##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 Commission File Number: 0-19394
 GTSI CORP.
  Delaware
    
    54-1248422(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3901 Stonecroft Boulevard, Chantilly, VA
    
    20151-1010(Address of principal executive offices)
    
    (Zip Code)
 703-502-2000
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.005 par value
    
    NASDAQ Global Market
 None
 YES
o NO
þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



CONTENTS
 PagePART I
    
    Item 1.       Business
    
    
    1Item 1A.      Risk Factors
    
    
    10Item 1B.      Unresolved Staff Comments
    
    
    15Item 2.       Properties
    
    
    15Item 3.       Legal Proceedings
    
    
    16Item 4.       Submission of Matters to a Vote of Security Holders
    
    
    16PART II
    
    Item 5.       Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    17Item 6.       Selected Financial Data
    
    
    20Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A.      Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8.       Financial Statements and Supplementary Data
    
    
    38Item 9.       Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    66Item 9A.      Controls and Procedures
    
    
    66Item 9B.      Other Information
    
    
    69PART III
    
    Item 10.      Directors, Executives Officers and Corporate Governance
    
    
    70Item 11.      Executive Compensation
    
    
    70Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    70Item 13.      Certain Relationships and Related Transactions, and Director Independence
    
    
    70Item 14.      Principal Accounting Fees and Services
    
    
    70PART IV
    
    Item 15.      Exhibits, Financial Statement Schedules
    
    
    71Signatures
    
    
    72Schedule II
    
    Valuation and Qualifying Accounts
    
    
    73Exhibit Index
    
    
    74Exhibit 23.1Exhibit 23.2Exhibit 23.3Exhibit 31.1Exhibit 31.2Exhibit 32Exhibit 99.1Exhibit 99.2
   1




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Disclosure Regarding Forward-Looking Statements
 Readers are cautioned that this Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, (Exchange Act) relating to our operations that are
based on our current expectations, estimates and projections. Words such as expect, believe,
anticipate, plan, intend and similar expressions are used to identify these forward-looking
statements. These statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that are difficult to predict. Our actual results may differ
materially from what is expressed or projected in these forward-looking statements. The reasons for
this include the factors discussed in Item 1A, Risk Factors, of this Annual Report on Form 10-K . We
specifically disclaim any obligation to update these forward-looking statements. These
forward-looking statements should not be relied on as representing our estimates or views as of any
subsequent date.
 
 PART I
 
 ITEM 1. BUSINESS
 Overview
   2007
    
    
    2006
    
    
    2005Federal Government
    
    
    75
    %
    
    
    72
    %
    
    
    71
    %Prime Contractors
    
    
    14
    %
    
    
    20
    %
    
    
    21
    %State and Local Governments
    
    
    11
    %
    
    
    8
    %
    
    
    8
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    Hardware integration
    
    Customer image propagation
    
    Automated system diagnostics and data capture
  1




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
    
    Customer asset tagging
    
    Complex configurations of various IT solutions, such as Voice over Internet Protocol (VoIP)
   Business Strategy
   Continue Focusing on the Government IT Market
  Leverage Technology Lifecycle Management (TLM)
  Retain and Obtain Government Contracts and Utilize Flexible Contract Vehicles
  Continue to expand our Solution and Services
   2




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Provide a High-Quality Centralized Source for Procuring IT Products and Services
  Customers
 Federal Government
  2007
    
    
    2006
    
    
    2005Department of Defense
    
    
    39
    %
    
    
    39
    %
    
    
    35
    %Civilian Agencies and Departments
    
    
    45
    %
    
    
    39
    %
    
    
    42
    %Prime Contractors
    
    
    16
    %
    
    
    22
    %
    
    
    23
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 State and Local
  Contracts
    3




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General Services Administration
    Indefinite Delivery/Indefinite Quantity
  Task Order Contracts
  Blanket Purchase Agreements
    4




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State and Local
    Open Market
  Solutions, Services, and Products
  Technology Lifecycle Management
  Solutions
  
    
    Virtualization in the Data Center which leads to Server and Storage Consolidation
  5




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
    
    Voice over Internet Protocol in the Network as a first step to Unified Communications
    
    Physical Security as it migrates from analog to IP-based Network infrastructure
    
    Mobile Evidence Capture specifically for the State and Local markets
  Services
    
    
    Needs analysis and environment assessment
    
    Professional services  including project planning and management, engineering, implementation, and training
    
    Systems integration, configuration, and light assembly
    
    Asset management
    
    Logistics planning and deployment
    
    Financial services to evenly distribute cash flow requirements for technology refreshes and buying cycles
    
    Support serviceswarranty, maintenance, custom service plans
 Practice Management
  Project Management
   6




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Integration Services
   
    
    Complex assembly for hardware and software
    
    Design verification and QA testing
    
    Integration audit and documentation
    
    Logistics and deployment planning
    
    Image loads
    
    Rack and stack
    
    Custom packaging
    
    Asset management tools and services
 Asset Management
  Support ServiceWarranty, Maintenance, and Support
    
    
    Global advanced replacement of parts
    
    On-site support, Multi-vendor first-call support
    
    Online monitoring of support and maintenance status through Support Service Center
    
    Consolidated co-terminus support contracts and online customer tool  SupportNet  with
access to warranty and
maintenance agreement status and terms
    
    Software updates and upgrades
    
    Improved reliability and availability; minimized operational expenses
   7




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Financial Services
  Products
   2007
    
    
    2006
    
    
    2005Hardware
    
    $
    530.0
    
    
    
    73.3
    %
    
    $
    649.7
    
    
    
    75.3
    %
    
    $
    687.3
    
    
    
    77.5
    %Software
    
    
    111.6
    
    
    
    15.4
    %
    
    
    130.2
    
    
    
    15.1
    %
    
    
    130.8
    
    
    
    14.7
    %Services
    
    
    59.7
    
    
    
    8.3
    %
    
    
    70.3
    
    
    
    8.1
    %
    
    
    64.0
    
    
    
    7.2
    %Financing
    
    
    22.2
    
    
    
    3.0
    %
    
    
    12.8
    
    
    
    1.5
    %
    
    
    5.1
    
    
    
    0.6
    %Total
    
    $
    723.5
    
    
    
    100.0
    %
    
    $
    863.0
    
    
    
    100.0
    %
    
    $
    887.2
    
    
    
    100.0
    %
 Note:
  Strategic Partner Relationships
    
    
    The unique ability to design, procure, install, operate, and refresh solutions through
our Infrastructure as a Service business model
    
    A gateway to the complex government market through a significant number of diverse
contract vehicles
    
    Access to the government customer through GTSIs proactive sales force providing
solutions, services, and products
    
    Lower cost overhead associated with government contractor compliance and procurement
regulations
   8




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Inventory Management
   Marketing and Sales
     Competition
   
    
    Past performance within the government market
    
    Expertise in government procurement processes (where standardized contracts exist)
  9




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
    
    Existing customer and vendor relationships (for which there is traditionally a high barrier to entry)
    
    Technical expertise
    
    Logistical capability
    
    Customer service and support
   Backlog
  Employees
  Available Information
  
 ITEM 1A. RISK FACTORS
   10




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We rely on a small number of large transactions for significant portions of our sales and gross
margins, and our operating results and cash flows may decline significantly if we fail to secure
additional large transactions.
  We continue to shift our business model from a reseller of products to a high-end solutions
provider and this new model has certain risks, including increased competition, which may impact
future results.
   
    
    Expertise in government procurement processes where standardized contracts exist
    
    Existing customer and vendor relationships (for which there is traditionally a high barrier to entry)
    
    Technical expertise
    
    Logistical capability
    
    The ability of our clients or competitors to hire and retain project managers and other senior technical staff
    
    The price at which others offer comparable technical solutions
    
    The extent of our competitors responsiveness to client needs
  Any issue that compromises our relationship with agencies of the U.S. Federal Government would
cause serious harm to our business.
  
    
    Our performance on individual contracts and delivery orders
    
    The strength of our professional reputation
    
    The relationships of our key executives with customer personnel
  11




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
    
    Our compliance with complex procurement laws and regulations related to the formation,
administration and performance of U.S. Federal Government contracts
   Adverse changes in U.S. Federal Government fiscal spending could have a negative effect on our
sales, gross margin, and cash flow.
  
    
    A significant decline in spending by the U.S. Federal Government in general or by
specific departments or agencies in particular
    
    Changes in the structure, composition and/or buying patterns of the U.S. Federal
Government
    
    The adoption of new laws or regulations changing procurement practices
    
    Delays in the payment of our invoices by government payment offices
  If we fail to comply with any material provision or covenant of our Credit Facility, we may not be
able to continue to operate our business.
  
