---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





---





FORM 10-Q/A



xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30,
2011



OR



oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________
to ________________



Commission File No.: 001-32620

QSGI INC.

D/B/A

KruseCom

(Exact name
of registrant as specified in its charter)



|Delaware                                               |  | 13-2599131                                  
|------------------------------------------------------ |  | --------------------------------------------
|(State or other jurisdiction of
        incorporation) |  | (I.R.S. Employer
        Identification No.)



1721 Donna Road, West Palm Beach,
FL  33409

(Address of Principal Executive Offices)



(561) 629-5713

(Registrants' Telephone Number, including
area code)



Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the proceeding 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.YesxNoo



Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check one):



|Large accelerated filero | Accelerated filero | Non- accelerated filero
|------------------------ | ------------------ | -----------------------
|Small Reporting Companyx |                    |                        



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YesoNox

The number of outstanding common shares,
par value $.01, of the registrant as of May 13, 2014 was 232,097,819.















EXPLANATORY NOTE



In a letter dated June 26, 2014, the Securities and Exchange
Commission staff stated to us that our initial filing of our Form 10Q for the period ended June 30, 2011, as filed on May 22, 2014,
appears to be deficient with regard to the requirements of Rule 13a-15(e) of the Exchange Act, which provides that management must
evaluate whether its disclosure controls and procedures were effective to ensure that information to be disclosed, among other
things, is reported within the time periods specified in the Commission’s rules and forms. Management initially concluded
that that the Registrant’s disclosure controls and procedures, as defined in Rule 13a-15(e) were effective. However, our
Form 10Q for the period ended June 30, 2011 was filed late. Accordingly, management could not assert that our disclosure controls
and procedures as of June 30, 2011, as defined in Rule 13a-15(e) were effective. We are amending the Form 10Q for the period ended
June 30, 2011 to correct management’s conclusion as to its evaluation of the disclosure controls and procedures as of June
30, 2011 which were not effective (Part1- Financial Information-Item 4).



This Amendment does not reflect events occurring after
the original filing of the Form 10-Q for the period ended June 30, 2011 and does not modify or update the disclosures therein in
any way except for changes to the aforementioned item. Accordingly, this Amendment No. 1 should be read in conjunction with the
other filings of the Company made with the SEC subsequent to the filing of the original Form 10-Q.













|QSGI
    INC. D/b/a KruseCom      
|----------------------------------
|                                  
|TABLE
    OF CONTENTS             
|                                  
|Item                              
|                                  
|PART I –
    FINANCIAL INFORMATION
|                                  
|1.                                
|                                  
|                                  
|                                  
|                                  
|                                  
|2.                                
|3.                                
|4.                                
|                                  
|PART
    II – OTHER INFORMATION   
|                                  
|1.                                
|1A.                               
|2.                                
|3.                                
|4.                                
|5.                                
|6.                                
|                                  
|SIGNATURES                        
|                                  
|EXHIBITS                          













PART
I      FINANCIAL
INFORMATION



Item 1.       Financial
Statements



QSGI INC.
D/b/a KruseCom

---

CONDENSED BALANCE SHEETS





|                                                                                                                                                                                               |  | June 30,    |            |   | December 31, |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ------------ | -
|                                                                                                                                                                                               |  | 2011        |            |   | 2010         |  
|                                                                                                                                                                                               |  | (unaudited) |            |   | (audited)    |  
|Assets                                                                                                                                                                                         |  |             |            |   |              |  
|Current Assets                                                                                                                                                                                 |  |             |            |   |              |  
|Cash and Cash Equivalents                                                                                                                                                                      |  | $           | 242,930    |   |              | $
|Accounts Receivable                                                                                                                                                                            |  |             | 29,211     |   |              |  
|Inventories                                                                                                                                                                                    |  |             | 244,651    |   |              |  
|Prepaid expenses and other assets                                                                                                                                                              |  |             | 75,000     |   |              |  
|Total Current Assets                                                                                                                                                                           |  |             | 591,792    |   |              |  
|Equipment                                                                                                                                                                                      |  |             | 80,000     |   |              |  
|Accumulated Depreciation                                                                                                                                                                       |  |             | (36,167    | ) |              |  
|Net Property, Plant & Equipment                                                                                                                                                                |  |             | 43,833     |   |              |  
|Other Long-Term Assets                                                                                                                                                                         |  |             | 11,427     |   |              |  
|Goodwill                                                                                                                                                                                       |  |             | 1,228,252  |   |              |  
|Total Long-Term Assets                                                                                                                                                                         |  |             | 1,283,512  |   |              |  
|TOTAL ASSETS                                                                                                                                                                                   |  | $           | 1,875,304  |   |              | $
|                                                                                                                                                                                               |  |             |            |   |              |  
|Liabilities And Stockholders’ Equity                                                                                                                                                           |  |             |            |   |              |  
|Current Liabilities                                                                                                                                                                            |  |             |            |   |              |  
|Current Portion of Notes Payable                                                                                                                                                               |  | $           | 100,928    |   |              | $
|Accounts Payable                                                                                                                                                                               |  |             | 178,940    |   |              |  
|Accrued Expenses and Other Liabilities                                                                                                                                                         |  |             | 601,531    |   |              |  
|Total Current Liabilities                                                                                                                                                                      |  |             | 881,399    |   |              |  
|Notes Payable, net of current portion                                                                                                                                                          |  |             | 210,745    |   |              |  
|Total Liabilities                                                                                                                                                                              |  |             | 1,092,144  |   |              |  
|                                                                                                                                                                                               |  |             |            |   |              |  
|Stockholders’ Equity                                                                                                                                                                           |  |             |            |   |              |  
|Common shares: authorized 295,425,000 shares in 2011
    and 2010, respectively, $0.01 par value; 231,597,819 and 190,000,000 shares issued and outstanding in 2011 and 2010,
    respectively |  |             | 2,315,977  |   |              |  
|Discount on Common Stock                                                                                                                                                                       |  |             | (1,535,604 | ) |              |  
|Additional paid-in capital                                                                                                                                                                     |  |             | 76,250     |   |              |  
|Accumulated Deficit                                                                                                                                                                            |  |             | (73,463    | ) |              |  
|Total Stockholders’ Equity                                                                                                                                                                     |  |             | 783,160    |   |              |  
|                                                                                                                                                                                               |  |             |            |   |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS’ Equity                                                                                                                                                     |  | $           | 1,875,304  |   |              | $





See the accompanying notes to condensed financial
statements.





1







QSGI
INC. D/b/a KruseCom

---

CONDENSED STATEMENTS OF OPERATIONS

For The Three and Six Months Ended
June 30, 2011 and 2010

(Unaudited)



|                                                                        |  | Three Months Ended June 30 |             |   | Six Months Ended June 30 |  
|----------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ------------------------ | -
|                                                                        |  | 2011                       |             |   | 2010                     |  
|                                                                        |  |                            |             |   |                          |  
|Revenues                                                                |  | $                          | 1,016,000   |   |                          | $
|Operating Expenses:                                                     |  |                            |             |   |                          |  
|Cost of Goods Sold                                                      |  |                            | 888,606     |   |                          |  
|General and Administrative                                              |  |                            | 234,299     |   |                          |  
|(Loss) Income from Operations                                           |  |                            | (106,905    | ) |                          |  
|Other Income                                                            |  |                            | --          |   |                          |  
|Interest Expense                                                        |  |                            | 6,805       |   |                          |  
|(Loss) Income Before Benefit for Income Taxes                           |  |                            | (113,710    | ) |                          |  
|(Benefit) Provision For Income Taxes                                    |  |                            | --          |   |                          |  
|Net (Loss) Income                                                       |  | $                          | (113,710    | ) |                          | $
|                                                                        |  |                            |             |   |                          |  
|(Loss) Income Per Common Share – Basic & Diluted                        |  | $                          | (0.00       | ) |                          | $
|Weighted Average Number Of Common Shares Outstanding –Basic and Diluted |  |                            | 216,512,829 |   |                          |  



See the accompanying notes to condensed financial statements.





2









QSGI INC. D/b/a
KruseCom

---

CONDENSED STATEMENT OF STOCKHOLDERS’
EQUITY

For The Six Months Ended June 30,
2011

(Unaudited)



|                                                                            |  | Member  |          |   | Common
    Stock |  |             | Discount
                                         on
                                                                                                              Common |  |   | Additional
                                                                                Paid-in |  |  | Accumulated |            |   | Total
                                                                                Stockholders’ |  
|--------------------------------------------------------------------------- |  | ------- | -------- | - | ---------------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------------------------------------------------------------------------------------------------- |  |  | ----------- | ---------- | - | --------------------------------------------------------------------------------------------------- | -
|                                                                            |  | Capital |          |   | Number           |  |             | Amount                                                                                                                                                                    |  |   | Stock                                                                                              |  |  | Capital     |            |   | Deficit                                                                                             |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Balance  -
    December 31, 2010                                            |  | $       | 114,396  |   |                  |  | –           |                                                                                                                                                                           |  | $ | –                                                                                                  |  |  | $           | –          |   |                                                                                                     | $
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Recapitalization,
    KruseCom                                              |  |         | (114,396 | ) |                  |  | 190,000,000 |                                                                                                                                                                           |  |   | 1,900,000                                                                                          |  |  |             | (1,535,604 | ) |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Adjusted
    Balance – December 31, 2010                                    |  |         | –        |   |                  |  | 190,000,000 |                                                                                                                                                                           |  |   | 1,900,000                                                                                          |  |  |             | (1,535,604 | ) |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Conversion
    of Notes Payable                                             |  |         | –        |   |                  |  | –           |                                                                                                                                                                           |  |   | –                                                                                                  |  |  |             | –          |   |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Plan
    of Reorganization:                                                 |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Extinguishment
    of QSGI unsecured indebtedness                           |  |         | –        |   |                  |  | 10,000,000  |                                                                                                                                                                           |  |   | 100,000                                                                                            |  |  |             | –          |   |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Extinguishment
    of QSGI redeemable preferred stock                       |  |         | –        |   |                  |  | 425,000     |                                                                                                                                                                           |  |   | 4,250                                                                                              |  |  |             | –          |   |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Issuance
    of new shares to existing shares to existing QSGI shareholders |  |         | –        |   |                  |  | 31,172,716  |                                                                                                                                                                           |  |   | 311,727                                                                                            |  |  |             | –          |   |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Net
    Loss                                                                |  |         | –        |   |                  |  | –           |                                                                                                                                                                           |  |   | –                                                                                                  |  |  |             | –          |   |                                                                                                     |  
|                                                                            |  |         |          |   |                  |  |             |                                                                                                                                                                           |  |   |                                                                                                    |  |  |             |            |   |                                                                                                     |  
|Balance
    – June 30, 2011                                                 |  | $       | –        |   |                  |  | 231,597,716 |                                                                                                                                                                           |  | $ | 2,315,977                                                                                          |  |  | $           | (1,535,604 | ) |                                                                                                     | $



See
the accompanying notes to condensed financial statements.





