qualstar_10ka1-063010.htm


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
 
AMENDMENT NO. 1

T
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED JUNE 30, 2010
 
¨
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 ID No.)
 
3990-B HERITAGE OAK COURT, SIMI VALLEY, CA 93063
(805) 583-7744
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class:
Name of Each Exchange on Which Registered:
Common Stock
The NASDAQ Stock Market LLC
 
Securities registered pursuant to Section 12(g) of the Act:  None
 
Indicate by check mark whether the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.  Yes ¨     No T
 
Indicate by check mark whether the registrant is not required to file reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ¨     No T
 
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 T     No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of  “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o    Accelerated filer o     Non-accelerated filer q    Smaller reporting company  T
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes ¨     No T
 
As of December 31, 2009, (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the common equity held by non-affiliates of the registrant was approximately $15,384,000 based on the closing sales price as reported on the NASDAQ Stock Market. As of September 23, 2010, there were 12,253,117 shares of common stock without par value outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None
 
 
1

 

TABLE OF CONTENTS
 
PART III
   
Item 10.
Directors, Executive Officers and Corporate Governance
3
Item 11.
Executive Compensation
4
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
11
Item 13.
Certain Relationships and Related Transactions, and Director Independence
12
Item 14.
Principal Accountant Fees and Services
12
 
Signatures
14
 
Exhibit Index
15

 
2

 
 
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
A list of our executive officers and biographical information appears in Part I, Item 1 of this report under the caption “Executive Officers of the Registrant.”  The current members of our Board of Directors and biographical information is set forth below:
 
Name                      
 
Age
 
Position                                           
William J. Gervais
  67  
Chief Executive Officer, President and Director
Richard A. Nelson
  67  
Vice President — Engineering, Secretary and Director
Stanley W. Corker
  59  
Director
Carl W. Gromada
  69  
Director
Robert A. Meyer
  65  
Director
Robert E. Rich
  60  
Director
 
William J. Gervais is a founder of Qualstar and has been our President and a director since our inception in 1984, and was elected Chief Executive Officer in January 2000. From 1984 until January 2000, Mr. Gervais also served as our Chief Financial Officer. From 1981 until 1984, Mr. Gervais was President of Northridge Design Associates, Inc., an engineering consulting firm. Mr. Gervais was a co-founder, and served as Engineering Manager from 1976 until 1981, of Micropolis Corporation. Mr. Gervais earned a B.S. degree in Mechanical Engineering from California State Polytechnic University, Pomona in 1967.
 
Richard A. Nelson is a founder of Qualstar and has been our Vice President of Engineering, Secretary and a director since our inception in 1984. From 1974 to 1984, Mr. Nelson was self-employed as an engineering consultant specializing in microprocessor technology. Mr. Nelson earned a B.S. in Electronic Engineering from California State Polytechnic University, Pomona in 1966.
 
Stanley W. Corker has served as a director of Qualstar since January 26, 2006.  Since 1996, Mr. Corker has been the Director of Technology Research and a partner of Emerald Asset Management, a diversified investment management firm.  Prior to joining Emerald Asset Management, Mr. Corker obtained over 20 years experience in the computer storage industry from key roles in engineering and marketing at several manufacturers of tape drives, and as an industry analyst with International Data Corporation (IDC).  Mr. Corker received a B.S. degree in Computer Science from the University of Essex, England in 1972, where he later conducted five years of postgraduate research in computer networking systems.
 
Carl W. Gromada has served as a director of Qualstar since March 2005.  From 2000 to the present, Mr. Gromada has been a consultant and a private investor. From 1996 to 2000, Mr. Gromada served as Chief Executive Officer, and a member of the board of directors of Computer Resources Unlimited, Inc., a company involved in the design, manufacture and sale of a broad line of products for the computer storage industry.  Mr. Gromada received a B.S. degree in Business Administration from Temple University in 1965.
 
Robert A. Meyer has served as a director of Qualstar since March 16, 2006.  Mr. Meyer is currently retired.  From 1994 until June 2005, Mr. Meyer was employed in various management positions by United States Filter Corporation, a company engaged in the water treatment industry serving industrial, commercial and residential customers.  His positions at United States Filter Corporation included Director of Finance, Business Development from 2000 to 2002, and Vice President of Internal Audit from 2003 until he retired in June 2005.  Mr. Meyer received a B.S. degree in Accounting from C.W. Post College in 1972, and he is a Certified Public Accountant.
 
