As
      filed with the Securities and Exchange Commission on November 14,
      2006


**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549







**FORM
      10-QSB**


**(Mark
      One)**





[X] **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**


For
      the
      quarterly period ended September 30, 2006





**OR**





[ 
      ] **TRANSITION
      REPORT UNDER 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 small business issuer as specified in its charter)





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





**70
      Lake Drive, Hightstown, NJ 08520**


(Address
      of Principal Executive Offices)





**(609)
      426-4666**


(Issuer’s
      Telephone Number)





**Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 shell company (as defined in Rule
      12b-2 of the Exchange Act).** Yes [ 
      ] No [X]





The
      number of shares outstanding of each class of our common equity as of November
      1, 2006, is as follows:




Class
                of Common Equity
            Number
                of SharesCommon
                Stock, par value $.01
            31,172,716




Transitional
      Small Business Disclosure Format:




Yes [ 
      ]No[X]




As
            filed with the Securities and Exchange Commission on November 14,
            2006


**QSGI
                INC.**TABLE
                OF CONTENTSItem
            Description
            Page**PART
                I - FINANCIAL INFORMATION**1.
            Financial
                Statements*(all
                unaudited)*Condensed
                Consolidated Balance Sheets -
              September
                30, 2006 and December 31, 2005
            1Condensed
                Consolidated Statements of Operations
                -
              Three
                and Nine Months Ended September 30, 2006 and
                2005
            2Condensed
                Consolidated Statement of Stockholders’ Equity
                -
              Nine
                Months Ended September 30, 2006
            3Condensed
                Consolidated Statements of Cash Flows -
              Nine
                Months Ended September 30, 2006 and 2005
            4Notes
                to Condensed Consolidated Financial Statements
            52.
            Management’s
                Discussion and Analysis of Financial Condition
              and
                Results of Operations
            103.
            Controls
                and Procedures
            20**PART
                II - OTHER INFORMATION**1.
            Legal
                Proceedings
            212.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            213.
            Defaults
                Upon Senior Securities
            224.
            Submission
                of Matters to a Vote of Security
                Holders
            225.
            Other
                Information
            226.
            Exhibits
            23SIGNATURES
            24EXHIBITS
            25










**PART
      I**  **FINANCIAL
      INFORMATION**


Item
      1.  Financial
      Statements


**QSGI
      INC.**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Unaudited)**


**September
                30,**
            
            December
                31,**2006**
            
            2005**Assets****Current
                Assets**Cash
                and cash equivalents
            
            **$**
            **583,859**
            
            $
            153,794Accounts
                receivable, net of reserve of $636,483 in 2006 and $80,000 in 2005
            
            
            **5,802,430**
            
            
            7,014,129Inventories
            
            
            **5,616,782**
            
            
            4,136,304Prepaid expenses, income taxes and other assets
            
            
            **220,421**
            
            
            227,352Deferred
                income taxes
            
            
            **72,095**
            
            
            155,668**Total
                Current Assets**
            
            
            **12,295,587**
            
            
            11,687,247**Property
                and Equipment, Net**
            
            
            **447,762**
            
            
            605,887**Goodwill**
            
            
            **6,644,403**
            
            
            3,212,314**Intangibles,
                Net**
            
            
            **2,634,748**
            
            
            2,872,240**Other
                Assets**
            
            
            **167,025**
            
            
            116,225**$**
            **22,189,525**
            
            $
            18,493,913**Liabilities
                And Stockholders’ Equity****Current
                Liabilities**Revolving line of credit
            
            **$**
            **2,921,500**
            
            $
            3,631,500Accounts
                payable
            
            
            **521,133**
            
            
            2,254,136Accrued
                expenses
            
            
            **370,748**
            
            
            279,090Deferred
                revenue
            
            
            **1,098,282**
            
            
            404,540Accrued
                payroll and other liabilities
            
            
            **559,017**
            
            
            293,500**Total
                Current Liabilities**
            
            
            **5,470,680**
            
            
            6,862,766**Deferred
                Income Taxes**
            
            
            **16,156**
            
            
            280,318**Total
                Liabilities**
            
            
            **5,486,836**
            
            
            7,143,084**Redeemable
                Convertible Preferred Stock**
            
            
            **4,216,217**
            
            
            1,967,220**Stockholders’
                Equity**Preferred
                shares: authorized 5,000,000 shares in 2006and
                2005, $0.01 par value, none issued
            
            
            -
            
            
            -Common
                shares: authorized 95,000,000 shares in 2006 and 55,000,000 shares
                in
                2005, $0.01 par value; 31,172,716 shares issued andoutstanding
                in 2006 and 28,670,631 shares issued and outstanding in 2005
            
            
            **311,727**
            
            
            286,706Additional
                paid-in capital
            
            
            **14,455,412**
            
            
            11,093,881Retained
                earnings (deficit)
            
            
            **(2,280,667**
            **)**
            
            (1,996,978
            )**Total
                Stockholders’ Equity**
            
            
            **12,486,472**
            
            
            9,383,609**$**
            **22,189,525**
            
            $
            18,493,913


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


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**For
      The Three and Nine Months Ended September 30, 2006 and
      2005**


(Unaudited)




**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2006**
            
            2005
            
            **2006**
            
            2005**Product
                Revenue**
            
            **$**
            **7,964,854**
            
            $
            7,785,407
            
            **$**
            **30,002,721**
            
            $
            22,408,922**Service
                Revenue**
            
            
            **1,400,856**
            
            
            961,994
            
            
            **3,838,453**
            
            
            2,602,594**Total
                Revenue**
            
            
            **9,365,710**
            
            
            8,747,401
            
            
            **33,841,174**
            
            
            25,011,516**Cost
                Of Products Sold**
            
            
            **6,610,560**
            
            
            6,478,213
            
            
            **25,067,620**
            
            
            18,655,068**Cost
                Of Services Sold**
            
            
            **492,994**
            
            
            385,817
            
            
            **1,282,739**
            
            
            966,620**Total
                Cost Of Sales**
            
            
            **7,103,554**
            
            
            6,864,030
            
            
            **26,350,359**
            
            
            19,621,688**Gross
                Profit**
            
            
            **2,262,156**
            
            
            1,883,371
            
            
            **7,490,815**
            
            
            5,389,828**Selling,
                General And Administrative Expenses**
            
            
            **2,312,095**
            
            
            2,163,978
            
            
            **7,203,007**
            
            
            6,548,050**Depreciation
                And Amortization**
            
            
            **174,752**
            
            
            165,269
            
            
            **516,432**
            
            
            466,212**Interest
                Expense, net**
            
            
            **56,481**
            
            
            63,868
            
            
            **156,264**
            
            
            91,168**Loss
                Before Benefit For Income Taxes**
            
            
            **(281,172**
            **)**
            
            (509,744
            )
            
            **(384,888**
            **)**
            
            (1,715,602
            )**Benefit
                For Income Taxes**
            
            
            **(123,652**
            **)**
            
            (115,904
            )
            
            **(101,199**
            **)**
            
            (491,294
            )**Net
                Loss**
            
            
            **(157,520**
            **)**
            
            (393,840
            )
            
            **(283,689**
            **)**
            
            (1,224,308
            )**Preferred
                Stock Dividends**
            
            
            **64,323**
            
            
            -
            
            
            **191,359**
            
            
            -**Accretion
                To Redemption Value of Preferred Stock**
            
            
            **4,295**
            
            
            -
            
            
            **12,695**
            
            
            -**Net
                Loss Available to Common Stockholders**
            
            **$**
            **(226,138**
            **)**
            $
            (393,840
            )
            **$**
            **(487,743**
            **)**
            $
            (1,224,308
            )**Loss
                Per Common Share - Basic**
            
