**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 March 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 March 31, 2007 is
      12,253,117.










1





**QUALSTAR
          CORPORATION**
 
 **FORM
          10-Q**
 
 **FOR
          THE QUARTERLY PERIOD ENDED MARCH 31, 2007**
 
 **INDEX**








**PART
                I — FINANCIAL INFORMATION****Item
                1.**
            **Financial
                Statements**Consolidated
                Condensed Balance Sheets — March 31, 2007 and June
                30, 2006
            3Consolidated
                Condensed Statements of Operations — Three and
                Nine Months ended March 31, 2007 and 2006
            4Consolidated
                Condensed Statements of Cash Flows — Nine
                Months ended March 31, 2007 and 2006
            5Consolidated
                Condensed Statement of Changes in
                Shareholders’ Equity — Nine months ended March 31,
                2007
            6Notes
                to Interim Consolidated Condensed Financial
                Statements
            7**Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations**
            12**Item
                3.**
            **Qualitative
                and Quantitative Disclosures About Market
                Risk**
            18**Item
                4T.**
            **Controls
                and Procedures**
            18**PART
                II — OTHER INFORMATION****Item
                1A.**
            **Risk
                Factors**
            18**Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**
            18**Item
                6.**
            **Exhibits**
            19**Signatures**
            20


2
 *Index*




**PART
      I — FINANCIAL INFORMATION**








**ITEM
      1.**FINANCIAL STATEMENTS**





**QUALSTAR
      CORPORATION**





**CONSOLIDATED
      CONDENSED BALANCE SHEETS**





**(In
      thousands)**








**March
                31,**
              **2007**
            
            
            **June
                30,**
              **2006****(Unaudited)**
            
            
            **(Audited)****ASSETS**Current
                assets:Cash
                  and cash
                  equivalents
            
            $
            9,750
            
            
            $
            6,845Marketable
                  securities,
                  short-term
            
            
            11,680
            
            
            
            14,040Receivables,
                  net of allowances of
                  $126 and $118 at March 31, 2007, and June 30, 2006,
                  respectively
            
            
            3,050
            
            
            
            2,700Inventories,
                  net
            
            
            6,327
            
            
            
            7,298Prepaid
                  expenses and other
                  current assets
            
            
            592
            
            
            
            511Prepaid
                  income
                  taxes
            
            
            119
            
            
            
            159Total
                  current assets
            
            
            31,518
            
            
            
            31,553Property
                  and equipment,
                  net
            
            
            654
            
            
            
            924Marketable
                  securities,
                  long-term
            
            
            11,779
            
            
            
            12,782Other
                  assets
            
            
            120
            
            
            
            140Total
                  assets
            
            $
            44,071
            
            
            $
            45,399**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable
            
            $
            1,150
            
            
            $
            783Accrued
                  payroll and related
                  liabilities
            
            
            342
            
            
            
            466Other
                  accrued
                  liabilities
            
            
            1,019
            
            
            
            1,292Total
                  current liabilities
            
            
            2,511
            
            
            
            2,541Commitments
                  and
                  contingenciesShareholders’
                  equity:Preferred
                  stock, no par value;
                  5,000 shares authorized; no shares issued
            
            
            —
            
            
            
            —Common
                  stock, no par value;
                  50,000 shares authorized, 12,253 sharesissued
                  and outstanding at March
                  31, 2007 and June 30, 2006
            
            
            18,556
            
            
            
            18,503Accumulated
                  other comprehensive
                  loss
            
            
            (54
            )
            
            
            (395
            )Retained
                  earnings
            
            
            23,058
            
            
            
            24,750Total
                  shareholders’ equity
            
            
            41,560
            
            
            