Robert E. Rich has served as a director of Qualstar since January 2000.  Mr. Rich has been engaged in the private practice of law since 1975 and has been a shareholder of Stradling Yocca Carlson & Rauth, legal counsel to Qualstar, since 1984.  Mr. Rich received a B.A. degree in Economics from the University of California, Los Angeles in 1972 and his J.D. degree from the University of California, Los Angeles in 1975.
 
Directors are elected annually and hold office until the next annual meeting of shareholders and until their successors have been elected and qualified.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934 requires Qualstar’s directors and executive officers, and persons who own more than ten percent of Qualstar’s common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock.  Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish Qualstar with copies of all Section 16(a) forms they file.
 
To our knowledge, based solely on a review of the copies of Section 16(a) reports furnished to us and written representations that no other reports were required during the fiscal year ended June 30, 2010, our officers, directors and greater than ten percent beneficial owners complied with all Section 16(a) filing requirements except as follows:  Richard A. Nelson sold shares of our common stock on December 28 and 29, 2009 pursuant to a 10b5-1 trading plan. These sales were reported on a Form 4 that was filed on January 4, 2010.
 
 
3

 
 
Code of Ethics
 
Qualstar has adopted a written Code of Business Conduct and Ethics, which complies with the requirements for a code of ethics pursuant to Item 406(b) of Regulation S-K under the Securities Exchange Act of 1934, that applies to our chief executive officer, chief financial officer and persons performing similar functions. A copy of the Code of Business Conduct and Ethics has been filed as an exhibit to this report. A copy of the Code of Business Conduct and Ethics is also posted on our website at www.qualstar.com. A copy of the Code of Business Conduct and Ethics will be provided, without charge, to any shareholder who sends a written request to the Chief Financial Officer of Qualstar at 3990-B Heritage Oak Court, Simi Valley, California 93063.
 
Audit Committee
 
Our Board of Directors has a standing Audit Committee, which is comprised solely of non-employee directors who satisfy current Nasdaq standards with respect to independence, financial expertise and experience.  The current members of the Audit Committee are Stanley W. Corker, Carl W. Gromada and Robert A. Meyer, with Mr. Gromada serving as Chairman.  Our Board of Directors has determined that both Mr. Gromada and Mr. Meyer meet the Securities and Exchange Commission’s definition of “audit committee financial expert.”
 
ITEM 11.  EXECUTIVE COMPENSATION
 
COMPENSATION DISCUSSION AND ANALYSIS
 
This section contains a discussion of the material elements of compensation awarded to, earned by, or paid to our principal executive officer, our principal financial officer, and our other executive officers who were serving as executive officers of Qualstar at June 30, 2010.  These individuals are identified in the Summary Compensation Table and other compensation tables that follow this section, and are referred to throughout this report as our “named executive officers.”
 
Executive Compensation Program Objectives
 
Our executive compensation program is intended to fulfill three primary objectives:  first, to attract and retain qualified executives required for the success of our business; second, to reward these executives for financial and operating performance; and third, to align their interests with those of our stockholders to create long-term stockholder value.  The principal elements of the compensation program for our named executives include base salary, cash bonus, and long-term incentives in the form of stock options.
 
Executive Officer Compensation Elements
 
Base Salaries
 
Our Board of Directors, upon the recommendation of the Compensation Committee, establishes base salaries for our executive officers.  The Compensation Committee considers compensation paid by companies comparable in size to Qualstar, the experience level and past performance of the individual executives, as well as the revenues and profitability of Qualstar.  Our goal is to provide base salaries that are fair and competitive, but not excessive.
 
The table below shows the base salary established for each of our named executive officers for fiscal years 2010 and 2009, and the percentage change compared to the prior fiscal year.  Salary adjustments typically do not coincide with the beginning of the fiscal year, so the amounts shown below may not be exactly the same as those shown in the Fiscal 2010 Summary Compensation Table.
 