3







QSCI, INC. D/b/a KruseCom

---

CONDENSED STATEMENTS
OF CASH FLOWS

For The Six Months Ended June 30,
2011 and 2010

(Unaudited)



|                                                                                                                |  | Six Months Ended June 30 |        
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                                                                |  | 2011                     |        
|Cash Flows From Operating Activities                                                                            |  |                          |        
|Net (Loss) Income                                                                                               |  | $                        | (67,445
|Adjustments to reconcile net loss to net cash (used in) from operating activities:                              |  |                          |        
|Depreciation Expense                                                                                            |  |                          | 10,333 
|Changes in assets and liabilities:                                                                              |  |                          |        
|Accounts receivable                                                                                             |  |                          | (20,127
|Inventories                                                                                                     |  |                          | (4,200 
|Other assets                                                                                                    |  |                          | 5,632  
|Accounts payable and accrued expenses                                                                           |  |                          | 53,721 
|Net Cash (Used In) From Operating Activities                                                                    |  |                          | (22,086
|                                                                                                                |  |                          |        
|Cash Flows From Investing Activities                                                                            |  |                          |        
|Cash acquired in reverse merger with QSGI                                                                       |  |                          | 2,179  
|Net Cash From Investing Activities                                                                              |  |                          | 2,179  
|                                                                                                                |  |                          |        
|Cash Flows From Financing Activities                                                                            |  |                          |        
|Distributions to members                                                                                        |  |                          | –      
|Proceeds from notes payable                                                                                     |  |                          | 100,000
|Net Cash From (Used In) Financing Activities                                                                    |  |                          | 100,000
|                                                                                                                |  |                          |        
|Net Decrease In Cash And Cash Equivalents                                                                       |  |                          | 80,093 
|                                                                                                                |  |                          |        
|Cash And Cash Equivalents – Beginning  of Period                                                                |  |                          | 162,837
|Cash And Cash Equivalents – End of Period                                                                       |  | $                        | 242,930
|                                                                                                                |  |                          |        
|Interest paid                                                                                                   |  | $                        | –      
|Supplemental Information on Non-Cash Investing and Financing Activities 
Conversion of notes payable to capital |  | $                        | 250,000





See
the accompanying notes to condensed financial statements.





4







NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)



| | 1. | Basis of Presentation and Business Organization
| | -- | -----------------------------------------------







The
accompanying unaudited condensed consolidated financial statements of QSGI INC. (“QSGI” or the “Company”)
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X under the Securities Exchange Act of 1934.  Accordingly
they do not include all of the information and footnotes required by accounting principles generally accepted in the United States
of America for complete financial statements.  In the opinion of the Company’s management, all adjustments (consisting
of only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations or
cash flows have been made.  Certain reclassifications have been made for consistent presentation.



The condensed consolidated
statement of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 2011.  These statements should be read in conjunction with the financial
statements and related notes thereto included in the Annual Report of KruseCom for the year ended December 31, 2010 filed on Form
8-K on June 23, 2011 (see “KruseCom Merger” paragraph in Note 1).



On
January 31, 2011, the Board of Directors of QSGI, INC. unanimously approved the Third Amended Plan of Reorganization and Disclosure
Statement (the “Plan”) to be filed in the United States Bankruptcy Court Southern District of Florida, West Palm Beach
Division.  This was filed on February 1, 2011.



On February 2, 2011,
the United States Bankruptcy Court Southern District of Florida, West Palm Beach Division issued an order approving the Disclosure
Statement, setting hearing on confirmation of Plan, setting hearing on fee applications, setting various deadlines, and describing
Plan proponent’s obligations.



On March 21, 2011
the United States Bankruptcy Court Southern District of Florida, West Palm Beach Division had a hearing to consider confirmation
of the Debtors’ Third Amended Plan of Reorganization (D.E. # 384) under Chapter 11 of the Bankruptcy Code filed by QSGI,
INC., QSGI-CCSI, INC. and QUALTECH SERVICES GROUP, INC., and dated February 1, 2011 and confirmed the Plan.  The Chapter 11
Plan of Reorganization was confirmed by the US Bankruptcy Court on May 4, 2011 (the “Effective Date”).



Plan of Reorganization



The Plan provides
for, among other things, a restructuring of pre-petition debt, as follows (i) distribution of $50,000 and issuance of 10,000,000
common shares in the reorganized debtor for the extinguishment of  unsecured indebtedness; (ii) extinguishment of one $10,159,000
unsecured claim in consideration for the confirmation of a Plan of Reorganization; (iii) issuance of 425,000 common shares for
the extinguishment of the redeemable convertible preferred stock; (iv) assumption of one $150,000 contingent secured claim bearing
interest at 8% per annum and being paid over 8 installments beginning 120 days after confirmation; (v) assumption of note for bankruptcy
legal expenses in the amount of $61,673, bearing interest at 8% per annum and being paid over 8 installments beginning 120 days
after Plan confirmation; (vi) the right to issue 3,524,000 common shares in exchange for legal services related to the Plan of
reorganization; (vii) issuance of 190,000,000 common shares in consideration for the merger of KruseCom; (viii) reservation of
10,000,000 shares to be issued by the reorganized debtor for working capital; (ix) reservation of 2,250,000 shares to be issued
by the reorganized debtor to key third parties.  All outstanding shares of the Company’s common stock will remain issued
and outstanding at and after the Effective Date.





5







Fresh Start Accounting



The Company, in
accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification  (“ASC”)
ASC 852, adopted fresh-start reporting as of the close of business on May 30, 2011 since the reorganization value of the assets
of Predecessor Company immediately before the date of confirmation of the Plan was less than the total of all post petition liabilities
and allowed claims, and the holders of the Predecessor Company’s voting shares immediately before confirmation of the Plan
received less than 50 percent of the voting shares of the emerging entity. There were no significant operations related to QSGI
from May 4, 2011 to May 30, 2011. Accordingly, we used a May 31, 2011 fresh-start date to coincide with KruseCom’s normal
financial period close for the month of May.  The five-column consolidated statement of financial position as of May
30, 2011, included herein, applies effects of the Plan and fresh-start reporting to the carrying values and classifications of
assets or liabilities that were necessary.



Upon adoption of
fresh-start reporting, the recorded amounts of assets and liabilities were adjusted to reflect their estimated fair values. Accordingly,
the reported historical financial statements of the Predecessor Company prior to the adoption of fresh-start reporting for periods
ended on or prior to May 30, 2011 are not comparable to those of the Successor Company. In applying fresh-start accounting, the
reorganization value of the entity was allocated to the entity’s assets in conformity with the procedures specified in FASB
ASC 805, Business Combinations.The reorganization value exceeded the sum of the amounts assigned to assets and liabilities.
This excess was recorded as successor company goodwill as of May 31, 2011.



The following five-column
consolidated statement of financial position as of May 30, 2011 reflects the implementation of the Plan as if the Plan had been
effective on May 30, 2011. Reorganization adjustments have been recorded within the consolidated statement of financial position
as of May 30, 2011 to reflect effects of the Plan, including the discharge of liabilities subject to compromise and the adoption
of fresh-start reporting in accordance with FASB ASC 852.



KruseCom Merger



Effective June 30,
2011 (the “Merger Date”), the Company merged its operations with KruseCom, LLC (“KruseCom”), a privately-held
company headquartered in Palm Beach, FL. KruseCom, was formed as a Florida Limited Liability Company in 2009. KruseCom has not
been part of any bankruptcy, receivership or similar proceeding and has not had a material reclassification, merger, consolidation,
purchase or sale of a significant amount of assets not in the ordinary course of business. KruseCom’s principal product is
data security and compliance (Auditing and Detagging, Erasing of Hard Drive, Tape and Hard Drive Degaussing, Regulatory Compliance
Certification and Indemnification, Real time Extranet Reporting, Remarketing and Revenue Sharing and EPA Compliant Recycling, Reverse
Logistics, Client-Site Audit and Erasure Solutions). KruseCom has technical facilities in New Jersey, a sales, marketing and business
development office in Florida and sales offices in Kentucky and New Hampshire.



As part of QSGI’s
plan of reorganization, the Company agreed to merge with KruseCom, whereby QSGI will adopt KruseCom’s operations as its primary
business. The members of the KruseCom via a Share Exchange Agreement (the “Exchange Agreement”) transferred 100% of
their ownership interest in KruseCom to QSGI on the Merger Date in exchange for 190,00,000 shares of QSGI’s common stock.
Under generally accepted accounting principles in the United States of America (“US GAAP”), the share exchange is considered
to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the
issuance of stock by KruseCom for the net monetary assets of QSGI, accompanied by a recapitalization, and is accounted for as a
change in capital structure. KruseCom’s shareholders will own the majority of the shares and will exercise significant influence
over the operating and financial policies of the consolidated entity. The post reorganization comparative historical financial
statements of QSGI and its wholly owned subsidiary will be the historical financial statements of KruseCom accompanied by a recapitalization.
References hereafter to the “Company” are intended to be for KruseCom.



6









The following pro-forma
information details the effect of the fresh start accounting along with the KruseCom merger:





|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | QSGI,
    Inc   |             |   |                                                        |   |             |                                     |      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----------- | - | ------------------------------------------------------ | - | ----------- | ----------------------------------- | -----
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Preconfirmation |             |   | Adjustments-
    Confirmation  of Plan and Fresh-Start |   |             | Emerged
     Entity  May 30,
  2011 |      
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                 |             |   |                                                        |   |             |                                     |      
|Current
    Assets                                                                                                                                                                                                                                                                                                                                                                                                          |  |                 |             |   |                                                        |   |             |                                     |      
|Cash
and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                   |  | $               | 2,179       |   |                                                        | $ | -           |                                     |      
|Accounts
Receivable                                                                                                                                                                                                                                                                                                                                                                                                         |  |                 |             |   |                                                        |   |             |                                     |      
|Inventory                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                 |             |   |                                                        |   |             |                                     |      
|Prepaid
expenses and other assets                                                                                                                                                                                                                                                                                                                                                                                           |  |                 | 75,000      |   |                                                        |   | -           |                                     |      
|Total
    Current Assets                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 | 77,179      |   |                                                        |   | -           |                                     |      
|Long-Term
    Assets:                                                                                                                                                                                                                                                                                                                                                                                                       |  |                 |             |   |                                                        |   |             |                                     |      
|Property,
Plant and Equipment, net                                                                                                                                                                                                                                                                                                                                                                                          |  |                 |             |   |                                                        |   |             |                                     |      
|Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 | -           |   |                                                        |   | 1,228,252   |                                     | g    
|Deposits                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |             |   |                                                        |   |             |                                     |      
|Total
    Long-Term Assets                                                                                                                                                                                                                                                                                                                                                                                                  |  |                 | -           |   |                                                        |   | 1,228,252   |                                     |      
|TOTAL
    ASSETS                                                                                                                                                                                                                                                                                                                                                                                                            |  | $               | 77,179      |   |                                                        | $ | 1,228,252   |                                     |      
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                 |             |   |                                                        |   |             |                                     |      
|Current
    Liabilities                                                                                                                                                                                                                                                                                                                                                                                                     |  |                 |             |   |                                                        |   |             |                                     |      
|Notes
Payable, current portion                                                                                                                                                                                                                                                                                                                                                                                              |  | $               | -           |   |                                                        | $ | 100,928     |                                     | d,e  
|Accounts
Payable                                                                                                                                                                                                                                                                                                                                                                                                            |  |                 | -           |   |                                                        |   | -           |                                     |      
|Accrued
Expenses and Other Liabilities                                                                                                                                                                                                                                                                                                                                                                                      |  |                 | -           |   |                                                        |   | 601,531     |                                     | a    
|Deferred
Taxes                                                                                                                                                                                                                                                                                                                                                                                                              |  |                 | 27,300      |   |                                                        |   | (27,300     | )                                   |      
|Liabilities
    Subject to Compromise:                                                                                                                                                                                                                                                                                                                                                                                      |  |                 |             |   |                                                        |   |             |                                     |      
|Accounts
Payable                                                                                                                                                                                                                                                                                                                                                                                                            |  |                 | 4,231,668   |   |                                                        |   | (4,231,668  | )                                   | g    
|Accrued
Expenses and Other Liabilities                                                                                                                                                                                                                                                                                                                                                                                      |  |                 | 11,914,983  |   |                                                        |   | (11,914,983 | )                                   | b,g  
|Accrued
Payroll                                                                                                                                                                                                                                                                                                                                                                                                             |  |                 | 1,171,773   |   |                                                        |   | (1,171,773  | )                                   | g    
|Total
    Current Liabilities                                                                                                                                                                                                                                                                                                                                                                                               |  |                 | 17,345,724  |   |                                                        |   | (16,643,265 | )                                   |      
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                 |             |   |                                                        |   |             |                                     |      
|Long-Term
    Liabilities                                                                                                                                                                                                                                                                                                                                                                                                   |  |                 |             |   |                                                        |   |             |                                     |      
|Notes
Payable, net of current portion                                                                                                                                                                                                                                                                                                                                                                                       |  |                 | -           |   |                                                        |   | 110,745     |                                     | d,e  
|Total
    Long-Term Liabilities                                                                                                                                                                                                                                                                                                                                                                                             |  |                 | -           |   |                                                        |   | 110,745     |                                     |      
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                 |             |   |                                                        |   |             |                                     |      
|Redeemable
    Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                  |  |                 | 4,271,472   |   |                                                        |   | (4,271,472  | )                                   | c    
|Stockholders’
                                                                                                                                                                                                                                                                                                                                                                                                     Deficit: |  |                 |             |   |                                                        |   |             |                                     |      
|Common
    Shares-Old (Predecessor Company)                                                                                                                                                                                                                                                                                                                                                                                 |  |                 | 387,977     |   |                                                        |   | (387,977    | )                                   |      
|Common
Shares-New (Sucessor Company)                                                                                                                                                                                                                                                                                                                                                                                        |  |                 | -           |   |                                                        |   | 2,004,250   |                                     | a,c,f
|Discount
on Common Shares-New (Sucessor Company)                                                                                                                                                                                                                                                                                                                                                                            |  |                 | -           |   |                                                        |   | (1,535,604  | )                                   |      
|Additional
paid-in capital-Old (PredecessorCompany)                                                                                                                                                                                                                                                                                                                                                                         |  |                 | 16,605,934  |   |                                                        |   | (16,605,934 | )                                   | b    
|Additional
paid-in capital-New (SucessorCompany)                                                                                                                                                                                                                                                                                                                                                                            |  |                 | -           |   |                                                        |   | 23,581      |                                     |      
|Accumulated
Deficit                                                                                                                                                                                                                                                                                                                                                                                                         |  |                 | (38,533,928 | ) |                                                        |   | 38,533,928  |                                     |      
|Total
    Stockholders’ Deficit                                                                                                                                                                                                                                                                                                                                                                                             |  |                 | (21,540,017 | ) |                                                        |   | 22,032,244  |                                     |      
|TOTAL
    LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                                                                                                                                                                                                                                                             |  | $               | 77,179      |   |                                                        | $ | 1,228,252   |                                     |      



7











Plan
of Reorganization



The
Plan provides for, among other things, a restructuring of pre-petition debt, as follows:



| | a) | Distribution
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                $50,000
                                                                                                                                                                                                                                                                                                                                                                                and
                                                                                                                                                                                                                                                                                                                                                                                issuance
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                10,000,000
                                                                                                                                                                                                                                                                                                                                                                                common
                                                                                                                                                                                                                                                                                                                                                                                shares
                                                                                                                                                                                                                                                                                                                                                                                in
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                reorganized
                                                                                                                                                                                                                                                                                                                                                                                debtor
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                extinguishment
                                                                                                                                                                                                                                                                                                                                                                                of 
                                                                                                                                                                                                                                                                                                                                                                                unsecured
                                                                                                                                                                                                                                                                                                                                                                                indebtedness;
                                                                                                                                                                                                                                                                                                                                                                                Amount
                                                                                                                                                                                                                                                                                                                                                                                is
                                                                                                                                                                                                                                                                                                                                                                                comprised
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                $50,000
                                                                                                                                                                                                                                                                                                                                                                                pre-petition
                                                                                                                                                                                                                                                                                                                                                                                debt,
                                                                                                                                                                                                                                                                                                                                                                                which
                                                                                                                                                                                                                                                                                                                                                                                was
                                                                                                                                                                                                                                                                                                                                                                                settled
                                                                                                                                                                                                                                                                                                                                                                                as
                                                                                                                                                                                                                                                                                                                                                                                part
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                reorganization
                                                                                                                                                                                                                                                                                                                                                                                plan.
                                                                                                                                                                                                                                                                                                                                                                                In
                                                                                                                                                                                                                                                                                                                                                                                addition,
                                                                                                                                                                                                                                                                                                                                                                                amount
                                                                                                                                                                                                                                                                                                                                                                                includes
                                                                                                                                                                                                                                                                                                                                                                                $608,517
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                expenses
                                                                                                                                                                                                                                                                                                                                                                                incurred
                                                                                                                                                                                                                                                                                                                                                                                by
                                                                                                                                                                                                                                                                                                                                                                                QSGI
                                                                                                                                                                                                                                                                                                                                                                                in
                                                                                                                                                                                                                                                                                                                                                                                connection
                                                                                                                                                                                                                                                                                                                                                                                with
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                bankruptcy
                                                                                                                                                                                                                                                                                                                                                                                proceedings,
                                                                                                                                                                                                                                                                                                                                                                                which
                                                                                                                                                                                                                                                                                                                                                                                have
                                                                                                                                                                                                                                                                                                                                                                                been
                                                                                                                                                                                                                                                                                                                                                                                assumed
                                                                                                                                                                                                                                                                                                                                                                                by
                                                                                                                                                                                                                                                                                                                                                                                KruseCom.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Extinguishment
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                one
                                                                                                                                                                                                                                                                                                                                                                                $10,159,000
                                                                                                                                                                                                                                                                                                                                                                                unsecured
                                                                                                                                                                                                                                                                                                                                                                                claim
                                                                                                                                                                                                                                                                                                                                                                                in
                                                                                                                                                                                                                                                                                                                                                                                consideration
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                confirmation
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                a
                                                                                                                                                                                                                                                                                                                                                                                Plan
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                Reorganization;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Issuance
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                425,000
                                                                                                                                                                                                                                                                                                                                                                                common
                                                                                                                                                                                                                                                                                                                                                                                shares
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                extinguishment
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                redeemable
                                                                                                                                                                                                                                                                                                                                                                                convertible
                                                                                                                                                                                                                                                                                                                                                                                preferred
                                                                                                                                                                                                                                                                                                                                                                                stock;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Assumption
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                one
                                                                                                                                                                                                                                                                                                                                                                                $150,000
                                                                                                                                                                                                                                                                                                                                                                                contingent
                                                                                                                                                                                                                                                                                                                                                                                secured
                                                                                                                                                                                                                                                                                                                                                                                claim
                                                                                                                                                                                                                                                                                                                                                                                bearing
                                                                                                                                                                                                                                                                                                                                                                                interest
                                                                                                                                                                                                                                                                                                                                                                                at
                                                                                                                                                                                                                                                                                                                                                                                8%
                                                                                                                                                                                                                                                                                                                                                                                per
                                                                                                                                                                                                                                                                                                                                                                                annum
                                                                                                                                                                                                                                                                                                                                                                                and
                                                                                                                                                                                                                                                                                                                                                                                being
                                                                                                                                                                                                                                                                                                                                                                                paid
                                                                                                                                                                                                                                                                                                                                                                                over
                                                                                                                                                                                                                                                                                                                                                                                8
                                                                                                                                                                                                                                                                                                                                                                                installments
                                                                                                                                                                                                                                                                                                                                                                                beginning
                                                                                                                                                                                                                                                                                                                                                                                120
                                                                                                                                                                                                                                                                                                                                                                                days
                                                                                                                                                                                                                                                                                                                                                                                after
                                                                                                                                                                                                                                                                                                                                                                                confirmation;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Assumption
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                note
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                bankruptcy
                                                                                                                                                                                                                                                                                                                                                                                legal
                                                                                                                                                                                                                                                                                                                                                                                expenses
                                                                                                                                                                                                                                                                                                                                                                                in
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                amount
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                $61,673,
                                                                                                                                                                                                                                                                                                                                                                                bearing
                                                                                                                                                                                                                                                                                                                                                                                interest
                                                                                                                                                                                                                                                                                                                                                                                at
                                                                                                                                                                                                                                                                                                                                                                                8%
                                                                                                                                                                                                                                                                                                                                                                                per
                                                                                                                                                                                                                                                                                                                                                                                annum
                                                                                                                                                                                                                                                                                                                                                                                and
                                                                                                                                                                                                                                                                                                                                                                                being
                                                                                                                                                                                                                                                                                                                                                                                paid
                                                                                                                                                                                                                                                                                                                                                                                over
                                                                                                                                                                                                                                                                                                                                                                                8
                                                                                                                                                                                                                                                                                                                                                                                installments
                                                                                                                                                                                                                                                                                                                                                                                beginning
                                                                                                                                                                                                                                                                                                                                                                                120
                                                                                                                                                                                                                                                                                                                                                                                days
                                                                                                                                                                                                                                                                                                                                                                                after
                                                                                                                                                                                                                                                                                                                                                                                Plan
                                                                                                                                                                                                                                                                                                                                                                                confirmation;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | The
                                                                                                                                                                                                                                                                                                                                                                                right
                                                                                                                                                                                                                                                                                                                                                                                to
                                                                                                                                                                                                                                                                                                                                                                                issue
                                                                                                                                                                                                                                                                                                                                                                                3,524,000
                                                                                                                                                                                                                                                                                                                                                                                common
                                                                                                                                                                                                                                                                                                                                                                                shares
                                                                                                                                                                                                                                                                                                                                                                                in
                                                                                                                                                                                                                                                                                                                                                                                exchange
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                legal
                                                                                                                                                                                                                                                                                                                                                                                services
                                                                                                                                                                                                                                                                                                                                                                                related
                                                                                                                                                                                                                                                                                                                                                                                to
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                Plan
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                reorganization;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g) | Issuance
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                190,000,000
                                                                                                                                                                                                                                                                                                                                                                                common
                                                                                                                                                                                                                                                                                                                                                                                shares
                                                                                                                                                                                                                                                                                                                                                                                in
                                                                                                                                                                                                                                                                                                                                                                                consideration
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                merger
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                KruseCom;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h) | Effects
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                fresh-start
                                                                                                                                                                                                                                                                                                                                                                                accounting;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i) | New
                                                                                                                                                                                                                                                                                                                                                                                shares
                                                                                                                                                                                                                                                                                                                                                                                to
                                                                                                                                                                                                                                                                                                                                                                                existing
                                                                                                                                                                                                                                                                                                                                                                                QSGI
                                                                                                                                                                                                                                                                                                                                                                                shareholders.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|2. | Summary
                                                                                                                                                                                                                                                                                                                                                                                  of
                                                                                                                                                                                                                                                                                                                                                                                  Significant
                                                                                                                                                                                                                                                                                                                                                                                  Accounting
                                                                                                                                                                                                                                                                                                                                                                                  Policies
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Estimates