            $
            **(****0.01**
            **)**
            $
            (0.01
            )
            $
            (**0.02**
            **)**
            $
            (0.04
            )**Loss
                Per Common Share - Diluted**
            
            $
            **(****0.01**
            **)**
            $
            (0.01
            )
            $
            (**0.02**
            **)**
            $
            (0.04
            )**Weighted
                Average Number Of Common Shares Outstanding
                -Basic**
            
            
            **31,172,716**
            
            
            28,581,383
            
            
            **29,774,939**
            
            
            27,978,920**Weighted
                Average Number Of Common Shares Outstanding
                -Diluted**
            
            
            **31,172,716**
            
            
            28,581,383
            
            
            **29,774,939**
            
            
            27,978,920


See
              the
              accompanying notes to condensed consolidated financial statements.
 Page
            2
  **QSGI
        INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**


**For
      The Nine Months Ended September 30, 2006**


(Unaudited)




**Additional**
            
            **Retained**
            
            **Total****Common
                Stock**
            
            **Paid-in**
            
            **Earnings**
            
            **Stockholders’****Number**
            
            **Amount**
            
            **Capital**
            
            **(Deficit)**
            
            **Equity****Balance
                (Deficit) - December 31, 2005**
            
            
            28,670,631
            
            $
            286,706
            
            $
            11,093,881
            
            $
            (1,996,978
            )
            $
            9,383,609**Options
                Exercised**
            
            
            350,000
            
            
            3,500
            
            
            5,600
            
            
            -
            
            
            9,100**Stock
                Option Compensation**
            
            
            -
            
            
            -
            
            
            13,229
            
            
            -
            
            
            13,229**Shares
                Issued For Services**
            
            
            88,540
            
            
            885
            
            
            160,802
            
            
            -
            
            
            161,687**Preferred
                Stock Dividends**
            
            
            -
            
            
            -
            
            
            (191,359
            )
            
            -
            
            
            (191,359
            )**Accretion
                To Redemption Value Of Preferred Stock**
            
            
            -
            
            
            -
            
            
            (12,695
            )
            
            -
            
            
            (12,695
            )**Common
                Shares Issued For****Qualtech
                Earn-out**
            
            
            2,063,545
            
            
            20,636
            
            
            3,385,954
            
            
            -
            
            
            3,406,590**Net
                Loss**
            
            
            -
            
            
            -
            
            
            -
            
            
            (283,689
            )
            
            (283,689
            )**Balance
                (Deficit) - September 30, 2006**
            
            
            31,172,716
            
            $
            311,727
            
            $
            14,455,412
            
            $
            (2,280,667
            )
            $
            12,486,472


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


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**For
      The Nine Months Ended September 30, 2006 and 2005**


(Unaudited)





**2006**
            
            2005**Cash
                Flows From Operating Activities**Net
                Loss
            
            **$**
            **(283,689**
            **)**
            $
            (1,224,308
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            **516,432**
            
            
            466,212Stock
                option compensation expense
            
            
            **13,229**
            
            
            19,000Deferred
                income
                taxes
            
            
            **(180,588**
            **)**
            
            (566,535
            )Common
                shares issued for services
            
            
            **161,687**
            
            
            -Allowance
                for
                doubtful accounts
            
            
            **556,483**
            
            
            -Changes
                in assets and liabilities:Accounts
                receivable
            
            
            **655,216**
            
            
            (661,779
            )Inventories
            
            
            **(1,480,478**
            **)**
            
            (1,441,699
            )Prepaid
                expenses and other current assets
            
            
            **(64,464**
            **)**
            
            (109,844
            )Accounts
                payable and accrued expenses
            
            
            **(682,086**
            **)**
            
            218,654**Net
                Cash Used In Operating Activities**
            
            
            **(788,258**
            **)**
            
            (3,300,299
            )**Cash
                Used In Investing Activities**Payments
                for
                Qualtech acquisition, net of cash acquired
            
            
            **-**
            
            
            (86,520
            )Purchases
                of
                property and equipment, net
            
            
            **(100,220**
            **)**
            
            (308,338
            )**Net
                Cash Used In Investing Activities**
            
            
            **(100,220**
            **)**
            
            (394,858
            )**Cash
                Flows From Financing Activities**Proceeds
                from
                the issuance of redeemable preferred stock
            
            
            **2,236,301**
            
            
            -Proceeds
                from
                the exercise of options and warrants
            
            
            **9,100**
            
            
            2,609,808Other
                financing fees
            
            
            -
            
            
            (41,562
            )Stock
                issuance costs
            
            
            **(25,499**
            **)**
            
            -Preferred
                stock
                dividends
            
            
            **(191,359**
            **)**
            
            -Net
                amounts paid on notes payable
            
            
            **-**
            
            
            (856,666
            )Net
                amounts (paid) borrowed under revolving lines of credit
            
            
            **(710,000**
            **)**
            
            1,679,000**Net
                Cash Provided By Financing Activities**
            
            
            **1,318,543**
            
            
            3,390,580**Net
                Increase (Decrease) In Cash And Cash Equivalents**
            
            
            **430,065**
            
            
            (304,577
            )**Cash
                And Cash Equivalents - Beginning Of Period**
            
            
            **153,794**
            
            
            844,939**Cash
                And Cash Equivalents - End of Period**
            
            **$**
            **583,859**
            
            $
            540,362


See
              the
              accompanying notes to condensed consolidated financial
              statements
 Page
            4


**NOTES
      TO 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 September 30, 2006 and December 31, 2005 and for
      the three and nine months ended September 30, 2006 and 2005 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-QSB and Item 310 of Regulation S-B 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 nine months
      ended September 30, 2006 is not necessarily indicative of the results that
      may
      be expected for the entire year ending December 31, 2006. These statements
      should be read in conjunction with the financial statements and related notes
      thereto included in our Annual Report on Form 10-KSB and Form 10-KSB/A for
      the
      year ended December 31, 2005.




**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**




**Business
      Organization**




We
      are a
      technology services company. Our Data Security and Compliance services as well
      as our Data Center Hardware and Data Center Maintenance services are geared
      towards both the users of business-computing hardware (desktops, laptops,
      related peripherals and servers) as well as the users of enterprise-class
      hardware (mainframes, midrange processors, large storage, controllers, etc.).
      We
      use the trade name “QGSI” in order to build cohesion among the various
      technology services that we offer and build brand recognition and preference
      through strong cross-marketing opportunities. In October 2005, we changed our
      name to QSGI INC. from WindsorTech, Inc.




On
      May
      28, 2004, the Company purchased QualTech International Corporation and QualTech
      Services Group, Inc. QualTech International Corporation sells refurbished IBM
      mainframes and associated IBM peripherals to companies around the world.
      QualTech Services Group, Inc. provides hardware maintenance solutions and
      information systems consulting services to businesses in the United States.




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





**A.**
            **Data
                Security & 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, and servers) 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




Page
          5


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





These
      services can be custom tailored to meet our customer’s needs and implemented at
      one client location or at multiple locations, onsite, at QSGI facilities or
      through the use of our mobile audit and erasure truck.





**B. 
      Data Center Hardware**





We
      are a
      leading reseller of refurbished IBM mainframe processors, IBM midrange
      processors and associated peripheral products including tape and disk products
      and connectivity products to companies around the world.





