As filed
with the Securities and Exchange Commission on May 14, 2008








UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-Q





[X]QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACT OF 1934


For the
quarterly period ended March 31, 2008





OR





[  ]TRANSITION 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.


(Exact
name of registrant as specified in its charter)





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





400
Royal Palm Way, Palm Beach, FL  33480


(Address
of Principal Executive Offices)





(561)
426-4666


(Issuer’s
Telephone Number)





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.Yes [X]  No  [ 
]





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





Large
      accelerated filer   [  ]
            
            Accelerated
      filer   [  ]
            
            Non-accelerated filer  
      [X]





Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).Yes[  ]  No
[X]





The
number of outstanding common shares, par value $.01, of the registrant as of May
1, 2008 was 31,172,716.







QSGI
      INC.TABLE
      OF CONTENTSItem
            Description
            PagePART
      I – FINANCIAL INFORMATION1.
            Financial
      Statements (all
      unaudited)Condensed
      Consolidated Balance Sheets –
              March
      31, 2008 and December 31, 2007
            1Condensed
      Consolidated Statements of Operations –
              Three
      Months Ended March 31, 2008 and 2007
            2Condensed
      Consolidated Statement of Stockholders’ Equity –
              Three
      Months Ended March 31, 2008
            3Condensed
      Consolidated Statements of Cash Flows –
              Three
      Months Ended March 31, 2008 and 2007
            4Notes
      to Condensed Consolidated Financial Statements
            52.
            Management’s
      Discussion and Analysis of Financial Condition
              and
      Results of Operations
            83.
            Quantitative
      and Qualitative Disclosures About Market Risk
            164.
            Controls
      and Procedures
            16PART
      II – OTHER INFORMATION1.
            Legal
      Proceedings
            171A.
            Risk
      Factors
            172.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            173.
            Defaults
      Upon Senior Securities
            184.
            Submission
      of Matters to a Vote of Security Holders
            185.
            Other
      Information
            186.
            Exhibits
            18SIGNATURES
            19EXHIBITS
            20




i
 PART
I                      
FINANCIAL INFORMATION
 Item
1.                      
Financial Statements
 
 QSGI
INC.





CONDENSEDCONSOLIDATED BALANCE SHEETS


(Unaudited)


March
      31,
            
            
            December
      31,2008
            
            
            2007AssetsCurrent
      AssetsCash
      and cash equivalents
            
            $
            416,841
            
            
            $
            127,723Accounts receivable, net of
      reserve of $1,026,824 and $955,599 in 2008 and 2007,
      respectively
            
            
            3,518,100
            
            
            
            3,853,362Inventories
            
            
            6,031,588
            
            
            
            6,578,031Prepaid
      expenses and other assets
            
            
            132,190
            
            
            
            163,553Total Current
      Assets
            
            
            10,098,719
            
            
            
            10,722,669Property
      and Equipment, Net
            
            
            262,200
            
            
            
            286,766Goodwill
            
            
            1,489,621
            
            
            
            1,489,621Intangibles,
      Net
            
            
            430,085
            
            
            
            470,348Other
      Assets
            
            
            567,595
            
            
            
            448,066$
            12,848,220
            
            
            $
            13,417,470Liabilities
      And Stockholders’ EquityCurrent
      LiabilitiesRevolving
      line of credit
            
            $
            3,575,297
            
            
            $
            3,754,061Accounts
      payable
            
            
            2,099,110
            
            
            
            1,109,940Accrued
      expenses
            
            
            399,136
            
            
            
            654,461Accrued
      payroll
            
            
            180,261
            
            
            
            88,818Deferred
      revenue
            
            
            389,754
            
            
            
            439,865Other
      liabilities
            
            
            200,534
            
            
            
            311,610Total Current
      Liabilities
            
            
            6,844,092
            
            
            
            6,358,755Long-Term
      Deferred Revenue
            
            
            40,476
            
            
            
            142,772Deferred
      Income Taxes
            
            
            27,300
            
            
            
            27,300Total
    Liabilities
            
            
            6,911,868
            
            
            
            6,528,827Redeemable
      Convertible Preferred Stock
            
            
            4,243,384
            
            
            
            4,238,685Stockholders’
      EquityPreferred
      shares: Authorized 5,000,000 shares in 2008and
      2007, $0.01 par value, none issued
            
            
            –
            
            
            
            –Common
      shares: authorized 95,000,000 shares in 2008 and 2007, $0.01 par value;
      31,172,716 shares issued and outstanding in 2008 and 2007
            
            
            311,727
            
            
            
            311,727Additional
      paid-in capital
            
            
            14,067,994
            
            
            
            14,134,298Retained
      earnings (deficit)
            
            
            (12,686,753
            )
            
            
            (11,796,067
            )Total Stockholders’
      Equity
            
            
            1,692,968
            
            
            
            2,649,958$
            12,848,220
            
            
            $
            13,417,470


See the
accompanying notes to condensed consolidated financial
statements.
 Page
1
 QSGI
INC.





CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS


For
The Three Months Ended March 31, 2008 and 2007


(Unaudited)


Three
      Months Ended
              March
      31,2008
            
            
            2007Product
      Revenue
            
            $
            6,272,283
            
            
            $
            7,955,169Service
      Revenue
            
            
            1,933,293
            
            
            
            1,438,998Total
      Revenue
            
            
            8,205,576
            
            
            
            9,394,167Cost
      Of Products Sold
            
            
            5,963,828
            
            
            
            6,174,156Cost
      Of Services Sold
            
            
            670,074
            
            
            
            542,929Total
      Cost Of Sales
            
            
            6,633,902
            
            
            
            6,717,085Gross
      Profit
            
            
            1,571,674
            
            
            
            2,677,082Selling,
      General And Administrative Expenses
            
            
            2,272,068
            
            
            
            2,614,896Depreciation
      And Amortization
            
            
            107,387
            
            
            
            172,008Interest
      Expense, net
            
            
            56,649
            
            
            
            87,839Loss
      Before Provision (Benefit) For Income Taxes
            
            
            (864,430
            )
            
            
            (197,661
            )Provision
      (Benefit) For Income Taxes
            
            
            26,256
            
            
            
            (58,819
            )Net
      Loss
            
            
            (890,686
            )
            
            
            (138,842
            )Preferred
      Stock Dividends
            
            
            (64,324
            )
            
            
            (63,616
            )Accretion
      To Redemption Value of Preferred Stock
            
            
            (4,699
            )
            
            
            (4,426
            )Net
      Loss Available to Common Stockholders
            
            $
            (959,709
            )
            
            $
            (206,884
            )Net
      Loss Per Common Share – Basic
            
            $
            (0.03
            )
            
            $
            (0.01
            )Net
      Loss Per Common Share – Diluted
            
            $
            (0.03
            )
            
            $
            (0.01
            )Weighted
      Average Number Of Common Shares Outstanding –Basic
            
            
            31,172,716
            
            
            
            31,172,716Weighted
      Average Number Of Common Shares Outstanding –Diluted
            
            
            31,172,716
            
            
            
            31,172,716  See the
accompanying notes to condensed consolidated financial
statements.
 Page
2
 QSGI
INC.


CONDENSEDCONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY


For
The Three Months Ended March 31, 2008


(Unaudited)







Additional
            
            
            Retained
            
            
            TotalCommon
      Stock
            
            
            Paid-in
            
            
            Earnings
            
            
            Stockholders’Number
            
            
            Amount
            
            
            Capital
            
            
            (Deficit)
            
            
            EquityBalance
      (Deficit) - December 31, 2007
            
            
            31,172,716
            
            
            $
            311,727
            
            
            $
            14,134,298
            
            
            $
            (11,796,067
            )
            
            $
            2,649,958Stock
      Option Compensation
            
            
            –
            
            
            
            –
            
            
            
            2,719
            
            
            
            –
            
            
            
            2,719Preferred
      Stock Dividends
            
            
            –
            
            
            
            –
            
            
            
            (64,324
            )
            
            
            –
            
            
            
            (64,324
            )Accretion
      To Redemption Value Of Preferred Stock
            
            
            –
            
            
            
            –
            
            
            
            (4,699
            )
            
            
            –
            
            
            
            (4,699
            )Net
      Loss
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (890,686
            )
            
            
            (890,686
            )Balance
      (Deficit) – March 31, 2008
            
            
            31,172,716
            
            
            $
            311,727
            
            
            $
            14,067,994
            
            
            $
            (12,686,753
            )
            
            $
            1,692,968








See the
accompanying notes to condensed consolidated financial
statements.
 Page
3
 QSGI
INC.





CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS


For
The Three Months Ended March 31, 2008 and 2007


(Unaudited)





2008
            
            
            2007Cash
      Flows From Operating ActivitiesNet Loss
            
            $
            (890,686
            )
            
            $
            (138,842
            )Adjustments to reconcile net
      loss to net cash provided by operating activities:Depreciation and
      amortization
            
            
            107,387
            
            
            
            172,008Stock option compensation
      expense
            
            
            2,719
            
            
            
            3,650Deferred income
      taxes
            
            
            –
            
            
            
            (70,986
            )Provision for doubtful
      accounts
            
            
            90,512
            
            
            
            30,000Changes in assets and
      liabilities:Accounts
    receivable
            
            
            244,750
            
            
            
            2,228,351Inventories
            
            
            546,443
            
            
            
            (3,247,864
            )Prepaid expenses and other
      assets
            
            
            (104,444
            )
            
            
            (67,263
            )Accounts payable and accrued
      expenses
            
            
            561,804
            
            
            
            1,205,548Net
      Cash Provided by Operating Activities
            
            
            558,485
            
            
            
            114,602Cash
      Used In Investing ActivitiesPurchases of property and
      equipment
            
            
            (26,279
            )
            
            
            (29,575
            )Net
      Cash Used In Investing Activities
            
            
            (26,279
            )
            
            
            (29,575
            )Cash
      Flows From Financing ActivitiesPayment for financing
      costs
            
            
            –
            
            
            
            (101,828
            )Net amounts borrowed (paid)
      under revolving lines of credit
            
            
            (178,764
            )
            
            
            380,040Preferred stock
      dividends
            
            
            (64,324
            )
            
            
            (63,616
            )Net
      Cash Provided By (Used In) Financing Activities
            
            
            (243,088
            )
            
            
            214,596Net
      Increase In Cash And Cash Equivalents
            
            
            289,118
            
            
            
            299,623Cash
      And Cash Equivalents – Beginning Of Period
            
            
            127,723
            
            
            
            632,948Cash
      And Cash Equivalents – End of Period
            
            $
            416,841
            
            
            $
            932,571





See the
accompanying notes to condensed consolidated financial
statements.
 Page
4





NOTESTO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


(Unaudited)




1.
            Basis
      of Presentation




The
accompanying unaudited condensed consolidated financial statements of QSGI INC.
(“QSGI” or the “Company”) as of March 31, 2008 and December 31, 2007 and for the
three months ended March 31, 2008 and 2007 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 months ended March
31, 2008 is not necessarily indicative of the results that may be expected for
the entire year ending December 31, 2008.  These statements should be
read in conjunction with the financial statements and related notes thereto
included in our Annual Report on Form 10-K for the year ended December 31,
2007.