    
    Maintain a minimum availability of $5 million as reported on the Borrowing Base
Certificate dated the last day of the month
    
    Provide quarterly EBITDA numbers that comply with schedules set forth in the credit
agreement;
    
    Maintain Fixed Charge Coverage Ratio not less than 1.10 to 1.00, effective September 30,
2008, as set forth in the credit agreement
    12




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Infrastructure failures could have a material adverse effect on our business.
  Any material weaknesses in our internal control over financial reporting could have a material
adverse effect on our business and a negative impact on our stock price.
  If we fail to align costs with our sales levels, net losses will continue.
    Compliance with changing regulations of corporate governance and public disclosure may result in
additional expenses.
   13




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Our quarterly sales, operating results and cash flows are volatile, which makes our future
financial results difficult to forecast.
  
    
    The seasonality of our business due to the U.S. Federal Governments buying and funding patterns
    
    Fluctuations in our gross margins due to variations in the mix of products sold and excess or obsolete inventory charges
    
    The number, size and scope of orders from our customers
    
    Demand for our services generated by strategic partnerships and certain prime contractors
    
    Availability of price protection, purchase discounts and rebate programs from vendors
    
    Contractual terms and degree of completion of projects
    
    Changes in our sales cycles as we move towards solution selling
  Because we sometimes work with third parties, any failure by these third parties to satisfactorily
perform their obligations could hurt our reputation, operating results and competitiveness.
  We may not qualify as a small business for new contract awards.
     14




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Any potential future acquisitions, strategic investments or mergers may subject us to significant
risks, any of which could harm our business.
  
    
    Diversion of management attention from running our existing business
    
    Possible additional material weaknesses in internal control over financial reporting
    
    Increased expenses including legal, administrative and compensation expenses related to newly hired employees
    
    Increased costs to integrate the technology, personnel, customer base and business
practices of the acquired company with our own
    
    Potential exposure to material liabilities not discovered in the due diligence process
    
    Potential adverse effects on our reported operating results due to possible write-down
of goodwill and other intangible assets associated with acquisitions
    
    Acquisition financing may not be available on reasonable terms or at all
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
     15




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ITEM 3.
    
    LEGAL PROCEEDINGS
 Accounting for Contingencies
 
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   16




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  Price Range of Common Stock
  2007
    
    
    2006Quarter
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst
    
    $
    12.08
    
    
    $
    8.61
    
    
    $
    7.93
    
    
    $
    6.12Second
    
    $
    13.60
    
    
    $
    11.23
    
    
    $
    7.00
    
    
    $
    4.86Third
    
    $
    13.77
    
    
    $
    10.47
    
    
    $
    10.04
    
    
    $
    6.44Fourth
    
    $
    12.34
    
    
    $
    8.97
    
    
    $
    10.22
    
    
    $
    8.20
  Dividends
  Issuer Purchases of Equity Securities
   17




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Equity Compensation Plans
  Number of SharesRemaining Available forFuture Issuance UnderNumber of Shares to be
    
    
    Weighted Average
    
    
    Equity CompensationIssued upon Exercise of
    
    
    Exercise Price of
    
    
    Plans (excluding sharesOutstanding Options
    
    
    Outstanding Options
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved
by stockholders
    
    
    2,912,557
    
    
    $
    7.42
    
    
    
    170,242Equity compensation plans not
approved by stockholders*
    
    
    89,700
    
    
    $
    9.70
    
    
    
    N/ATotal
    
    
    3,002,257
    
    
    $
    7.49
    
    
    
    170,242
 
 *
    
    Represents shares issuable under options granted from time to time to persons not previously
employed by the Company, as an inducement essential to such persons entering into employment
agreements with the Company.  18




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PERFORMANCE GRAPH
 1
 Dec.
31, 2002
    
    
    Dec. 31, 2003
    
    
    Dec. 31, 2004
    
    
    Dec. 31, 2005
    
    
    Dec. 31, 2006
    
    
    Dec. 31, 2007GTSI Corp.
    
    
    100.00
    
    
    
    102.98
    
    
    
    78.14
    
    
    
    52.04
    
    
    
    68.64
    
    
    
    73.31Peer Index1
    
    
    100.00
    
    
    
    142.25
    
    
    
    169.39
    
    
    
    156.81
    
    
    
    175.36
    
    
    
    157.47NASDAQ Index
    
    
    100.00
    
    
    
    150.36
    
    
    
    163.00
    
    
    
    166.58
    
    
    
    183.68
    
    
    
    201.91
 COMPARES 5-YEAR CUMULATIVE TOTAL RETURN
AMONG GTSI CORP., NASDAQ MARKET INDEX AND
SIC CODE INDEX
 
 
 1
    
    The 11 companies listed in SIC Code 5045 are: AVISTAR COMMUNICATIONS; EN POINTE
TECHNOLOGIES.; GTSI CORP.; IKON OFFICE SOLUTIONS; INGRAM MICRO, INC.; INX, INC.; NAVARRE CORP.;
POMEROY IT SOLUTIONS, INC.; SCANSOURCE, INC.; TECH DATA CORP.; AND WAYSIDE TECHNOLOGY GROUP   19




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ITEM 6.
    
    SELECTED FINANCIAL DATA
    20




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Statement of Operations Data:
 For the years ended December
31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands, except per share data)SALES (b)Product
    
    $
    641,560
    
    
    $
    779,896
    
    
    $
    818,018
    
    
    $
    1,075,437
    
    
    $
    951,511Service (a)
    
    
    59,658
    
    
    
    70,293
    
    
    
    63,994
    
    
    
    
    
    
    
    Financing
    
    
    22,247
    
    
    
    12,788
    
    
    
    5,143
    
    
    
    5,571
    
    
    
    1,669723,465
    
    
    
    862,977
    
    
    
    887,155
    
    
    
    1,081,008
    
    
    
    953,180COST OF SALES (b)Product
    
    
    570,580
    
    
    
    705,498
    
    
    
    756,050
    
    
    
    957,173
    
    
    
    857,277Service (a)
    
    
    38,276
    
    
    
    38,261
    
    
    
    31,017
    
    
    
    
    
    
    
    Financing
    
    
    9,889
    
    
    
    5,439
    
    
    
    2,249
    
    
    
    2,351
    
    
    
    939618,745
    
    
    
    749,198
    
    
    
    789,316
    
    
    
    959,524
    
    
    
    858,216GROSS MARGIN
    
    
    104,720
    
    
    
    113,779
    
    
    
    97,839
    
    
    
    121,484
    
    
    
    94,964SELLING,
GENERAL & ADMINISTRATIVE EXPENSES (b)
    
    
    106,335
    
    
    
    115,240
    
    
    
    114,514
    
    
    
    106,187
    
    
    
    85,283IMPAIRMENT CHARGE
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    
    
    
    
    5,972TOTAL OPERATING EXPENSES
    
    
    106,335
    
    
    
    115,240
    
    
    
    115,495
    
    
    
    106,187
    
    
    
    91,255(LOSS) INCOME FROM OPERATIONS
    
    
    (1,615
    )
    
    
    (1,461
    )
    
    
    (17,656
    )
    
    
    15,297
    
    
    
    3,709INTEREST AND OTHER INCOME
(EXPENSE), NET (b)
    
    
    416
    
    
    
    (1,663
    )
    
    
    757
    
    
    
    1,696
    
    
    
    2,207(LOSS) INCOME BEFORE TAXES
    
    
    (1,199
    )
    
    
    (3,124
    )
    
    
    (16,899
    )
    
    
    16,993
    
    
    
    5,916INCOME TAX (PROVISION) BENEFIT
    
    
    (568
    )
    
    
    110
    
    
    
    3,226
    
    
    
    (6,858
    )
    
    
    (2,598
    )NET (LOSS) INCOME
    
    $
    (1,767
    )
    
    $
    (3,014
    )
    
    $
    (13,673
    )
    
    $
    10,135
    
    
    $
    3,318(LOSS) EARNINGS PER SHAREBasic
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )
    
    $
    1.17
    
    
    $
    0.40Diluted
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )
    
    $
    1.05
    
    
    $
    0.36WEIGHTED AVERAGE COMMON
SHARES OUTSTANDINGBasic
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166
    
    
    
    8,664
    
    
    
    8,343Diluted
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166
    
    
    
    9,618
    
    
    
    9,308
 
 (a)
    
    Service revenue and cost of sales are combined in product revenue and cost of sales for
the years ended December 31, 2004 and 2003 since the Company does not have the ability to
conform to the current definitions of the service segment for those periods.(b)
    
    Certain prior year amounts were reclassified to conform to the current year
presentation including financial services transactions and distribution and purchasing
costs. These reclassifications have no impact on net loss.  21




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Balance Sheet Data:
    
    As of December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands)Working capital
    
    $
    69,985
    
    
    $
    70,197
    
    
    $
    60,208
    
    
    $
    79,014
    
    
    $
    65,306Total assets
    
    
    226,667
    
    
    
    330,681
    
    
    
    345,907
    
    
    
    313,908
    
    
    
    279,487Borrowings under credit facility
    
    
    18,031
    
    
    
    30,912
    
    
    
    48,014
    
    
    
    1,168
    
    
    
    12,813Long-term liabilities, including debt
    
    
    20,432
    
    
    
    33,888
    
    
    
    19,072
    
    
    