**C. 
      Data Center Maintenance**





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





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 satellite sales and business development offices in Colorado,
      Connecticut, Florida, Illinois, Maine, Michigan, New York, North Carolina,
      Nebraska, New Hampshire, Pennsylvania, South Carolina, Texas, Virginia,
      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 and nine months ended September 30, 2006 and 2005 are
      as
      follows:




Three
                Months Ended September 30,
            
            Nine
                Months Ended September 30,2006
            
            2005
            
            2006
            
            2005Basic
            
            
            31,172,716
            
            
            28,581,383
            
            
            29,774,939
            
            
            27,978,920Stock
                options
            
            
            -
            
            
            -
            
            
            -
            
            
            -Stock
                warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -Redeemable
                preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -Diluted
            
            
            31,172,716
            
            
            28,581,383
            
            
            29,774,939
            
            
            27,978,920






Page
          6




For
      the
      three months ended September 30, 2006 and 2005, the Company excluded weighted
      average common share equivalents related to stock options of 1,088,813 and
      1,386,352, respectively, weighted average common share equivalents related
      to
      stock warrants of 0 and 257,572, respectively, and redeemable preferred stock
      of
      1,911,111 and 0, respectively, because their effect would be
      anti-dilutive.




For
      the
      nine months ended September 30, 2006 and 2005, the Company excluded weighted
      average common share equivalents related to stock options of 1,135,519 and
      1,885,786, respectively, weighted average common share equivalents related
      to
      stock warrants of 0 and 1,326,177, respectively, and redeemable preferred stock
      of 1,911,111 and 0, respectively, because their effect would be
      anti-dilutive.




**Stock-Based
      Compensation**




In
      December 2004, the FASB issued SFAS No. 123R, *Share-Based
      Payment.* SFAS No.
      123R requires measurement of all employee stock-based compensation awards using
      a fair value method and the recording of such expense in the consolidated
      financial statements. In addition, the adoption of SFAS No. 123R requires
      additional accounting related to the income tax effects and additional
      disclosure regarding the cash flow effects resulting from share-based payment
      arrangements. Effective January 1, 2006, we adopted SFAS No. 123R using the
      modified prospective method.




In
      2002,
      the Company’s stockholders approved our 2002 Flexible Stock Plan. Under the
      plan, options, stock appreciation rights or performance shares may be granted
      to
      certain directors, officers and employees. The stockholders approved 5,000,000
      shares, plus an annual increase equal to 10% of the number of outstanding shares
      outstanding as of the first day of each calendar year. Option awards are
      generally granted with an exercise price equal to the market price of the
      Company’s stock at the date of grant. Options granted between 2001 and 2005 vest
      upon issuance or up to five years from date of issuance and expire in either
      five years or ten years from date of vesting. No stock options were granted
      during the three and nine months ended September 30, 2006. When stock options
      are granted, the fair value of options granted is estimated on the date of
      grant
      using the Black-Scholes option-pricing model. The expense is then recorded
      straight-line over the vesting period.




Our
      net
      income for the three and nine months ended September 30, 2006 includes
      compensation costs of $3,299 and $13,229, respectively. As of September 30,
      2006, there was approximately $29,000 of total unrecognized compensation costs
      related to stock options. These costs will be recognized over the next five
      years.




A
      summary
      of option activity for the nine months ended September 30, 2006 is as
      follows:




Shares
              (in
                thousands)
            
            Weighted
                Average
              Exercise
                Price
            
            Weighted
                Average Remaining Contractual Term (years)
            
            Aggregate
              Intrinsic
                Value (in thousands)Balance,
                December 31, 2005
            
            
            12,567
            
            $
            1.92
            
            
            8.2
            
            $
            3,863Granted
            
            
            -
            
            
            -Exercised
            
            
            (350
            )
            
            .026Canceled
            
            
            -
            
            
            -Forfeited
            
            
            (25
            )
            
            1.54Balance,
                September 30, 2006
            
            
            12,192
            
            $
            1.97
            
            
            8.0
            
            $
            3,121






Substantially
      all of the Company’s outstanding stock options are currently
      exercisable.




During
      the nine months ended September 30, 2006 and 2005, the following stock option
      activity occurred:




Nine
                Months Ended
              September
                30,2006
            
            2005Total
                intrinsic value of stock options exercised
            
            $
            635,900
            
            $
            2,645,756


Cash
      received from stock option exercises for the nine months ended September 30,
      2006 and 2005 was $9,100 and $1,259,809, respectively. As of September 30,
      2006,
      an aggregate of 4,166,862 shares were authorized for future grants under our
      flexible stock plan. When options are exercised, new shares are issued. Option
      grants that expire or forfeited without exercise become available under the
      plan.




The
      following table illustrates the effect on net loss and loss per share if the
      Company had applied the fair value recognition provisions of SFAS No. 123,
      "Accounting for Stock-Based Compensation", to stock-based employee compensation
      for periods presented prior to the Company's adoption of Statement
      123R:




Nine
                Months Ended September 30,2005Net
                loss, as reported
            
            $
            (1,224,308
            )Add:
                Stock-based employee compensation expense included in reported net
                loss,
                net of related tax effects
            
            
            11,590Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effects
            
            
            (7,103,927
            )Pro
                forma net loss
            
            $
            (8,316,625
            )Loss
                per share:Basic
                - as reported
            
            $
            (0.04
            )Diluted
                - as reported
            
            $
            (0.04
            )Basic
                - Pro forma
            
            $
            (0.30
            )Diluted
                - Pro forma
            
            $
            (0.30
            )






Page
          7




The
      weighted average per share fair value of the options granted was $2.02 for
      the
      nine months ended September 30, 2005. The fair value of each option granted
      is
      estimated on the date of grant using the Black-Scholes option-pricing model
      with
      the following weighted-average assumptions:




2005Risk-free
                interest rate
            4.1%Expected
                option life
            5
                yearsExpected
                volatility
            95.5%Expected
                dividend yields
            0%




**3.** **INVENTORIES**




Inventories
      at September 30, 2006 and December 31, 2005 consist of:




2006
            
            2005Finished
                goods
            
            $
            5,375,518
            
            $
            3,144,515Inventory
                in transit
            
            
            297,264
            
            
            1,041,789Allowance
                for excess and obsolescence
            
            
            (56,000
            )
            
            (50,000
            )$
            5,616,782
            
            $
            4,136,304




**4.**  **FINANCING**




On
      May 3,
      2005, the Company entered into a revolving line of credit agreement that
      provides for borrowings limited to the lesser of $4,250,000 or the borrowing
      base of 80% of eligible accounts receivable plus 40% of inventories and in
      certain circumstances 60% of eligible inventories, with eligible inventories
      not
      to exceed $1,500,000. Availability on the line of credit at September 30, 2006
      was $1,328,500. Interest on this loan is payable monthly at the prime rate
      plus
      one percent (9.25% at September 30, 2006), with all principal and interest
      due
      April 1, 2007. In accordance with EITF Issue No. 95-22, the line of credit
      is
      classified as a current liability due to the agreement containing a subjective
      acceleration clause and a lock-box arrangement. All loans or lines of credit
      that the Company had prior to this date were paid and cancelled.




The
      revolving line of credit arrangement contains certain financial covenants,
      including maintaining a minimum tangible net worth, a minimum fixed charge
      coverage ratio, and limiting capital expenditures. At September 30, 2006, the
      Company was in compliance with all covenants.




**5.**  **TAXES**




In
      the
      second quarter of 2006, during preparation of the Company’s federal income tax
      return for the year ended December 31, 2005, it was discovered that certain
      compensation deductions related to the exercise of stock options, totaling
      approximately $2.3 million, were excluded from the Company’s tax provision
      prepared at December 31, 2005.




