Qualstar Corporation · OTC:QBAK
Qualstar — Proxy Contest (June 2013)
40 slides from Qualstar's proxy contest presentation, Jun 13, 2013
Slide 1: Lawrence Firestone, June 2013
TED ay: Lawrence Firestone dune 2013
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements relating to expectations, plans or prospects for Qualstar Corporation that are based upon the current expectations and Beles of Qualstar's management and are subject to certain risks and uncertainties that could cause a
Slide 3: Important Shareholder Information
Important Shareholder Information In connection with its 2013 Annual Meeting of Shareholders, Qualstar has filed a definitive proxy statement and a WHITE proxy card with the SEC on June 4, 2013, and has mailed the definitive proxy statement and WHITE proxy card to its shareholders. WE URGE INVESTORS
Slide 4: Agenda
Agenda Executive Summary Strong Foundation Transformation Underway Why BKF is WRONG for Qualstar QUALSTAR + N2POWER +
Slide 5: Executive Summary
Executive Summary » QUALSTAR + N2POWER +
Slide 6: The Starting Point
ni The Starting Point ° High quality, reliable storage and power conversion products ° Qualstar’s large size and structure driven by Y2K © Current market dynamics make model unsustainable VV VV VV High breakeven business model High fixed overhead and high inventories with low margins (27%) Non-scala
Slide 7: In June 2012, we set out to...
In June 2012, we set out to... Reconfigure Qualstar for the Next Stage of Growth Implement 5 point Strategic Plan * Right-size the organization * Eliminate unprofitable parts of business * Implement scalable manufacturing * Establish a variable cost of goods model * Implement an engineering structur
Slide 8: Qualstar Transformation Underway
Qualstar Transformation Underway FY 2013 Highlights ° Higher gross margin ° Better inventory management » Outsourced manufacturing > Inventory down ~$2M in 9 months » Lower and variable COGs » Wrote-off legacy products & inventory 5 i » Finished products vs. component » Consolidated footprint invent
Slide 9: Qualstar Transformation Underway
Qualstar Transformation Underway FY 2013 Highlights > Significant expansion of WW distribution >» 40 New storage resellers New Tier 1 OEM - Hitachi Data Systems Working on several MORE reseller partnership arrangements 6 New N2Power distributors 40 New N2Power design wins YTD > > > > » QUALSTAR + N2
Slide 10: Strong Management Additions
JR. Strong Management Additions Turnaround Experience Management Relevant Experience New Lawrence Firestone CEO Philip Varley CFO Steve Wagner VP Storage Sales James Steger VP Operations Randy Johnson VP Sales N2Power Bill Lurie VP Engineering Bob Covey VP Marketing Turnaround specialist with 30+yrs
Slide 11: New, Independent Board
Board Member Allen Alley* Chet Baffa** Lawrence Firestone Gerald “Bud” Laber* Daniel Molhoek* * Appointed in last 12 months ** Newly nominated New, Independent Board Extensive Experience Across Disciplines Relevant Experience EO and Chairman of Pixelworks; public and private board veteran; venture c
Slide 12: Board Focused on Governance & Shareholder Value
Board Focused on Governance & Shareholder Value Independent » CEO is only management member on the Board >» Independent chairman > Only outside directors on key committees Leadership and Involvement >» Decades of combined board service on multiple public and private companies > Active Board with fre
Slide 13: Qualstar's Strong Foundation
Qualstar’s Strong Foundation 43 » QUALSTAR « N2POWER +
Slide 14: Two Distinct Business Units
Two Distinct Business Units UALSTAR: N2Power: A Qualstar® Company © Tape library backup/storage ° Large portfolio of AC-DC and DC-DC power supplies © Data backup, archival storage and disaster protection « High density, high-efficiency « Highly scalable products * Reduced power, heat and cost hd 4 »
Slide 15: Targeting Two High Growth Markets
Targeting Two High Growth Markets rd Network/ Telephon Mid-Range poy H Storage oo LED Instrument/ Lighting Appliance Enterprise Storage 45 » QUALSTAR + N2POWER +
Slide 16: Qualstar Storage Products
vic Qualstar Storage Products [JUALSTAR ae Highest quality, expandable, unmatched reliability vn 11 A eis ee Integrated diagnostics and monitoring = maximum uptime LTO Tape Storage — most efficient, cost-effective storage Highly efficient design / Low operating costs 46 QUALSTAR + N2POWER + 0 ot ot
Slide 17: The Storage Crisis: A Vast Business Opportunity
The Storage Crisis: A Vast Business Opportunity = Individuals drive 75% of data generation = Unstructured data = Enterprise responsible for = Strained systems 80% of storage/security = Disk drive failures = LESS than 1/3 of all stored data is secure = Cost-prohibitive vy » QUALSTAR + N2POWER +
Slide 18: Fast-Growing Markets; Trillions Invested
i Fast-Growing Markets; Trillions Invested Solid Performance Regular Archive Backup State Storage Storage Cost per Terabyte $0 Capacity nerd » QUALSTAR + N2POWER +
Slide 19: N2Power Products
WB. N2Power Products More Power in Less Space = High Density Leading designs in ultra-small high efficiency power supplies ° Up to 93% efficiency * Voltage (125-375W) * 9 Product families * Efficient cooling * Low energy consumption * Decreased AC load -—” N2Power’ A Qualstar® Company 13 » QUALSTAR
Slide 20: Qualstar's Transformation Underway
Qualstar’s Transformation Underway 20 » QUALSTAR « N2POWER +
Slide 21: Energizing Qualstar — Strategic Plan
Energizing Qualstar — Strategic Plan Margin Expansion Sales Growth New Product Introduction/Production Working Capital Management Inorganic Growth QUALSTAR + N2POWER +