    13,099
    
    
    
    5,606Total liabilities
    
    
    148,954
    
    
    
    253,998
    
    
    
    267,740
    
    
    
    221,493
    
    
    
    201,135Stockholders equity
    
    
    77,713
    
    
    
    76,683
    
    
    
    78,167
    
    
    
    92,415
    
    
    
    78,352
  22




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
      
    
    Our sales decreased approximately $139.5 million, or 16.2%, from 2006 to 2007;
    
    Gross margin decreased $9.1 million however gross margin as a percentage of sales
increased 1.3 percentage points from 2006 to 2007;
    
    In 2006, we recognized a $5.8 million extinguishment of a liability, in accordance with
FAS 140, and changes in estimates related to vendor payable amounts and vendor rebates of
$4.0 million and $1.1 million, respectively. These adjustments positively impacted 2006
gross margin and net loss by $10.9 million;
    
    2007 expenses were impacted by approximately $1.7 million of consulting fees which we do
not anticipate in 2008;
    
    2006 expenses were impacted by approximately $9.0 million of one-time charges
related to refinancing our debt included in interest and other income, and severance and
restatement fees included in selling, general & administrative expenses;
    
    Our net loss for the year ended December 31, 2007 was $1.8 million;
    
    Cash provided by operations totaled $14.0 million for the year ended December 31, 2007;
  23




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Critical Accounting Estimates and Policies
   Revenue Recognition
     24




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Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor,
 Financing Receivables
  Stock-Based Compensation
 Share Based Payment, Accounting for Stock Issued to Employees
  Inventory
  Capitalized Internal Use Software
   25




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Accounts Payable
  Bids and Proposals
  Income Taxes
   26




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Historical Results of Operations
  2007
    
    
    2006
    
    
    2005Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    85.5
    %
    
    
    86.8
    %
    
    
    89.0
    %Gross margin
    
    
    14.5
    %
    
    
    13.2
    %
    
    
    11.0
    %Operating expenses:Selling, general, and administrative
    
    
    14.7
    %
    
    
    13.4
    %
    
    
    12.9
    %Impairment charge
    
    
    
    
    
    
    
    
    
    
    0.1
    %Total operating expenses
    
    
    14.7
    %
    
    
    13.4
    %
    
    
    13.0
    %Loss from operations
    
    
    (0.2
    )%
    
    
    (0.2
    )%
    
    
    (2.0
    )%Interest and other income, net
    
    
    0.1
    %
    
    
    (0.2
    )%
    
    
    0.1
    %Loss before taxes
    
    
    (0.1
    )%
    
    
    (0.4
    )%
    
    
    (1.9
    )%Income tax benefit (provision)
    
    
    (0.1
    )%
    
    
    
    
    
    
    0.4
    %Net loss
    
    
    (0.2
    )%
    
    
    (0.4
    )%
    
    
    (1.5
    )%
  2007
    
    
    2006
    
    
    2005Cisco
    
    $
    136.8
    
    
    
    18.9
    %
    
    $
    163.5
    
    
    
    18.9
    %
    
    $
    115.1
    
    
    
    13.0
    %HP
    
    
    105.4
    
    
    
    14.6
    %
    
    
    78.2
    
    
    
    9.1
    %
    
    
    85.9
    
    
    
    9.7
    %Panasonic
    
    
    104.6
    
    
    
    14.5
    %
    
    
    170.9
    
    
    
    19.8
    %
    
    
    179.7
    
    
    
    20.3
    %Sun Microsystems
    
    
    90.2
    
    
    
    12.5
    %
    
    
    73.8
    
    
    
    8.6
    %
    
    
    102.7
    
    
    
    11.6
    %Microsoft
    
    
    59.0
    
    
    
    8.2
    %
    
    
    28.3
    
    
    
    3.3
    %
    
    
    27.0
    
    
    
    3.0
    %Others, net of reserves and adjustments
    
    
    227.5
    
    
    
    31.3
    %
    
    
    348.3
    
    
    
    40.4
    %
    
    
    376.8
    
    
    
    42.5
    %Total
    
    $
    723.5
    
    
    
    100.0
    %
    
    $
    863.0
    
    
    
    100.0
    %
    
    $
    887.2
    
    
    
    100.0
    %2007
    
    
    2006
    
    
    2005Hardware
    
    $
    530.0
    
    
    
    73.3
    %
    
    $
    649.7
    
    
    
    75.3
    %
    
    $
    687.3
    
    
    
    77.5
    %Software
    
    
    111.6
    
    
    
    15.4
    %
    
    
    130.2
    
    
    
    15.1
    %
    
    
    130.8
    
    
    
    14.7
    %Services
    
    
    59.7
    
    
    
    8.3
    %
    
    
    70.3
    
    
    
    8.1
    %
    
    
    64.0
    
    
    
    7.2
    %Financing
    
    
    22.2
    
    
    
    3.0
    %
    
    
    12.8
    
    
    
    1.5
    %
    
    
    5.1
    
    
    
    0.6
    %Total
    
    $
    723.5
    
    
    
    100.0
    %
    
    $
    863.0
    
    
    
    100.0
    %
    
    $
    887.2
    
    
    
    100.0
    %
 Note:
   27




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##### Table of Contents



Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
 Sales
       Gross Margin
      28




---



##### Table of Contents



Selling, General & Administrative Expenses (SG&A)
  Interest Income (Expense) and Other Income, Net
  Income Taxes
  Year Ended December 31, 2006 Compared with Year Ended December 31, 2005
 Sales
       29




---



##### Table of Contents



Gross Margin
     Selling, General & Administrative Expenses (SG&A)
    Interest Income (Expense) and Other Income, Net
   30




---



##### Table of Contents



Income Taxes
  Seasonal Fluctuations
    31




---



##### Table of Contents



2007 (unaudited)(in millions except per share data)Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales  As Previously Reported
    
    $
    144.1
    
    
    $
    153.6
    
    
    $
    182.4
    
    
    $
    224.5
    
    
    $
    704.6Reclassification (a)
    
    
    2.3
    
    
    
    3.6
    
    
    
    13.0
    
    
    
    
    
    
    
    18.9Sales  As Revised
    
    $
    146.4
    
    
    $
    157.2
    
    
    $
    195.4
    
    
    $
    224.5
    
    
    $
    723.5Cost of sales  As Previously
Reported
    
    
    124.7
    
    
    
    133.0
    
    
    
    155.4
    
    
    
    194.1
    
    
    
    607.2Reclassification (a)
    
    
    1.7
    
    
    
    1.6
    
    
    
    8.2
    
    
    
    
    
    
    
    11.5Cost of sales  As Revised
    
    $
    126.4
    
    
    $
    134.6
    
    
    $
    163.6
    
    
    $
    194.1
    
    
    $
    618.7Gross margin  As Previously
Reported
    
    $
    19.4
    
    
    $
    20.7
    
    
    $
    27.0
    
    
    $
    30.3
    
    
    $
    97.4Gross margin  As Revised
    
    $
    20.0
    
    
    $
    22.6
    
    
    $
    31.8
    
    
    $
    30.3
    
    
    $
    104.7Selling, general &
administrative expenses  As
Previously Reported
    
    
    27.1
    
    
    
    26.3
    
    
    
    28.6
    
    
    
    27.1
    
    
    
    109.1Reclassification (a)
    
    
    (0.9
    )
    
    
    (0.9
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    (2.8
    )Selling, general &
administrative expenses  As
Revised
    
    $
    26.2
    
    
    $
    25.4
    
    
    $
    27.6
    
    
    $
    27.1
    
    
    $
    106.3(Loss) income from operations -
As Previously Reported
    
    $
    (7.7
    )
    
    $
    (5.6
    )
    
    $
    (1.6
    )
    
    $
    3.2
    
    
    $
    (11.7
    )(Loss) income from operations -
As Revised
    
    $
    (6.2
    )
    
    $
    (2.8
    )
    
    $
    4.2
    
    
    $
    3.2
    
    
    $
    (1.6
    )Interest and other (expense)
income, net  As Previously
Reported
    
    
    0.8
    
    
    
    2.2
    
    
    
    7.1
    
    
    $
    0.3
    
    
    
    10.4Reclassification (a)
    
    
    (1.5
    )
    
    
    (2.8
    )
    
    
    (5.7
    )
    
    
    
    
    
    
    (10.0
    )Interest and other (expense)
income, net  As Revised
    
    $
    (0.7
    )
    
    $
    (0.6
    )
    
    $
    1.4
    
    
    $
    0.3
    
    
    $
    0.4(Loss) income before taxes
    
    $
    (6.9
    )
    
    $
    (3.4
    )
    
    $
    5.6
    
    
    $
    3.5
    
    
    $
    (1.2
    )Income tax
provision
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.6
    )Net (loss) income
    
    $
    (6.9
    )
    
    $
    (3.6
    )
    
    $
    5.5
    
    
    $
    3.2
    
    
    $
    (1.8
    )Basic (loss) earnings per share
    
    $
    (0.73
    )
    