The
      impact of these additional deductions was to increase the deferred tax asset
      by






Page
          8




approximately
      $870,000. The Company determined that, had these facts been known during the
      original preparation of the tax provision for the year ended December 31, 2005,
      a valuation allowance would have been provided against these additional deferred
      tax assets. Because there was no net balance sheet or income statement impact,
      the Company recorded these adjustments to its deferred tax accounts at June
      30,
      2006, and prior periods were not adjusted. Should the Company determine in
      the
      future that the deferred tax asset valuation allowance should be reversed,
      it
      will result in an increase to additional paid-in capital, with no impact on
      the
      tax provision.




Based
      on
      the revised calculations, as of December 31, 2005, the Company has approximately
      $4.4 million of net operating loss carryforward for federal income tax purposes.




**6.**  **ACQUISITIONS**




Under
      the
      terms of the acquisition agreement, as amended, with Qualtech International
      Corporation and its affiliate, Qualtech Services Group, Inc. that was completed
      on May 28, 2004, as of May 1, 2006, additional merger consideration was due
      to
      the selling shareholders. The selling shareholders were entitled to this
      additional merger consideration in the form of restricted shares of the Company
      representing at least fifty percent (50%) of the total consideration to be
      paid
      and cash of up to fifty percent (50%) of the additional consideration which
      was
      to be determined at the discretion of the Company. Any portion that was to
      be
      paid in cash was due within 30 days following the second anniversary of the
      effective date of the acquisition. Any portion that was to be paid in stock
      was
      due on February 15, 2007. The number of shares was to be determined by using
      the
      average trading price 15 days prior to February 14, 2007. The Company elected
      to
      pay the consideration early in restricted shares of the Company. To settle
      the
      earn-out, 2,063,545 shares were issued at a value of approximately $1.66 per
      share resulting in additional goodwill in the amount of $3,432,089.




**7.**  **SEGMENT
      INFORMATION**




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**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2006**
            
            2005
            
            **2006**
            
            2005**Revenues******Data
                Security and Compliance
            
            **$**
            **5,032,395**
            
            $
            4,589,282
            
            **$**
            **15,304,361**
            
            $
            10,017,187****Data
                Center Hardware
            
            
            **2,994,740**
            
            
            3,727,327
            
            
            **15,474,106**
            
            
            13,576,611****Data
                Center Maintenance
            
            
            **1,348,975**
            
            
            958,773
            
            
            **3,513,997**
            
            
            2,506,614Intersegment
                Elimination
            
            
            **(10,400**
            **)**
            
            (527,981
            )
            
            **(451,290**
            **)**
            
            (1,088,896
            )**Consolidated
                Total**
            
            **$**
            **9,365,710**
            
            $
            8,747,401
            
            **$**
            **33,841,174**
            
            $
            25,011,516






Page
          9




**Loss
                before Benefit for Income Taxes**Data
                Security and Compliance
            
            **$**
            **(689,027**
            **)**
            $
            (759,193
            )
            **$**
            **(2,117,845**
            **)**
            $
            (2,733,386
            )Data
                Center Hardware
            
            
            **5,564**
            
            
            (33,023
            )
            
            **814,286**
            
            
            346,943Data
                Center Maintenance
            
            
            **402,291**
            
            
            282,472
            
            
            **918,671**
            
            
            670,841**Consolidated
                Total**
            
            **$**
            **(281,172**
            **)**
            $
            (509,744
            )
            **$**
            **(384,888**
            **)**
            $
            (1,715,602
            )




**ITEM
      2.**  **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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-KSB and Form 10-KSB/A Amendment No 1 for the year
      ended
      December 31, 2005. 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.




**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.






Page
          10




**Three
                Months Ended**
              **September
                30,**
            **Nine
                Months Ended**
              **September
                30,****2006**
            2005
            **2006**
            2005**%**
            %
            **%**
            %**Product
                Revenue**
            **85.0**
            89.0
            **88.7**
            89.6**Service
                Revenue**
            **15.0**
            11.0
            **11.3**
            10.4**Total
                Revenue**
            **100.0**
            100.0
            **100.0**
            100.0**Cost
                Of Products Sold**
            **70.5**
            74.1
            **74.1**
            74.6**Cost
                Of Services Sold**
            **5.3**
            4.4
            **3.8**
            3.9**Cost
                Of Products and Services Sold**
            **75.8**
            78.5
            **77.9**
            78.5**Gross
                Profit**
            **24.2**
            21.5
            **22.1**
            21.5**Selling,
                General And Administrative Expenses**
            **24.7**
            24.7
            **21.2**
            26.2**Depreciation
                And Amortization**
            **1.9**
            1.9
            **1.5**
            1.8**Interest
                Expense, net**
            **0.6**
            0.7
            **0.5**
            0.4**Loss
                Before Benefit For Income Taxes**
            **(3.0)**
            (5.8)
            **(1.1)**
            (6.9)**Benefit
                For Income Taxes**
            **(1.3)**
            (1.3)
            **(0.3)**
            (2.0)**Net
                Loss**
            **(1.7)**
            (4.5)
            **(0.8)**
            (4.9)




***Quarter
      Ended September 30, 2006 Compared to Quarter Ended September 30,
      2005***




Revenue
      for the quarter ended September 30, 2006 was $9,365,710 compared to revenue
      of
      $8,747,401 for the quarter ended September 30, 2005, a $618,309 increase, or
      7.1%. Revenue in our Data Security and Compliance segment for the quarter ended
      September 30, 2006 increased to $5,032,395 from $4,589,282 for the quarter
      ended
      September 30, 2005, a $443,113 increase, or 9.7%. This was the result of an
      increase of an increase in our wholesale remarketing revenue as well as new
      and
      existing corporate customers utilizing our full suite of services. Revenue
      in
      our Data Center Hardware Segment for the quarter ended September 30, 2006
      decreased to $2,994,740 from $3,727,327 for the quarter ended September 30,
      2005, a $732,587 decrease, or 19.7%. This decrease resulted from some of our
      clients and prospective clients delaying their data migration due to issues
      that
      were out of our control. Revenue in our Data Center Maintenance Services segment
      increased to $1,348,975 for the quarter ended September 30, 2006 from $958,773
      for the quarter ended September 30, 2005, a $390,202 increase, or 40.7%. This
      was the result of signing additional service contracts with new and existing
      customers this year as well as new contracts that were signed during last year.
      These contracts are generally one to three year terms.




Our
      revenues categorized by products and services are as follows:


Three
                Months Ended
            
            Three
                Months EndedSeptember
                30, 2006
            
            September
                30, 2005RevenueProducts
            
            $
            7,964,854
            
            $
            7,785,407Services
            
            
            1,400,856
            
            
            961,994Total
                Revenue
            
            $
            9,365,710
            
            $
            8,747,401




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






Page
          11




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 September 30, 2006 was $2,262,156 compared to
      a
      gross profit of $1,883,371 for the quarter ended September 30, 2005, a $378,785
      increase, or 20.1%. Gross profit in our Data Security and Compliance segment
      for
      the quarter ended September 30, 2006 increased to $591,081 from $568,237 for
      the
      quarter ended September 30, 2005, a $22,844 increase, or 4.0%. Gross profit
      in
      our Data Center Hardware segment for the quarter ended September 30, 2006
      increased to $760,469 from $696,606 for the quarter ended September 30, 2005,
      a
      $63,863 increase, or 9.2%. Gross profit in our Data Center Maintenance segment
      for the quarter ended September 30, 2006 increased to $910,606 from $618,527
      for
      the quarter ended September 30, 2005, a $292,079 increase, or 47.2%.




