |                                      | $ | 20,751            |   | $     | (631
|Amortization of deferred compensation                          |                                            |                 |  |              |   |                      |   |                      |       |                                      |   |                  |   |       | 107 
|Accrued interest on directors notes                           |                                            |                 |  |              |   |                      |   |                      |       |                                      |   |                  |   |       |    
|Receipt of principal and interest payments on directors notes |                                            |                 |  |              |   |                      |   |                      |       |                                      |   |                  |   |       |    
|Comprehensive income:                                          |                                            |                 |   |              |   |                       |   |                      |        |                                      |   |                   |   |       |     
|                                                               | Change in unrealized losses on investments |                 |   |             |   |                       |  |                      |        |                                     |   |                   |  |       |     
|                                                               | Net income                                 |                 |   |             |   |                       |  |                      |        |                                     |   |                   |  |       |     
|                                                               |                                            |                 |   |              |   |                       |   |                      |        |                                      |   |                   |   |       |     
|                                                               | Comprehensive income                       |                 |   |              |   |                       |   |                      |        |                                      |   |                   |   |       |     
|                                                               |                                            |                 |   |              |   |                       |   |                      |        |                                      |   |                   |   |       |     
|Balance at September 30, 2002                                  |                                            |                 |  |              | $ |                      |   |                      | 12,656 |                                      | $ | 20,751            |   | $     | (524
|                                                               |                                            |                 |   |              |   |                       |   |                      |        |                                      |   |                   |   |       |     

See the accompanying notes to these condensed consolidated financial
statements.

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QUALSTAR CORPORATIONNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (in thousands, except per share amounts) (UNAUDITED)

NOTE 1.  BASIS OF
PRESENTATION

The accompanying condensed consolidated financial statements are
unaudited, except for the balance sheet at June 30, 2002 which is derived from our audited financial statements, and should be read in conjunction with the consolidated financial statements and related notes included in Qualstar Corporations
(Qualstar, us, we, or our) Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on September 30, 2002.  In the opinion of management, these unaudited condensed
consolidated financial statements include all adjustments, consisting primarily of normal recurring items, which are necessary for the fair presentation of Qualstars consolidated financial position as of September 30, 2002, consolidated
results of operations for the three months ended September 30, 2001 and 2002, and consolidated cash flows for the three months ended September 30, 2001 and 2002.  Operating results for the three month period ended September 30, 2002 are not
necessarily indicative of results to be expected for a full year.

NOTE 2.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net income per share for the three
months ended September 30, 2001 and 2002:

|                             |                                                                                                          | THREE MONTHS ENDED SEPTEMBER 30, |     
|---------------------------- | -------------------------------------------------------------------------------------------------------- | -------------------------------- | ----
|                             |                                                                                                          |                                  |     
|                             |                                                                                                          | 2001                             |     
|                             |                                                                                                          |                                  |     
|Numerator:                   |                                                                                                          |                                  |     
|                             | Net income                                                                                               |                                  | $   
|Denominator:                 |                                                                                                          |                                  |     
|                             | Denominator for basic net income per share -- weighted average shares                                    |                                  |     
|                             | Dilutive potential common shares from employee stock options, and restricted stock                       |                                  |     
|                             |                                                                                                          |                                  |     
|                             | Denominator for diluted net income per share -- adjusted weighted average shares and assumed conversions |                                  |     
|                             |                                                                                                          |                                  |     
|Basic net income per share   |                                                                                                          | $                                | 0.09
|                             |                                                                                                          |                                  |     
|Diluted net income per share |                                                                                                          | $                                | 0.09
|                             |                                                                                                          |                                  |     

NOTE 3.  MARKETABLE SECURITIES

Marketable securities consist primarily of high-quality corporate, federal and state government
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 the Company 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 the
Companys marketable securities were classified as available-for-sale at June 30, 2002 and September 30, 2002.