 
4

 
 
Name and Principal Position 
 
Fiscal 2010
Base Salary
 
Percent Change
versus Fiscal
2009 Base Salary
 
Fiscal 2011
Base Salary
 
Percent Change
versus Fiscal
2010 Base Salary
William J. Gervais                                    
Chief Executive Officer and President
  $157,500 (1)   (10.0 %)   $157,500    
Nidhi H. Andalon                                    
Vice President and Chief Financial Officer
  $150,000     7.1 %   $150,000    
Randy Johnson                                    
Vice President and General Manager, N2Power
  $180,000    
    $180,000    
Richard A. Nelson                                    
Vice President of Engineering
  $153,000 (1)   (10.0 %)   $153,000    
Robert K. Covey                                    
Vice President of Marketing
  $165,600 (1)   (10.0 %)   $165,600    
__________
(1)  
As a cost-saving measure, the base salaries of Mr. Gervais, Mr. Nelson and Mr. Covey were reduced by 10% for an indefinite period, effective as of July 2009.
 
Cash Bonuses
 
Historically, each year the Board of Directors, upon the recommendation of the Compensation Committee, has established a cash bonus plan for executive officers based on Qualstar achieving stated levels of consolidated revenue and pre-tax profits for the fiscal year, excluding the effects of acquisitions, if any, made during the fiscal year.  However, in recent years Qualstar has not achieved the levels of revenues or pre-tax profits required to earn even the minimum bonus amounts under prior bonus plans.  Consequently, the Board of Directors did not establish a bonus plan for executive officers for fiscal 2010, and has not established a bonus plan for executive officers for fiscal 2011, with the exception of Randy Johnson.  Mr. Johnson was first appointed an executive officer by our Board on March 25, 2010.  His incentive compensation plan, which was established before Mr. Johnson became an executive officer and has not been modified, provides that he can earn a cash bonus based on the level of pre-tax profits achieved by our N2Power business unit for the fiscal year.  Mr. Johnson’s potential bonus ranges from 0% of his base pay if N2Power is unprofitable, up to a maximum amount equal to 15% of his base pay if N2Power achieves pre-tax profits equal to more than 19% of N2Power sales.  For the fiscal year ended June 30, 2010, Mr. Johnson earned a bonus of $3,600, which is equal to 2% of his base pay.
 
Our Board of Directors reserves the right to pay discretionary cash bonuses, if deemed appropriate.
 
Equity-Based Compensation
 
We use stock option grants as a form of long-term compensation.  For the past several years, however, our stock generally has not been actively traded and the price per share has declined or stayed within a relatively narrow range.  Consequently, stock options have not provided significant compensation in recent years.  We did not grant any stock options to our executive officers in fiscal 2010.
 
Our 2008 Stock Incentive Plan authorizes us to grant stock options to purchase, in the aggregate, up to 500,000 shares of our common stock.  This plan was adopted by our Board of Directors in November 2008 and approved by our shareholders in March 2009, and replaces our 1998 Stock Incentive Plan, which expired in 2008.  Under both plans, the exercise price of stock options must be no less than the closing price of our common stock on the date of grant.  It is our policy to grant stock options only at duly held meetings of our Board of Directors, with an exercise price equal to the closing price of our common stock on the date of the Board meeting.
 
Compensation of our Named Executive Officers
 
The amount of each component of compensation established for the named executive officers is based on a number of factors.  These factors include company performance, individual performance, compensation paid by companies comparable in size to Qualstar, the recommendations of our Chief Executive Officer, William J. Gervais, and a review of the prior compensation history of each executive officer.  Some of these factors are discussed above.  Other factors applicable to each named executive officer are discussed below.
 
 
5

 
 
William J. Gervais and Richard A. Nelson co-founded Qualstar in 1984 and they continue to serve Qualstar full time as executive officers.  The Compensation Committee considers both Mr. Gervais and Mr. Nelson to be largely responsible for the success the Company has achieved, and to be two of our most important employees.  However, Mr. Gervais and Mr. Nelson historically have requested that their base salaries be maintained at levels the Compensation Committee considers to be relatively low.  The reasons for this include their belief that in the long term their individual equity ownership of Qualstar potentially will provide greater financial returns than current compensation.  In order to reduce costs, our Board of Directors, upon the recommendation of Mr. Gervais, reduced the base salaries of Mr. Gervais and Mr. Nelson, as well as of Mr. Covey, by 10% for an indefinite period, effective as of July 2009.  Mr. Gervais and Mr. Nelson also have never requested nor accepted stock option awards.
 