            42,858Total
                  liabilities and shareholders’ equity
            
            $
            44,071
            
            
            $
            45,399





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


3
 *Index*


**QUALSTAR
        CORPORATION**
  **CONSOLIDATED
        CONDENSED STATEMENTS OF OPERATIONS**
 
 **(Unaudited)
        (In thousands, except per share data)**








**Three
                Months Ended**
              **March
                31,**
            
            
            **Nine
                Months Ended**
              **March
                31,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                  Revenues
            
            $
            4,884
            
            
            $
            5,052
            
            
            $
            14,826
            
            
            $
            16,843Cost
                  of goods
                  sold
            
            
            3,546
            
            
            
            3,606
            
            
            
            10,552
            
            
            
            11,571Gross
                  profit
            
            
            1,338
            
            
            
            1,446
            
            
            
            4,274
            
            
            
            5,272Operating
                  expenses:Research
                  and
                  development
            
            
            846
            
            
            
            841
            
            
            
            2,352
            
            
            
            2,322Sales
                  and
                  marketing
            
            
            659
            
            
            
            763
            
            
            
            2,310
            
            
            
            2,235General
                  and
                  administrative
            
            
            764
            
            
            
            889
            
            
            
            2,320
            
            
            
            2,699Total
                  operating
                  expenses
            
            
            2,269
            
            
            
            2,493
            
            
            
            6,982
            
            
            
            7,256Loss
                  from
                  operations
            
            
            (931
            )
            
            
            (1,047
            )
            
            
            (2,708
            )
            
            
            (1,984
            )Investment
                  Income
            
            
            312
            
            
            
            363
            
            
            
            1,064
            
            
            
            900Loss
                  before income
                  taxes
            
            
            (619
            )
            
            
            (684
            )
            
            
            (1,644
            )
            
            
            (1,084
            )Provision  (benefit)
                  for income taxes
            
            
            48
            
            
            
            (86
            )
            
            
            48
            
            
            
            (86
            )Net
                  loss
            
            $
            (667
            )
            
            $
            (598
            )
            
            $
            (1,692
            )
            
            $
            (998
            )Loss
                  per share:Basic
                  and
                  Diluted
            
            $
            (0.05
            )
            
            $
            (0.05
            )
            
            $
            (0.14
            )
            
            $
            (0.08
            )Shares
                  used to compute loss per share:Basic
                  and
                  Diluted
            
            
            12,253
            
            
            
            12,253
            
            
            
            12,253
            
            
            
            12,253




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





4
 *Index*





**QUALSTAR
        CORPORATION**
 
 **CONSOLIDATED
        CONDENSED STATEMENTS OF CASH FLOWS**
 
 **(Unaudited)
        (In thousands)**





**Nine
                Months Ended**
              **March
                31,****2007**
            
            
            **2006****OPERATING
                ACTIVITIES:**Net
                  loss
            
            $
            (1,692
            )
            
            $
            (998
            )Adjustments
                  to reconcile net loss to net cash (used in) provided by operating
                  activities:Share
                  based compensation
            
            
            53
            
            
            
            108Depreciation
                  and amortization
            
            
            324
            
            
            
            342Provision
                  for (recovery of) bad debts and returns, net
            
            
            36
            
            
            
            (40
            )Changes
                  in operating assets and liabilities:Receivables
            
            
            (386
            )
            
            
            1,318Inventories,
                  net
            
            
            971
            
            
            
            (524
            )Prepaid
                  and other assets
            
            
            (97
            )
            
            
            (58
            )Prepaid
                  income taxes
            
            
            40
            
            
            
            310Accounts
                  payable
            
            
            367
            
            
            
            (45
            )Accrued
                  payroll and related liabilities
            
            
            (124
            )
            
            
            (132
            )Other
                  accrued liabilities
            
            
            (273
            )
            
            
            -Net
                  cash (used in) provided by
                  operating activities
            
            
            (781
            )
            
            
            281**INVESTING
                  ACTIVITIES:**Purchases
                  of property, equipment
                  and leasehold improvements
            
            
            (18
            )
            
            
            (136
            )Proceeds
                  from sale of marketable
                  securities
            