    $
    (0.38
    )
    
    $
    0.57
    
    
    $
    0.34
    
    
    $
    (0.18
    )Diluted (loss) earnings per share
    
    $
    (0.73
    )
    
    $
    (0.38
    )
    
    $
    0.55
    
    
    $
    0.33
    
    
    $
    (0.18
    )
 (a)
    
    The Company records financial services transactions as
financing revenue, which includes the sale of leases to
third-party financial companies, and interest income from leases and
related receivables, and the associated expenses as financing cost of
sales. Amounts in prior periods, which were reported as lease related income and
interest expense, were reclassified to conform to the current year presentation.
Also, distribution and purchasing costs have been reclassified from selling, general and
administrative expenses to cost of sales for all periods presented.  32




---



##### Table of Contents



2006 (unaudited)(in millions except per share data)Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales  As Previously Reported
    
    $
    148.3
    
    
    $
    180.9
    
    
    $
    241.6
    
    
    $
    279.4
    
    
    $
    850.2Reclassification (a)
    
    
    2.7
    
    
    
    3.1
    
    
    
    1.9
    
    
    
    5.1
    
    
    
    12.8Sales  As Revised
    
    $
    151.0
    
    
    $
    184.0
    
    
    $
    243.5
    
    
    $
    284.5
    
    
    $
    863.0Cost of sales  As Previously
Reported
    
    
    130.0
    
    
    
    154.4
    
    
    
    215.7
    
    
    
    239.2
    
    
    
    739.3Reclassification (a)
    
    
    2.2
    
    
    
    2.2
    
    
    
    2.1
    
    
    
    3.4
    
    
    
    9.8Cost of sales  As Revised
    
    $
    132.2
    
    
    $
    156.6
    
    
    $
    217.8
    
    
    $
    242.6
    
    
    $
    749.2Gross margin  As Previously
Reported (b) (c)
    
    $
    18.3
    
    
    $
    26.5
    
    
    $
    25.9
    
    
    $
    40.2
    (b)
    
    $
    110.9Gross margin  As Revised
    
    $
    18.8
    
    
    $
    27.4
    
    
    $
    25.7
    
    
    $
    41.9
    
    
    $
    113.8Selling, general &
administrative expenses  As
Previously Reported
    
    
    29.6
    
    
    
    27.1
    
    
    
    30.2
    
    
    
    32.8
    
    
    
    119.7Reclassification (a)
    
    
    (1.2
    )
    
    
    (1.1
    )
    
    
    (1.2
    )
    
    
    (1.0
    )
    
    
    (4.5
    )Selling, general &
administrative expenses  As
Revised
    
    $
    28.4
    
    
    $
    26.0
    
    
    $
    29.0
    
    
    $
    31.8
    
    
    $
    115.2(Loss) income from operations -
As Previously Reported
    
    $
    (11.3
    )
    
    $
    (0.6
    )
    
    $
    (4.3
    )
    
    $
    7.4
    
    
    $
    (8.8
    )(Loss) income from operations -
As Revised
    
    $
    (9.6
    )
    
    $
    1.4
    
    
    $
    (3.3
    )
    
    $
    10.1
    
    
    $
    (1.4
    )Interest and other (expense)
income, net  As Previously
Reported
    
    
    1.3
    
    
    
    1.5
    
    
    
    0.8
    
    
    
    2.1
    
    
    
    5.7Reclassification (a)
    
    
    (1.7
    )
    
    
    (2.0
    )
    
    
    (1.0
    )
    
    
    (2.7
    )
    
    
    (7.4
    )Interest and other (expense)
income, net  As Revised
    
    $
    (0.4
    )
    
    $
    (0.5
    )
    
    $
    (0.2
    )
    
    $
    (0.6
    )
    
    $
    (1.7
    )(Loss) income before taxes
    
    $
    (10.0
    )
    
    $
    0.9
    
    
    $
    (3.5
    )
    
    $
    9.5
    
    
    $
    (3.1
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Net (loss) income (b) (c)
    
    $
    (10.0
    )
    
    $
    0.9
    
    
    $
    (3.4
    )
    
    $
    9.5
    (b)
    
    $
    (3.0
    )Basic (loss) earnings per share
    
    $
    (1.08
    )
    
    $
    0.10
    
    
    $
    (0.36
    )
    
    $
    1.01
    
    
    $
    (0.32
    )Diluted (loss) earnings per share
    
    $
    (1.08
    )
    
    $
    0.10
    
    
    $
    (0.36
    )
    
    $
    0.98
    
    
    $
    (0.32
    )
 
 (a)
    
    The Company records financial services transactions as
financing revenue, which includes the sale of leases to
third-party financial companies, and interest income from leases and
related receivables, and the associated expenses as financing cost of
sales. Amounts in prior periods, which were reported as lease related income and
interest expense, were reclassified to conform to the current year presentation.
Also, distribution and purchasing costs have been reclassified from selling, general and
administrative expenses to cost of sales for all periods presented.(b)
    
    Gross margin and net income for the quarter ended December 31, 2006 were positively impacted
by extinguishment of a liability for $5.8 million in accordance with FAS 140 ($0.62 and $0.61
per basic and diluted share) and changes in vendor rebates of $1.1 million ($0.12 and $0.11
per basic and diluted share).(c)
    
    Gross margin and net (loss) income was positively impacted by $1.1 million in Q1, or $0.12
per basic and diluted share; $2.5 million in Q2, or $0.26 per basic and diluted share; and
$0.4 million in Q4, or $0.04 per basic and diluted share, by changes in managements estimate
of the amount payable for items purchased.  33




---



##### Table of Contents



Interim
Financial Reporting
 Liquidity and Capital Resources
 Cash flows for the year ended December 31,
 2007
    
    
    2006
    
    
    Change(in millions)Cash provided by (used in) operating
activities
    
    $
    14.0
    
    
    $
    (16.5
    )
    
    $
    30.5Cash used in investing activities
    
    $
    (1.7
    )
    
    $
    (3.6
    )
    
    $
    1.9Cash (used in) provided by financing
activities
    
    $
    (12.2
    )
    
    $
    20.8
    
    
    $
    33.0
    Credit Facility and Term Loan
    Capital Resources and Requirements
   34




---



##### Table of Contents



Contractual Obligations
 Less Than 1
    
    
    
    
    
    
    
    
    
    
    More thanIn millions of dollars
    
    Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsOperating lease obligations
    
    $
    46.2
    
    
    $
    3.0
    
    
    $
    7.4
    
    
    
    8.4
    
    
    $
    27.4Borrowings under Credit Facility
    
    
    24.5
    
    
    
    24.5
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt
    
    
    13.6
    
    
    
    1.3
    
    
    
    2.3
    
    
    
    10.0
    
    
    
    Financed lease debt
    
    
    17.6
    
    
    
    8.5
    
    
    
    9.1
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    101.9
    
    
    $
    37.3
    
    
    $
    18.8
    
    
    $
    18.4
    
    
    $
    27.4
     35




---



##### Table of Contents



Off-Balance Sheet Arrangements
  New Accounting Pronouncements
 Fair Value Measurement
 Accounting
for Uncertainty in Income Taxes
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations.
 Noncontrolling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51.
  36




---



##### Table of Contents



ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     37




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
   Internal Control -
Integrated Framework
   
 
  38




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
  
    
  39




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
      Share Based Payment
  
  40




---



##### Table of Contents



GTSI CORP.
CONSOLIDATED BALANCE SHEETS
 December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    829
    
    
    $
    705Accounts receivable, net
    
    
    165,317
    
    
    
    222,072Inventory
    
    
    21,577
    
    
    
    35,691Deferred costs
    
    
    5,615
    
    
    
    22,188Other current assets
    
    
    5,169
    
    
    
    9,651Total current assets
    
    
    198,507
    
    
    
    290,307Depreciable assets, net
    
    
    12,158
    
    
    
    13,627Long-term receivables and other assets
    
    
    16,002
    
    
    
    26,747Total assets
    
    $
    226,667
    
    
    $
    330,681LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Borrowings under credit facility
    
    $
    18,031
    
    
    $
    30,912Accounts payable
    
    
    84,715
    
    
    
    142,217Financed lease debt, current portion
    
    
    8,509
    
    
    
    16,546Accrued liabilities
    
    
    14,725
    
    
    
    23,194Deferred revenue
    
    
    2,542
    
    
    
    7,241Total current liablilites
    
    
    128,522
    
    
    
    220,110Long-term debt
    
    
    10,000
    
    
    
    10,000Long-term financed lease debt
    
    
    9,068
    
    
    
    18,758Other liabilities
    
    
    1,364
    
    
    
    5,130Total liabilities
    
    
    148,954
    
    
    
    253,998Commitments and contingencies (See Note 14)Stockholders equityPreferred stock  $0.25 par value, 680,850
shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock  $0.005 par value, 20,000,000
shares authorized; 10,183,251 issued and
9,700,850 outstanding at December 31, 2007;
and 9,806,084 issued and 9,512,019 outstanding
at December 31, 2006
    