Nidhi H. Andalon has been our Chief Financial Officer since January 2009 and was appointed Vice President by our Board of Directors on March 25, 2010. Ms. Andalon joined Qualstar’s finance department in January 2003 as a senior accountant, and was promoted to Assistant Controller in June 2004 and to Controller in October 2005.  In recognition of her performance as Chief Financial Officer during her first six months in that position, our Board approved an increase in her base salary to a rate of $150,000 per year, effective as of July 2009.
 
Randy Johnson has served as the General Manager of our N2Power business unit since 2002, and was appointed Vice-President and General Manager, N2Power by our Board of Directors on March 25, 2010.  Mr. Johnson has primary responsibility for all aspects of our power supply business, including sales.  Mr. Johnson’s base salary of $180,000 per year and his incentive compensation plan, as described above, remain unchanged from the prior year.
 
Robert K. Covey has been our Vice President of Marketing since 1994.  However, in order to reduce costs, our Board of Directors, upon the recommendation of Mr. Gervais, reduced the base salary of Mr. Covey, as well as the base salaries of Mr. Gervais and Mr. Nelson, by 10% for an indefinite period, effective as of July 2009.
 
Tax Considerations
 
Under Section 162(m) of the Internal Revenue Code, we generally receive a federal income tax deduction for compensation paid to any of our named executive officers only to the extent total compensation does not exceed $1.0 million during any fiscal year or if it is “performance-based” under Section 162(m).  The total compensation earned by our executive officers has always been less than $1.0 million and, consequently, the limitations imposed by Section 162(m) have not been a factor.
 
 
COMPENSATION COMMITTEE REPORT
 
The Compensation Committee has reviewed the foregoing Compensation Discussion and Analysis and has discussed its contents with Qualstar’s management and the Board of Directors. Based on the review and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this report.
 
Submitted by the members of the Compensation Committee
Stanley W. Corker (Chairman)
Carl W. Gromada
Robert A. Meyer
 
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
Our Board of Directors has a standing Compensation Committee.  The members of this committee during the fiscal year ended June 30, 2010 and presently are Stanley W. Corker, Carl W. Gromada and Robert A. Meyer.  No executive officer of Qualstar serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors.  No member of the Compensation Committee is, or ever has been, an employee or officer of Qualstar.
 
 
6

 
 
EXECUTIVE COMPENSATION
 
Summary Compensation Table
 
The following tables show information about the compensation earned by our principal executive officer, our principal financial officer, and our other executive officers who were serving as executive officers at June 30, 2010.  These officers are referred to in this report as the “named executive officers.”
 
Fiscal Year 2010 Summary Compensation Table
 
Name and Principal Position
 
Year
 
Salary (1)
($)
 
Bonus (1)
($)
 
Grant Date
Fair Value
of Option
Awards (2)
($)
 
All Other
Compensation (3) 
($)
 
Total
($)
William J. Gervais
Chief Executive Officer and President
 
2010
 
                   $158,170
   
$—
   
                       $—
   
$3,102
   
$161,272
 
 
2009
 
178,838
   
   
   
2,254
   
181,092
 
 
2008
 
195,000
   
 —
   
   
3,867
   
198,867
 
Nidhi H. Andalon (4)
Vice President and Chief Financial Officer
 
2010
 
150,010
   
 —
   
   
919
   
150,929
 
 
2009
 
130,276
   
 —
   
   
1,275
   
131,551
 
Randy Johnson (5)
Vice President and General Manager, N2Power
 
2010
 
180,003
   
3,600
   
   
573
   
184,176
 
Richard A. Nelson
Vice President of Engineering
 
2010
 
153,658
   
 —
   
   
3,147
   
156,805
 
 
2009
 
171,273
   
 —
   
   
5,730
   
177,003
 
 
2008
 
169,998
   
 —
   
   
6,274
   
176,272
 
Robert K. Covey
Vice President of Marketing
 
2010
 
166,297
   
 —
   
   
2,501
   
168,798
 
 
2009
 
183,467
   
 —
   
   
5,123
   
188,590
 
 
2008
 
175,303
   
 —
   
   
4,445
   
179,748
 
__________
(1)
The amounts shown in these columns reflect salary and bonuses earned by the named executive officers for each of the fiscal years indicated.
 
(2)
The amounts shown in this column represent the fair value of stock options at the date of grant.  No options were granted to any of our named executive officers during the last three fiscal years.  For information regarding the calculation of the grant date fair value of stock options, refer to note 9 of the Qualstar financial statements included in Item 8 of this report.
 