The
preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those estimates.



Comprehensive
Income



The
Company follows FASB ASC 220-10-45 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation
of net income.   Since the Company does not have any items of comprehensive income, the net (loss) income and comprehensive
(loss) income are the same.



Revenue
Recognition



For
product sales, the Company recognizes revenue at the time products are shipped and title is transferred, which is in accordance
with the stated shipping terms. Revenue is recognized in accordance with these shipping terms so long as a purchase order, electronic,
written or phone commitment has been received or a contract has been executed, there are no uncertainties regarding customer acceptance,
the sales price is fixed and determinable and collectability is deemed probable. If uncertainties exist regarding customer acceptance
or collectability, revenue is recognized when those uncertainties have been resolved. The Company may allow customers to return
defective products for exchange or credit within a reasonable period, which is generally less than 30 days. Returns are determined
on a case-by-case basis and upon approval by management. A return is recorded in the period of the return because, based on past
experience, these returns are infrequent and immaterial.





8







The
Company provides a limited warranty on some of its products. The Company analyzes its estimated warranty costs and provides an
allowance as necessary, based on experience. At June 30, 2011 and 2010, a warranty reserve was not considered necessary.



During
the three and six months ended June 30, 2011 the Company generated $75,000 of revenue from sales to a relative of the Chief Executive
Officer.



Cash
and Cash Equivalents



The
Company considers all liquid instruments purchased with maturity of three months or less to be cash equivalents.



Accounts
Receivable



Accounts
receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current
status of individual accounts. Balances which are still outstanding after management has used reasonable collection efforts are
written off through a charge to the valuation allowance and a credit to trade accounts receivable.



At
December 31, 2010, the Company determined no allowance for doubtful accounts was necessary. The allowance for doubtful accounts
at June 30, 2011 and changes in the allowance for the six months ended are as follows:



|              |  | Balance, December 31, 2010 |   |  | Provision for Doubtful Account Six- Months Ended June 30,
 2011 |   |       | Write-Offs, Net of Recoveries Six-Months Ended 
June 30, 
2011 |  |   | Balance, June 30,
 2011 | 
|------------- |  | -------------------------- | - |  | --------------------------------------------------------------- | - | ----- | -------------------------------------------------------------- |  | - | ----------------------- | 
|              |  |                            |   |  |                                                                 |   |       |                                                                |  |   |                         | 
|June 30, 2011 |  | $                          | 0 |  |                                                                 | $ | 2,590 |                                                                |  | $ | 0                       | 



Inventories



Inventories
consist primarily of computer hardware, parts and related products, and are valued at the lower of cost or market on a first in
first out basis. The allocated cost of parts disassembled from purchased computer hardware is based on the relative fair
value of the disassembled components. Substantially all inventory items are parts disassembled from purchased computer hardware. The
allocation of cost does not exceed the original cost of the computer hardware. The Company closely monitors and analyzes inventory
for potential obsolescence and slow-moving items on an item-by-item basis. Inventory items determined to be obsolete or slow moving
are reduced to net realizable value. Inventory in-transit consists of items of inventory for which the Company has purchased
and assumed the risk of loss, but which has not yet been received into stock at the Company’s facility.



Equipment



Equipment
is stated at contributed fair value, net of accumulated depreciation. Expenditures for maintenance and repairs are charged to
operations as incurred. Upon retirement or sale, any assets disposed are removed from the accounts and any resulting gain or loss
is reflected in the results of operations. The Company’s equipment, primarily consists of computer hardware and office equipment,
is depreciated or amortized using the straight-line method over three to five-year periods.



Impairment
losses on long-lived assets, such as equipment, are recognized when events or changes in circumstances indicate that the undiscounted
cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying
amounts.





9







Advertising
Costs



Advertising
costs are expensed on the first date the advertisement takes place. Advertising expense for the three and six-months ended June
30, 2011 amounted to $31,578 and $56,631 respectively. Advertising expense for the three and six-months ended June 30, 2010 amounted
to $11,101 and $5,262, respectively.



Shipping
and Handling



Shipping
and handling costs related to delivery of finished goods are included in cost of goods sold. During the three and six months ended
June 30, 2011, shipping and handling costs amounted to $86,110 and $150,293, respectively. During the three and six months ended
June 30, 2010, shipping and handling costs amounted to $76,414 and $119,321 respectively.



Goodwill



Goodwill
is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying value.



Sales
Taxes



Various
states and counties within those states may impose a sales tax on the Company’s sales to non-exempt customers. The Company
collects the sales tax and remits the entire amount to the appropriate jurisdiction. The Companies accounting policy is to exclude
the tax collected and remitted to these jurisdictions from revenue and cost of sales.



Income
Taxes



Prior
to the Merger Date, the Company elected to be treated as an S-Corporation for income tax purposes. Under such provisions, the
Company’s taxable income is reflected on its members’ personal income tax returns. Accordingly, the Company was not
subject to federal income taxes and no provision for income taxes is reflected in the accompanying financial statements for 2011
and 2010. Prior to the Merger Date, management of the Company concluded that the Company qualified as a pass-through entity and
determined no uncertain tax positions existed, including the S-Corporation election and sales tax exemptions, that would require
recognition in the financial statements. Generally, federal, state and local authorities may examine the Company’s tax returns
for three years from the date of filing. The Company’s tax returns since 2009 are currently subject to examination.



Subsequent
to the Merger Date, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided against net deferred
tax assets where the Company determines realization is not currently judged to be more likely than not.





10







(Loss)
Income per Share



The
Company follows FASB ASC 260, “Earnings per Share,” resulting in the presentation of basic and diluted earnings per
share. Because the Company reported a net loss in three and six months ended June 30, 2011, potential common stock equivalents
related to stock options were anti-dilutive, therefore, the amounts reported for basic and dilutive loss per share were the same.
14,035,334 and 14,131,917 of weighted average common stock equivalents related to stock options were excluded in the computation
of diluted earnings per share for the three and six months ended June 30, 2011.



For
the three and six months ended June 30, 2010, the amounts reported for basic and diluted earnings per share were the same because
the common stock equivalents were considered anit-dilutive as the average closing market price during the periods are below the
exercise price. 13,184,834 and 13,254,834 of weighted average common stock equivalents related to stock options were excluded
in the computation of diluted earnings per share for the three and six months ended June 30, 2010.



Fair
Value of Financial Instruments



The
carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, notes receivable and accounts
payable approximate fair value due to the relatively short maturity of these instruments. The carrying value of the notes payable
and capital lease obligations, including the current portion, approximate fair value based on the incremental borrowing rates
currently available to the Company for financing with similar terms and maturities.



Fair
Value Measurements



The
Company determines the fair market values of its financial assets and liabilities, as well as non-financial assets and liabilities
that are recognized or disclosed at fair value on a non-recurring basis, based on the fair value hierarchy established by GAAP.  The
Company measures its financial assets and liabilities using inputs from the three levels of the fair value hierarchy.  At
June 30, 2011 and December 31, 2010, the Company has no assets or liabilities that are required to be measured at fair value on
a recurring or non-recurring basis.



Stock
Based Compensation.



Stock
based compensation is amortized to compensation expense on a straight line basis over the requisite service period of the grants
using the Black-Scholes valuation model. The Company will reconsider its use of this model if additional information becomes available
in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics
that cannot be reasonably estimated using this model. The Company does not estimate forfeitures in its expense calculations as
forfeiture history has been minor. The Company presents the excess tax benefits from the exercise of stock options as a financing
cash flow in the accompanying consolidated statements of cash flows.



Recently
Adopted Accounting Pronouncements



In
January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements. This update provides amendments to ASC Topic 820 that provides disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted the disclosure
requirements effective January 1, 2011.





11







Recently
Issued Accounting Pronouncements Not Yet Adopted



In
May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRS. The amendments change the wording used to describe the requirements in U.S.
GAAP for measuring fair value and for disclosing information about the fair value measurements. The amendments include the following:



| | 1. | Those
                                                                                                                                                                                                                                                                                                                                                                                that
                                                                                                                                                                                                                                                                                                                                                                                clarify
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                Board’s
                                                                                                                                                                                                                                                                                                                                                                                intent
                                                                                                                                                                                                                                                                                                                                                                                about
                                                                                                                                                                                                                                                                                                                                                                                the
                                                                                                                                                                                                                                                                                                                                                                                application
                                                                                                                                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                                                                                                                                existing
                                                                                                                                                                                                                                                                                                                                                                                fair
                                                                                                                                                                                                                                                                                                                                                                                value
                                                                                                                                                                                                                                                                                                                                                                                measurement
                                                                                                                                                                                                                                                                                                                                                                                and
                                                                                                                                                                                                                                                                                                                                                                                disclosure
                                                                                                                                                                                                                                                                                                                                                                                requirements.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Those
                                                                                                                                                                                                                                                                                                                                                                                that
                                                                                                                                                                                                                                                                                                                                                                                change
                                                                                                                                                                                                                                                                                                                                                                                a
                                                                                                                                                                                                                                                                                                                                                                                particular
                                                                                                                                                                                                                                                                                                                                                                                principle
                                                                                                                                                                                                                                                                                                                                                                                or
                                                                                                                                                                                                                                                                                                                                                                                requirement
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                measuring
                                                                                                                                                                                                                                                                                                                                                                                fair
                                                                                                                                                                                                                                                                                                                                                                                value
                                                                                                                                                                                                                                                                                                                                                                                or
                                                                                                                                                                                                                                                                                                                                                                                for
                                                                                                                                                                                                                                                                                                                                                                                disclosing
                                                                                                                                                                                                                                                                                                                                                                                information
                                                                                                                                                                                                                                                                                                                                                                                about
                                                                                                                                                                                                                                                                                                                                                                                fair
                                                                                                                                                                                                                                                                                                                                                                                value
                                                                                                                                                                                                                                                                                                                                                                                measurements.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and
annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning
after December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments in
this Update early, but no earlier than for interim periods beginning after December 15, 2011.



