Qualstar : and Subsidiaries

Qualstar Corporation and Subsidiaries

Annual Report for the Year Ended December 31, 2021

Qualstar Corporation

1 Jenner, Suite 200

Irvine, CA 92618

Phone: [phone]www.qualstar.com

Business

Overview

Qualstar Corporation and its Subsidiaries ("Qualstar", the "Company", "we", "us" or "our") manufactures and markets data storage system products and compact, high efficiency power solutions. Our data storage systems are marketed under the Qualstar brand and include highly scalable automated magnetic tape libraries used to store, retrieve and manage electronic data primarily in the network computing environment. Our data storage devices include models ranging from entry level to enterprise and are a cost-effective solution for organizations requiring backup, recovery and archival storage of critical electronic information. The distribution channels for our data storage devices include resellers, system integrators, and original equipment manufacturers ("OEMs"). In addition, the Company is a leading provider of standard, semi-custom and custom power solutions marketed under the N2Power brand. Our power solution products provide OEM designers increased functionality while reducing thermal loads and cooling requirements and lowering operating costs. Our power solution products are currently sold to OEMs in a wide range of markets, including telecom/networking equipment, audio/visual, industrial, gaming and now medical with our new product offerings.

Qualstar Corporation was incorporated in California in 1984 and has five wholly owned subsidiaries. The N2Power, Inc. subsidiary (N2Power) operates the Company's power supplies business. The Qualstar Corporation Singapore Private Limited subsidiary gives the Company an engineering footprint in Singapore, and participates in serving our Asian contract manufacturers, distribution partners, and customers. The Qualstar Limited (U.K.) subsidiary expands the Company's data storage business in Europe and Africa. And, the Q-Smart Data Private Limited (Singapore) and Q-Smart Data Limited (China) subsidiaries pursue new business opportunities in Asia.

The Company is focused on expanding sales in both business units in two key areas: adding key customers and expanding its product portfolios. The data storage business is expanding its geographic footprint and adding more strategic partners in order to increase our reach to additional customers and industries and increase our product development capabilities. The power supplies business is expanding its sales resources and partners in an effort to grow its customer base in specific market verticals. In addition to adding new internally designed and private label products, the power supplies business is also focusing on providing value-add services in establishing itself as an optimized product development manufacturer for current and future new customers. This will allow N2Power to act as a one-stop shop providing solutions for more complex power assembly units and chassis solutions for its OEM customers.

We sell our products globally through authorized resellers, distributers, and directly to OEMs. Our data storage products are manufactured by our OEM suppliers in other parts of the world and configured to order by us at our facility in Camarillo, California, or at our facility in Shenzhen, China, or by our fulfilment and logistics partner in Warsaw, Poland. N2Power utilizes contract manufacturers in Asia to produce our power solutions products.

Our principal executive office is located at 1 Jenner, Suite 200, Irvine, California 92618, and the telephone number is [phone]. Our website address iswww.qualstar.com.

Market Information

The Company's common stock is quoted on the OTCPink marketplace of the OTC Markets Group under the symbol "QBAK". As of March 28, 2022, the Company had approximately 23 shareholders of record of its common stock.

Other Information

The Company's securities were registered under Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act"). In May 2020, we filed Form 15-12g to terminate the registration and reporting obligations under Section 12(g) of the Exchange Act. Since then, we make available our annual financial statements, quarterly financial statements, and other significant reports and amendments to such reports, free of charge, on our website as soon as reasonably practicable after such reports are prepared. Our website address iswww.qualstar.com.

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets - December 31, 2021 and 2020 ................................................................................. 1

Consolidated Statements of Operations - Periods Ended December 31, 2021 and 2020 ......................................... 2

Consolidated Statements of Shareholders' Equity - Periods Ended December 31, 2021 and 2020 ......................... 3

Consolidated Statements of Cash Flows - Years Ended December 31, 2021 and 2020 .......................................... 4

Notes to Consolidated Financial Statements .............................................................................................................. 5

Management's Discussion and Analysis of Financial Condition and Results of Operations ................................... 22

QUALSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)

December 31, 2021

December 31, 2020

Assets Current assets:

$

4,095 $ 4,157

Cash and cash equivalents Restricted cash

100 100

1,354 1,379

Accounts receivable, net Inventories

2,276 1,910

Prepaid expenses and other current assets

304 164

Total current assets

8,129

7,710

124 103

30 30

Property and equipment, net Right-of-use assets Deferred tax assets Other assets

300 428

24 35

Total assets

$

8,607

$

8,306

Liabilities and Shareholders' Equity Current liabilities:

Accounts payable

$

977 $ 666

Accrued payroll and related liabilities Deferred service revenue

188 214

622 600

Lease liabilities, current PPP loan

Other accrued liabilities

Total current liabilities Long-term liabilities:

117 254

- 258

168 183

2,072

2,175

204 198

28 42

Lease liabilities, long term Deferred service revenue, long-term Other long-term liabilities

Total long-term liabilities Total liabilities

447 274

679 2,751

514 2,689

Commitments and contingencies (Note 8)Shareholders' equity:

Preferred stock, no par value; 5,000,000 shares authorized; no shares issued

-

-

Common stock, no par value; 50,000,000 shares authorized; shares issued and outstanding 1,884,033 at December 31, 2021, and 1,950,025 at December 31, 2020

Accumulated deficit

18,789 (12,933)

18,980 (13,363)

Total shareholders' equity

5,856

5,617

Total liabilities and shareholders' equity

$

8,607

$

8,306

$

9,164 $ 8,097

Net revenues Cost of goods sold Gross profit Operating expenses:

QUALSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended	Year Ended
December 31,	December 31,
2021 2020	2021 2020

• 2,443 $ 1,460 983

• 2,280 $ 2,187 93

5,997 5,790

3,167

2,307

Engineering

76

159

451 501

Sales and marketing

370

509

1,476 1,516

General and administrative

101

431

809 1,551

Total operating expenses Income (loss) from operations Other income (expense), net Income (loss) before income taxes Provision for income taxes

547

1,099

2,736

3,568

436

(1,006)

431

(1,261)

3

(2)

2

7

439

(1,008)

433

(1,254)

Net income (loss) Earnings (loss) per share:

3

4

$ $ $

436 0.23 0.23

$ $ $

(1,012)

Basic

3

4

$ $ $

430 0.22 0.22

$ $ $

(1,258)

Diluted

(0.52) (0.52)

(0.65) (0.65)

Weighted average common shares outstanding:

Diluted

Basic

1,888 1,888

1,929 1,929

1,934 1,934

1,926 1,926