Gross
      margin for the quarter ended September 30, 2006 was 24.2% compared to a gross
      margin of 21.5% for the quarter ended September 30, 2005. Gross margin in our
      Data Security and Compliance segment for the quarter ended September 30, 2006
      was 11.7% compared to a gross margin of 12.4% for the quarter ended September
      30, 2005. The improvement in our gross profit reflects the overall increase
      in
      business, while the slight margin compression was due to product mix. Gross
      margin in our Data Center Hardware segment for the quarter ended September
      30,
      2006 was 25.4% of revenue compared to 18.7% of revenue for the quarter ended
      September 30, 2005. Gross profit increased and margins increased as the result
      of sales where the margins realized were higher. Gross margin in our Data Center
      Maintenance segment for the quarter ended September 30, 2006 was 67.5% of
      revenue compared to a gross margin of 64.5% for the quarter ended September
      30,
      2005. Gross profit increased as well as margins as we expanded our customer
      base
      and added additional hardware under maintenance that will be serviced by
      existing maintenance engineers.




Selling,
      general and administrative expenses for the quarter ended September 30, 2006
      were $2,312,095 compared to selling, general and administrative expenses of
      $2,163,978 for the quarter ended September 30, 2005, a $148,117 increase, or
      6.8%. The slight increase demonstrates the relatively fixed cost nature of
      our
      business as revenues continue to grow.




Depreciation
      and amortization for the quarter ended September 30, 2006 was $174,752 compared
      to depreciation and amortization of $165,269 for the quarter ended September
      30,
      2005, a $9,483 increase, or 5.7%. This increase was the result of depreciation
      on fixed assets purchased during 2005, and the first nine months of 2006.




Interest
      expense for the quarter ended September 30, 2006 was $56,481 compared to
      interest expense of $63,868 for the quarter ended September 30, 2005, a $7,387
      decrease, commensurate with a decrease in the level of the Company’s borrowings
      offset by an increase in the rate of interest.




The
      Company recorded a federal tax benefit and state tax expense for the three
      months ended September 30, 2006 and 2005. We incur state income taxes in
      jurisdictions where the Company cannot file a consolidated income tax
      return.




***Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005***




Revenue
      for the nine months ended September 30, 2006 was $33,841,174 compared to revenue
      of




Page
          12




$25,011,516
      for the nine months ended September 30, 2005, an $8,829,658 increase, or 35.3%.
      Revenue in our Data Security and Compliance segment for the nine months ended
      September 30, 2006 increased to $15,304,362 from $10,017,187 for the nine months
      ended September 30, 2005, a $5,287,175 increase, or 52.8%. This was the result
      of a substantial increase in our wholesale remarketing revenues as well as
      new
      and existing corporate customers utilizing our full suite of services. Revenue
      in our Data Center Hardware Segment for the nine months ended September 30,
      2006
      increased to $15,474,106 from $13,576,611 for the nine months ended September
      30, 2005, a $1,897,495 increase, or 14.0%. This division’s revenue growth
      benefited from the strength of a few substantial hardware sales to existing
      data
      center hardware and data center maintenance clients. Revenue in our Data Center
      Maintenance Services segment increased to $3,513,997 for the nine months ended
      September 30, 2006 from $2,506,614 for the nine months ended September 30,
      2005,
      a $1,007,383 increase, or 40.2%. This was the result of signing additional
      service contracts with new and existing customers this year as well as new
      contracts that were signed during last year. These contracts are generally
      one
      to three year terms.




Our
      revenues categorized by products and services are as follows:


Nine
                Months Ended
            
            Nine
                Months EndedSeptember
                30, 2006
            
            September
                30, 2005RevenueProducts
            
            $
            30,002,721
            
            $
            22,408,922Services
            
            
            3,838,453
            
            
            2,602,594Total
                Revenue
            
            $
            33,841,174
            
            $
            25,011,516




Gross
      profit for the nine months ended September 30, 2006 was $7,490,815 compared
      to a
      gross profit of $5,389,828 for the nine months ended September 30, 2005, a
      $2,100,987 increase, or 39.0%. Gross profit in our Data Security and Compliance
      segment for the nine months ended September 30, 2006 increased to $2,031,607
      from $1,057,723 for the nine months ended September 30, 2005, a $973,884
      increase, or 92.1%. Gross profit in our Data Center Hardware segment for the
      nine months ended September 30, 2006 increased to $3,072,499 from $2,644,085
      for
      the nine months ended September 30, 2005, a $428,414 increase, or 16.2%. Gross
      profit in our Data Center Maintenance segment for the nine months ended
      September 30, 2006 increased to $2,386,709 from $1,688,020 for the nine months
      ended September 30, 2005, a $698,689 increase, or 41.4%.




Gross
      margin for the nine months ended September 30, 2006 was 22.1% compared to a
      gross margin of 21.5% for the nine months ended September 30, 2005. Gross margin
      in our Data Security and Compliance segment for the nine months ended September
      30, 2006 was 13.3% compared to a gross margin of 10.6% for the nine months
      ended
      September 30, 2005. The improvement in our gross profit and gross margin
      reflects both an increase in our wholesale re-marketing business, while holding
      down our semi-fixed cost of goods sold, as well as the addition of corporate
      customers utilizing our full suite of higher-margin data security services.
      Gross margin in our Data Center Hardware segment for the nine months ended
      September 30, 2006 was 19.9% of revenue compared to 19.5% of revenue for the
      nine months ended September 30, 2005. Gross profit increased and margins
      increased as the result of a few sales where the margins realized were higher.
      Gross margin in our Data Center Maintenance segment for the nine months ended
      September 30, 2006 was 67.9% of revenue compared to a gross margin of 67.3%
      for
      the nine months ended September 30, 2005. Gross profit increased but margins
      decreased slightly as we opened up a number of new sales offices and added
      maintenance engineers to support the expanded customer base.




Selling,
      general and administrative expenses for the nine months ended September 30,
      2006








Page
          13




were
      $7,203,007 compared to selling, general and administrative expenses of
      $6,548,050 for the nine months ended September 30, 2005, a $654,957 increase,
      or
      10.0%. The increase was mainly the result of an increase in our allowance for
      doubtful accounts. In the first quarter of 2006 we took a charge of $448,000
      from a single customer and against whom QSGI is pursuing recourse. Excluding
      the
      increase in the allowance for doubtful accounts, selling, general and
      administrative expenses were relatively flat demonstrating the relatively fixed
      cost nature of our business as revenues continue to grow.




Depreciation
      and amortization for the nine months ended September 30, 2006 was $516,432
      compared to depreciation and amortization of $466,212 for the nine months ended
      September 30, 2005, a $50,220 increase, or 10.8%. This increase was the result
      of depreciation on fixed assets purchased during 2005, and the first nine months
      of 2006.




Interest
      expense for the nine months ended September 30, 2006 was $156,264 compared
      to
      interest expense of $91,168 for the nine months ended September 30, 2005, a
      $65,096 increase, commensurate with an increase in the level of the Company’s
      borrowings and an increase in the rate of interest.




The
      Company recorded a federal tax benefit for the nine months ended September
      30,
      2006 and 2005. 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.




In
      the
      second quarter of 2006, during preparation of the Company’s federal income tax
      return for the year ended December 31, 2005, it was discovered that certain
      compensation deductions related to the exercise of stock options, totaling
      approximately $2.3 million, were excluded from the Company’s tax provision
      prepared at December 31, 2005.