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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:

|               |  | JUNE 30, 2002 |       | SEPTEMBER 30, 2002 |  
|-------------- |  | ------------- | ----- | ------------------ | -
|               |  |               |       |                    |  
|Raw materials  |  | $             | 7,980 |                    | $
|Finished goods |  |               | 1,672 |                    |  
|               |  |               |       |                    |  
|               |  | $             | 9,652 |                    | $
|               |  |               |       |                    |  

NOTE 5.  COMPREHENSIVE INCOME

For the three months ended September 30, 2001 and 2002, comprehensive income amounted to approximately
$1.1 million and $0.5 million, respectively.  The difference between net income and comprehensive income relates to the changes in the unrealized losses or gains the Company recorded for its available-for-sale securities.

NOTE 6.  BUSINESS ACQUISITIONS

On July 11, 2002, the Company acquired the assets and intellectual properties of N2Power, Incorporated
(N2Power), a privately held company which designs and produces small and efficient open-frame switching power supplies.  The consideration for this acquisition was $250,000 plus acquisition expenses of $38,000.  The purchase price was
primarily allocated to a patent which will be amortized over 5 years. The accompanying consolidated financial statements include the operations of N2Power from the date of acquisition.

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ITEM 2.  
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  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,
2002 in ITEM 1 Business, including the section therein entitled 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.  We disclaim any obligation to update or revise these forward-looking statements to reflect the occurrence of events or circumstances in the
future.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001.

NET REVENUES. Revenues are recognized upon shipment of the product to the customer, less
estimated returns, for which provision is made at the time of sale.

Net revenues for the three months ended September 30, 2002 were $8.8 million, consistent with net revenues of $8.8 million for the
three months ended September 30, 2001.  The selling prices of our tape libraries have remained relatively stable during the quarter ended September 30, 2002.  The selling prices of tape media has decreased slightly since the first quarter
of fiscal 2001, whereas the selling prices of tape drives have had an overall increase.  The decrease in selling prices of tape media is primarily due to decreases in our cost to purchase media, which we pass through to our customers.  The
increase in selling prices of tape drives is primarily due to the introduction of new releases of existing tape drive technology such as AIT-3 and SDLT 320 which were not yet available during the first quarter of fiscal 2002.  We do not
anticipate significant changes in the selling prices of our tape libraries during the second quarter of fiscal 2003.

GROSS PROFIT. Gross profit was $3.2 million or 36.1% of net revenues for the three months ended September
30, 2002 compared to $3.3 million or 37.9% for the three months ended September 30, 2001, representing a decrease of 4.6%.  Our gross margin is partially a function of the mix of products sold.  Generally, tape libraries and drives have
higher gross profit margins as a percentage of sales than do tape media.  The decrease in our gross profit margin as a percentage of net revenues is primarily the result of higher sales of tape media.

RESEARCH AND DEVELOPMENT. Research and development expenses consist of engineering salaries, benefits,
purchased parts and supplies used in development activities.  Research and development expenses for the three months ended September 30, 2002 were $0.8 million or 9.5% of revenues as compared to $0.5 million and 5.3% of revenues for the three
months ended September 30, 2001.  Our higher research and development spending reflects our establishment of an Advanced Development Group in Boulder, Colorado.  This group has been established to broaden our overall product line with new
and innovative tape libraries.  We expect research and development expenses to remain steady or slightly increase during the next quarter.

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SALES AND
MARKETING. Sales and marketing expenses consist primarily of employee salaries and benefits, sales commissions, trade show costs, advertising, technical support and travel related expenses.  Sales and marketing expenses for the three months
ended September 30, 2002 were $0.9 million, an increase of $0.4 million compared to the three months ended September 30, 2001.  Sales and marketing expenses as a percentage of net revenues were 9.7% for the three months ended September 30, 2002
as compared with 5.7% for the three months ended September 30, 2001.  The increase in sales and marketing expenses is attributable primarily to an overall reduction of marketing development funds and rebates from our key suppliers. 
Expenditures on salaries, commissions, trade shows, and advertising have remained stable.  We anticipate sales and marketing expenses will remain stable as a percentage of net revenues for the second quarter of fiscal year 2003.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of employee
salaries and benefits, deferred compensation related to equity incentives, provisions for doubtful accounts and returns and professional service fees. General and administrative expenses for the three months ended September 30, 2002 were $0.9
million, or 10.2% of net revenues, a small increase compared with $0.8 million, or 9.5% of net revenues, for the three months ended September 30, 2001.  The increase in general and administrative expenses is primarily due to an overall increase
in personnel costs associated with administration of the Company.  We do not anticipate that general and administrative expenses will significantly increase in the second quarter of fiscal 2003.