The
Company is currently evaluating the impact, if any, of ASU No. 2011-04 on the Company’s financial position and results of
operations.



In
June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under the
amendments, an entity has the option to present the total of comprehensive income, the components of net income, and the components
of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive
statements. The presentation option under current GAAP to present the components of other comprehensive income as part of the
statement of changes in stockholders’ equity has been eliminated.



The
amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years,
and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective
for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted because
compliance with amendments is already permitted.



The
Company intends to comply with the presentation on January 1, 2012.



|3. | Financing Arrangements
|-- | ----------------------



On
December 31, 2009, the Company entered into a $25,000 note payable agreement with an employee (the “Employee Note”).
Per the agreement, interest accrues monthly at 8% per annum. The agreement had no stated maturity or monthly repayment terms.
During December 2010, the employee agreed to convert the principal amount per the agreement plus interest to capital in exchange
for an approximately 28% ownership in the Company.



During
November 2010, the Company entered into a $250,000 convertible promissory note (the “Convertible Note”) with a third
party. The Convertible Note calls for an original stated maturity date of two years or November 2012, unless the Convertible Note
is converted to capital or the Company is in default as defined in the Convertible Note agreement prior to November 2012. The
note calls for interest at prime plus 4.3% (7.55% at December 31, 2010), not to exceed the default interest rate, due and payable
monthly in arrears. The Convertible Note may be converted to capital prior to the first anniversary date in exchange for a 6%
interest in the Company following the merger with QSGI, Inc. As of June 30, 2011, the Convertible Note was converted to equity
in exchange for approximately 11,400,000 shares of the Company’s stock, pursuant to the Share Exchange Agreement enterend
into between QSGI, Inc and KruseCom, LLC on June 17, 2011. As a result of the conversion, the Company reclassified the note to
equity.



12







On
April 4, 2011, the Company entered into a $100,000 note payable agreement with a principal of KruseCom (the “Note”).
Per the agreement, interest accrues monthly at 8% per annum. The agreement had no stated maturity or monthly repayment terms.



In
connection with the Plan of Reorganization, the Company assumed a $150,000 contingent secured claim bearing interest at 8% per
annum and being paid over 8 equal installments installments beginning 120 days after the Effective Date.



In
connection with the Plan of Reorganization, the Company assumed a promissory note payable for bankruptcy legal expenses in the
amount of $61,673, bearing interest at 8% per annum and being paid over 8 installments beginning 120 days after the Effective
Date.





|4. | Stock Options and
Warrants
|-- | --------------------------



There
were no stock options or warrants issued and approximately 193,000 options expired with prices ranging from $.03 to $2.75 in the
first six months of 2011. Upon confirmation of the Plan of Reorganization, all warrants were cancelled. There were no stock options
or warrants issued and 140,000 options with exercise prices ranging from $2.75 to $3.40 per share expired in the first six months
of 2010.  Total options outstanding and exercisable at June 30, 2011 and December 31, 2010 were 14,035,334 and 14,228,334
respectively.



|5. | Income Taxes
|-- | ------------



Prior
to the Merger Date, the Company elected to be treated as an S-Corporation for income tax purposes. Under such provisions, the
Company’s taxable income is reflected on its members’ personal income tax returns. Accordingly, the Company was not
subject to federal income taxes in 2010 and no provision for income taxes is reflected in the accompanying financial statements
for 2010.   There is no income tax benefit for the net losses for the three and six months ended June 30, 2011,
since managmement has determined that the realization of the net deferred tax asset is not assured and has created a valuation
allowance for the entire amount of such benefit.



The
Company's policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the
statement of operations.  As of January 1, 2011, the Company had no unrecognized tax benefits, or any tax related interest
of penalties.  There were no changes in the Company's unrecognized tax benefits during the three and six months ended
June 30, 2011.  The Company did not recognize any interest or penalties during 2011 and 2010 related to unrecognized
tax benefits.  Tax years from 2008 through 2010 remain subject to examination by major tax jurisdictions.



|6. | CONCENTRATIONS
AND ECONOMIC DEPENDENCY
|-- | --------------------------------------



Sales



For
the three and six-months ended June 30, 2011, sales to 3 customers amounted to approximately 50% and 32%, respectively, of total
sales. For the three and six-months ended June 30, 2010, sales to 4 and 1 customers amounted to approximately 44% and 20%, respectively,
of total sales.



Purchases



For
the three and six months ended June 30, 2011, purchases from 4 and 3 vendor amounted to approximately 54% and 50%, respectively,
of total purchases. For the three and six months ended June 30, 2010, purchases from 4 and 3 vendor amounted to approximately
62% and 60%, respectively, of total purchases.





13







Reliance
on merchandise vendors



The
Company relies on the availability of off-lease and excess inventory computer equipment, which is unpredictable. The Company has
no long-term arrangements with its vendors that assure the availability of equipment. The Company purchases equipment from many
different vendors, and has no formal commitments with or from any of them. The Company is not assured that its current vendors
will continue to sell equipment to it as they have in the past, or that it will be able to establish new vendor relationships
that ensure equipment will be available in sufficient quantities and at favorable prices. If the Company is unable to obtain sufficient
quantities of equipment at favorable prices, its business will be adversely affected. In addition, the Company may become obligated
to deliver specified types of computer equipment in a short time period and, in some cases, at specified prices. Because the Company
has no formal relationships with vendors, it may not be able to obtain the required equipment in sufficient quantities in a timely
manner, which could adversely affect its ability to fulfill these obligations.



Access
to Capital



Since
inception, the Company has been able to generate sufficient funds from its operations to pay for its operating expenses. However,
the Company may need to raise additional funds to finance unanticipated working capital requirements or to carry out its business
plan. If funds are not available when required for unanticipated working capital needs or other transactions, the Company’s
ability to carry out its business plan could be adversely affected, and it may be required to scale back operations to reflect
the extent of available funding.



|7. | Commitments and
Contingencies
|-- | -----------------------------



Operating
Leases



At
June 30, 2011 and December 31, 2010, the Company is a lessee pursuant to operating leases for office and warehouse space. The
lease for office space in West Palm Beach calls for $4,000 per month, on a month-to-month basis and is cancellable with 30-days
notice. The lease for warehouse space in New Jersey is for 60 months ending in December 2015. In addition to the monthly minimum
rent for the New Jersey warehouse, the Company is responsible for its proportionate share of Common Area Maintenance (“CAM”).
The future minimum rental commitments for the New Jersey warehouse are approximately $45,000 annually through 2014 and approximately
$22,500 for 2015.



For
the three and six months ended June 30, 2011, rent expense amounted to $20,381 and $57,445, respectively. For the three and six
months ended June 30, 2010, rent expense amounted to $23,677 and $44,934, respectively.



|8. | Subsequent Events
|-- | -----------------



On
August 26, 2011, the Company was notified that the Honorable Erik P. Kimball, United States Bankruptcy Judge, Southern District
of Florida, entered a final decree to close the chapter 11 case. The signing of this order signifies the Company’s emergence
from bankruptcy.



On
September 16, 2011 the Board of Directors approved an additional Option Grant for each Board member in the amount of 250,000 shares
of Common Stock at a strike price of $0.11 per share vesting over three years.  Further, the Board of Directors approved
a bonus Option Grant for the CEO and CFO in the amount of 5 million and 4 million shares respectively at a strike price of $0.11
per share contingent upon the QSGI Green, Inc. subsidiary achieving $1 million in profitability over any 12 month period for the
first 5 years following the acquisition of The Gasket Guy, Inc.



On
September 21, 2011, QSGI Green, Inc. (“QSGI Green”) a newly-formed, wholly-owned subsidiary of the Company completed
the transactions contemplated by the Asset Purchase Agreement (the “TGG Agreement”) with The Gasket Guy, Inc (the
“Seller” or “TGG”) a Florida Corporation, primarily engaged in the manufacture and installation of refrigeration
gaskets throughout the United States. The Agreement provides for (1) the purchase of $412,500 of operating assets, customer lists
and all operating agreements formerly used by the Seller to manufacture and install its products and generate sales, (2) the purchase
of $1 million of existing accounts receivable, (3) the conversion of $565,000 of the Seller’s existing bank note (4) the
issuance of a $412,500 Seller’s note bearing interest at 7.5% and maturing December 5, 2016 with minimum EBITDA thresholds
and subordinated to the Bank Note noted below and (5) an earn-out based on EBITDA milestones and multiples over a five-year period
to be paid in the Company’s stock or cash with a maximum of $25 million total payout. The Seller additionally signed non-competition
agreements, non-disclosure agreements and five year employment agreements with the Company.





14







On
September 26, 2011, QSGI Green (the “Borrower”) entered into a loan agreement (the “Bank Note”) with First
City Bank of Commerce (the “Lender”) in the amount of $564,875 to replace the Seller’s existing bank note. The
Bank Note bears interest at 7.5% and has a maturity date of September 26, 2015.  The Bank Note is primarily supported
by accounts receivable and inventory of QSGI Green. The Bank Note is personally guaranteed by the two previous founding owners
of TGG.



On
November 4, 2011 and pursuant to the Registrant’s Plan of Reorganization, a distribution of $50,000 and 10,000,000 common
shares was to be distributed to Allowed General Unsecured Claim holders to extinguish all unsecured indebtedness. Additionally,
425,000 common shares are to be distributed for the extinguishment of $4,216,000 in redeemable convertible preferred stock. All
distributions were to occur no later than 180 days after Plan Confirmation. The distribution was completed on November 4, 2011,
thus increasing the total outstanding shares of the Registrant from 221,172,716 to 231,597,819. These shares have been reflected
in the attached financial statements as if issued.