These
unaudited condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern and, accordingly, do
not include any adjustments that might result from the outcome of this
uncertainty. The independent registered public accounting firm’s report on the
consolidated financial statements included in the Company’s annual report on
Form 10-K for the year ended December 31, 2007 contained an explanatory
paragraph regarding the uncertainty of the Company’s ability to continue as a
going concern.




2.
            Summary
      of Significant Accounting Policies




Business
Organization




We are a
technology services and maintenance company.  Our Data Center
Maintenance and Hardware services as well as our Data Security and Compliance
services are geared towards both the users of enterprise-class hardware
(mainframes, midrange processors, large storage, controllers, etc.) as well as
the users of business-computing hardware (desktops, laptops, related peripherals
and servers).  We use the trade name “QSGI” in order to build cohesion
among the various technology services that we offer and build brand recognition
and preference through strong cross-marketing opportunities.





Segments





Our
company operates in three segments that clearly focus our services into
easy-to-understand categories for our target customers:





A.
            Data
      Center Maintenance





We
provide hardware maintenance services for enterprise-class hardware and
associated peripheral products and Data Center consulting to companies
throughout the United States.





B.
            Data
      Center Hardware





5


We are a
reseller of refurbished enterprise-class hardware and associated peripheral
products to companies.  We remarket refurbished IBM mainframe
processors, IBM midrange processors and associated peripheral products including
tape and disk products and connectivity products.





C.
            Data
      Security and Compliance





We
provide data security and regulatory compliance services for end-of-life
business-computing Information Technology (IT) assets.  We offer a
variety of solutions to companies whose business computing technologies
(desktops, laptops, printers, servers and enterprise storage systems) have come
to the end of their life cycle.  These services include:


- Data
erasure to Department of Defense standards for hard drives


- Asset
Auditing/Life Cycle Management, which allows customers to minimize their overall
IT expenditure and maximize their return on investment.


- IT
asset remarketing for IT assets with market value


-
Environmental compliance (proper recycling or safe disposal) for IT
assets





These
services can be custom tailored to meet our customers' needs and implemented at
QSGI facilities or at one client location or at multiple client-site locations,
through the use of one of our client-site solutions including our mobile audit
and erasure truck and our client suitcase server.





Across
all three segments, we purchase excess, used, off-lease and refurbished hardware
from a variety of sources including Fortune 1000 companies, as well as leasing
and finance companies.




The
Company has office and warehouse space in Hightstown, New Jersey, and Eagan,
Minnesota, and technical coverage and sales offices in 20 other states including
Arkansas, Colorado, Illinois, Indiana, Kansas, Maine, Missouri, Michigan,
Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Washington DC, Wisconsin and Wyoming.




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.




Earnings
(Loss) Per Share




Basic
earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding.  Diluted earnings per share is
computed on the basis of the weighted average number of common shares
outstanding plus the effect of all dilutive potential common shares that were
outstanding during the period.  A reconciliation of shares used
calculating basic and diluted earnings per share for the three months ended
March 31, 2008 and 2007 are as follows:




6


Three
      Months Ended March 31,2008
            2007Basic
            31,172,716
            31,172,716Stock
      options
            –
            –Stock
      warrants
            –
            –Redeemable
      preferred stock
            –
            –Diluted
            31,172,716
            31,172,716




For the
three months ended March 31, 2008 and 2007, the Company excluded weighted
average common share equivalents related to stock options of 970,740 and
1,073,431, respectively and weighted average common share equivalents related to
redeemable preferred stock of 1,911,111 and 1,911,111, respectively because
their effect would be anti-dilutive.




3.
            Inventories




Inventories
at March 31, 2008 and December 31, 2007 consist of:




2008
            
            
            2007Finished
      goods
            
            $
            6,025,676
            
            
            $
            6,120,473Inventory
      in transit
            
            
            367,912
            
            
            
            708,558Allowance
      for excess and obsolescence
            
            
            (362,000
            )
            
            
            (251,000
            )$
            6,031,588
            
            
            $
            6,578,031




4.           Financing




On
February 6, 2008, Wells Fargo Bank notified the Company that although the
Company has performed its monetary obligations pursuant to its credit facility,
the Company did not meet certain operating metrics in its credit facility for
the fiscal year ended December 31, 2007.   While Wells Fargo Bank
has indicated to the Company that such an event constitutes a default under the
credit facility, management believes that the Company and the Bank continue to
work together in a cooperative and constructive manner.  Wells Fargo
Bank has charged the Company a fee of $20,000 for maintaining the existing
credit facility and notified the Company that it will amend its borrowing rate
to that of the prime rate plus 2.5%.  On May 7, 2008, Wells Fargo Bank
notified the Company that it was increasing the interest on the loan to prime
plus 4.5% (9.50% at March 31, 2008). Should the Company come back into
compliance, interest will be reduced to the prime rate.  Availability
on the borrowing base at March 31, 2008 was $525,067.




At March
31, 2008, the Company did not meet certain debt covenants, and continues to be
in default.  As the Company is in default under its line-of-credit
agreement and the lender has the right to terminate the agreement causing all
amounts to become immediately due and payable, the Company is pursuing certain
options such as negotiating new terms with the current financial institution or
other financial institutions.