            
            12,710
            
            
            
            4,697Purchases
                  of marketable
                  securities
            
            
            (9,006
            )
            
            
            (9,746
            )Net
                  cash (used in) provided by
                  investing activities
            
            
            3,686
            
            
            
            (5,185
            )Net
                  change in cash and cash
                  equivalents
            
            
            2,905
            
            
            
            (4,904
            )Cash
                  and cash equivalents,
                  beginning of period
            
            
            6,845
            
            
            
            12,210Cash
                  and cash equivalents, end of
                  period
            
            $
            9,750
            
            
            $
            7,306Supplemental
                  cash flow disclosure:Income
                  taxes
                  paid
            
            $
            7
            
            
            $
            2





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




5
 *Index*




**QUALSTAR
        CORPORATION**
  **CONSOLIDATED
        CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY**
  **NINE
        MONTHS ENDED MARCH 31, 2007**
  **(Unaudited)
        (In thousands)**
  
 **Accumulated****Other****Common
                    Stock**
              
              
              **Comprehensive**
              
              
              **Retained****Shares**
              
              
              **Amount**
              
              
              **Loss**
              
              
              **Earnings**
              
              
              **Total**Balance
                    at July 1,
                    2006
              
              
              12,253
              
              
              $
              18,503
              
              
              $
              (395
              )
              
              $
              24,750
              
              
              $
              42,858Share
                    based
                    compensation
              
              
              —
              
              
              
              53
              
              
              
              —
              
              
              
              —
              
              
              
              53Comprehensive
                    loss:Net
                    loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,692
              )
              
              
              (1,692
              )Change
                    in unrealized losses on marketable securities
              
              
              —
              
              
              
              —
              
              
              
              341
              
              
              
              —
              
              
              
              341Comprehensive
                    loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,351
              )Balance
                    at March 31,
                    2007
              
              
              12,253
              
              
              $
              18,556
              
              
              $
              (54
              )
              
              $
              23,058
              
              
              $
              41,560
 **See
        the accompanying notes to these condensed consolidated financial
        statements.**




6
 *Index*




**QUALSTAR
      CORPORATION**




**NOTES
      TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**




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







**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 income,
      cash flows, and stockholders’ 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, 2006.




**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.





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


**In
                Thousands**
              **(Except
                per share amounts)****Three
                Months Ended**
              **March
                31,**
            
            
            **Nine
                Months Ended**
              **March
                31,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                  loss
                  (a)
            
            $
            (667
            )
            
            $
            (598
            )
            
            $
            (1,692
            )
            
            $
            (998
            )Weighted
                  average outstanding
                  shares of common stock (b)
            
            
            12,253
            
            
            
            12,253
            
            
            
            12,253
            
            
            
            12,253Dilutive
                  potential common shares
                  from employee stock options
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Common
                  stock and common stock
                  equivalents (c)
            
            
            12,253
            
            
            
            12,253
            
            
            
            12,253
            
            
            
            12,253Loss
                  per share:Basic
                  net loss per share
                  (a)/(b)
            
            $
            (0.05
            )
            
            $
            (0.05
            )
            
            $
            (0.14
            )
            
            $
            (0.08
            )Diluted
                  net loss per share
                  (a)/(c)
            
            $
            (0.05
            )
            
            $
            (0.05
            )
            
            $
            (0.14
            )
            
            $
            (0.08
            )




7
 *Index*




**QUALSTAR
      CORPORATION**




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




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






Stock
      options are excluded for the three months and nine months ended March 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
      securities that 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 March 31, 2007 and June 30, 2006.





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:





**March
                31,**
              **2007**
            
            
            **June
                30,**
              **2006**Raw
                  materials
            
            $
            6,647
            
            
            $
            7,116Less:
                  inventory reserves
            
            
            (940
            )
            
            
            (643
            )5,707
            
            
            
            6,473Finished
                  goods
            
            
            620
            
            
            
            825$
            6,327
            
            
            $
            7,298








**Note
      5 - Comprehensive Loss**





For
      the
      nine months ended March 31, 2007 and 2006, comprehensive loss amounted to
      approximately $1,351 and $1,180, 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
      6 - 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.