(3)
The amounts shown above under “All Other Compensation” represent matching contributions under our 401(k) plan, and premiums for disability and life insurance.
 
(4)  
Ms. Andalon was appointed our Chief Financial Officer effective January 19, 2009 and Vice President effective March 25, 2010.
 
(5)  
Mr. Johnson was appointed our Vice-President and General Manager, N2Power effective March 25, 2010.
 
Grants of Plan-Based Awards
 
The following table sets forth information regarding grants of awards to each named executive officer during the year ended June 30, 2010 under our equity incentive plan.
 
 
7

 
 
Grants of Plan-Based Awards in Fiscal Year 2010
 
Name
 
Grant Date
 
All Other Option Awards:
Number of Securities
Underlying Options (1) 
(#)
 
Exercise or
Base Price of
Option Awards
($ / Sh)
 
Grant Date Fair
Value of Option
Awards (2)
($)
William J. Gervais
       
Nidhi H. Andalon                               
       
Randy Johnson                               
       
Richard A. Nelson                               
       
Robert K. Covey                               
       
__________
(1)
No options were granted to any of our named executive officers during fiscal year 2010.  Stock options granted to the named executive officers typically vest over four years at the rate of 25% of the number of shares as of each anniversary of the date of grant, provided that the executive is still employed by Qualstar on the vesting date.
 
(2)
The amounts shown in this column represent the full grant date fair value of stock options granted, computed in accordance with FASB Accounting Standards Codification Topic 718, and does not necessarily correspond to the actual value that will be realized by the named executive officers.  For information regarding the calculation of the grant date fair value of stock options, refer to note 9 of the Qualstar financial statements included in Item 8 of this report.
 
Outstanding Equity Awards
 
The following table provides information regarding outstanding equity awards held by each named executive officer as of June 30, 2010, including the number of unexercised vested and unvested stock options. The vesting schedule for each grant is shown following this table.
 
Outstanding Equity Awards at 2010 Fiscal Year End
 
   
Option Awards
   
Number of Securities
Underlying Unexercised
Options (#)
 
Option
Exercise
Price
($)
     
   
Option
Expiration
Date
 
Name
 
Exercisable
 
Unexercisable (1)
William J. Gervais
               
Nidhi H. Andalon
  16,000         $3.02    
06/14/2016
 
Randy Johnson
  6,000     6,000     $3.10    
03/25/2018
 
Richard A. Nelson
               
Robert K. Covey
  20,000         5.94    
01/03/2012
 
______________
(1)  
Stock options granted to the named executive officers vest over four years at the rate of 25% of the options as of each anniversary of the date of grant, provided that the executive is still employed by Qualstar on the vesting date.  The amounts shown in this column represent the remaining unvested portion of each option grant.
 
Option Exercises
 
The table below sets forth information for each named executive officer regarding the exercise of stock options during the fiscal year ended June 30, 2010, including the aggregate value realized upon exercise before payment of any applicable withholding taxes.
 
 
8

 
 
Option Exercises in Fiscal Year 2010
 
   
Option Awards
Name
 
Number of Shares
Acquired on Exercise
(#)
 
Value Realized
on Exercise (1)
($)
William J. Gervais
   
Nidhi H. Andalon
   
Randy Johnson
   
Richard A. Nelson
   
Robert K. Covey
   
______________
(1)
The value realized on exercise of option awards represents the market price per share of common stock on the date of exercise, less the stock option exercise price per share, multiplied by the number of stock options exercised.
 
Director Compensation
 
Each of our non-employee directors receives cash fees and equity-based awards as compensation for his service on the Board of Directors and the committees of the Board on which he is a member.  The table below sets forth cash compensation earned by each non-employee director, and the grant date fair value of share-based compensation granted to each non-employee director, during the fiscal year ended June 30, 2010.  All compensation earned by Mr. Gervais and Mr. Nelson is reported in the Summary Compensation Table above and has been excluded from the table below.
 