    
    49
    
    
    
    49Capital in excess of par value
    
    
    47,097
    
    
    
    45,110Retained earnings
    
    
    31,634
    
    
    
    33,717Treasury stock, 139,994 shares at December 31,
2007 and 294,065 shares at December 31, 2006,
at cost
    
    
    (1,067
    )
    
    
    (2,193
    )Total stockholders equity
    
    
    77,713
    
    
    
    76,683Total liabilities and stockholders equity
    
    $
    226,667
    
    
    $
    330,681
   41




---



##### Table of Contents



GTSI CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31,2007
    
    
    2006
    
    
    2005SALESProduct
    
    $
    641,560
    
    
    $
    779,896
    
    
    $
    818,018Service
    
    
    59,658
    
    
    
    70,293
    
    
    
    63,994Financing
    
    
    22,247
    
    
    
    12,788
    
    
    
    5,143723,465
    
    
    
    862,977
    
    
    
    887,155COST OF SALESProduct
    
    
    570,580
    
    
    
    705,498
    
    
    
    756,050Service
    
    
    38,276
    
    
    
    38,261
    
    
    
    31,017Financing
    
    
    9,889
    
    
    
    5,439
    
    
    
    2,249618,745
    
    
    
    749,198
    
    
    
    789,316GROSS MARGIN
    
    
    104,720
    
    
    
    113,779
    
    
    
    97,839SELLING, GENERAL & ADMINISTRATIVE EXPENSES
    
    
    106,335
    
    
    
    115,240
    
    
    
    114,514IMPAIRMENT LOSS
    
    
    
    
    
    
    
    
    
    
    981TOTAL OPERATING EXPENSES
    
    
    106,335
    
    
    
    115,240
    
    
    
    115,495LOSS FROM OPERATIONS
    
    
    (1,615
    )
    
    
    (1,461
    )
    
    
    (17,656
    )INTEREST AND OTHER INCOME (EXPENSE), NETInterest and other income
    
    
    1,191
    
    
    
    2,437
    
    
    
    1,730Equity income from affiliates
    
    
    3,802
    
    
    
    930
    
    
    
    48Interest expense
    
    
    (4,577
    )
    
    
    (5,030
    )
    
    
    (1,021
    )Interest and other income (expense), net
    
    
    416
    
    
    
    (1,663
    )
    
    
    757LOSS BEFORE INCOME TAXES
    
    
    (1,199
    )
    
    
    (3,124
    )
    
    
    (16,899
    )INCOME TAX (PROVISION) BENEFIT
    
    
    (568
    )
    
    
    110
    
    
    
    3,226NET LOSS
    
    $
    (1,767
    )
    
    $
    (3,014
    )
    
    $
    (13,673
    )LOSS PER SHAREBasic
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )Diluted
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166Diluted
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166
   42




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##### Table of Contents



GTSI CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the Years Ended December 31, 2007, 2006 and 2005
 Common Stock
    
    
    Capital in
    
    
    
    
    
    
    
    
    
    
    TotalShares
    
    
    
    
    
    
    Excess of
    
    
    Retained
    
    
    Treasury
    
    
    StockholdersOutstanding
    
    
    Amount
    
    
    Par Value
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance, December 31,
2004
    
    
    8,988
    
    
    $
    49
    
    
    $
    47,047
    
    
    $
    50,404
    
    
    $
    (5,085
    )
    
    $
    92,415Common stock issued
    
    
    880
    
    
    
    
    
    
    
    (2,125
    )
    
    
    
    
    
    
    5,900
    
    
    
    3,775Common stock purchased
    
    
    (610
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,874
    )
    
    
    (4,874
    )Stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Restricted stock issued
    
    
    50
    
    
    
    
    
    
    
    (189
    )
    
    
    
    
    
    
    342
    
    
    
    153Tax benefit of stock
options exercised
    
    
    
    
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    338Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,673
    )
    
    
    
    
    
    
    (13,673
    )Balance, December 31,
2005
    
    
    9,308
    
    
    
    49
    
    
    
    45,104
    
    
    
    36,731
    
    
    
    (3,717
    )
    
    
    78,167Common stock issued
    
    
    157
    
    
    
    
    
    
    
    (1,018
    )
    
    
    
    
    
    
    1,175
    
    
    
    157Stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    1,146
    
    
    
    
    
    
    
    
    
    
    
    1,146Restricted stock issued
    
    
    47
    
    
    
    
    
    
    
    (122
    )
    
    
    
    
    
    
    349
    
    
    
    227Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,014
    )
    
    
    
    
    
    
    (3,014
    )Balance, December 31,
2006
    
    
    9,512
    
    
    
    49
    
    
    
    45,110
    
    
    
    33,717
    
    
    
    (2,193
    )
    
    
    76,683FIN 48 adoption
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )
    
    
    
    
    
    
    (316
    )Common stock issued
    
    
    189
    
    
    
    0
    
    
    
    161
    
    
    
    
    
    
    
    1,126
    
    
    
    1,287Stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    1,832
    
    
    
    
    
    
    
    
    
    
    
    1,832Tax provision of stock
options exercised
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,767
    )
    
    
    
    
    
    
    (1,767
    )Balance, December 31,
2007
    
    
    9,701
    
    
    $
    49
    
    
    $
    47,097
    
    
    $
    31,634
    
    
    $
    (1,067
    )
    
    $
    77,713
   43




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##### Table of Contents



GTSI CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (1,767
    )
    
    $
    (3,014
    )
    
    $
    (13,673
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    3,807
    
    
    
    3,737
    
    
    
    4,250Impairment charge
    
    
    
    
    
    
    
    
    
    
    981Stock based compensation
    
    
    1,832
    
    
    
    1,373
    
    
    
    186Tax benefit of stock options exercised
    
    
    
    
    
    
    
    
    
    
    338Deferred taxes
    
    
    (6
    )
    
    
    
    
    
    
    (441
    )Reversal of vendor payables
    
    
    
    
    
    
    5,822
    
    
    
    FIN 48 adoption
    
    
    (138
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    39,028
    
    
    
    (30,137
    )
    
    
    (50,797
    )Inventory
    
    
    14,114
    
    
    
    21,128
    
    
    
    (15,001
    )Other assets
    
    
    31,709
    
    
    
    (8,853
    )
    
    
    (12,074
    )Accounts payable
    
    
    (57,502
    )
    
    
    (15,600
    )
    
    
    (19,813
    )Accrued liabilities
    
    
    (8,468
    )
    
    
    5,742
    
    
    
    1,747Other liabilities
    
    
    (8,642
    )
    
    
    3,275
    
    
    
    (5,210
    )Net cash provided by (used in) operating activities
    
    
    13,967
    
    
    
    (16,527
    )
    
    
    (109,507
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of depreciable assets
    
    
    (2,338
    )
    
    
    (3,638
    )
    
    
    (3,688
    )Sale of
equity investment
    
    
    660
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (1,678
    )
    
    
    (3,638
    )
    
    
    (3,688
    )CASH
FLOWS FROM FINANCING ACTIVITIES:(Payments on) borrowings under credit facility
    
    
    (12,882
    )
    
    
    (17,102
    )
    
    
    46,846Payment of deferred financing costs
    
    
    (570
    )
    
    
    (668
    )
    
    
    Proceeds from financed lease debt
    
    
    
    
    
    
    28,456
    
    
    
    67,089Proceeds from long-term debt
    
    
    
    
    
    
    10,000
    
    
    
    Common stock purchases
    
    
    
    
    
    
    
    
    
    
    (4,874
    )Proceeds from common stock issued
    
    
    1,287
    
    
    
    157
    
    
    
    3,774Net cash (used in) provided by financing activities
    
    
    (12,165
    )
    
    
    20,843
    
    
    
    112,835NET INCREASE (DECREASE) IN CASH
    
    
    124
    
    
    
    678
    
    
    
    (360
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    705
    
    
    
    27
    
    
    
    387CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    829
    
    
    $
    705
    
    
    $
    27CASH PAID DURING THE YEAR FOR:Interest
    
    $
    2,579
    
    
    $
    3,520
    
    
    $
    823Income taxes
    
    $
    92
    
    
    $
    43
    
    
    $
    667
   44




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##### Table of Contents



GTSI CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 A. Nature of Business
   B. Risks and Uncertainties
    C. Principles of Consolidation
  D. Use of Estimates
   45




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##### Table of Contents



E. Revenue Recognition
 Revenue Recognition in Financial Statements
 Revenue Arrangements with Multiple Deliverables
     Accounting for Leases
 Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilitiesa Replacement of FASB Statement
125
  46




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##### Table of Contents



Reporting Revenue Gross as a Principal versus Net as an Agent.
 Revenue Recognition When Right of Return Exists
 Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor
  Accounting for Shipping and Handling Fees and Costs
 How Sales Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation)
  F. Cash
  G. Concentration of Credit Risk
  H. Allowance for Doubtful Accounts
   47