On
April 9, 2012, QSGI Green, Inc., a wholly-owned subsidiary of QSGI, Inc., was notified that Moshe Schneider and Avner Harel resigned
from their employment positions at the Company.  Moshe Schneider and Avner Harel remain subject to a Non-Competition,
Non Solicitation and Trade Secret agreement with the Company, which was executed in conjunction with and contemporaneous to the
Asset Purchase Agreement  dated September 21, 2011 between  The Gasket Guy, Inc. (the “Seller”)
and the Company.



On
July 27, 2012 the Company entered into the settlement of a litigation entitled QSGI, Inc. v IBM Global Financing and International
Business Machines Corp., No. 9:11-cv-80880-KLR, in the United States District Court, Southern District of Florida (the “Court”).
The parties executed a Settlement Agreement regarding the litigation on July 30, 2012. The Settlement Agreement provided that
the parties execute and file with the Court a Stipulation of Voluntary Dismissal of Action with Prejudice (the “Stipulation”).
The Stipulation was filed on July 31, 2012 with the Court. All requirements of the Settlement have been satisfied and the Company
has filed the required documents with the court to dismiss the litigation with prejudice.



On
August 31, 2012 the Company received notification that Benee Scola had tendered her resignation from the Board of Directors of
the Company.



On
September 6, 2012 the Company appointed Jason Bodnick to the Board of Directors.  Additionally, the Board of Directors
approved an additional Option Grant for each Board member in the amount of 2 million shares of Common Stock at a strike price
of $0.01 per share vesting over three years.   Lastly, the Board of Directors approved an additional Option Grant
for the CEO and CFO in the amount of 10 million and 5 million shares respectively at a strike price of $0.01 per share vesting
over three years.



On
December 11, 2012 the Gasket Guy, Inc.(the “Seller”) and the Company entered a Stipulation and Settlement Agreement
(the “SSA”)  to end all disputes between the Seller and the Company stemming from the Asset Purchase Agreement
dated September 21, 2011 between the Seller and the Company.  The SSA called for, return of documents, altering the
length and scope of the Seller’s Non-Competition agreement, a payment to the Seller and discharge and release of any and
all claims the Seller may have had against the Company.  During 2013, $25,000 of inventory was tendered to the Seller
in full satisfaction of the SSA.



15







On
December 9, 2013 the Company entered into a Mediated Settlement Agreement on a civil action filed on May 24, 2013 in the Fifteenth
Judicial Circuit Court in and for Palm Beach County, Florida brought by Robert W. Wright and Susan C. Wright as plaintiffs versus
QSGI, Inc. as defendant.  The plantiffs alleged that the Company’s attempted conversion of a $250,000 convertible
note due to the plaintiffs into approximately 11,400,000 shares of QSGI, Inc.’s common stock as part of a merger transaction
on June 17, 2011 was without proper authority.  Plaintiffs claimed that the note had therefore not been converted and
that approximately $323,000 was due and owing on the Note and that interest continued to run at the default rate of prime plus
7.3% until paid. The settlement reached resulted in agreement of a revised principle balance of $275,000 with interest only monthly
payments at an annual interest rate of 5% from January 1, 2014 until June 1, 2016 at which time the principle balance would be
due. The note carries no prepayment penalty and the approximately 11,400,000 shares of QSGI Common Stock are deemed to have never
been delivered.



On
December 13, 2013, the Board of Directors approved an employee Stock Option Grant for approximately 25 million shares at a strike
price of $0.01 vesting over one to five years.



On
February 17, 2014, the Board of Directors approved a contingent vesting schedule where 20% of its 2014 Option Grant will be lost
if an internal Financial Statement deadline is not met on or before June 1, 2014.



|Item 2. | Management’s
Discussion And Analysis Of Financial Condition And Results Of Operations
|------- | -------------------------------------------------------------------------------------



This
following discussion should be read in conjunction with the accompanying financial statements and related notes in Item 1 of this
report as well as Annual Report on Form 10-K for the year ended December 31, 2010.  Certain statements in this Report
constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.  We intend that such
forward-looking statements be subject to the safe harbors created thereby.



All
such forward-looking information involves risks and uncertainties and may be affected by many factors, some of which are beyond
our control.  These factors include:



| | ● | Our
                                                                                                                                                                                                                                                                                                                                                                              growth
                                                                                                                                                                                                                                                                                                                                                                              strategies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Anticipated
                                                                                                                                                                                                                                                                                                                                                                              trends
                                                                                                                                                                                                                                                                                                                                                                              in
                                                                                                                                                                                                                                                                                                                                                                              our
                                                                                                                                                                                                                                                                                                                                                                              business
                                                                                                                                                                                                                                                                                                                                                                              and
                                                                                                                                                                                                                                                                                                                                                                              demographics;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Our
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 ability
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 to
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 successfully
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 integrate
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 the
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 business
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 operations
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 of
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 recently
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 acquired
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 companies;
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Regulatory,
                                                                                                                                                                                                                                                                                                                                                                                     competitive
                                                                                                                                                                                                                                                                                                                                                                                     or
                                                                                                                                                                                                                                                                                                                                                                                     other
                                                                                                                                                                                                                                                                                                                                                                                     economic
                                                                                                                                                                                                                                                                                                                                                                                     influences.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements.  Such factors include, among others, the following:  our continued ability to sustain our growth
through continuing vendor relationships; the successful consummation and integration of future acquisitions; the ability to hire
and retain key personnel; the continued development of our technical, manufacturing, sales, marketing and management capabilities;
relationships with and dependence on third-party suppliers; anticipated competition; uncertainties relating to economic conditions
where we operate; uncertainties relating to government and regulatory policies; uncertainties relating to customer plans and commitments;
rapid technological developments and obsolescence in the products we sell and the industries in which we operate and compete;
existing and potential performance issues with suppliers and customers; governmental export and import policies; global trade
policies; worldwide political stability and economic growth; the highly competitive environment in which we operate; potential
entry of new, well-capitalized competitors into our markets; and changes in our capital structure and cost of capital.  The
words “believe”, “expect”, “anticipate”, “intend” and “plan” and similar
expressions identify forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made.





16







Results
of Operations



Our
revenue is heavily dependant upon companies making decisions to upgrade their information technology infrastructure and our ability
to procure this used equipment at profitable prices.  The result of this dependency compounded by the lack of significant
long-term equipment purchase agreements makes equipment purchases for resale unpredictable.  Revenue for the quarter
ended June 30, 2011 was $1,016,000 compared to revenue of $839,537 for the quarter ended June 30, 2010, an increase of $176,463
or 21.0%. This was primarily the result of one large lot sale of equipment as well as increased volume in our on-line business.



Our
gross profit is heavily dependant upon on a number of factors, most significant of which is the constant changes in supply and
demand dynamics for used information technology equipment.  Our strategy is to minimize downside risk by shortening
the time horizon between procuring and selling our used equipment. Gross profit for the quarter ended June 30, 2011 was $127,394
compared to gross profit of $313,430 for the quarter ended June 30 2010, a decrease of $186,036, or 59.4%. Our gross profit decreased
due to a low margin large lot sale of equipment.



General
and administrative expenses for the quarter ended June 30, 2011 were $234,299 compared to general and administrative expenses
of $221,652 for the quarter ended June 30, 2010, a $12,467 increase, or 5.7%. Expenses increased as a result of costs related
to professional service fees for the KruseCom merger.



Our
Revenue is heavily dependant upon companies making decisions to upgrade their information technology infrastructure and our ability
to procure this used equipment at profitable prices.  The result of this dependency compounded by the lack of significant
long-term equipment purchase agreements makes equipment purchases for resale unpredictable.  Revenue for the six months
ended June 30, 2011 was $1,882,434 compared to revenue of $1,775,304 for the six months ended June 30, 2010, an increase of $107,130
or 6.0%. This was primarily the result of one large lot sale of equipment as well as increased volume in our on-line business.



Our
gross profit is heavily dependant upon on a number of factors, most significant of which is the constant changes in supply and
demand dynamics for used information technology equipment.  Our strategy is to minimize downside risk by shortening
the time horizon between procuring and selling our used equipment. Gross profit for the six months ended June 30, 2011 was $461,253
compared to gross profit of $514,784 for the six months ended June 30 2010, a decrease of $53,531, or 10.4%. Our gross profit
decreased due to a low margin large lot sale of equipment offset by higher margins on remaining sales.



General
and administrative expenses for the six months ended June 30, 2011 were $517,175 compared to general and administrative expenses
of $437,466 for the six months ended June 30, 2010, a $79,709 increase, or 18.2%. Expenses increased as a result of costs related
to professional service fees for the KruseCom merger.



Business
Segments



Since
all of the reporting companies have been sold and have previously been reported as discontinued operations, the company will no
longer be reporting business segments.





17







|Item 3 | Quantitative and
Qualitative Disclosures About Market Risk
|------ | ----------------------------------------------------------



The
Company does not engage in transactions in derivative financial instruments or derivative commodity instruments.  As
of June 30, 2011, the Company’s financial instruments were not exposed to significant market risk due to interest rate risk,
foreign currency exchange risk, commodity price risk or equity price risk.



|Item 4 | Controls and Procedures
|------ | -----------------------



Evaluation
of disclosure controls and procedures



Our
management, with the participation of our Chief Executive Officer, who is also our principal executive and financial officer,
has evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our Chief Executive Officer concluded that, as of June
30, 2011, our disclosure controls and procedures were not effective in ensuring that material information required to be disclosed
in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated
to our management, including our Chief Executive Officer, who serves as our principal executive and financial officer, as appropriate,
to allow timely decisions regarding required disclosure.

Changes
in internal control over financial reporting



Management’s
Report on Internal Control over Financial Reporting related to KruseCom.  Our management is responsible for
establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934.  Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those
policies and procedures that:



| | ● | pertain
    to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
    of our assets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------





18







| | ● | provide
    reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
    with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with
    authorizations of our management and directors; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | provide
    reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
    that could have a material effect on the financial statements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Because
of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



As
a result of the merger with KruseCom, our management assessed the effectiveness of KruseCom’s internal control over financial
reporting as of June 30, 2011, along with its assessment of these controls at QSGI.  In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing
of the operational effectiveness of these controls.  Based on this assessment, our management has concluded that as
of June 30, 2011, KruseCom’s and QSGI’s (collectively, the “Company’s”) internal control over financial
reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles.



Part
II – OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



From
time to time, the Company may be party to legal proceedings which arise generally in the ordinary course of business.  The
Company may be involved in legal proceedings which may have a material adverse affect on the financial position, results of operations
or cash flows of the Company. Therefore estimates of potential impact of legal proceedings on the Company could change in the
future depending upon matters in suit and the course of specific litigation.    All prepetition claims were
brought forward during the Chapter 11 proceedings.  The liability related to the prepetition claims was considered in
the Company’s June 30, 2011 and December 31, 2010 Balance Sheets.



On
January 31, 2011, the Board of Directors of QSGI, INC. unanimously approved the Third Amended Plan of Reorganization and Disclosure
Statement (the “Plan”) to be filed in the United States Bankruptcy Court Southern District of Florida, West Palm Beach
Division.  This was filed on February 1, 2011.



