Continued Progress in Research and Development of Enterprise-Class Library System

Revenues for the quarter were $8.2 million, a 4.8 percent decrease from revenues of $8.6 million reported for the same quarter of the prior year. Gross margin was 37.9 percent, slightly higher than the 37.1 percent reported in the year-ago quarter.

Research and development costs for the third quarter increased to $1.1 million, or 13.9 percent of revenues, from fiscal 2002 third quarter's $533,000, or 6.2 percent of revenues, as a result of the Company's previously stated focus on new product development. Sales and marketing expenses in the third fiscal quarter were $921,000, or 11.2 percent of revenues, compared with $860,000, or 10.0 percent of revenues, in the same quarter last year. General and administrative expenses for the quarter were $1.1 million, or 14.0 percent of revenues, compared with $946,000, or 11.0 percent of revenues, for the third quarter of fiscal 2002. The increase in general and administrative expenses was due primarily to higher professional fees and legal expenses.

The Company reported net income for the third quarter of $11,000, or breakeven per diluted share, compared with $695,000, or $0.05 per diluted share, for last year's quarter.

Cash, cash equivalents and marketable securities totaled $35.9 million at the end of the third quarter, unchanged from the prior quarter and up from $30.8 million at June 30, 2002. During the quarter ended March 31, 2003, the Company generated positive cash flow from operations in the amount of $371,000. This marked 12 consecutive quarters of positive net cash provided by operating activities. Through improved working capital management, the Company further decreased its days sales outstanding to 39 days, compared with 42 days at the end of the previous quarter and 60 days at the end of fiscal 2002. During the quarter, the Company bought back 69,667 shares of its common stock for a total expenditure of $311,698, or an average price of approximately $4.47 per share, under a share repurchase program announced on February 12, 2003.

Commenting on the third quarter results, Bill Gervais, president and chief executive officer of Qualstar Corporation, stated, "Difficult economic conditions and weak IT spending continued to affect our revenue performance. We saw customers remaining conservative in their purchase commitments, delaying their decision-making in light of economic and political uncertainty. Despite this challenging environment, we have maintained profitability, generated positive cash flow and continued to invest meaningfully in the development of new products.

"Our new RLS series of rack mount products has been well received by customers," said Mr. Gervais. "RLS unit sales in the third quarter increased 65 percent over second quarter levels. The remaining two models in the RLS family are on schedule for shipment in the fourth quarter."

Discussing the Company's research and development efforts, Mr. Gervais added, "We are pleased with the progress at the Advanced Development Group in the design of an enterprise-class library system. The project is on track and we look forward to sharing details of our achievements in the future."

Mr. Gervais concluded, "We are focused on driving sales growth of both our new products and core TLS tape libraries. To further penetrate the marketplace, we are working diligently to establish new relationships with additional value-added resellers. To expand our footprint and grow international revenues, we recently opened a sales office in the United Kingdom. Our strategy remains to be the recognized quality leader in the industry, providing innovative yet cost-effective tape storage solutions to meet evolving customer needs."

Guidance

The Company expects that its fiscal fourth quarter revenues will be in the range of $8.0 million to $8.5 million. Due to limited visibility, the Company will continue to provide guidance for one quarter only. Research and development expenses are expected to remain near current levels as the Company focuses on developing and introducing new products to the market.

Qualstar Corporation Conference Call

Company management will hold a conference call to discuss its third quarter results today at 2:00 p.m. Pacific and 5:00 p.m. Eastern. Investors are invited to listen to the call live via the Internet under Investors at www.qualstar.com. Please go to the Web site at least 15 minutes early to register, download, and install any necessary audio software. A replay of the Webcast will be available for 30 days. Additionally, participants can dial into the conference call at 800/240-2134 or 303/262-2130. An audio replay will be available through May 8, 2003, by calling 800/405-2236 (303/590-3000 for international callers) and entering the passcode 535692.

About Qualstar Corporation

Qualstar is a leading manufacturer of automated tape libraries used for backup, archival storage, data protection, disaster recovery and storage management systems. Its products are known throughout the world for their rugged, Simply Reliable design yielding years of trouble-free operation. Qualstar tape libraries are sold, installed, and supported worldwide by selected Original Equipment Manufacturers, Value Added Resellers, and Systems Integrators. Qualstar Corporation is publicly traded on the NASDAQ National Market under the symbol QBAK. More information is available at www.qualstar.com, or by phone: 805/583-7744.

Forward-Looking Statements

Statements in this press release concerning the future business, operating results and financial condition of the Company are "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based upon management's current expectations and are subject to a number of uncertainties that could cause actual performance and results to differ materially from the results discussed in the forward-looking statements. Factors that could affect the Company's actual results include unexpected shortages of critical components, unexpected product design or quality problems, and adverse changes in market demand for tape libraries or Qualstar's products. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. Further information on these and other potential factors that could affect the Company's financial results or condition are included in Qualstar's filings with the Securities and Exchange Commission.

CONTACT:
Qualstar Corporation
Frederic T. Boyer, 805/583-7744
fboyer@qualstar.com
or
FRB/Weber Shandwick
Scott Malchow, 310/407-6505 (Investor/Analyst Info)
smalchow@webershandwick.com Linda Chien, 310/407-6547 (General Information)
lchien@webershandwick.com

SOURCE: Qualstar Corporation