The
      impact of these additional deductions was to increase the deferred tax asset
      by
      approximately $870,000. The Company determined that, had these facts been known
      during the original preparation of the tax provision for the year ended December
      31, 2005, a valuation allowance would have been provided against these
      additional deferred tax assets. Because there was no net balance sheet or income
      statement impact, the Company recorded these adjustments to its deferred tax
      accounts at September 30, 2006, and prior periods were not adjusted. Should
      the
      Company determine in the future that the deferred tax asset valuation allowance
      should be reversed, it will result in an increase to additional paid-in capital,
      with no impact on the tax provision.




Based
      on
      the revised calculations, as of December 31, 2005, the Company has approximately
      $4.4 million of net operating loss carryforward for federal income tax purposes.




**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.






Page
          14




**Data
      Security & Compliance Segment**





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2006**
            
            2005
            
            **2006**
            
            2005**Revenue**
            
            **$**
            **5,032,395**
            
            $
            4,589,282
            
            $
            15,304,362
            
            $
            10,017,187**Gross
                Profit**
            
            
            **591,081**
            
            
            568,237
            
            
            2,031,607
            
            
            1,057,723**Selling,
                General And Administrative Expenses**
            
            
            **1,164,326**
            
            
            1,210,290
            
            
            3,820,010
            
            
            3,575,973**Depreciation
                And Amortization**
            
            
            **59,253**
            
            
            52,188
            
            
            171,946
            
            
            131,326**Loss
                Before Benefit For Income Taxes**
            
            
            **(689,028**
            **)**
            
            (759,193
            )
            
            (2,117,846
            )
            
            (2,733,386
            )**Segment
                Assets**
            
            
            **9,458,595**
            
            
            6,586,613
            
            
            9,458,595
            
            
            6,586,613**Goodwill**
            
            
            **-**
            
            
            -
            
            
            -
            
            
            -**Expenditures
                for Property and Equipment**
            
            
            **30,996**
            
            
            62,310
            
            
            85,568
            
            
            256,007




***Quarter
      Ended September 30, 2006 Compared to Quarter Ended September 30,
      2005***




Revenue
      in our Data Security and Compliance segment for the quarter ended September
      30,
      2006 increased to $5,032,395 from $4,589,282 for the quarter ended September
      30,
      2005, a $443,113 increase, or 9.7%. This was the result of a substantial
      increase in our wholesale remarketing revenues as well as new and existing
      corporate customers utilizing our full suite of services.




Gross
      profit in our Data Security and Compliance segment for the quarter ended
      September 30, 2006 increased to $591,081 from $568,237 for the quarter ended
      September 30, 2005, a $22,844 increase, or 4.0%. Gross margin in our Data
      Security and Compliance segment for the quarter ended September 30, 2006 was
      11.7% compared to a gross margin of 12.4% for the quarter ended September 30,
      2005. The improvement in our gross profit reflects the overall increase in
      business, while the slight margin compression was due to product mix.




Selling,
      general and administrative expenses for the quarter ended September 30, 2006
      were $1,164,326 compared to selling, general and administrative expenses of
      $1,210,290 for the quarter ended September 30, 2005, a $45,964 decrease, or
      3.8%. The decrease was the result of strict cost containment and demonstrates
      the relatively fixed cost nature of our business as revenues continue to grow.




Depreciation
      and amortization for the quarter ended September 30, 2006 was $59,253 compared
      to depreciation and amortization of $52,188 for the quarter ended September
      30,
      2005, a $7,065 increase, or 13.5%. This increase was the result of depreciation
      on fixed assets purchased during 2006 and 2005.




***Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005***




Revenue
      for the nine months ended September 30, 2006 was $15,304,362 compared to revenue






Page
          15




of
      $10,017,187 for the nine months ended September 30, 2005, a $5,287,175 increase,
      or 52.8%. This was the result of a substantial increase in our wholesale
      remarketing revenue as well as new and existing corporate customers utilizing
      our full suite of services.




Gross
      profit for the nine months ended September 30, 2006 was $2,031,607 compared
      to
      gross profit of $1,057,723 for the nine months ended September 30, 2005, a
      $973,884 increase, or 92.1%. Gross margin in our Data Security and Compliance
      segment for the nine months ended September 30, 2006 was 13.3% compared to
      a
      gross margin of 10.6% for the nine months ended September 30, 2005. The
      improvement in our gross profit and gross margin reflects both an increase
      in
      our wholesale re-marketing business, while holding down our semi-fixed cost
      of
      goods sold, as well as the addition of corporate customers utilizing our full
      suite of higher-margin data security services.




Selling,
      general and administrative expenses for the nine months ended September 30,
      2006
      was $3,820,010 as compared to selling, general and administrative expenses
      for
      the nine months ended September 30, 2005 of $3,575,973, a $244,037 increase,
      or
      6.8%. Selling, general and administrative expenses increased as a result of
      a
      one time increase in our allowance for doubtful accounts taken in the first
      quarter of 2006 whereby we took a charge of $349,000 from a single customer
      and
      against whom QSGI is pursuing recourse. We have joined a group of other
      creditors alleging that we have been unwitting victims of fraudulent activities
      with respect to the sale of IT equipment and the related collection of
      receivables.




Depreciation
      and amortization for the nine months ended September 30, 2006 was $171,946
      compared to depreciation and amortization of $131,326 for the nine months ended
      September 30, 2005, a $40,620 increase, or 30.9%. This increase was the result
      of depreciation on fixed assets purchased during 2005 and the first nine months
      of 2006.





**Data
      Center Hardware Segment**


**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2006**
            
            2005
            
            **2006**
            
            2005**Revenue**
            
            **$**
            **2,994,740**
            
            $
            3,727,327
            
            **$**
            **15,474,106**
            
            $
            13,576,611**Gross
                Profit**
            
            
            **760,469**
            
            
            696,606
            
            
            **3,072,499**
            
            
            2,644,085**Selling,
                General And Administrative Expenses**
            
            
            **655,185**
            
            
            632,848
            
            
            **1,962,125**
            
            
            2,000,336**Depreciation
                And Amortization**
            
            
            **99,771**
            
            
            97,865
            
            
            **297,460**
            
            
            289,448**Income
                (Loss) Before Provision (Benefit) For Income
                Taxes**
            
            
            **5,564**
            
            
            (33,023
            )
            
            **814,286**
            
            
            346,943**Segment
                Assets**
            
            
            **11,225,247**
            
            
            7,976,602
            
            
            **11,225,247**
            
            
            7,976,602**Goodwill**
            
            
            **6,116,707**
            
            
            2,957,194
            
            
            **6,116,707**
            
            
            2,957,194**Expenditures
                for Property and Equipment**
            
            
            **4,157**
            
            
            3,502
            
            
            **16,564**
            
            
            48,391




***Quarter
      Ended September 30, 2006 Compared to Quarter Ended September 30,
      2005***




Revenue
      for the quarter ended September 30, 2006 was $2,994,740 compared to revenue
      of
      $3,727,327 for the quarter ended September 30, 2005, a $732,587 decrease, or
      19.7%. Since hardware equipment tends to be a bigger ticket item and may be
      subject to the uneven nature of the sales cycle, the timing of shipments can
      have an impact on a particular quarter. This quarter's decrease resulted from
      some of our clients and prospective clients delaying their data migration due
      to
      issues that were out of our control.






Page
          16




Gross
      profit for the quarter ended September 30, 2006 was $760,469 compared to gross
      profit of $696,606 for the quarter ended September 30, 2005, a $63,863 increase,
      or 9.2%. Gross margin in our Data Center Hardware segment for the quarter ended
      September 30, 2006 was 25.4% of revenue compared to 18.7% of revenue for the
      quarter ended September 30, 2005. Gross profit increased and margins increased
      as a result of sales where the margins realized were higher.