On
February 2, 2011, the United States Bankruptcy Court Southern District of Florida, West Palm Beach Division issued an order approving
the Disclosure Statement, setting hearing on confirmation of Plan, setting hearing on fee applications, setting various deadlines,
and describing Plan proponent’s obligations.



On
March 21, 2011 the United States Bankruptcy Court Southern District of Florida, West Palm Beach Division had a hearing to consider
confirmation of the Debtors’ Third Amended Plan of Reorganization (D.E. # 384) under Chapter 11 of the Bankruptcy Code filed
by QSGI, INC., QSGI-CCSI, INC. and QUALTECH SERVICES GROUP, INC., and dated February 1, 2011 and confirmed the Plan.  The
Chapter 11 Plan of Reorganization was confirmed by the US Bankruptcy Court on May 4, 2011 (the “Effective Date”).



19









Effective
June 30, 2011 (the “Merger Date”), the Company merged its operations with KruseCom, LLC (“KruseCom”),
a privately-held company headquartered in Palm Beach, FL. As part of QSGI’s plan of reorganization, the Company agreed to
merge with KruseCom, whereby QSGI will adopt KruseCom’s operations as its primary business. The members of the KruseCom
via a Share Exchange Agreement (the “Exchange Agreement”) transferred 100% of their ownership interest in KruseCom
to QSGI on the Merger Date in exchange for 190,00,000 shares of QSGI’s common stock. Under generally accepted accounting
principles in the United States of America (“US GAAP”), the share exchange is considered to be a capital transaction
in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by KruseCom
for the net monetary assets of QSGI, accompanied by a recapitalization, and is accounted for as a change in capital structure.
KruseCom’s shareholders will own the majority of the shares and will exercise significant influence over the operating and
financial policies of the consolidated entity. The post reorganization comparative historical financial statements of QSGI and
its wholly owned subsidiary will be the historical financial statements of KruseCom accompanied by a recapitalization. References
to the Company are intended to be for KruseCom



On
August 26, 2011, the Company was notified that the Honorable Erik P. Kimball, United States Bankruptcy Judge, Southern District
of Florida, entered a final decree to close the chapter 11 case. The signing of this order signifies the Company’s emergence
from bankruptcy.



On
November 4, 2011 and pursuant to the Registrant’s Plan of Reorganization, a distribution of $50,000 and 10,000,000 common
shares was to be distributed to Allowed General Unsecured Claim holders to extinguish all unsecured indebtedness.  Additionally,
425,000 common shares are to be distributed for the extinguishment of $4,271,472 in redeemable convertible preferred stock.  All
distributions were to occur no later than 180 days after Plan Confirmation.  The distribution was completed on November
4, 2011, thus increasing the total outstanding shares of the Registrant from 221,172,716 to 231,597,819.



|Item 1A. | Risk Factors
|-------- | ------------



Factors
Affecting Future Operating Results



You
should carefully consider the following risk factors, together with all other information contained or incorporated by reference
in this filing, before you decide to purchase shares of the Registrant’s stock. These factors could cause our future results
to differ materially from those expressed in or implied by forward-looking statements made by us. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also harm our business. The trading price of the Registrant’s
common stock could decline due to any of these risks, and you may lose all or part of your investment.



Uncertainty
of Future Financial Results



Our
future financial results are uncertain. There can be no assurance that we will be profitable, and we may incur losses in the foreseeable
future. Achieving and sustaining profitability depends upon many factors, including our ability to raise capital when needed,
the success of our various marketing programs, and the maintenance or reduction of expense levels.



Fluctuations
In Future Quarterly Results



We
have been in business since October 2009 and have approximately six quarters of historic operating results. Our quarterly operating
results may fluctuate based on how well we manage our business. Some of the factors that may affect how well we manage our business
include the timing of our delivery of significant orders; our ability to engineer customer solutions in a timely, cost effective
manner; our ability to structure our organization to enable achievement of our operating objectives; our ability to meet the needs
of our customers and markets; the ability to deliver, in a timely fashion, products for which we have received orders; the length
of the sales cycle; the demand for products and services we offer; the introduction or announcements by computer manufacturers
relating to the remarketing of new and used equipment; the hiring and training of additional personnel; as well as general business
conditions. If we fail to effectively manage our business, this could adversely affect our results of operations.



20









We
expect that the size and timing of our sales transactions may vary substantially from quarter to quarter, and we expect such variations
to continue in future periods, including the possibility of losses in one or more fiscal quarters. These fluctuations may be caused
by delays in shipping certain computer systems for which we receive orders that we expect to deliver during that quarter. In addition,
our collection periods may fluctuate due to periodic shortages of goods available for shipment, which may result in the delay
of payment from customers who will not pay until their entire order is shipped. Accordingly, it is likely that in one or more
future quarters, our operating results could be below investors’ expectations and, as a result, any future public offering
of shares of the Registrant’s common stock could be materially adversely affected.



Industry
cycles may strain our management and resources



Cycles
of growth and contraction in our industry may strain our management and resources. To manage these industry cycles effectively,
we must: improve operational and financial systems; train and manage our employee base; successfully integrate operations and
employees of businesses we acquire or have acquired; attract, develop, motivate and retain qualified personnel with relevant experience;
and adjust spending levels according to prevailing market conditions. If we cannot manage industry cycles effectively, our business
could be seriously harmed.



We
Have Limited Principal Markets and Customers; We Have Significant Dependence on Major Customers; There Is A Risk of Industry Concentration



We
operate solely in the United States. We sell and deliver computer systems, peripheral devices and parts to more than 300 customers
throughout the United States and on 6 continents worldwide. For periods ended December 31, 2009 and 2010 and March 31, 2011 sales
to our top ten customers comprised 83%, 49% and 54% of revenue respectively. A portion of our revenues is also derived from export
sales. For the periods ended December 31, 2009 and 2010 and March 31, 2011 export sales were 0%, 7% and 3% respectively.



We
cannot be certain that customers that have accounted for significant revenue in past periods will continue to generate revenue.
As a result of this concentration of our customers, our results of operations could be negatively affected if any of the following
occurs: one or more of our customers becomes insolvent or goes out of business; one or more of our key customers significantly
reduces, delays or cancels orders; or one or more of our significant customers selects products or services from one of our competitors.



We
do not have any exclusive long-term arrangements with our customers for the continued sales of our products or services. Our failure
to acquire additional significant or principal customers or to maintain our relationships with our existing principal customers
could have a material adverse effect on our results of operations and cash flows.



Although
we are striving to broaden our market focus to include sales to other markets, both nationally and internationally, in the immediate
future we expect that we will continue to derive a substantial percentage of our sales of product to such brokers and remarketers.
Accordingly, unfavorable economic conditions or factors that relate to these industries, particularly any such conditions that
might result in reductions in capital expenditures or changes in such companies' information processing system requirements, could
have a material adverse effect on our results of operations.



21







We Rely On Merchandise Vendors as Sources for Our Products



The availability
of off-lease and excess inventory computer equipment is unpredictable. We have no long-term arrangements with our vendors that
assure the availability of equipment. We purchase equipment from many different vendors, and we have no formal commitments with
or from any of them. We cannot assure you that our current vendors will continue to sell equipment to us as they have in the past,
or that we will be able to establish new vendor relationships that ensure equipment will be available to us in sufficient quantities
and at favorable prices. If we are unable to obtain sufficient quantities of equipment at favorable prices, our business will be
adversely affected. In addition, we may become obligated to deliver specified types of computer equipment in a short time period
and, in some cases, at specified prices. Because we have no formal relationships with vendors, we may not be able to obtain the
required equipment in sufficient quantities in a timely manner, which could adversely affect our ability to fulfill these obligations.



We Are Subject To Risks That Our
Inventory May Decline In Value Before We Sell It or That We May Not Be Able To Sell the Inventory at the Prices We Anticipate



We purchase and
warehouse inventory, most of which is “as-is” or excess inventory of computer equipment. As a result, we assume inventory
risks and price erosion risks for these products. These risks are especially significant because computer equipment generally is
characterized by rapid technological change and obsolescence. These changes affect the market for refurbished or excess inventory
equipment. Our success will depend on our ability to purchase inventory at attractive prices relative to its resale value and our
ability to turn our inventory rapidly through sales. If we pay too much or hold inventory too long, we may be forced to sell our
inventory at a discount or at a loss or write down its value, and our business could be materially adversely affected.



Declining Prices for New Computer
Equipment Could Reduce Demand for Our Products



The cost of new
computer equipment has declined dramatically in recent years. As the price of new computer products declines, consumers may be
less likely to purchase refurbished computer equipment unless there is a substantial discount to the price of the new equipment.
Accordingly, if we were to sell “as-is” or refurbished equipment directly to end users, we would have to offer the
products at a substantial discount to the price of new products. As prices of new products continue to decrease, our revenue, profit
margins and earnings could be adversely affected. There can be no assurance that we will be able to maintain a sufficient pricing
differential between new products and our “as-is” or refurbished products to avoid adversely affecting our revenues,
profit margins and earnings.



If We Need Additional Financing
for Unanticipated Working Capital Needs or To Finance Acquisitions, We May Not Be Able To Obtain Such Capital, Which Could Adversely
Affect Our Ability to Achieve Our Business Objectives



Since Inception,
we have been able to generate sufficient funds from its operations to pay for its operating expenses. However, we may need to raise
additional funds to finance unanticipated working capital requirements or to carry out its business plan. If funds are not available
when required for unanticipated working capital needs or other transactions, our ability to carry out our business plan could be
adversely affected, and we may be required to scale back operations to reflect the extent of available funding.



We may make acquisitions in the
future, if advisable, and these acquisitions involve numerous risks.



Our growth depends
upon market growth and our ability to enhance our existing products and services, and to introduce new products and services on
a timely basis. One of the ways to accomplish this is through acquisitions. Acquisitions involve numerous risks, including, but
not limited to, the following:



| | ● | difficulty and increased costs in assimilating employees, including our possible inability to keep and retain key employees of the acquired business;         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                               
| | ● | disruption of our ongoing business;                                                                                                                           
| |   |                                                                                                                                                               
| | ● | discovery of undisclosed liabilities of the acquired companies and legal disputes with founders or shareholders of acquired companies;                        
| |   |                                                                                                                                                               
| | ● | inability to successfully incorporate acquired technology and operations into our business and maintain uniform standards, controls, policies, and procedures;
| |   |                                                                                                                                                               
| | ● | inability to commercialize acquired technology;                                                                                                               
| |   |                                                                                                                                                               
| | ● | the need to take impairment charges or write-downs with respect to acquired assets and                                                                        
| |   |                                                                                                                                                               
| | ● | the failure of the acquired entity to perform as anticipated.                                                                                                 



22









If We Experience Problems in Our
Distribution Operations, We Could Lose Customers



In addition to product
vendors, we depend on several other third parties over whom we have limited control, including, in particular, Federal Express,
United Parcel Service and common carriers for delivery of products to and from our distribution facility and to our customers.
We have no long-term relationships with any of those parties. We are therefore subject to risks, including risks of employee strikes
and inclement weather, which could result in failures by such carriers to deliver products to our customers in a timely manner,
which could damage our reputation and name.