To induce
Wells Fargo Bank to continue to grant loans, advances and extensions of credit
to the Company, the Company has offered to engage a consultant chosen by the
Company but acceptable to the Bank to evaluate the Company's business model and
report findings and make recommendations with respect to the Company's
business.  The Company has advised the Bank that it intends to
implement the changes recommended by the consultant.  The Company will
bear the expense of the consultant.




7




5.           SegmentInformation




The
Company operates in three business segments:  Data Security &
Compliance, Data Center Hardware, and Data Center Maintenance.  The
segments are presented in a manner consistent with how the chief operating
decision maker and executive management view the businesses, how the businesses
are organized as to segment management and the focus of the businesses with
regards to the types of products and services offered and the target
market.  Each of our segments is more fully described in Note 2 to our
Condensed Consolidated Financial Statements.




Three
      Months Ended
              March
      31,2008
            
            
            2007RevenuesData
      Security and Compliance
            
            $
            5,643,836
            
            
            $
            4,266,324Data
      Center Hardware
            
            
            883,934
            
            
            
            3,807,792Data
      Center Maintenance
            
            
            1,681,181
            
            
            
            1,348,180Intersegment
      Elimination
            
            
            (3,375
            )
            
            
            (28,129
            )Consolidated
      Total
            
            $
            8,205,576
            
            
            $
            9,394,167Income
      (loss) before Provision (Benefit) for Income TaxesData
      Security and Compliance
            
            $
            (1,048,421
            )
            
            $
            (726,868
            )Data
      Center Hardware
            
            
            (360,997
            )
            
            
            264,932Data
      Center Maintenance
            
            
            544,988
            
            
            
            264,275Consolidated
      Total
            
            $
            (864,430
            )
            
            $
            (197,661
            )




6.          PendingBusiness
Acquisition




On May 7,
2008, the Company announced that it had signed a stock purchase agreement to
acquire Contemporary Computer Services, Inc. (CCSI) for $10.6 million plus an
additional stock earn out based on CCSI achieving certain performance
milestones.  The purchase price for CCSI will be financed primarily
through a combination of both senior and seller financing as well as 3.5 million
shares of common stock.  In connection with the transaction, the
Company anticipates issuing warrants to purchase 12 million shares of common
stock at a purchase price of $0.30 per share.




Item2.  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,
2007.  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




8


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.




Results
of Operations




The
following table sets forth our results of operations as a percentage of total
revenue for the periods indicated below and is derived from the unaudited
Condensed Consolidated Statement of Operations in Part 1, Item 1 of this
report.




Three
      Months Ended
              March
      31,2008
            
            
            2007%
            
            
            %Product
      Revenue
            
            
            76.4
            
            
            
            84.7Service
      Revenue
            
            
            23.6
            
            
            
            15.3Total
      Revenue
            
            
            100.0
            
            
            
            100.0Cost
      Of Products Sold
            
            
            72.6
            
            
            
            65.7Cost
      Of Services Sold
            
            
            8.2
            
            
            
            5.8Cost
      Of Products and Services Sold
            
            
            80.8
            
            
            
            71.5Gross
      Profit
            
            
            19.2
            
            
            
            28.5Selling,
      General And Administrative Expenses
            
            
            27.7
            
            
            
            27.8Depreciation
      And Amortization
            
            
            1.3
            
            
            
            1.9Interest
      Expense, net
            
            
            0.7
            
            
            
            0.9Loss
      Before Benefit For Income Taxes
            
            
            (10.5
            )
            
            
            (2.1
            )Provision
      (Benefit) For Income Taxes
            
            
            0.3
            
            
            
            (0.6
            )Net
      Loss
            
            
            (10.8
            )
            
            
            (1.5
            )




9


Quarter
Ended March 31, 2008 Compared to Quarter Ended March 31, 2007




Revenue
for the quarter ended March 31, 2008 was $8,205,576 compared to revenue of
$9,394,167 for the quarter ended March 31, 2007, an $1,188,591 increase, or
12.7%.   Revenue in our Data Security and Compliance segment
increased to $5,643,836 from $4,266,324, a $1,377,512 increase, or
32.3%.  This was primarily the result of an increase in our wholesale
remarketing revenues as the amount of product available for purchase from our
suppliers increased.  This was coupled with an increase of 177% in our
Data Security and Compliance services revenue which increased to $253,812 for
the quarter ended March 31, 2008 from $91,718 for the quarter ended March 31,
2007.  We anticipate that future quarter's service revenue should
continue to increase as a result of the client relationships we continue to
build.  Revenue in our Data Center Maintenance segment increased to
$1,681,181 from $1,348,180, a $333,001 increase, or 24.7%.  This was
the result of signing additional service contracts with new and existing
customers during 2007 and early 2008 that will continue through
2008.  Revenue in our Data Center Hardware segment during the quarter
decreased to $883,934 from $3,807,792, a $2,923,858 decrease, or
76.8%.  Revenues decreased substantially due to onerous restrictions
instituted during the 3rd quarter of 2007 by a major OEM.  These
restrictions since their inception have had an adverse financial impact on the
Data Center Hardware segment, as well as the Company.