Selling,
      general and administrative expenses for the quarter ended September 30, 2006
      were $655,185 compared to selling, general and administrative expenses of
      $632,848 for the quarter ended September 30, 2005, a $22,337 increase, or 3.5%.
      This minimal increase was the result of a strict cost containment policy
      instituted at the beginning of 2006.




Depreciation
      and amortization for the quarter ended September 30, 2006 was $99,771 compared
      to depreciation and amortization of $97,865 for the quarter ended September
      30,
      2005, a $1,906 increase, or 1.9%. This increase was the result of depreciation
      on fixed assets purchased during 2006 and 2005.




***Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005***




Revenue
      for the nine months ended September 30, 2006 was $15,474,106 compared to revenue
      of $13,576,611 for the nine months ended September 30, 2005, a $1,897,495
      increase, or 14.0%. Hardware equipment tends to be a bigger ticket item and
      may
      be subject to the uneven nature of the sales cycle and the timing of shipments.
      This segment’s revenue growth has benefited from the strength of a few
      substantial hardware sales to existing data center hardware and data center
      maintenance clients.




Gross
      profit for the nine months ended September 30, 2006 was $3,072,499 compared
      to
      gross profit of $2,644,085 for the nine months ended September 30, 2005, a
      $428,414 increase, or 16.2%. Gross margin in our Data Center Hardware segment
      for the nine months ended September 30, 2006 was 19.9% of revenue compared
      to
      19.5% of revenue for the nine months ended September 30, 2005. Gross profit
      increased and margins increased as the result of additional revenue and expanded
      margins.




Selling,
      general and administrative expenses for the nine months ended September 30,
      2006
      were $1,962,125 compared to selling, general and administrative expenses of
      $2,000,336 for the nine months ended September 30, 2005, a $38,211 decrease,
      or
      (1.9%). The decrease was the result of a strict cost containment policy
      instituted at the beginning of 2006.




Depreciation
      and amortization for the nine months ended September 30, 2006 was $297,460
      compared to depreciation and amortization of $289,448 for the nine months ended
      September 30, 2005, an $8,012 increase, or 2.8%. This increase was the result
      of
      depreciation on fixed assets purchased during 2006 and 2005.






Page
          17




**Data
      Center Maintenance Segment**


**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2006**
            
            2005
            
            **2006**
            
            2005**Revenue**
            
            **$**
            **1,348,975**
            
            $
            958,773
            
            **$**
            **3,513,997**
            
            $
            2,506,614**Gross
                Profit**
            
            
            **910,606**
            
            
            618,527
            
            
            **2,386,709**
            
            
            1,688,020**Selling,
                General And Administrative Expenses**
            
            
            **492,585**
            
            
            320,840
            
            
            **1,420,872**
            
            
            971,741**Depreciation
                And Amortization**
            
            
            **15,729**
            
            
            15,216
            
            
            **47,027**
            
            
            45,438**Income
                Before Provision For Income Taxes**
            
            
            **402,291**
            
            
            282,472
            
            
            **918,671**
            
            
            670,841**Segment
                Assets**
            
            
            **1,505,684**
            
            
            1,804,103
            
            
            **1,505,684**
            
            
            1,804,103**Goodwill**
            
            
            **527,696**
            
            
            255,120
            
            
            **527,696**
            
            
            255,120**Expenditures
                for Property and Equipment**
            
            
            -
            
            
            1,264
            
            
            **6,137**
            
            
            3,941




***Quarter
      Ended September 30, 2006 Compared to Quarter Ended September 30,
      2005***




Revenue
      for the quarter ended September 30, 2006 was $1,348,975 compared to revenue
      of
      $958,773 for the quarter ended September 30, 2005, a $390,202 increase, or
      40.7%. This was the result of signing additional service contracts with new
      and
      existing customers this quarter as well as new contracts that were signed during
      last year. These contracts are generally one to three year terms.




Gross
      profit for the quarter ended September 30, 2006 was $910,606 compared to gross
      profit of $618,527 for the quarter ended September 30, 2005, a $292,079
      increase, or 47.2%. Gross margin for the quarter ended September 30, 2006 was
      67.5% of revenue compared to a gross margin of 64.5% for the quarter ended
      September 30, 2005. Gross profit increased as well as margins as we expanded
      our
      customer base and added additional hardware under maintenance that will be
      serviced by existing maintenance engineers.




Selling,
      general and administrative expenses for the quarter ended September 30, 2006
      were $492,585 compared to selling, general and administrative expenses of
      $320,840 for the quarter ended September 30, 2005, a $171,745 increase, or
      53.5%. The increase was mainly the result of additional personnel and
      compensation.




Depreciation
      and amortization for the quarter ended September 30, 2006 was $15,729 compared
      to depreciation and amortization of $15,216 for the quarter ended September
      30,
      2005, a $513 increase, or 3.4%. This increase was the result of depreciation
      on
      fixed assets purchased during 2005.




***Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005***




Revenue
      for the nine months ended September 30, 2006 was $3,513,997 compared to revenue
      of $2,506,614 for the nine months ended September 30, 2005, a $1,007,383
      increase, or 40.2%. This was the result of signing additional service contracts
      with new and existing customers this year as well as new contracts that were
      signed during last year. These contracts are generally one to three year terms.




Gross
      profit for the nine months ended September 30, 2006 was $2,386,709 compared
      to
      gross profit of $1,688,020 for the nine months ended September 30, 2005, a
      $698,689 increase, or 41.4%. Gross margin for the nine months ended September
      30, 2006 was 67.9% of revenue compared to a gross margin of 67.3% for the nine
      months ended September 30, 2005. Gross profit increased as well as margins
      as we
      expanded our customer base and added additional hardware under maintenance
      that
      will be serviced by existing maintenance engineers.




Selling,
      general and administrative expenses for the nine months ended September 30,
      2006
      were $1,420,872 compared to selling, general and administrative expenses of
      $971,741 for the nine months ended September 30, 2005, a $449,131 increase,
      or
      46.2%. The increase was mainly the result of additional personnel and
      compensation.






Page
          18




Depreciation
      and amortization for the nine months ended September 30, 2006 was $47,027
      compared to depreciation and amortization of $45,438 for the nine months ended
      September 30, 2005, a $1,589 increase, or 3.5%. This increase was the result
      of
      depreciation on fixed assets purchased during 2005 and this year.




***Geographic
      Areas***




We
      operate primarily in the United States and have minimal 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, and we recorded no foreign currency transaction gains or losses during
      any period.




**Liquidity
      and Capital Resources** ******




Net
      cash
      used in operating activities in the nine months ended September 30, 2006 and
      2005 was $788,258 and $3,300,299, respectively. Net cash used in operating
      activities during the nine month period ended September 30, 2006 was primarily
      as a result of a net loss, an increase in inventories and a decrease in accounts
      payable and accrued expenses, offset by a decrease in accounts receivable.
      The
      decrease in our receivables was mainly attributable to tighter credit controls
      established and better collections and an increase in our allowance for doubtful
      accounts. The increase in inventory was due to new product purchases supporting
      our elevated revenue base. The increase in deferred revenue was due to an
      increase in our newly signed contracts. Net cash used in operating activities
      during the nine month period ended September 30, 2005 was primarily as a result
      of a net loss, an increase in accounts receivable, an increase in inventories,
      an increase in prepaid expenses and other assets offset by an increase in
      accounts payable and accrued expenses.