Fiscal Year 2010 Director Compensation Table

Name
 
Fees Earned or
Paid in Cash (1) 
($)
 
Grant Date Fair
Value of Option
Awards (2)(3)
($)
 
Total
($)
Stanley W. Corker
  $18,750         $18,750  
Carl W. Gromada
  17,250         17,250  
Robert A. Meyer
  18,750         18,750  
Robert E. Rich
  11,500         11,500  
______________
(1)
The amounts shown in this column represent the amount of cash compensation earned in fiscal year 2010 for service on the Board of Directors and any committees of the Board on which the director was a member in fiscal 2010.
(2)
No stock options were granted to our directors during fiscal 2010.  Stock options granted to our directors typically vest over four years at the rate of 25% of the shares as of each anniversary of the date of grant.
(3)
As of June 30, 2010, each of our non-employee directors named in the above table held unexercised stock options for 24,000 shares of our common stock.
 
Each of our non-employee directors receives $2,000 per quarter plus $1,000 for each Board meeting attended as compensation for his service on the Board, and is reimbursed for expenses incurred in connection with attendance at meetings of the Board and any committees on which he serves. Directors who serve on the Audit Committee of our Board receive an additional fee of $1,000 per quarter plus an attendance fee of $500 per meeting if the Audit Committee meeting is held in conjunction with a meeting of the full Board, and $1,000 per meeting if held on a day when the full Board does not meet. Directors who serve on the Compensation Committee of our Board receive an additional fee of $500 for attending meetings of that committee that are held on a day when the full Board does not meet. An attendance fee of $250 per meeting is paid for telephonic meetings of the full Board or of a committee on which a director is a member. No fees are paid for service on the Board to directors who are employees of Qualstar.
 
Directors are eligible to receive stock options under our 2008 Stock Incentive Plan.  However, no stock options were granted to our non-employee directors during the fiscal year ended June 30, 2010.
 
 
9

 
 
Potential Benefits Upon or Following a Change in Control
 
Stock options granted under our 2008 Stock Incentive Plan and our 1998 Stock Incentive Plan provide that upon certain circumstances in the event of or following a change in control of Qualstar, the unvested portion of such stock options will accelerate and become immediately vested in full.  In general, a change in control is deemed to occur if we were to sell substantially all of our assets or if Qualstar were to merge into, consolidate with or enter into a reorganization with another entity in a transaction in which Qualstar is not the surviving corporation.
 
If a change in control occurs and the acquiring entity does not assume and continue the employee’s rights under the unvested stock options, then all unvested stock options will accelerate and vest in full upon the occurrence of the change in control.  If the acquiring entity does assume the employee’s rights under the unvested stock options, but the employee’s employment subsequently is terminated without cause, or if the employee resigns for good reason after the change in control, then all unvested stock options held by the employee would accelerate and vest in full as of the date of termination.
 
The reasons for which an employee may voluntarily resign and trigger acceleration of vesting include a change in the employee’s position which materially reduces his or her duties and responsibilities or the level of management to which the employee reports, a reduction in the employee’s level of compensation and benefits by more than 15 percent, or a relocation of employee’s principal place of employment by more than 30 miles without his or her consent.
 
The table below sets forth information regarding the estimated amounts that each named executive officer would have realized in the event that a change in control of Qualstar had occurred and all of his unvested stock options had accelerated and become immediately vested in full as of June 30, 2010.
 
Estimated Benefits at 2010 Fiscal Year End in the Event of a Change in Control
 

Name
Option Awards (1)
William J. Gervais
Nidhi H. Andalon
Randy Johnson
Richard A. Nelson
Robert K. Covey
______________
(1)
The amounts in this column represent the aggregate gain each named executive officer would have realized if all unvested stock options that were held by him or her on June 30, 2010 accelerated and became immediately vested in full on that date.  The amount of gain was calculated based on the difference between the exercise price of each unvested option and the closing price of our common stock on that date, which was $1.87 per share.
 
 
10

 
 
  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table sets forth information with respect to the beneficial ownership of our common stock as of October 20, 2010 for:
 
·  
each person (or group of affiliated persons) who we know beneficially owns more than 5% of our common stock;
 
·  
each of our directors;
 
·  
each of the named executive officers; and
 
·  
all of our directors and executive officers as a group.
 
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to shares.  Except as indicated by footnote, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned, subject to community property laws where applicable.  The percentage of shares beneficially owned is based on 12,253,117 shares of common stock outstanding as of October 20, 2010.  Shares of common stock subject to options currently exercisable or exercisable within 60 days of October 20, 2010, are deemed outstanding for computing the percentage of the person holding such options, but are not deemed outstanding for computing the percentage of any other person.  The address for those individuals for which an address is not otherwise indicated is: c/o Qualstar Corporation, 3990-B Heritage Oak Court, Simi Valley, California 93063.
 