Our
revenues categorized by products and services are as follows:




Three
      Months Ended
            
            
            Three
      Months EndedMarch
      31, 2008
            
            
            March
      31, 2007RevenueProducts
            
            $
            6,272,283
            
            
            $
            7,955,169Services
            
            
            1,933,293
            
            
            
            1,438,998Total
      Revenue
            
            $
            8,205,576
            
            
            $
            9,394,167




In our
industry, the overall management of the computer equipment throughout its life
cycle represents a growing burden on companies.  The continual growth
of liability concerns associated with IT assets and the compliance with
relatively new government legislation is what is going to have the biggest
impact on the Company’s future revenues and profits.  Our business has
been built to keep companies in compliance with government legislation including
HIPAA, Sarbanes-Oxley, the FACT Act, Gramm-Leach-Bliley, the Patriot Act or
federal and state EPA regulations.  As increasing numbers of computers
are replaced or become obsolete, there is a greater source of computer equipment
that is available for resale and a potentially greater source of customers
needing our services.




Gross
profit for the quarter ended March 31, 2008 was $1,571,674 compared to a gross
profit of $2,677,082 for the quarter ended March 31, 2007, a $1,105,408
decrease, or 41.3%.  Gross profit for the quarter ended March 31, 2008
decreased over the quarter ended March 31, 2007 as a result of a $1,004,514
decrease in gross profit in our Data Center Hardware segment as well as a
$349,869 decrease in gross profit in our Data Security and Compliance
segment.  This was offset by a 28.6% increase in




10


gross
profit at our Data Center Maintenance segment where gross profit increased to
$1,118,421 for the quarter ended March 31, 2008 from $869,446 for the quarter
ended March 31, 2007.




Gross
margins for the quarter ended March 31, 2008 were 19.2% compared to 28.5% for
the quarter ended March 31, 2007.  Gross margins decreased in our Data
Security and Compliance segment to 8.1% for the quarter ended March 31, 2008
from 18.9% for the quarter ended March 31, 2007.  Margins decreased as
product mix caused total product gross margins to decrease.  Margins
within the service portion of this segment increased to 57% for the quarter
ended March 31, 2008 from 29% for the quarter ended March 31, 2007 as we had an
increase in our higher margin end-user, data auditing, erasure and re-marketing
work.  Gross margins decreased in our Data Center Hardware segment for
the quarter ended March 31, 2008 to (0.3%) from 26.3% for the quarter ended
March 31, 2007. The decrease in gross margin is the result of the onerous
restrictions put on us by a major OEM.  Gross margins in our Data
Center Maintenance segment increased to 66.5% from 64.5% as the fixed portion of
our cost of services is spread over a larger revenue base.




Selling,
general and administrative expenses for the quarter ended March 31, 2008 were
$2,272,068 compared to selling, general and administrative expenses of
$2,614,896 for the quarter ended March 31, 2007, a $342,828 decrease, or
13.1%.  This was the result of a decrease of $282,524 in expenses in
our Data Center Hardware segment, a decrease of $30,871 in expenses in our Data
Security and Compliance segment and a decrease of $29,433 in expenses in our
Data Center Maintenance segment as we continued our commitment to reduce
expenses company wide.




Depreciation
and amortization for the quarter ended March 31, 2008 was $107,387 compared to
depreciation and amortization of $172,008 for the quarter ended March 31, 2007,
a $64,621 decrease.    This decrease was the mainly the
result of less intangible asset amortization during the current
quarter.  Intangible assets in our Data Center Hardware segment were
impaired and written off at December 31, 2007.




Interest
expense for the quarter ended March 31, 2008 was $56,649 compared to interest
expense of $87,839 for the quarter ended March 31, 2007, a $31,190 decrease, or
35.5%, commensurate with a decrease in the level of the Company’s
borrowings.




The
Company did not record a federal tax benefit for the three months ended March
31, 2008 as we recorded a change in the valuation allowance for an amount equal
to the tax benefit.  The Company recorded a state tax expense for the
three months ended March 31, 2008.  The Company recorded a federal tax
benefit for the three months ended March 31, 2007.  This benefit was
reduced by estimated state tax obligations.  We incur state income
taxes in jurisdictions where the Company cannot file a consolidated income tax
return.




Business
Segments




We
operate in three segments that clearly focus our services into
easy-to-understand categories for our target customers: Data Security and
Compliance, Data Center Hardware and Data Center Maintenance.  Our
“eliminations” category includes all amounts recognized upon consolidation of
our subsidiaries such as the elimination of inter-segment revenues, expenses,
assets and liabilities.  Each of our segments is more fully described
in Note 2 to our Condensed Consolidated Financial Statements.






11


Data
Security & Compliance Segment




Three
      Months Ended
              March
      31,2008
            
            
            2007Revenue
            
            $
            5,643,836
            
            
            $
            4,266,324Gross
      Profit
            
            
            455,640
            
            
            
            805,509Selling,
      General And Administrative Expenses
            
            
            1,357,261
            
            
            
            1,388,132Depreciation
      And Amortization
            
            
            90,151
            
            
            
            56,391Loss
      Before Benefit For Income Taxes
            
            
            (1,048,421
            )
            
            
            (726,868
            )Segment
      Assets
            
            
            8,353,345
            
            
            
            11,527,892Goodwill
            
            
            –
            
            
            
            –Expenditures
      for Property and Equipment
            
            
            15,317
            
            
            
            22,095




Quarter
Ended March 31, 2008 Compared to Quarter Ended March 31, 2007




Revenue
for the quarter ended March 31, 2008 was $5,643,836 compared to revenue of
$4,266,324 for the quarter ended March 31, 2007, a $1,377,512 increase, or
32.3%.  This was primarily the result of an increase in our wholesale
remarketing revenues as the amount of product available for purchase from our
suppliers increased.  This was coupled with an increase of 177% in our
Data Security and Compliance services revenue which increased to $253,812 for
the quarter ended March 31, 2008 from $91,718 for the quarter ended March 31,
2007.  We anticipate that future quarter's service revenue should
continue to increase as a result of the client relationships we continue to
build.