Slide 22: Margin Expansion — US Outsourced Manufacturing
Margin Expansion — US Outsourced Manufacturing e US Outsourced manufacturing of library products » Improving margins ¢ Lower material and fixed costs © 20% Workforce reduction ( majority of manufacturing staff hired by CTS } >» Working capital management e Reduced footprint — eliminated need for 45,
Slide 23: P&L Review
P&L Review* Years Ended June 30, Power supplies $1437 $1,229 $1,544 $9,420 Library 1969 2126 1,908 7,661 Net revenues 3,406 A 17,081 Gross margin 49.0% 43.5% 36.6% 2 Total operating expenses 2,635 2,465 1,937 7,201 Operating loss (1,309) (1,004) (673) (2,538) Loss per share: ($0.11) ($0.08) ($0.05)
Slide 24: Impact of Charges to FY 2013 P&L
ip) Impact of Charges to FY 2013 P&L » §600K employee separation * $1.4M write off of excess space » §300K contract labor to » §$600K write-off/scrap of Inventory empty/reconfigure operations » $160K recruiting fees » +5500K Deferred revenue not recognized in FQ3 2013 » $700K Tender offer and proxy
Slide 25: High Growth Sales Opportunities
ni High Growth Sales Opportunities Strengthened sales leadership and energized sales teams Sales channel expansion > N2Power — Key account focus on distributors >» Storage — Expand reseller distribution channel Development of alternate sales channels > Alliances allowing Qualstar to sell through a l
Slide 26: Driving Sales through Increased Partnerships
Driving Sales through Increased Partnerships Added 40 resellers in storage over the last 12 months Joined Hitachi Data Systems Technology Alliance Program » Part of best of breed technology solutions >» Outsourced manufacturing was key to securing agreement: * |S§O-9000 EMS production © Scalability
Slide 27: Positioned to Focus on New Storage Products
Positioned to Focus on New Storage Products ¢ Outsourced manufacturing frees up resources for product development ¢ Product refresh complete \ i hehehe t » XLS and RLS product lines aa. * 434 +} i * Initiated new product pipeline > Better define, target and convert ; qass? ; opportunities | j >» Dev
Slide 28: N2Power Product Introductions
N2Power Product Introductions Additional standard products Customer-specific products New vertical markets Increase footprint in existing (LED, industrial, medical) customer base 28 » QUALSTAR + N2POWER +
Slide 29: Balance Sheet Highlights
23 Balance Sheet Highlights Mare Cash and investments $16,745 $20,885 Accounts receivable 3,25 2,995 Inventories Total current assets 23,531 28,824 Total current liabilities 5314 3,745 Total shareholders' equity 18191 25,053 » QUALSTAR + N2POWER +
Slide 30: Inorganic Growth Opportunities
Inorganic Growth Opportunities Expand Product Suite * Complementary lines in storage and power Expand Sales Channels * Channel partners * Integrators * Resellers Expand Target Markets * Geographic diversification * Power —LED lighting, telecom switches, LCDs * Storage — Enterprise, OEM, Archive appl
Slide 31: FY 2014 Strategic Focus — Driving Growth
ni FY 2014 Strategic Focus — Driving Growth Sales growth » Standard channel expansion > Alternate channel expansion —Tier 1 reseller, OEM product Product expansion » Develop new library products for FY 2015 launch > Develop new N2Power products for FY2015/2016 launch Operations >» Complete outsourci
Slide 32: Targeting Shareholder Value
B Targeting Shareholder Value (in mitions "WidsTermiarget” "Long-Termitarget™ (% of revenues) Revenues ~S$25M ~$50M Gross Margin 42% 45% Engineering 13% 10% Sales & Marketing 12% 8% G&A 11% 7% Operating Expenses 34% 25% Operating Margin 6% 20% 2 QUALSTAR + N2POWER +
Slide 33: QBAK — A Compelling Investment Case
= QBAK — A Compelling Investment Case Driving Optimal Business Model Cohesive, Disciplined Management Team Expanding Margins & Improving Working Capital Optimizing Infrastructure to Drive New Products Strong Growth Potential in Storage & Power Markets Organic and Inorganic Growth Initiatives Focused
Slide 34: Why BKF is WRONG for Qualstar
Why BKF is WRONG for Qualstar » QUALSTAR « N2POWER +
Slide 35: Who is BKF?
BR Who is BKF? ¢ Public shell company controlled by Steven N. Bronson with no operations and no revenues « Needs to arrange merger or acquisition with an operating business to avoid adverse regulatory consequences > BKF has warned its shareholders and investors that it may be deemed an investment co
Slide 36: BKF Proxy Contest
ni BKF Proxy Contest * BKF has made two prior attempts to take control of Qualstar without paying shareholders an appropriate control premium > Proxy contest in June 2012: Sought replacement of entire Qualstar Board at a special shareholder meeting > Unsolicited partial tender offer in January 2013:
Slide 37: BKF's Plans for Qualstar
BKF’s Plans for Qualstar ¢ In 2012, BKF’s stated plan was to divest Qualstar’s storage business and distribute cash to shareholders « But now, with Qualstar’s storage business thriving and the company positioned for profitability and growth, BKF claims it would take control to “implement operational
Slide 38: VOTE WHITE CARD
38 VOTE WHITE CARD >Join management in transformation of Qualstar already underway » QUALSTAR « N2POWER +
Slide 39: Qualstar...Poised for Success
Qualstar...Poised for Success Superior products Restructured company Re-energized team Growing markets Experienced management & engaged Board Effective strategy in place, delivering results S| ols DSSS Increasing investor interest QUALSTAR + N2POWER +
Slide 40: Thank You
Thank You