The Industry in Which We Compete
In Is Highly Competitive



We face competition
in each area of our business. Some of our competitors have greater resources and a more established market position than we have.
Our primary competitors include:



| | ● | major manufacturers of computer equipment such as, Dell Computer Corporation, Hewlett Packard and IBM, each of which offer “as-is”, refurbished and new equipment through their websites and direct e-mail broadcast campaigns;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                
| | ● | privately and publicly owned businesses such as Redemtech, Intechra and Tech Turn that offer asset management and end-of-life product refurbishment and remarketing services;                                                  
| |   |                                                                                                                                                                                                                                
| | ● | traditional store-based computer retailers, such as Best Buy Co., Inc., and                                                                                                                                                    
| |   |                                                                                                                                                                                                                                
| | ● | online competitors and auction sites, such as e-Bay                                                                                                                                                                            



Some competitors
have longer operating histories, larger customer or user bases, greater brand name recognition and significantly greater financial,
marketing and other resources than we do. Some of these competitors already have an established brand name and can devote substantially
more resources to increasing brand name recognition and product acquisition than we can. In addition, larger, well-established
and well-financed entities may join with online competitors or computer manufacturers or suppliers as the use of the Internet and
other online services increases. Our competitors may be able to secure products from vendors on more favorable terms, fulfill customer
orders more efficiently or adopt more aggressive price or inventory availability policies than we can. Traditional store-based
retailers also enable customers to see and test products in a manner that is not possible in the wholesale business. Our product
offerings must compete with other new computer equipment and related products offered by our competitors. That competition may
intensify if prices for new computers continue to decrease.



No Distributions; Issuance of
Preferred Classes of Members



We do not have a
history of paying distributions to our investors, and there can be no assurance that dividends will be paid in the foreseeable
future by the Registrant. We intend to use any earnings, which may be generated to finance the growth of our businesses. The Registrant’s
Board of Directors has the right to authorize the issuance of preferred stock, without further shareholder approval, the holders
of which may have preferences over the holders of the Common Stock as to payment of dividends.





23









The Registrant’s common
stock is illiquid and subject to price volatility unrelated to our operations.



If a market for
the Registrant’s common stock does develop, its market price could fluctuate substantially due to a variety of factors, including
market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry,
trading volume in Registrant’s common stock, changes in general conditions in the economy and the financial markets or other
developments affecting us or our competitors. In addition, the stock market itself is subject to extreme price and volume fluctuations.
This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to
their operating performance and could have the same effect on the Registrant’s common stock.



A large number of shares may be
eligible for future sale and may depress the Registrant’s stock price.



The Registrant may
be required, under terms of future financing arrangements, to offer a large number of common shares to the public, or to register
for sale by future private investors a large number of shares sold in private sales to them.



Sales of substantial
amounts of common stock, or a perception that such sales could occur, and the existence of options or warrants to purchase shares
of common stock at prices that may be below the then-current market price of the Registrant’s common stock, could adversely
affect the market price of our common stock and could impair Registrant’s ability to raise capital through the sale of our
equity securities, either of which would decrease the value of any earlier investment in our common stock.



Dependence on Key Individuals



Our success depends
to a significant extent upon the continued contributions of our key management, technical and sales personnel, many of who would
be difficult to replace. The loss of one or more of these employees could harm our business. Although we have entered into a limited
number of employment contracts with certain executive officers, we generally do not have long term employment contracts with our
key employees. Our success also depends on our ability to identify, attract and retain qualified technical, sales, marketing, finance
and managerial personnel. Competition for qualified personnel is particularly intense in our industry and in our locations. This
makes it difficult to retain our key personnel and to recruit highly qualified personnel. We have experienced, and may continue
to experience, difficulty in hiring and retaining candidates with appropriate qualifications. To be successful, we need to hire
candidates with appropriate qualifications and retain our key executives and employees.



We are organized
with a small senior management team. If we were to lose the services of one of the following members of our management team, our
overall operations could be adversely affected. We consider our key individuals as of this filing to be:



| | ● | Marc Sherman, Chairman, Chief Executive Officer, Director
| | - | ---------------------------------------------------------



| | ● | David Meynarez, Chief Financial Officer, Treasurer, Director
| | - | ------------------------------------------------------------



Anti-Takeover Provisions



Certain provisions
of the Registrant’s Amended and Restated Certificate of Incorporation, Amended and Restated By-laws and Delaware law may
be deemed to have an anti-takeover effect. The Registrant’s certificate of incorporation provides that its Board of Directors
may issue additional shares of Common Stock or establish one or more classes or series of Preferred Stock with such designations,
relative voting rights, dividend rates, liquidation and other rights, preferences and limitations that the Board of Directors fixes
without stockholder approval. In addition, the Registrant is subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after the date of the transaction in which
the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Each of the foregoing
provisions may have the effect of rendering more difficult, delaying, discouraging, preventing or rendering more costly an acquisition
of QSGI or a change in control of QSGI.



24









|Item 2.  |                                                                           | Unregistered sales of equity securities and Use of Proceeds
|-------- | ------------------------------------------------------------------------- | -----------------------------------------------------------
|         |                                                                           |                                                            
|         |                                                                           | None                                                       
|         |                                                                           |                                                            
|Item 3.  |                                                                           | Defaults Upon Senior Securities                            
|         |                                                                           |                                                            
|         |                                                                           | Not applicable.                                            
|         |                                                                           |                                                            
|Item 4.  |                                                                           | Submission of Matters to a Vote of Security Holders        
|         |                                                                           |                                                            
|         |                                                                           | None                                                       
|         |                                                                           |                                                            
|Item 5.  |                                                                           | Other Information                                          
|         |                                                                           |                                                            
|         |                                                                           | None                                                       
|         |                                                                           |                                                            
|Item 6.  |                                                                           | Exhibits                                                   
|         |                                                                           |                                                            
|Exhibits
|         | See List of Exhibits filed as part of this quarterly report on Form 10-Q.





25







SIGNATURE



In accordance with the requirements of
the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                         | QSGI INC. Inc.
        (Registrant)
|------------------------ | -----------------------------------
|Dated:   August 26, 2014 | By:                                
|                         |                                    
|                         |                                    





26







List Of Exhibits



|Exhibit
        Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                              
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|2.1                    |  | Agreement and plan of Merger by and among Windsortech, Inc., Qualtech International Corporation and Qualtech Service Group, Inc. dated May 1, 2004.                                                                                                                                                                                                                                                      
|3.1                    |  | Certificate of Amendment of Certificate of Incorporation of WindsorTech, Inc. **                                                                                                                                                                                                                                                                                                                         
|3.2                    |  | Amended and Restated ByLaws of WindsorTech, Inc. (Incorporated herein reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).                                                                                                                                                                     
|3.3                    |  | Action by Consent in Writing of a Majority of Stockholders dated May 19, 2004 concerning Amended and Restated By Laws.                                                                                                                                                                                                                                                                                   
|3.4                    |  | Action by Consent in Writing of a Majority of Stockholders dated September 17, 2004 increasing the number of shares of the Corporation                                                                                                                                                                                                                                                                   
|4.1                    |  | Specimen Common Stock Certificate of WindsorTech, Inc. (Incorporated herein reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).                                                                                                                                                               
|4.2***                 |  | Form of Stock Purchase Agreements with Barron Partners, L.P., Guerrilla Capital, and Odin Partners et al. dated May 26, 2004.                                                                                                                                                                                                                                                                            
|4.3***                 |  | Form of Registration Rights Agreements with Barron Partners, L.P., Guerrilla Capital, and Odin Partners et al. dated May 26, 2004.                                                                                                                                                                                                                                                                       
|4.4***                 |  | Form of Common Stock Purchase Warrant at $1.50 per share dated May 28, 2004.                                                                                                                                                                                                                                                                                                                             
|4.5***                 |  | Form of Common Stock Purchase Warrant at $3.60 per share dated May 28, 2004                                                                                                                                                                                                                                                                                                                              
|4.6                    |  | Form of Registration Rights Agreement with Joel Owens and Jolene Owens dated May 1, 2004.                                                                                                                                                                                                                                                                                                                
|10.1*                  |  | Employment and Non-Compete Agreement – Edward L. Cummings **                                                                                                                                                                                                                                                                                                                                             
|10.2*                  |  | Employment and Non-Compete Agreement – David A. Loppert **                                                                                                                                                                                                                                                                                                                                               
|10.3*                  |  | Employment and Non-Compete Agreement – Carl C. Saracino **                                                                                                                                                                                                                                                                                                                                               
|10.4*                  |  | Employment and Non-Compete Agreement – Michael P. Sheerr **                                                                                                                                                                                                                                                                                                                                              
|10.5*                  |  | Employment and Non-Compete Agreement – Marc Sherman **                                                                                                                                                                                                                                                                                                                                                   
|10.6*                  |  | 2002 Flexible Stock Plan (Incorporated herein reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on April 16, 2002 (Commission file number 000-07539)).                                                                                                                                                                                             
|10.7                   |  | Lease Agreement (Incorporated herein reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).                                                                                                                                                                                                     
|10.8                   |  | Employment and Non-Compete Agreement – Joel Owens                                                                                                                                                                                                                                                                                                                                                        
|10.9**                 |  | Employment and Non-Compete Agreement – Seth A. Grossman                                                                                                                                                                                                                                                                                                                                                  
|10.10**                |  | Credit Agreement by and among Windsortech, Inc., Qualtech International Corporation, Qualtech Services Corporation and Fifth Third Bank.                                                                                                                                                                                                                                                                 
|16.1                   |  | Letter
    from Milton Reece, CPA (“Reece”) concurring with the statements made by the Registrant in the Current Report on
    Form 8-K reporting Reece’s resignation as the Registrant’s principal accountant (incorporated herein by reference
    to Exhibit 16 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2002 (Commission
    file number 000-07539)).
|31.1***                |  | Chief Executive Officer
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                      
|32.1***                |  | Certification of Chief
    Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                         





|* |  | Management contract or compensatory
plan.
|- |  | -----------------------------------------

| |  | 
| |  | 

|** |  | Incorporated herein by reference
to the same numbered exhibit in the Registrant’s Transition Report on Form 10-KSB filed with the Commission on April 1,
2002 (Commission file number 000-07539).
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

|*** |  | Attached hereto.
|--- |  | ----------------



There
are no other documents required to be filed as an Exhibit as required by Item 601 of Regulation S-K.





27



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