Gross
profit for the quarter ended March 31, 2008 was $455,640 compared to gross
profit of $805,509 for the quarter ended March 31, 2007, a $349,869 decrease, or
43.4%.  Our gross profit decreased due to the realization of lower
margins on our mix of products sold.  Gross margins for the quarter
ended March 31, 2008 were 8.1% compared to gross margins of 18.9% for the
quarter ended March 31, 2007.  Product mix towards lower margin
consumer products caused total gross margins to decrease.  Margins
within the service portion of this segment increased to 57% for the quarter
ended March 31, 2008 from 29% for the quarter ended March 31, 2007 as we had an
increase in our higher margin end-user, data auditing, erasure and re-marketing
work.




Selling,
general and administrative expenses for the quarter ended March 31, 2008 were
$1,357,261 compared to selling, general and administrative expenses of
$1,388,132 for the quarter ended March 31, 2007, a $30,871 decrease, or
2.2%.  Expenses remained relatively flat showing the relative fixed
cost nature of our business even though individual expense categories may vary
period to period.   The first quarter of 2007 included costs
associated with our India call center which we discontinued during
2007.  We made expense reductions toward the end of the first quarter
of 2008 that should start to be realized started during the second quarter of
2008.




Depreciation
and amortization for the quarter ended March 31, 2008 was $90,151 compared to
depreciation and amortization of $56,391 for the quarter ended March 31, 2007, a
$33,760 increase.  This increase was the result of one full quarter of
depreciation on fixed assets purchased during 2007, and a portion of one quarter
for assets purchased during 2008.




12




Data
Center Hardware Segment




Three
      Months Ended
              March
      31,2008
            
            
            2007Revenue
            
            $
            883,934
            
            
            $
            3,807,792Gross
      Profit
            
            
            (2,387
            )
            
            
            1,002,127Selling,
      General And Administrative Expenses
            
            
            354,263
            
            
            
            636,787Depreciation
      And Amortization
            
            
            4,347
            
            
            
            100,422Income
      (Loss) Before Benefit For Income Taxes
            
            
            (360,997
            )
            
            
            264,932Segment
      Assets
            
            
            866,573
            
            
            
            11,384,809Goodwill
            
            
            –
            
            
            
            5,154,782Expenditures
      for Property and Equipment
            
            
            10,964
            
            
            
            7,480




Quarter
Ended March 31, 2008 Compared to Quarter Ended March 31, 2007




Revenue
for the quarter ended March 31, 2008 was $883,934 compared to revenue of
$3,807,792 for the quarter ended March 31, 2007, a $2,923,858 decrease, or
76.8%.  Revenues decreased substantially due to onerous restrictions
instituted during the 3rd quarter of 2007 by a major OEM.  These
restrictions have had an adverse financial impact on the Data Center Hardware
segment, as well as the Company, since its inception.




Gross
profit for the quarter ended March 31, 2008 was $(2,387) compared to gross
profit of $1,002,127 for the quarter ended March 31, 2007, a $1,004,514
decrease, or 100.2%.  The decrease was the result of the onerous
restrictions instituted during the 3rd quarter of 2007 by a major OEM
restricting our ability to reconfigure and remarket zSeries mainframe computer
equipment.




Selling,
general and administrative expenses for the quarter ended March 31, 2008 were
$354,263 compared to selling, general and administrative expenses of $636,787
for the quarter ended March 31, 2007, a $282,524 decrease, or
44.4%.  The decrease was mainly the result of the restructuring that
took place during the fourth quarter of 2007 caused by the aforementioned OEM
policy change.




Depreciation
and amortization for the quarter ended March 31, 2008 was $4,347 compared to
depreciation and amortization of $100,422 for the quarter ended March 31, 2007,
a $96,075 decrease, or 95.7%.  This decrease was the result of the
sale of Company assets during the fourth quarter 2007
restructuring.




Data
Center Maintenance Segment




Three
      Months Ended
              March
      31,2008
            
            
            2007Revenue
            
            $
            1,681,181
            
            
            $
            1,348,180Gross
      Profit
            
            
            1,118,421
            
            
            
            869,446Selling,
      General And Administrative Expenses
            
            
            560,544
            
            
            
            589,977Depreciation
      And Amortization
            
            
            12,889
            
            
            
            15,195Income
      Before Provision For Income Taxes
            
            
            544,988
            
            
            
            264,275Segment
      Assets
            
            
            3,628,302
            
            
            
            2,581,915Goodwill
            
            
            1,489,621
            
            
            
            1,489,621Expenditures
      for Property and Equipment
            
            
            –
            
            
            
            –







13


Quarter
Ended March 31, 2008 Compared to Quarter Ended March 31, 2007




Revenue
for the quarter ended March 31, 2008 was $1,681,181 compared to revenue of
$1,348,180 for the quarter ended March 31, 2007, a $333,001 increase, or
24.7%.  This was the result of signing additional service contracts
with new and existing customers during 2007 and early 2008 that will continue
through 2008.  These contracts are generally one to three year
terms.