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##### Table of Contents



I. Software Development Costs
 Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use
 J. Impairment of Long-Lived Assets
 Accounting for
the Impairment or Disposal of Long-Lived Assets,
 K. Accounts Payable
   L. Stock-based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees
    48




---



##### Table of Contents



2005Net lossas reported
    
    $
    (13,673
    )Deduct:Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects for the year ended
December 31, 2005
    
    
    (3,772
    )Net losspro forma
    
    $
    (17,445
    )Loss per shareas reportedBasic
    
    $
    (1.49
    )Diluted
    
    $
    (1.49
    )Loss per sharepro formaBasic
    
    $
    (1.90
    )Diluted
    
    $
    (1.90
    )
 M. Income Taxes
 , Accounting for Income Taxes
 N. Advertising
  O. Fair Value of Financial Instruments
  P. Equity Investments
 The Equity Method of Accounting for Investments in Common Stock
 Q. New Accounting Pronouncements
 Fair Value Measurement
 Accounting for Uncertainty in Income Taxes
 The Fair Value Option for Financial Assets and
Financial Liabilities
  49




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##### Table of Contents



Business Combinations.
 Noncontrolling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51.
 R.
Reclassifications and Adjustments
   2. Accounts Receivable
  2007
    
    
    2006Trade accounts receivable
    
    $
    136,040
    
    
    $
    178,420Unbilled trade accounts receivable
    
    
    9,386
    
    
    
    14,519Lease receivables, net
    
    
    10,437
    
    
    
    15,234Vendor and other financing receivables
    
    
    14,481
    
    
    
    21,793Total accounts receivable
    
    
    170,344
    
    
    
    229,966Less: Allowance for doubtful accounts
    
    
    (1,001
    )
    
    
    (1,612
    )Sales return allowance
    
    
    (4,026
    )
    
    
    (6,282
    )Accounts receivable, net
    
    $
    165,317
    
    
    $
    222,072
 3. Lease and Other Receivables
    50




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##### Table of Contents



2008
    
    $
    14,3782009
    
    
    7,0232010
    
    
    1,6302011
    
    
    501Thereafter
    
    
    266Future minimum payments
    
    $
    23,798
 Lease Receivables
  2007
    
    
    2006Future minimum lease payments receivable
    
    $
    13,558
    
    
    $
    26,307Unguaranteed residual values
    
    
    4,785
    
    
    
    10,516Unearned income
    
    
    (2,450
    )
    
    
    (6,485
    )$
    15,893
    
    
    $
    30,338
 Other Related Receivables
  2007
    
    
    2006Future minimum payments receivable
    
    $
    10,240
    
    
    $
    14,464Unearned income
    
    
    (1,433
    )
    
    
    (2,415
    )$
    8,807
    
    
    $
    12,049
 4. Transferred Receivables and Financed Lease Debt
    51




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##### Table of Contents



Year2008
    
    $
    8,5092009
    
    
    6,5392010
    
    
    2,5292011
    
    
    2012
    
    
    Total
    
    $
    17,577
  52




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##### Table of Contents



5. Inventory
  6. Depreciable Assets
  2007
    
    
    2006Office furniture and equipment
    
    $
    15,358
    
    
    $
    15,482Purchased software for internal use
    
    
    12,369
    
    
    
    12,784Internally developed software
    
    
    15,096
    
    
    
    13,312Leasehold improvements
    
    
    5,290
    
    
    
    5,27348,113
    
    
    
    46,851Less accumulated depreciation and amortization
    
    
    (35,955
    )
    
    
    (33,224
    )Depreciable assets, net
    
    $
    12,158
    
    
    $
    13,627
   7. Credit Facility and Term Loan
    53




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##### Table of Contents



8. Stockholders Equity
 Purchase of Capital Stock
   Stock Incentive Plans
   54




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##### Table of Contents



Valuation Assumptions
  2007
    
    
    2006
    
    
    2005Expected volatility
    
    
    51.6
    %
    
    
    49.6
    %
    
    
    51.7
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    Expected term (in years)
    
    
    5.2
    
    
    
    4.8
    
    
    
    4.0Risk free interest rate
    
    
    4.6
    %
    
    
    5.0
    %
    
    
    4.0
    %
 Stock Options
  WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsticShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    2,105
    
    
    $
    7.93Granted
    
    
    57
    
    
    $
    10.45Exercised
    
    
    (181
    )
    
    $
    6.23Forfeited
    
    
    (89
    )
    
    $
    7.24Expired
    
    
    (110
    )
    
    $
    10.19Outstanding at December 31, 2007
    
    
    1,782
    
    
    $
    8.08
    
    
    
    4.18
    
    
    $
    3,172Exercisable at December 31, 2007
    
    
    991
    
    
    $
    8.70
    
    
    
    3.28
    
    
    $
    1,150
    55




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##### Table of Contents



Restricted Shares
   WeightedAverageGrant-DateShares
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    68
    
    
    $
    7.47Granted
    
    
    371
    
    
    $
    12.14Vested
    
    
    (24
    )
    
    $
    7.37Forfeited
    
    
    (37
    )
    
    $
    11.13Nonvested at December 31, 2007
    
    
    378
    
    
    $
    11.71
 Stock Appreciation Rights
  Unrecognized Compensation
  Employee Stock Purchase Plan
   56




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##### Table of Contents



Number ofshares
    
    
    PurchaseOffering period ended
    
    purchased
    
    
    priceDecember 31, 2007
    
    
    16,011
    
    
    $
    9.37June 30, 2007
    
    
    9,392
    
    
    $
    12.26December 31, 2006
    
    
    13,547
    
    
    $
    8.77June 30, 2006
    
    
    15,546
    
    
    $
    6.13December 31, 2005
    
    
    41,605
    
    
    $
    5.95June 30, 2005
    
    
    35,612
    
    
    $
    6.92
  9. Contract Termination Costs
  Contract termination liability as of December 31, 2006
    
    $
    122Less: cash payments
    
    
    (35
    )Less: revision to estimate
    
    
    (57
    )Contract termination liability as of December 31, 2007
    
    $
    30
 10. Related Party Transactions
   57




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Revenues
    
    $
    228,585
    
    
    $
    91,985
    
    
    $
    72,463Gross margin
    
    $
    20,368
    
    
    $
    12,087
    
    
    $
    7,313Net income
    
    $
    7,005
    
    
    $
    2,513
    
    
    $
    129
 2007
    
    
    2006Current assets
    
    $
    89,351
    
    
    $
    54,911Noncurrent assets
    
    $
    2,632
    
    
    $
    423Current liabilities
    
    $
    81,846
    
    
    $
    51,411Noncurrent liabilities
    
    $
    1,584
    
    
    $
    114Members equity
    
    $
    8,553
    
    
    $
    3,809
 11. (Loss) Earnings Per Share
    58




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Basic (loss) earnings per share:Net (loss) income
    
    $
    (1,767
    )
    
    $
    (3,014
    )
    
    $
    (13,673
    )Weighted average shares outstanding
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166Basic (loss) earnings per share
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )Diluted (loss) earnings per share:Net (loss) income
    
    $
    (1,767
    )
    
    $
    (3,014
    )
    
    $
    (13,673
    )Weighted average shares outstanding
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166Incremental shares attributable to the
assumed
exercise of outstanding stock options
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AWeighted average shares and equivalents
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166Diluted (loss) earnings per share
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )
 12. Income Taxes
  2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    (445
    )
    
    $
    98
    
    
    $
    3,197State
    
    
    (129
    )
    
    
    12
    
    
    
    470$
    (574
    )
    
    $
    110
    
    
    $
    3,667Deferred:Federal
    
    $
    5
    
    
    $
    
    
    
    $
    (401
    )State
    
    
    1
    
    
    
    
    
    
    
    (40
    )$
    6
    
    
    $
    
    
    
    $
    (441
    )Total income tax (provision) benefit
    
    $
    (568
    )
    
    $
    110
    
    
    $
    3,226
  59




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##### Table of Contents



2007
    
    
    2006Deferred tax assets:Allowance
    
    $
    440
    
    
    $
    737Inventory reduction of cost basis
    
    
    320
    
    
    
    954Reserves
    
    
    930
    
    
    
    1,067Bid and proposal costs
    
    
    3,109
    
    
    
    2,410Deferred revenue
    
    
    807
    
    
    
    446Stock compensation
    
    
    968
    
    
    
    392Sale of receivables
    
    
    577
    
    
    
    928Net operating losses and tax credits
    
    
    1,370
    
    
    
    693Other
    
    
    132
    
    
    
    Total deferred tax assets
    
    
    8,653
    
    
    
    7,627Deferred tax liabilities:Prepaid expenses and other
    
    
    (253
    )
    
    
    (240
    )Prepaid Bonuses
    
    
    (528
    )
    
    
    Depreciation and amortization
    
    
    (3,244
    )
    
    
    (3,413
    )Total deferred tax liabilities
    
    
    (4,025
    )
    
    
    (3,653
    )Valuation allowance
    
    
    (4,628
    )
    