8
 *Index*




**QUALSTAR
      CORPORATION**





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





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








**Note
      7 - Income Taxes**





The
      Company has recorded a full valuation allowance against its net deferred tax
      assets based on the Company’s assessment regarding the realizability of these
      net deferred tax assets in future periods.




**Note
      8 - 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 year to represent greater than 10% of combined revenues, a framework for
      internal resource allocations has been implemented for the three months and
      nine
      months ended March 31, 2007. Thus, the amounts indicated for the three months
      and nine months ended March 31, 2007 include allocations for certain internal
      resources and the amounts indicated for the three months and nine months ended
      March 31, 2006 were recast to reflect allocations for certain internal
      resources. 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.




9
 *Index*




**QUALSTAR
      CORPORATION**





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





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








Segment
      revenue, loss before taxes and total assets were as follows:








**Three
                Months Ended**
              **March
                31**
            
            
            **Nine
                Months Ended**
              **March
                31,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Revenue**Tape
                  Libraries:Product
            
            $
            3,502
            
            
            $
            3,411
            
            
            $
            10,253
            
            
            $
            12,575Service
            
            
            588
            
            
            
            902
            
            
            
            2,126
            
            
            
            2,431Total
                  Tape
                  Libraries
            
            
            4,090
            
            
            
            4,313
            
            
            
            12,379
            
            
            
            15,006Power
                  Supplies
            
            
            794
            
            
            
            739
            
            
            
            2,447
            
            
            
            1,837Consolidated
                  Revenue
            
            $
            4,884
            
            
            $
            5,052
            
            
            $
            14,826
            
            
            $
            16,843








**Three
                Months Ended**
              **March
                31**
            
            
            **Nine
                Months Ended**
              **March
                31,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Income
                (Loss) before Taxes**Tape
                  Libraries
            
            $
            (637
            )
            
            $
            (476
            )
            
            $
            (1,726
            )
            
            $
            (577
            )Power
                  Supplies
            
            
            18
            
            
            
            (208
            )
            
            
            82
            
            
            
            (507
            )Consolidated
                  Loss before Taxes
            
            $
            (619
            )
            
            $
            (684
            )
            
            $
            (1,644
            )
            
            $
            (1,084
            )








**March
                31**
            
            
            **March
                31****2007**
            
            
            **2006****Total
                Assets**Tape
                  Libraries
            
            $
            43,179
            
            
            $
            45,068Power
                  Supplies
            
            
            892
            
            
            
            906Consolidated
                  Assets
            
            $
            44,071
            
            
            $
            45,974








**Note
      9 - Recent Accounting Pronouncements**





Staff
      Accounting Bulletin (“SAB”) 108, *Considering the Effects of Prior Year
      Misstatements when Quantifying Current Year Misstatements,*issued by the
      SEC in September 2006*,*requires analysis of misstatements using both an
      income statement and a balance sheet approach in assessing materiality and
      provides for a one-time cumulative effect transition adjustment. SAB 108 is
      effective for our fiscal year 2007 annual report on Form 10-K. We do not expect
      the adoption of SAB 108 to have a material impact on our consolidated financial
      statements.




10
 *Index*




**QUALSTAR
      CORPORATION**





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





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








SFAS
      157,
*Fair Value Measurements*, issued by the Financial Accounting Standards
      Board (“FASB”) in September 2006, 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.