Net
      cash
      used in investing activities for the nine months ended September 30, 2006 and
      2005 was $100,220 and $394,858, respectively. Net cash used in investing
      activities in the nine months ended September 30, 2006 was for the purchase
      of
      fixed assets. Net cash used in investing activities in the nine months ended
      September 30, 2005 was for the purchase of fixed assets and an adjustment to
      the
      purchase price of the Qualtech acquisition.




Net
      cash
      provided by financing activities for the nine months ended September 30, 2006
      and 2005, was $1,318,543 and $3,390,580, respectively. Net cash provided by
      financing activities during the nine month period ended September 30, 2006
      was
      the result of proceeds from the issuance of redeemable preferred stock offset
      by
      payments made under our revolving line of credit and stock issuance costs.
      Net
      cash provided by financing activities in the nine months ended September 30,
      2005 was the result of the exercise of stock options and stock warrants, net
      amounts borrowed under our line of credit, reduced by net amounts paid notes
      payable.




We
      believe that the anticipated cash flow from operations and current financing
      arrangements with Fifth Third 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.




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.






Page
          19




Under
      the
      terms of the acquisition agreement, as amended, with Qualtech International
      Corporation and its affiliate, Qualtech Services Group, Inc. that was completed
      on May 28, 2004, as of May 1, 2006, additional merger consideration was due
      to
      the selling shareholders. The selling shareholders were entitled to this
      additional merger consideration in the form of restricted shares of the Company
      representing at least fifty percent (50%) of the total consideration to be
      paid
      and cash of up to fifty percent (50%) of the additional consideration which
      was
      to be determined at the discretion of the Company. Any portion that was to
      be
      paid in cash was due within 30 days following the second anniversary of the
      effective date of the acquisition. Any portion that was to be paid in stock
      was
      due on February 15, 2007. The number of shares was to be determined by using
      the
      average trading price 15 days prior to February 14, 2007. The Company elected
      to
      pay the consideration early in restricted shares of the Company. To settle
      the
      earn-out, 2,063,545 shares were issued at a value of approximately $1.66 per
      share resulting in additional goodwill in the amount of $3,432,089.




We
      did
      not have any significant elements of income or loss not arising from continuing
      operations in either of the periods ended September 30, 2006 and 2005 and do
      not
      expect any in the remainder of fiscal 2006. 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.




**ITEM
      3.**   **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, does not expect that our Disclosure Controls will prevent
      all
      error 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-QSB. In this
      Form
      10-QSB for the quarter ended September 30, 2006, we are reporting a control
      weakness related to our corporate tax accounting function. This weakness relates
      specifically to the Company not maintaining sufficient resources in the
      corporate tax accounting function to accurately






Page
          20




identify,
      evaluate and report, in a timely manner, non-routine and complex transactions.
      This deficiency resulted in errors in the Company’s accounting for deferred
      income taxes. These errors were not considered material enough to adjust prior
      period financial statements and were adjusted in the second quarter of 2006.
      However, this control weakness, if gone uncorrected, could result in a material
      financial statement misstatement. Upon identification of this control weakness,
      immediate corrective action was undertaken. Remediation will include the
      following:




·
            Where
                necessary, we will retain outside experts to supplement our core
                knowledge
                of the complexities around both current and deferred income tax accounts.
                These resources, when combined with our existing resources, will
                enable us
                to comply with the technical complexities of accounting for income
                taxes.




·
            A
                formal policy governing all key aspects of accounting for income
                taxes
                will be developed and adopted.




·
            We
                will increase the training of our corporate accountants on accounting
                for
                income taxes and other complex accounting
                issues




As
      of
      September 30, 2006, 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 the information discussed above, our CEO and CFO have concluded these
      controls are not effective. Other than the remediation plans discussed above,
      there have been no significant changes in internal controls, or in other
      factors, which would significantly affect these controls subsequent to the
      date
      of evaluation. Our efforts to strengthen financial and internal controls
      continue.




**Changes
      in internal control over financial reporting**




During
      the period covered by this report, there have been no changes 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.




**PART
      II - OTHER INFORMATION**




**ITEM
      1.**   **LEGAL
      PROCEEDINGS**




The
      Company 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.




**ITEM2.**   **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**




Under
      the
      terms of the acquisition agreement, as amended, with Qualtech International
      Corporation and its affiliate, Qualtech Services Group, Inc. that was completed
      on May 28, 2004, as of May 1, 2006, additional merger consideration was due
      to
      the selling shareholders. The selling shareholders were entitled to this
      additional merger consideration in the form of restricted shares of the Company
      representing at least fifty percent (50%) of the total consideration to be
      paid
      and cash of up to fifty percent (50%) of the additional consideration which
      was
      to be determined at the discretion of the Company. Any portion that was to
      be
      paid in cash was due within 30 days following the second anniversary of the
      effective date of the acquisition. Any portion that was to be paid in stock
      was
      due on February 15, 2007. The number of shares was to be determined by using
      the
      average trading price 15 days prior to February 14, 2007. The Company elected
      to
      pay the consideration early in restricted shares of the Company. To settle
      the
      earn-out, 2,063,545 shares were issued at a value of approximately $1.66 per
      share resulting in additional goodwill in the amount of $3,432,089.






Page
          21




**ITEM
      3.**   **DEFAULTS
      UPON SENIOR SECURITIES**




Not
      applicable.




**ITEM4.**   **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




On
      September 18, 2005, an annual meeting of our stockholders was held for the
      following purposes:




(1)
      To
      elect seven members to the Company’s Board of Directors to hold office until
      their term expires at the Company's Annual Meeting of Stockholders or until
      their successors are duly elected and qualified. The results of the vote to
      elect the seven directors were as follows:




Name
                of Director
            
            For
            
            WithheldMarc
                Sherman
            
            
            26,481,786
            
            
            563,587Seth
                A. Grossman
            
            
            26,482,046
            
            
            563,327Edward
                L. Cummings
            
            
            26,481,796
            
            
            563,577R.
                Keith Elliott
            
            
            26,482,046
            
            
            563,327Robert
                W. VanHellemont
            
            
            26,482,046
            
            
            563,327Geoffrey
                A. Smith
            
            
            26,482,046
            
            
            563,327John
                F. Cunningham
            
            
            26,482,046
            
            
            563,327




(2)
      To
      vote upon an amendment to the Company's Amended and Restated Certificate of
      Incorporation to increase the number of Common shares which the Company is
      authorized to issue from 55,000,000 to 95,000,000 shares of Common Stock, par
      value $.01 per share. The proposal received 26,273,097 votes for, 770,162 votes
      against, and 2,113 abstentions.




(3)
      To
      vote upon an amendment to the Company's Amended and Restated Bylaws that would
      allow for 3 year staggered terms of office for the directors beginning at the
      Annual Meeting of Stockholders in 2006. The proposal received 8,977,587 votes
      for, 2,262,558 votes against, and 15,805,228 abstentions.




(4)
      To
      ratify the appointment of RubinBrown LLP as the Company's independent certified
      public accountant for the fiscal year ending December 31, 2006. The proposal
      received 27,031,898 votes for, 10,000 votes against, and 3,475 abstentions.




All
      of
      the proposals were approved.




**ITEM5.**   **OTHER
      INFORMATION**


None






Page
          22




**ITEM
      6. EXHIBITS**


ExhibitsSee
                List of Exhibits filed as part of this quarterly report on Form
                10-QSB.  Page
            23


**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.**
              (Registrant)Dated:November
                14, 2006
            By:
            /s/
                Marc ShermanMarc
                ShermanChairman
                and Chief Executive OfficerDated:November
                14, 2006
            By:
            /s/
                Edward L. CummingsEdward
                L. CummingsChief
                Financial Officer and Treasurer





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**List
      Of 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-B.


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