 
 
Common
Shares
 
Options
Exercisable
Within 60
 
Beneficial
Ownership 
Name  
Owned
 
Days (1)
 
Number
  Percent
                         
Dimensional Fund Advisors, LP (2)
   6300 Bee Cave Road, Austin, TX 78746
  961,187         961,187     7.8 %
Porter Orlin LLC (3)
   665 Fifth Avenue, Floor 34, New York, NY 10103
  1,016,851         1,016,851     8.3 %
Stanley W. Corker
  18,940     24,000     42,940     *  
Carl Gromada
  48,271     24,000     72,271     *  
Robert A. Meyer
      24,000     24,000     *  
Robert E. Rich
  131,400     24,000     155,400     1.3 %
William J. Gervais
  3,121,150         3,121,150     25.5 %
Nidhi H. Andalon
      16,000     16,000     *  
Randy Johnson
      6,000     6,000     *  
Richard A. Nelson
  1,836,106         1,836,106     15.0 %
Robert K. Covey
  48,280     20,000     68,280     *  
All directors and officers as a group (9 persons)
  5,204,147     138,000     5,342,147     43.1 %
______________
*Less than 1.0%
 
(1)
Represents shares that may be acquired upon exercise of stock options which are either currently vested or will vest within 60 days of October 20, 2010.
 
(2)
Based on information contained in reports filed with the Securities and Exchange Commission, Dimensional Fund Advisors, LP, an investment adviser, beneficially owns 961,187 shares as of December 31, 2009.
 
(3)
Based on information contained in reports filed with the Securities and Exchange Commission, Porter Orlin LLC, an investment adviser, beneficially owns 1,016,851 shares as of December 31, 2009.
 
Additional Equity Compensation Plan Information
 
Information regarding Qualstar’s equity compensation plans as of June 30, 2010 is included in Item 5 of this report and is incorporated herein by reference.
 
 
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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Transactions with Related Persons
 
There are no relationships or transactions involving any of our directors or executive officers for which disclosure is required under the rules of the Securities and Exchange Commission.
 
In accordance with the charter of the Audit Committee of our Board of Directors, the Audit Committee is responsible for reviewing any proposed transaction with any related person which involves a potential conflict of interest or for which approval is required under applicable Securities and Exchange Commission and Nasdaq rules.  Currently, this review and approval requirement applies to any transaction to which Qualstar will be a party, in which the amount involved exceeds $120,000, and in which any of the following persons will have a direct or indirect material interest: (a) any of our directors or executive officers, (b) any nominee for election as a director, (c) any security holder who is known to us to own of record or beneficially more than five percent of our common stock, or (d) any member of the immediate family of any of the persons described in the foregoing clauses (a) through (c).
 
In the event that management becomes aware of any related person transaction, management will present information regarding the proposed transaction to the Audit Committee for review.  Approval of a transaction with a related person requires the affirmative vote of a majority of the members of the Audit Committee or of a majority of the members of the full Board of Directors.  If the related person transaction involves a member or members of the Board, approval requires a majority vote of the directors who do not have a financial interest in the transaction.
 
Director Independence
 
Our Board has determined that all of our directors satisfy the current “independent director” standards established by rules of The Nasdaq Stock Market, Inc. (“Nasdaq”), except for William J. Gervais, who is Chief Executive Officer and President of Qualstar, and Richard A. Nelson, who is Vice President Engineering and Secretary of Qualstar.  Each director serving on the Audit Committee of our Board also meets the more stringent independence requirements established by Securities and Exchange Commission rules applicable to audit committees.  Mr. Robert E. Rich, a member of our Board of Directors since January 2000, is a shareholder in the law firm of Stradling Yocca Carlson & Rauth, which has provided legal services to Qualstar since 1984.  Our Board has determined that no director has a relationship that would interfere with the exercise of independent judgment in carrying out his responsibilities as a director.  There are no family relationships among any of the directors or executive officers of the Company.
 