The
      FASB
      issued Financial Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in
      Income Taxes” in June 2006. FIN 48 prescribes a recognition and measurement
      threshold for tax positions taken or expected to be taken on a tax return and
      relates to the uncertainty in income taxes recognized in the financial
      statements in accordance with FAS109, Accounting for Income Taxes. FIN 48 is
      effective for the first fiscal year beginning after March 15, 2007; thus, we
      expect to adopt it in our fiscal year beginning July 1, 2007. We do not expect
      the adoption of FIN 48 to have a material impact on our financial
      statements.





SFAS
      159,
*The Fair Value Option for Financial Assets and Financial Liabilities,*
      was**issued by the FASB in February 2007.  SFAS 159
      allows Companies to choose to measure financial instruments and certain other
      eligible items at fair value (at specified election dates), that are not
      currently required to be measured at fair value.  The statement is
      effective as of the first fiscal year beginning after November 15, 2007, thus,
      we expect to adopt it in our fiscal year beginning July 1, 2008.  We
      do not expect the adoption of SFAS 159 to have a material impact on our
      financial statements.




11
 *Index*




**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, 2006 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 offer tape libraries for multiple tape drive technologies
      including LTO (Linear Tape-Open tape format), AIT (Advanced Intelligent Tape),
      SAIT (Super Advanced Intelligent Tape), and DLT (Digital Linear Tape) tape
      drives and media.





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, RAID arrays, gaming devices, 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.




12
 *Index*




**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**





We
      consider all highly liquid interest-earning investments with a maturity of
      three
      months or less at the date of purchase to be cash equivalents.  In
      general, investments with original maturities of greater than three months
      and
      remaining maturities of less than one year are classified as short-term
      investments.  Investments with maturities beyond one year are
      classified as long-term.  All cash equivalents, short-term and
      long-term investments are classified as available for sale and are recorded
      at
      market value using the specific identification method; unrealized gains and
      losses (excluding other than temporary impairments) are reflected in accumulated
      other comprehensive loss.




**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.





**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.





13
 *Index*





**Accounting
      for Income Taxes**





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.





**RESULTS
      OF OPERATIONS**





The
      following table reflects, as a percentage of net revenues, statements of
      operations data for the periods indicated:





**Three
                Months Ended**
              **March
                31,**
            
            
            **Nine
                Months Ended**
              **March
                31,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                  revenues
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
                  of goods
                  sold
            
            
            72.6
            
            
            
            71.4
            
            
            
            71.2
            
            
            
            68.7Gross
                  profit
            
            
            27.4
            
            
            
            28.6
            
            
            
            28.8
            
            
            
            31.3Operating
                  expenses:Research
                  and
                  development
            
            
            17.3
            
            
            
            16.6
            
            
            
            15.9
            
            
            
            13.8Sales
                  and
                  marketing
            
            
            13.5
            
            
            
            15.1
            
            
            
            15.6
            
            
            
            13.3General
                  and
                  administrative
            
            
            15.6
            
            
            
            17.6
            
            
            
            15.6
            
            
            
            16.0Total
                  operating
                  expenses
            
            
            46.4
            
            
            
            49.3
            
            
            
            47.1
            
            
            
            43.1Loss
                  from
                  operations
            
            
            (19.0
            )
            
            
            (20.7
            )
            
            
            (18.3
            )
            
            
            (11.8
            )Investment
                  income
            
            
            6.4
            
            
            
            7.2
            
            
            
            7.2
            
            
            
            5.3Loss
                  before income
                  taxes
            
            
            (12.6
            )
            
            
            (13.5
            )
            
            
            (11.1
            )
            
            
            (6.5
            )Provision
                  (benefit) for income
                  taxes
            
            
            1.0
            
            
            
            (1.7
            )
            
            
            0.3
            
            
            
            (0.5
            )Net
                  loss
            
            
            (13.6
            )%
            
            
            (11.8
            )%
            
            
            (11.4
            )%
            
            
            (6.0
            )%




14
 *Index*





Revenues
      are recognized upon shipment of the product to the customer, less estimated
      returns, for which provision is made at the time of sale. The following table
      summarizes our revenue by major product line:





**Three
                Months****Ended**
              **March
                31**
            
            
            **Nine
                Months Ended**
              **March
                31****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Tape
                  Library revenues:TLS
            
            
            41.5
            %
            
            
            38.5
            %
            
            
            37.0
            %
            
            
            43.7
            %RLS
            
            
            7.7
            
            
            
            12.1
            
            
            
            8.2
            
            
            
            12.0XLS
            
            
            5.1
            
            
            
            -
            
            
            
            5.3
            
            
            
            -54.3
            
            
            
            50.6
            
            
            
            50.5
            
            
            
            55.7Other
                  revenues:Power
                  Supplies
            
            
            16.3
            
            
            
            14.6
            
            
            
            16.5
            
            
            
            10.9Service
            
            
            12.0
            
            
            
            17.9
            
            
            
            14.4
            
            
            
            14.4Media
            
            
            12.6
            
            
            
            10.8
            
            
            
            13.2
            
            
            
            11.7Miscellaneous
            
            
            4.8
            
            
            
            6.1
            
            
            
            5.4
            
            
            
            7.3100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %








**Three
      Months Ended March 31, 2007 Compared to Three Months Ended March 31,
      2006**





**Net
      Revenue***.* Net revenues in the quarter decreased $0.2 million,
      or 3.3% to $4.9 million for the three months ended March 31, 2007 verses $5.1
      million for the three months ended March 31, 2006. No single customer accounted
      for more than ten percent of the Company’s consolidated revenue for the
      three-month periods ended March 31, 2007 and March 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 8 - Segment
      Information, in Notes to Consolidated Condensed 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*,
      and fiscal year 2006 amounts have been recast for certain internal
      allocations.





Tape
      Libraries - Net tape library revenues decreased $0.2 million, or 5.2% to
      $4.1 million for the three months ended March 31, 2007 from $4.3 million for
      the
      three months ended March 31, 2006. The decrease in revenues is attributed to
      lower revenues from our RLS tape libraries incorporating LTO, SAIT, and DLT
      tape
      technologies, and lower service and miscellaneous revenues, partially offset
      by
      revenues from our XLS enterprise libraries, sales of which did not commence
      until the first quarter of fiscal 2007, and higher media revenues. No single
      customer accounted for more than ten percent of tape library revenues for the
      three-month periods ended March 31, 2007 and March 31, 2006.





Power
      Supplies - Net power supply revenues increased $55,000, or 7.4% to $794,000
      for the three months ended March 31, 2007 from $739,000 for the three months
      ended March 31, 2006. The increase in revenues is attributed to growth in both
      sales to contract manufacturers and distribution sales. One customer on a
      standalone basis accounted for 36.3% of power supply revenue for the three
      months ended March 31, 2007. Three customers on a standalone basis accounted
      for
      51.1%, 12.1% and 11.7%, respectively, or 74.9% in the aggregate, of power supply
      revenue for the three months ended March 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 and associated overhead costs
      including rent, technical support costs, depreciation of plant and equipment,
      utilities, and packaging costs. Gross profit decreased $0.1 million, or 7.5%
      to
      $1.3 million for the three months ended March 31, 2007 from $1.4 million for
      the
      three months ended March 31, 2006. The decrease is primarily due to a change
      in
      product mix and increased competitive pricing pressures.




15
 *Index*





**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
      remained flat at $846,000 for the three months ended March 31, 2007 compared
      to
      $841,000 for the three months ended March 31, 2006.





**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
      $104,000, or 13.6% to $659,000 for the three months ended March 31, 2007 from
      $763,000 for the three months ended March 31, 2006. The decrease is primarily
      due to lower compensation and recruitment and relocation expenses.





**General
      and Administrative***.* General and administrative expenses
      include employee salaries and benefits, professional service fees and other
      administrative and facilities costs.   General and administrative
      expenses decreased $125,000, or 14.1% to $764,000 for the three months ended
      March 31, 2007 from $889,000 for the three months ended March 31, 2006. The
      decrease is primarily due to lower accounting, investor relations and property
      tax expenses.