Gross
profit for the quarter ended March 31, 2008 was $1,118,421 compared to gross
profit of $869,446 for the quarter ended March 31, 2007, a $248,975 increase, or
28.6%.  Our gross profit increased as a result of the addition of new
maintenance contracts.  Our gross margin percentage increased to 66.5%
for the period ended March 31, 2008 from 64.5% for the quarter ended March 31,
2007. Gross margins increased as the fixed portion of our cost of services is
spread over a larger revenue base.




Selling,
general and administrative expenses for the quarter ended March 31, 2008 were
$560,544 compared to selling, general and administrative expenses of $589,977
for the quarter ended March 31, 2007, a $29,433 decrease, or
5.0%.  This was the result of careful review of all expenses as we
continue our commitment to reduce expenses.




Depreciation
and amortization for the quarter ended March 31, 2008 was $12,889 compared to
depreciation and amortization of $15,195 for the quarter ended March 31, 2007, a
$2,306 decrease.  This was the result of a sale of Company assets
during the fourth quarter of 2007.




Geographic
Areas




We
operate primarily in the United States and no assets in foreign
countries.  However, we sell to and provide data security and
compliance services to customers operating in foreign
countries.  Additionally, we have established multiple foreign
partners for our Data Security and Compliance division which allow us to utilize
our software to service our client’s needs in more than 90 countries
worldwide.  All of our purchases and sales are denominated in US
dollars.    There were no foreign currency transaction gains
or losses during the three months ended March 31, 2008 and minimal losses during
the three months ended March 31, 2007.




Liquidity
and Capital Resources




Net cash
provided by operating activities in the three months ended March 31, 2008 was
$558,485.  Net cash provided by operating activities in the three
months ended March 31, 2007 was $114,602.  Net cash provided by
operating activities during the three months ended March 31, 2008 was primarily
a result of a decrease in accounts receivable, a decrease in inventories, an
increase in accounts payable and accrued expenses offset by a decrease in
prepaid expenses and other assets.  Net cash




14


provided
by operating activities during the three month period ended March 31, 2007 was
primarily as a result of decrease in accounts receivable, an increase in
accounts payable and accrued expenses, offset by an increase in inventory,
prepaid expenses and other assets.  The decrease in our receivables
was mainly attributable to the decrease in revenue in our Data Center Hardware
segment.




Net cash
used in investing activities for the three months ended March 31, 2008 and 2007
was $26,279 and $29,575, respectively.  Net cash used in investing
activities in the three months ended March 31, 2008 and 2007 was for the
purchase of fixed assets.




Net cash
used in financing activities for the three months ended March 31, 2008 was
$243,088.  Net cash provided by financing activities for the three
months ended March 31, 2007 was $214,596.  Net cash used in financing
activities for the three months ended March 31, 2008 was the result of payments
on our revolving line of credit and the payment of dividends.  Net
cash provided by financing activities for the three months ended March 31, 2007
was the result of amounts borrowed on the line of credit reduced by dividends
and payment for financing costs.




On
February 6, 2008, Wells Fargo Bank notified the Company that although the
Company has performed its monetary obligations pursuant to its credit facility,
the Company did not meet certain operating metrics in its credit facility for
the fiscal year ended December 31, 2007.   While Wells Fargo Bank
has indicated to the Company that such an event constitutes a default under the
credit facility, management believes that the Company and the Bank continue to
work together in a cooperative and constructive manner.  Wells Fargo
Bank has charged the Company a fee of $20,000 for maintaining the existing
credit facility and notified the Company that it will amend its borrowing rate
to that of the prime rate plus 2.5%.  On May 7, 2008, Wells Fargo Bank
notified the Company that it was increasing the interest on the loan to prime
plus 4.5% (9.50% at March 31, 2008). Should the Company come back into
compliance, interest will be reduced to the prime rate.




At March
31, 2008, the Company did not meet certain debt covenants, and continues to be
in default.  As the Company is in default under its line-of-credit
agreement and the lender has the right to terminate the agreement causing all
amounts to become immediately due and payable, the Company is pursuing certain
options such as negotiating new terms with the current financial institution or
other financial institutions.




To induce
Wells Fargo Bank to continue to grant loans, advances and extensions of credit
to the Company, the Company has offered to engage a consultant chosen by the
Company but acceptable to the Bank to evaluate the Company's business model and
report findings and make recommendations with respect to the Company's
business.  The Company has advised the Bank that it intends to
implement the changes recommended by the consultant.  The Company will
bear the expense of the consultant.




On May 7,
2008, the Company announced that it had signed a stock purchase agreement to
acquire Contemporary Computer Services, Inc. (CCSI) for $10.6 million plus an
additional stock earn out based on CCSI achieving certain performance
milestones.  The purchase price for CCSI will be financed primarily
through a combination of both senior and seller financing as well as 3.5 million
shares of common stock.  In connection with the transaction, the
Company anticipates issuing warrants to purchase 12 million shares of common
stock at a purchase price of $0.30 per share.




We
believe that the anticipated cash flow from the acquisition will be sufficient
to pay for the additional debt service.  Excess cash flow from CCSI
after paying for the debt service, cash flow from current operations and current
financing arrangements with Wells Fargo Bank, together with anticipated proceeds
from the exercise of stock options and warrants, will be sufficient to meet our
cash requirements for at least the next 12 months. However, we may need to raise
additional funds to finance unanticipated working capital requirements or to
acquire complementary businesses.




15




We do not
have any material commitments for capital expenditures during the next twelve
months.  Any required expenditure will be completed through internally
generated funding.