    
    (3,974
    )Net deferred tax assets
    
    $
    
    
    
    $
    
   2007
    
    
    2006
    
    
    2005Statutory rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (34.0
    )%State income taxes, net of federal benefit
    
    
    4.1
    
    
    
    (6.2
    )
    
    
    (3.1
    )Non-deductible meals & entertainment costs
    
    
    12.8
    
    
    
    4.5
    
    
    
    1Non-deductible club dues
    
    
    1.8
    
    
    
    
    
    
    
    Non-deductible accrued incentive costs
    
    
    8.7
    
    
    
    3.7
    
    
    
    0.4Other
    
    
    (2.3
    )
    
    
    0.2
    
    
    
    (0.6
    )Change in the tax contingency reserve
    
    
    (1.1
    )
    
    
    (3.5
    )
    
    
    (1.4
    )Effectively settled interest expense  IRS Audit
   
    
    14.4
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    42.9
    
    
    
    31.8
    
    
    
    18.6Effective tax rate
    
    
    47.3
    %
    
    
    (3.5
    )%
    
    
    (19.1
    )%
   60




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##### Table of Contents



Tax Uncertainties
    Liability forUnrecognizedTax BenefitsBalance at January 1, 2007
    
    $
    166Additions for prior year tax positions
    
    
    431Reductions for settlement of IRS audit examinations
    
    
    (361
    )Balance at December 31, 2007
    
    $
    236
    61




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##### Table of Contents



13. 401(k) Plan
  14. Commitments and Contingencies
 Product Warranties
  2007
    
    
    2006Accrued warranties at beginning of year
    
    $
    855
    
    
    $
    849Charges made against warranty liabilities
    
    
    (214
    )
    
    
    (600
    )Adjustments to warranty reserves
    
    
    (577
    )
    
    
    381Accruals for additional warranties sold
    
    
    220
    
    
    
    225Accrued warranties at end of year
    
    $
    284
    
    
    $
    855
  2007
    
    
    2006Deferred warranty revenue at beginning of year
    
    $
    506
    
    
    $
    1,361Deferred warranty revenue recognized
    
    
    (467
    )
    
    
    (848
    )Revenue deferred for additional warranties sold
    
    
    91
    
    
    
    (7
    )Deferred warranty revenue at end of year
    
    $
    130
    
    
    $
    506
  62




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##### Table of Contents



Lease Commitments
  2008
    
    $
    3,0412009
    
    
    2,9132010
    
    
    4,5082011
    
    
    4,5562012
    
    
    3,889Thereafter
    
    
    27,363Total minimum lease payments
    
    $
    46,270
 Letters of Credit
    Employment Agreements
   Legal Proceedings
   63




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##### Table of Contents



Accounting for Contingencies
 15. Segment Reporting
  2007
    
    
    2006
    
    
    2005Hardware
    
    $
    529,961
    
    
    $
    649,687
    
    
    $
    687,193Software
    
    
    111,599
    
    
    
    130,209
    
    
    
    130,825Services
    
    
    59,658
    
    
    
    70,293
    
    
    
    63,994Financing
    
    
    22,247
    
    
    
    12,788
    
    
    
    5,143Total
    
    $
    723,465
    
    
    $
    862,977
    
    
    $
    887,155
 Note:
  Major Customers
  16. Subsequent Events
  17.
Reclassifications
  2006
    
    
    2005Financing Sales  As Previously Reported
    
    $
    
    
    
    $
    Reclassification
    
    
    12,788
    
    
    
    5,143Financing Sales  As Revised
    
    $
    12,788
    
    
    $
    5,143Financing Cost of Sales  As Previously Reported
    
    $
    
    
    
    $
    Reclassification
    
    
    5,439
    
    
    
    2,249Financing Cost of Sales  As Revised
    
    $
    5,439
    
    
    $
    2,249Product and Service Cost of Sales  As Previously Reported
    
    $
    739,337
    
    
    $
    782,210Reclassification
    
    
    4,422
    
    
    
    4,857Product and Service Cost of Sales  As Revised
    
    $
    743,759
    
    
    $
    787,067Selling, General & Administrative Expenses  As
Previously Reported
    
    $
    119,662
    
    
    $
    119,371Reclassification
    
    
    (4,422
    )
    
    
    (4,857
    )Selling, General & Administrative Expenses  As
Revised
    
    $
    115,240
    
    
    $
    114,514Lease-Related Income  As Previously Reported
    
    $
    9,928
    
    
    $
    4,573Reclassification
    
    
    (9,928
    )
    
    
    (4,573
    )Lease-Related Income  As Revised
    
    $
    
    
    
    $
    Interest Expense  As Previously Reported
    
    $
    (7,609
    )
    
    $
    (2,700
    )Reclassification
    
    
    2,579
    
    
    
    1,679Interest Expense  As Revised
    
    $
    (5,030
    )
    
    $
    (1,021
    )
  64




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##### Table of Contents



18. Selected Quarterly Financial Data (unaudited)
  2007Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales  As Previously Reported
    
    $
    144,082
    
    
    $
    153,636
    
    
    $
    182,410
    
    
    $
    224,473
    
    
    $
    704,601Reclassification (a)
    
    
    2,321
    
    
    
    3,560
    
    
    
    12,983
    
    
    
    
    
    
    
    18,864Sales  As Revised
    
    $
    146,403
    
    
    $
    157,196
    
    
    $
    195,393
    
    
    $
    224,473
    
    
    $
    723,465Gross margin  As Previously Reported
    
    $
    19,397
    
    
    $
    20,669
    
    
    $
    27,041
    
    
    $
    30,321
    
    
    $
    97,428Reclassification (a)
    
    
    563
    
    
    
    1,967
    
    
    
    4,762
    
    
    
    
    
    
    
    7,292Gross margin  As Revised
    
    $
    19,960
    
    
    $
    22,636
    
    
    $
    31,803
    
    
    $
    30,321
    
    
    $
    104,720Net (loss) income
    
    $
    (6,948
    )
    
    $
    (3,621
    )
    
    $
    5,517
    
    
    $
    3,285
    
    
    $
    (1,767
    )Basic (loss) earnings per share
    
    $
    (0.73
    )
    
    $
    (0.38
    )
    
    $
    0.57
    
    
    $
    0.34
    
    
    $
    (0.18
    )Diluted (loss) earnings per share
    
    $
    (0.73
    )
    
    $
    (0.38
    )
    
    $
    0.55
    
    
    $
    0.33
    
    
    $
    (0.18
    )
 2006Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales  As Previously Reported
    
    $
    148,279
    
    
    $
    180,956
    
    
    $
    241,569
    
    
    $
    279,385
    
    
    $
    850,189Reclassification (a)
    
    
    2,652
    
    
    
    3,069
    
    
    
    1,914
    
    
    
    5,153
    
    
    
    12,788Sales  As Revised
    
    $
    150,931
    
    
    $
    184,025
    
    
    $
    243,483
    
    
    $
    284,538
    
    
    $
    862,977Gross margin (c)  As Previously
Reported
    
    $
    18,301
    
    
    $
    26,510
    
    
    $
    25,900
    
    
    $
    40,141
    (b)
    
    
    $110,852Reclassification (a)
    
    
    539
    
    
    
    935
    
    
    
    (179
    )
    
    
    1,632
    
    
    
    2,927Gross margin  As Revised
    
    $
    18,840
    
    
    $
    27,445
    
    
    $
    25,721
    
    
    $
    41,773
    
    
    $
    113,779Net (loss) income (c)
    
    $
    (10,028
    )
    
    $
    944
    
    
    $
    (3,393
    )
    
    $
    9,463
    (b)
    
    
    $(3,014
    )Basic (loss) earnings per share
    
    $
    (1.08
    )
    
    $
    0.10
    
    
    $
    (0.36
    )
    
    $
    1.00
    
    
    $
    (0.32
    )Diluted (loss) earnings per share
    
    $
    (1.08
    )
    
    $
    0.10
    
    
    $
    (0.36
    )
    
    $
    0.98
    
    
    $
    (0.32
    )
 
 (a)
    
    The Company records financial services transactions as financing revenue, which includes the sale of leases to
third-party financial companies, and interest income from leases and
related receivables, and the associated expenses as financing cost of
sales. Amounts in prior periods, which were reported as lease related income and
interest expense, were reclassified to conform to the current year presentation.
Also, distribution and purchasing costs have been reclassified from selling, general and
administrative expenses to cost of sales for all periods presented.(b)
    
    Gross margin and net income for the quarter ended December 31, 2006 was positively impacted
by extinguishment of a liability for $5.8 million, or $0.62 and $0.61 per basic and diluted
share, in accordance with FAS 140 and changes in estimates of vendor rebates of $1.1 million,
or $0.12 and $0.11 per basic and diluted share.(c)
    
    Gross margin and net (loss) income was positively impacted by $1.1 million in Q1, or $0.12
per basic and diluted share; $2.5 million in Q2, or $0.26 per basic and diluted share; and
$0.4 million in Q4, or $0.04 per basic and diluted share, by changes in managements estimate
of the amount payable for items purchased.  65




