NOTE

– SEGMENT INFORMATION

In its operation of the business, management reviews certain financial information, including segmented internal profit and loss statements prepared on a basis consistent with U.S. GAAP. Our

two

segments are Power Supplies and Data Storage. The

two

segments discussed in this analysis are presented in the way we internally manage and monitor performance for the

three

months ended

March

31,

2017

and

2016.

Allocations for internal resources were made for the

three

months ended

March

31,

2017

and

2016.

The power supplies segment tracks certain assets separately, and all others are recorded in the storage segment for internal reporting presentations. The types of products and services provided by each segment are summarized below:

Power Supplies

— The Company designs and markets high-efficiency switching power supplies. We utilize contract manufacturers in Asia to produce the power supply products. These power supplies are used to convert AC line voltage to DC voltages, or DC voltages to other DC voltages for use in a wide variety of electronic equipment such as communications equipment, industrial machine tools, wireless systems, as well as medical and gaming devices. We sell our products globally through authorized resellers and directly to original equipment manufacturers (“OEMs”).

Storage

— The storage segment markets computer storage solutions that enable businesses to deal with the tremendous growth of digital data in a cost-effective manner. For more than

years, Qualstar engineering innovations and customer-oriented focus has led to products that solved our customers’ needs for simplicity, ease-of-use, and affordable solutions. Our partners and resellers worldwide cover not only the traditional market sectors, such as medical, government, and education, but also Cloud infrastructure and internet storage providers. Our main product lines address long-term archive, backup, and recovery of electronic data. These products consist of networked tape libraries that store and move high-density tape cartridges and high-speed tape drives that stream data to and from the tape cartridges. In addition, other product lines include bundled storage solutions that combine various hardware elements, such as processors, hard disks, and tape, integrated with choice software applications. These optimized solutions target specific data workflows, such as in the media and entertainment or the oil and gas sectors to provide, ease-of-use, and the potential for an “all-in-

one”

storage deployment.

Segment revenue, income (loss) before taxes and total assets were as follows (in thousands):

	Three Months Ended March 31 ,
	2017		2016
Revenue	(unaudited)		(unaudited)
Power Supplies	$	1,691	$	1,349
Storage:
Product		421		328
Service		327		473
Total storage	$	748	$	801
Revenue	$	2,439	$	2,150

	Three Months Ended March 31 ,
	2017		2016
Income (loss) before Taxes	(unaudited)		(unaudited)
Power Supplies	$	27	$	(125	)
Storage		31		(289	)
Income (loss) before taxes	$	58	$	(414	)

	March 31, 2017		December 31 , 2016
	(unaudited)
Total Assets
Cash and cash equivalents	$	3,740	$	3,691
Restricted cash		100		100
Other assets:
Power Supplies
Accounts receivable, net		1,373		1,158
Inventories, net		349		444
Property and equipment, net		38		35
Other assets		29		39
		1,789		1,676
Storage
Accounts receivable, net		573		425
Inventories, net		778		916
Property and equipment, net		206		251
Other assets		210		204
		1,767		1,796
Total Assets	$	7,396	$	7,263