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Fees Paid to Independent Registered Public Accountants
 
The aggregate fees billed by SingerLewak LLP, our independent registered public accounting firm for fiscal years 2010 and 2009 for professional services rendered to Qualstar during the fiscal years ended June 30, 2010 and June 30, 2009, respectively, were comprised of the following:
 
   
Fiscal
2010
   
Fiscal
2009
 
Audit Fees
  $ 130,237     $ 136,090  
Audit-related fees
           
Tax fees
    5,000        
All other fees
           
Total fees
  $ 135,237     $ 136,090  

Audit fees include fees for professional services rendered in connection with the audit of our consolidated financial statements for each year and reviews of our unaudited consolidated quarterly financial statements, as well as fees related to consents and reports in connection with regulatory filings for those fiscal years.
 
SingerLewak LLP was our principal accountant for tax compliance, tax advice and tax planning during fiscal year 2010.  Tax fees related primarily to tax compliance review and advisory services.
 
 
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Audit Committee Pre-Approval Policies and Procedures
 
Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accountants in accordance with applicable Securities and Exchange Commission rules. The Audit Committee adopted a written pre-approval policy on June 25, 2003, and all services performed by SingerLewak LLP have been pre-approved in accordance with the Audit Committee’s pre-approval policy. The Audit Committee generally pre-approves particular services or categories of services on a case-by-case basis. The independent registered public accountants and management periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accountants in accordance with these pre-approvals, and the fees for the services performed to date.
 
 
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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  
         
         
Date: October 28, 2010     
  By:  
/s/ William J. Gervais
 
 
   
William J. Gervais,
Chief Executive Officer and President
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date
         
         
/s/  WILLIAM J. GERVAIS
 
Chief Executive Officer,
 
October 28, 2010
William J. Gervais
 
President and Director
   
   
(principal executive officer)
   
         
         
/s/  NIDHI H. ANDALON
 
Chief Financial Officer
 
October 28, 2010
Nidhi H. Andalon
 
(principal financial officer)
   
         
         
/s/  RICHARD A. NELSON
 
Vice President, Engineering
 
October 28, 2010
Richard A. Nelson
 
Secretary and Director
   
         
         
/s/  CARL W. GROMADA
 
Director
 
October 28, 2010
Carl W. Gromada
       
         
         
/s/  STANLEY W. CORKER
 
Director
 
October 28, 2010
Stanley W. Corker
       
         
         
/s/  ROBERT E. RICH
 
Director
 
October 28, 2010
Robert E. Rich
       
         
         
/s/  ROBERT A. MEYER
 
Director
 
October 28, 2010
Robert A. Meyer
       
 
 
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EXHIBIT INDEX

Exhibit No.
 
Description
3.1(1)
 
Restated Articles of Incorporation.
3.2(4)
 
Bylaws, as amended and restated January 14, 2000.
3.3(4)
 
Amendment to Bylaws, adopted December 21, 2007.
10.1(1)*
 
1998 Stock Incentive Plan, as amended and restated.
10.2(1)
 
Form of Indemnification Agreement.
10.3(2)
 
Lease agreement between Strategic Performance Fund-II, Inc. and Qualstar Corporation, dated September 20, 2000.
10.4(6)
 
Amendment to Lease Agreement between Strategic Performance Fund-II, Inc. and Qualstar Corporation, dated June 30, 2009.
10.45(5)*
 
2008 Stock Incentive Plan
14.1(3)
 
Code of Business Conduct and Ethics
23.1
 
Consent of Independent Registered Public Accounting Firm (SingerLewak, LLP).
23.2
 
Consent of Independent Registered Public Accounting Firm (Ernst & Young, LLP).
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.
____________
(1)
Incorporated by reference to the designated exhibits to Qualstar’s registration statement on Form S-1 (Commission File No. 333-96009), declared effective by the Commission on June 22, 2000.
(2)
Incorporated by reference to the designated exhibit to Qualstar’s Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
(3)
Incorporated by reference to the designated exhibit to Qualstar’s Report on Form 10-K for the fiscal year ended June 30, 2004.
(4)
Incorporated by reference to the designated exhibit to Qualstar’s Report on Form 10-Q for the fiscal quarter ended December 31, 2007.
(5)
Incorporated by reference to Exhibit 10.1 to Qualstar’s report on Form 10-Q/A for the fiscal quarter ended March 31, 2009
(6)
Incorporated by reference to the designated exhibit to Qualstar’s Report on Form 10-K for the fiscal year ended June 30, 2009.
*
Each of these exhibits constitutes a management contract, compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(b) of this report.
 
 
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