We did
not have any significant elements of income or loss not arising from continuing
operations in either of the periods ended March 31, 2008 and 2007 and do not
expect any in the remainder of fiscal 2008.  While our business is
marginally seasonal, we do not expect this seasonality to have a material
adverse affect on our results of operations or cash flows.




Item3     Quantitative and
Qualitative Disclosures About Market Risk




The
Company does not engage in transactions in derivative financial instruments or
derivative commodity instruments.  As of March 31, 2008, 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.




Item4     Controls and
Procedures




Evaluation of
disclosure controls and procedures




It is the
Chief Executive Officer’s and the Chief Financial Officer’s responsibility to
ensure that we maintain disclosure controls and procedures designed to provide
reasonable assurance that material information, both financial and
non-financial, and other information required under the securities laws to be
disclosed is identified and communicated to senior management on a timely basis.
Our disclosure controls and procedures include mandatory communication of
material events, automated accounting processing and reporting, management
review of monthly results and an established system of internal
controls.




Our
Disclosure Controls were designed to provide reasonable assurance that the
controls and procedures would meet their objectives. Our management, including
the CEO and CFO, do not expect that our Disclosure Controls will prevent all
errors and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable assurance of achieving the designed
control objectives and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple errors or mistakes. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusions of two or more people, or by management override of the control.
Because of the inherent limitations in a cost-effective, maturing control
system, misstatements due to error or fraud may occur and not be
detected.




The
evaluation of our Disclosure Controls included a review of the controls’
objectives and design, our implementation of the controls and the effect of the
controls on the information generated for use in this Form 10-Q.




Our
efforts to strengthen financial and internal controls continue. At December 31,
2007, our Board of Directors were advised by our accountants that during their
performance of the audit for the year ended December 31, 2007, two material
weaknesses were identified in our internal control over financial
reporting.  One material weakness in the Company's internal controls
that existed was an ineffective control to ensure the accuracy and completeness
in the determination of the allowance for doubtful accounts.  To
remedy this situation, the Chief Executive Officer, the President and the Chief




16


Financial
Officer reviewed and have signed off on the recommended allowance for doubtful
accounts as of March 31, 2008, and will continue this practice on a quarterly
basis.




The
second material weakness in the Company's internal controls that existed was an
ineffective control relating to goodwill and intangible impairment analysis and
the monitoring of the recording of appropriate reserves for income
taxes.  The Company uses an outside firm to calculate the value of
goodwill and intangible assets and an outside firm to calculate the appropriate
amount of income taxes for the year.  During the second quarter of
2008, management intends to remediate this weakness by establishing written
procedures concerning complex accounting issues, additional employee training
and changing the process by which these calculations are done.




As of
March 31, 2008, in light of the above, we evaluated the effectiveness of the
design and operation of our Disclosure Controls.  The controls
evaluation was done under the supervision and with the participation of
management, including our CEO and CFO.  Based on this evaluation, our
CEO and CFO have concluded these controls are not effective.




Changes
in internal control over financial reporting




During
the period covered by this report, there was a change in the Company's internal
control over financial reporting that have materially affected or are reasonably
likely to materially affect the Company's internal control over financial
reporting.  At December 31, 2007, our Board of Directors were advised
by our accountants that a material weakness in the Company's internal controls
exists in that there is not an effective control to ensure the accuracy and
completeness in the determination of the allowance for doubtful
accounts.  To remedy this situation, the Chief Executive Officer, the
President and the Chief Financial Officer have signed off on the recommended
allowance for doubtful accounts as of March 31, 2008, and will continue this
practice on a quarterly basis.




Part
II – OTHER INFORMATION




Item1.    Legal Proceedings




The
Company also is party to legal proceedings, which arise from time to time in the
ordinary course of business.  In the opinion of management, these
proceedings are not likely to have a material adverse affect on the financial
position, results of operations or cash flows of the Company.  Such
estimate of potential impact on the Company could change in the future depending
upon matters in suit and the course of specific litigation.




Item1A.   Risk Factors




Reference
is made to the factors set forth under the "Management Discussion and Analysis
of Financial Condition and Results of Operations" in Part I, Item 2 of
this Form 10-Q and other risk factors described in our Annual Report on Form
10-K for the year ended December 31, 2007, which are incorporated herein by
reference. There have not been any material changes to the risk factors
previously disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2007.




Item2.    Unregistered sales of equity
securities and Use of Proceeds




None




17




Item3.    Defaults Upon Senior
Securities




Not
      applicable.




Item4.   Submission of Matters to a Vote of
Security Holders




None




Item5.   Other Information




None




Item6.   Exhibits




ExhibitsSee
      List of Exhibits filed as part of this
      quarterly report on Form 10-Q.


18


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:   May
      14, 2008
            By:
            /s/
      Marc ShermanMarc
      ShermanChairman
      of the Board and Chief Executive OfficerDated:   May
      14, 2008
            By:
            /s/
      Edward L. CummingsEdward
      L. CummingsChief
      Financial Officer and Treasurer


19


ListOf Exhibits




Exhibit
      Number
            Description2.1
            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 Corporation4.1
            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,
      20044.6
            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 Owens10.9**
            Employment
      and Non-Compete Agreement – Seth A. Grossman10.10**
            Credit
      Agreement by and among Windsortech, Inc., Qualtech International
      Corporation, Qualtech Services Corporation and Fifth Third
      Bank.




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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 200231.2***
            Chief Financial Officer Certification Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.1***
            Certification of Chief Executive Officer and Chief
      Financial 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.




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