**Investment
      Income***.* Investment income decreased $51,000, or 14% to
      $312,000 for the three months ended March 31, 2007 from $363,000 for the three
      months ended March 31, 2006. The decrease is primarily attributed to realized
      losses on the sale of securities**.**





**Provision
      (Benefit) for Income Taxes***.* We expensed various state income
      tax payments totaling $7,000 and recorded an additional $41,000 reserve for
      the
      three months ended March 31, 2007 based on our judgment regarding the
      probability of an unfavorable outcome relating to currently ongoing franchise
      tax audits of fiscal years 2001, 2002 and 2003.  We recorded a benefit
      for income taxes for the three months ended March 31, 2006 due to the reversal
      of a valuation allowance established on certain research and development tax
      credits, which were received in full. 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.








**Nine
      Months Ended March 31, 2007 Compared to Nine Months Ended March 31,
      2006**





**Net
      Revenue***.* Net revenues in the quarter decreased $2.0 million,
      or 12% to $14.8 million for the nine months ended March 31, 2007 from $16.8
      million for the nine months ended March 31, 2006. No single customer accounted
      for more than ten percent of the Company’s consolidated revenue for the
      nine-month periods ended March 31, 2007 and March 31,
      2006*.*





**Segment
      Revenues**





Tape
      Libraries - Net revenues decreased $2.6 million, or 17.5% to $12.4 million
      for the nine months ended March 31, 2007 from $15 million for the nine months
      ended March 31, 2006. The decrease in revenues is attributed to lower revenues
      from our TLS and RLS tape libraries incorporating LTO, AIT, SAIT, and DLT tape
      technologies, and lower service and miscellaneous revenues, partially offset
      by
      revenues from our XLS enterprise libraries, sales of which did not commence
      until the first quarter of fiscal 2007. No single customer accounted for more
      than ten percent of tape library revenues for the nine-month periods ended
      March
      31, 2007 and March 31, 2006.





Power
      Supplies - Net revenues increased $0.6 million, or 33.2% to $2.4 million for
      the nine months ended March 31, 2007 from $1.8 million for the nine months
      ended
      March 31, 2006. The increase in revenues is attributed to growth in both sales
      to contract manufacturers and distribution sales. Two customers on a standalone
      basis accounted for 31.4% and 11.9%, respectively, or 43.3% in the aggregate,
      of
      power supply revenue for the nine months ended March 31, 2007. One customer
      on a
      standalone basis accounted for 41.1% of power supply revenue for the nine months
      ended March 31, 2006.





**Gross
      Profit***.* Gross profit decreased $1.0 million, or 18.9% to $4.3
      million for the nine months ended March 31, 2007 from $5.3 million for the
      nine
      months ended March 31, 2006. The decrease is primarily due to a change in
      product mix, under absorbed manufacturing costs, and increased competitive
      pricing pressures.




16
 *Index*





**Research
      and Development***.* Research and development expenses remained
      flat at $2.3 million for the nine months ended March 31, 2007 compared to $2.3
      million for the nine months ended March 31, 2006.





**Sales
      and Marketing***.* Sales and marketing expenses increased $0.1
      million, or 3.4% to $2.3 million for the nine months ended March 31, 2007 from
      $2.2 million for the nine months ended March 31, 2006. The increase is primarily
      due to higher advertising and promotion expenses, partially offset by lower
      compensation, outside commissions and recruitment and relocation
      expenses.





**General
      and Administrative***.* General and administrative expenses
      decreased $0.4 million, or 14.0% to $2.3 million for the nine months ended
      March
      31, 2007 from $2.7 million for the nine months ended March 31, 2006. The
      decrease is primarily due to lower legal, accounting, investor relations,
      recruitment and relocation and compensation expenses partially offset by higher
      bad debt expenses.