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
  Managements Report on Internal Control over Financial Reporting
  Internal ControlIntegrated Framework
  Remediation
of Previously Disclosed Material Weaknesses
   Finance and Accounting Staffing
  Financial Close and Reporting Process
   66




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##### Table of Contents



Accounts Receivable Process
  Accounts Payable Process
  Revenue Recognition Process
   Actions Relating to Material Weaknesses Remediated as of December 31, 2007
  Finance and Accounting Staffing
   Financial Close and Reporting Process
   67




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##### Table of Contents



Accounts Receivable Process
    Accounts Payable Process
    Revenue Recognition Process
 General
     68




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##### Table of Contents



Professional Services
   Changes in Internal Control over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
   69




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
   70




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES:
 (a) (1) Financial Statements
       (a) (2)Financial Statement Schedules
      Exhibits
   71




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##### Table of Contents



SIGNATURES
  GTSI CORP.By:
    /s/ JAMES J. LETOJames J. LetoChief Executive Officer  Signature
    
    Title
    
    Date/s/ JAMES J. LETO
    
    Chief Executive Officer
    
    March 13, 2008James J. Leto
    
    (Principal
Executive Officer)/s/ JOE RAGAN
    
    Senior Vice President and
    
    March 13, 2008Joe Ragan
    
    Chief
Financial Officer (Principal
Financial and Accounting Officer)/s/ JOHN M. TOUPS
    
    Chairman of the Board
    
    March 13, 2008John M. Toups/s/ THOMAS HEWITT
    
    Director
    
    March 13, 2008Thomas Hewitt/s/ LEE JOHNSON
    
    Director
    
    March 13, 2008Lee Johnson/s/ JOSEPH KEITH KELLOGG, JR.
    
    Director
    
    March 13, 2008Joseph Keith Kellogg, Jr./s/ STEVEN KELMAN
    
    Director
    
    March 13, 2008Steven Kelman/s/ BARRY REISIG
    
    Director
    
    March 13, 2008Barry Reisig/s/ DANIEL R. YOUNG
    
    Director
    
    March 13, 2008Daniel R. Young
  72




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##### Table of Contents



GTSI CORP.
 
 VALUATION AND QUALIFYING ACCOUNTS
  
 SCHEDULE II
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Allowance for Doubtful AccountsBalance at beginning of year
    
    $
    1,612
    
    
    $
    1,968
    
    
    $
    1,009Additionscharged to expense or other accounts
    
    
    1,228
    
    
    
    1,485
    
    
    
    1,410Deductions
    
    
    (1,839
    )
    
    
    (1,841
    )
    
    
    (451
    )Balance at end of year
    
    $
    1,001
    
    
    $
    1,612
    
    
    $
    1,968Sales Return Allowance (1)Balance at beginning of year
    
    $
    6,282
    
    
    $
    8,116
    
    
    $
    Additionscharged to expense or other accounts
    
    
    4,306
    
    
    
    6,480
    
    
    
    9,903Deductions
    
    
    (6,562
    )
    
    
    (8,314
    )
    
    
    (1,787
    )Balance at end of year
    
    $
    4,026
    
    
    $
    6,282
    
    
    $
    8,116Deferred Tax Asset Valuation AllowanceBalance at beginning of year
    
    $
    3,974
    
    
    $
    3,930
    
    
    $
    Additionscharged to expense or other accounts
    
    
    654
    
    
    
    44
    
    
    
    3,930Deductions
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    $
    4,628
    
    
    $
    3,974
    
    
    $
    3,930
 
 (1)
    
    The sales returns allowance is reported as a reduction of accounts receivable on the
consolidated balance sheets.   73




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    
    Description3.1
    
    
    Restated Certificate of Incorporation (1)3.2
    
    
    Bylaws, as amended (2)10.1
    
    
    GTSI Employees 401(k) Investment Plan, and amendments No. 1, 2 and 3 thereto (3)10.2
    
    
    Employee Stock Purchase Plan, as amended to date (4)10.3
    
    
    1994 Stock Option Plan, as amended to date (5)10.4
    
    
    Amended and Restated 1996 Stock Incentive Plan (6)10.5
    
    
    1997 Non-Officer Stock Option Plan, as amended to date (7)10.6
    
    
    Lease dated August 11, 1995 between the Company and Security Capital Industrial
Trust, and Amendments for distribution center facility (8)10.7
    
    
    Lease dated December 10, 1997 between the Company and Petula Associates, Ltd.
and Amendment for headquarters facility (8)10.8
    
    
    Second Amendment to Deed of Lease dated February 11, 2005 between the Company
and AG/ARG Avion, L.L.C. (successor-in-interest to Petula Associates, Ltd.) for
headquarters facility. (3)10.9
    
    
    Credit Agreement dated as of June 2, 2006 between GTSI Corp., SunTrust Bank and
Bank of America (9)10.10
    
    
    Credit Agreement dated as of June 2, 2006 between GTSI Corp., and Crystal
Capital Fund, L.P. (9)10.11
    
    
    First Amendment to Credit Agreement dated as of July 13, 2006 between GTSI
Corp., SunTrust Bank and Bank of America (10)10.12
    
    
    First Amendment to Credit Agreement dated as of July 13, 2006 between GTSI Corp.
and Crystal Capital Fund, L.P. (10)10.13
    
    
    Second Amendment to Credit Agreement dated as of November 30, 2006 between GTSI
Corp. the Lenders, the other Borrower Parties, and SunTrust Bank. (11)10.14
    
    
    Second Amendment to Credit Agreement dated as of November 30, 2006 between GTSI
Corp.. the Lenders, the other Borrower Parties, and Crystal Capital Fund, L.P.
(11)10.15
    
    
    Third Amendment to Credit Agreement dated as of March 30, 2007 between GTSI
Corp. the Lenders, the other Borrower Parties, and SunTrust Bank. (13)10.16
    
    
    Third Amendment to Credit Agreement dated as of March 30, 2007 between GTSI
Corp.. the Lenders, the other Borrower Parties, and Crystal Capital Fund, L.P.
(13)10.17
    
    
    Amended and Restated 2007 Stock Incentive Plan (18)10.18
    
    
    Lease dated December 5, 2007 between the Company and SP Herndon Development LP
for new headquarters facility (19)10.19
    
    
    Payment in full by the Company of its subordinated secured term loan agreement
with Crystal Capital Fund, L.P. (20)10.20
    
    
    GTSI Corp. Long Term Incentive Plan * (14)10.21
    
    
    GTSI 2005 Executive Incentive Compensation Plan * (3)10.22
    
    
    Form of GTSI Change in Control Agreement *(3)10.23
    
    
    Transition Agreement with M. Dendy Young dated February 15, 2006* (15)10.24
    
    
    Employment Agreement dated February 16, 2006 between the Registrant and James J.
Leto* (16)10.25
    
    
    Form of GTSI Severance Agreement *(17)10.26
    
    
    Amendment to Employment Agreements date June 8, 2007* (22)10.27
    
    
    Employment Agreement dated December 1, 2007 between the Registrant and Scott
Friedlander* (23)14.1
    
    
    Code of Ethics (12)16.1
    
    
    Changes in Companys Certifying Accountant (21)23.1
    
    
    Consent of PricewaterhouseCoopers LLP (filed herewith)23.2
    
    
    Consent of Aronson & Company (filed herewith)23.3
    
    
    Consent of Ernst & Young LLP (filed herewith)31.1
    
    
    Section 302 Certification of Chief Executive Officer (filed herewith)31.2
    
    
    Section 302 Certification of Chief Financial Officer (filed herewith)32
    
    
    Section 906 Certification of Chief Executive Officer and Chief Financial Officer
(filed herewith)99.1
    
    
    Consolidated Financial Statements for Eyak Technology, LLC for the year ended
December 31, 2007 (audited) (filed herewith)99.2
    
    
    Consolidated Financial Statements for Eyak Technology, LLC for the years ended
December 31, 2006 and 2005 (unaudited) (filed herewith)
  74




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##### Table of Contents



*
    
    Management contracts and compensatory plans and arrangements required to be
filed pursuant to Item 15 (c).(1)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2000.(2)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
December 1, 2007.(3)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2004.(4)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
December 27, 2005.(5)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2002.(6)
    
    Incorporated by reference to Appendix A of the Registrants 2005 Proxy Statement.(7)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2002.(8)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the period ended September 30, 2004.(9)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
June 2, 2006.(10)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
July 13, 2006.(11)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
December 5, 2006.(12)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2003.(13)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2006.(14)
    
    Incorporated by reference to Appendix B of the Registrants 2004 Proxy Statement(15)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
February 15, 2006.(16)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
February 16, 2006.(17)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
April 28, 2006.(18)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the period ended March 31, 2007.(19)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
December 5, 2007.(20)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
February 25, 2008.(21)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
June 5, 2007.(22)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
June 8, 2007.(23)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated
December 1, 2007.  75