PROVISION FOR INCOME TAXES. The provision for income taxes was $0.4 million or 42.7% of pre-tax income,
for the three months ended September 30, 2002, compared to $0.7 million, or 35.9% of pre-tax income, for the three months ended September 30, 2001.  The increase in the provision for income taxes as a percentage of pre-tax income is primarily
due to the increased impact of expenses included in the financial statements which are not deductible for tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded our capital requirements with cash flows from operations.  Cash flows
provided by operating activities were $3.2 million and $0.5 million for the first three months of fiscal 2003 and 2002, respectively. For the three months ended September 30, 2002, operating cash was primarily provided by collection of accounts
receivables and reductions in inventory levels.  For the three months ended September 30, 2001, operating cash was primarily provided by net income.

Cash provided by investing activities was $1.8 million during the first three months of fiscal year
2003.  The sale of marketable securities, offset partially by purchases of fixed assets and the assets of N2Power, Inc., was the primary reason for the increase in cash from investing activities.  During the first three months of fiscal
year 2002, the Company used $7.4 million of cash in investing activities.  This use was attributable to the purchase of marketable securities and fixed assets.

There was no significant cash used or provided by financing activities during the three month period ended
September 30, 2002 or the three month period ended September 30, 2001.

We believe our existing cash and cash equivalents,
plus anticipated cash flows from operating activities, 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 we
believe are strategic.  We regularly evaluate other companies and technologies for possible investment by us.  In addition, we have made and expect to 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.

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ITEM 3.  
Quantitative and Qualitative 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.  Since 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 4.  
Controls and Procedures

Subsequent to September 30,
2002, the Companys principal financial officer, Matthew Natalizio, resigned as an employee of the Company and the Company has hired Frederic T. Boyer as the new principal financial officer.  Mr. Boyer will not fully to assume his duties
as principal financial officer until sometime after the filing of this report.  During the interim period, our principal executive officer, William J. Gervais, is also the acting principal financial officer.

The Companys principal executive officer and its principal financial officer have concluded that the
Companys disclosure controls and procedures are adequate and effective for the purposes set forth in Exchange Act Rule 13a-14(c).  This conclusion was based on his evaluation of the Companys disclosure controls and procedures (as
defined in Exchange Act Rule 13a-14(c)) as of a date within 90 days prior to the filing of this Quarterly Report on Form 10-Q.

There were no significant changes in the Companys internal controls or in other factors since the
date of evaluation that could significantly affect the Companys internal controls.

PART II - 
OTHER INFORMATION

|ITEM 6. | Exhibits and Reports on Form 8-K.
|------- | ---------------------------------
|        |                                  
|        | (a)                              
|        |                                  
|        |                                  
|        |                                  
|        |                                  
|        |                                  
|        | (b)                              

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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                                                                          
|------------------------- | ----------------------------------------------------------------------------------------------
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|Dated:  November 14, 2002 | /s/  WILLIAM J. GERVAIS                                                                       
|                          |                                                                                               
|                          | William J. Gervais, President, Chief Executive Officer, and acting principal financial officer

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Certification of Principal Executive Officer

|I, William J. Gervais, certify that:
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Date:      November 14, 2002

| | /s/ WILLIAM J. GERVAIS                        
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| |                                               
| | William J. Gervais Principal Executive Officer



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Certification of Principal Financial Officer

|I, William J. Gervais, certify that:
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Date:      November 14, 2002

| | /s/ WILLIAM J. GERVAIS                                 
| | -------------------------------------------------------
| |                                                        
| | William J. Gervais (acting) Principal Financial Officer



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EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------
|            |  |                                                                                                        
|99.1        |  | Certification by principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            |  |                                                                                                        
|99.2        |  | Certification by principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.