**Investment
      Income***.* Investment income increased $0.2 million, or 18.2% to
      $1.1 million for the nine months ended March 31, 2007 from $0.9 million for
      the
      nine months ended March 31, 2006. The increase is primarily due
      to****the current higher interest rate
      environment**.**





**Provision
      (Benefit) for Income Taxes***.* We expensed various state income
      tax payments totaling $7,000 and recorded an additional $41,000 reserve for
      the
      nine months ended March 31, 2007 based on our judgment regarding the probability
      of an unfavorable outcome relating to currently ongoing franchise tax audits
      of
      fiscal years 2001, 2002 and 2003.  We recorded a benefit for income
      taxes for the three months ended March 31, 2006 due to the reversal of a
      valuation allowance established on certain research and development tax credits,
      which were received in full. 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.





**LIQUIDITY
      AND CAPITAL RESOURCES**




Cash
      used
      in operating activities was $781,000 in the nine months ended March 31, 2007,
      primarily attributed to the net loss for the quarter and an increase in
      receivables, a decrease in accrued payroll and related liabilities, and a
      decrease in other accrued liabilities, partially offset by a decrease in
      inventories and an increase in accounts payable. Cash provided by operating
      activities was $281,000 in the nine months ended March 31, 2006, primarily
      attributed to decreases in receivables and prepaid income taxes, partially
      offset by an increase in inventories and a decrease in accrued payroll and
      related liabilities.





Cash
      provided by investing activities was $3.7 million in the nine months ended
      March
      31, 2007, primarily attributed to proceeds from the sale of marketable
      securities, partially offset by purchases of marketable securities. Cash used
      in
      investing activities was $5.2 million in the nine months ended March 31, 2006,
      primarily attributed to the purchase of marketable securities, partially offset
      by proceeds from the sale of marketable securities.





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





As
      of
      March 31, 2007, we had $9.7 million in cash and cash equivalents and $23.5
      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. 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.




17
 *Index*





**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 March 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.





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








**PART
      II — OTHER INFORMATION**




**ITEM
                1A.**
            **Risk
                Factors**





There
      have been no significant changes to the risk factors disclosed in Item 1A of
      our
      Annual Report on Form 10-K for the fiscal year ended June 30, 2006.








**ITEM
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**





The
      following matters were voted upon at the Annual Meeting of Stockholders of
      the
      Company held on March 22, 2007:





1.
      The
      following persons were elected as directors to serve a one year term expiring
      at
      the Annual Meeting of Stockholders to be held in 2008 or until their successors
      are elected and qualified:





**Number
                of Votes Cast****For**
            
            
            **Withheld**William
                J. Gervais
            
            
            9,939,847
            
            
            
            1,962,195Richard
                A. Nelson
            
            
            9,988,068
            
            
            
            1,913,974Stanley
                W. Corker
            
            
            11,731,698
            
            
            
            170,344Carl
                W. Gromada
            
            
            11,750,503
            
            
            
            151,539Robert
                A. Meyer
            
            
            11,730,448
            
            
            
            171,594Robert
                E. Rich
            
            
            11,369,906
            
            
            
            532,136





2.
      Our
      shareholders approved the appointment of Ernst & Young, LLP as the Company’s
      independent registered public accounting firm to audit our financial statements
      for the fiscal year ending June 30, 2007.  Votes for were 11,861,030;
      votes against were 35,412; and votes abstained were 5,600.




18
 *Index*




**ITEM
      6. EXHIBITS**





**Exhibit
                No.**
            **Description**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.




19
 *Index*




**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:
                May 14, 2007
            By:
                /s/ WILLIAM J. GERVAISWilliam
                J. GervaisChief
                Executive Officer andPresident(Principal
                Executive Officer)By:
                /s/ ANDREW A. FARINAAndrew
                A. FarinaChief
                Financial Officer(Principal
                Financial Officer)







20