##### 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, 2008
 Commission File Number: 0-19394
 GTSI CORP.
  Delaware
    
    54-1248422(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2553 Dulles View Drive, Suite 100, Herndon, VA
    
    20171-5219(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
 o 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 IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    17Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    21Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 8. Financial Statements and Supplementary Data
    
    
    35Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
    
    
    64Item 9A. Controls and Procedures
    
    
    64Item 9B. Other Information
    
    
    64PART IIIItem 10. Directors, Executives Officers and Corporate Governance
    
    
    65Item 11. Executive Compensation
    
    
    65Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    65Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    65Item 14. Principal Accounting Fees and Services
    
    
    65PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    66Signatures
    
    
    67Schedule II Valuation and Qualifying Accounts
    
    
    68Exhibit Index
    
    
    69Exhibit 23.1Exhibit 23.2Exhibit 23.3Exhibit 31.1Exhibit 31.2Exhibit 32Exhibit 99.1




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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
   2008
    
    
    2007
    
    
    2006Federal Government
    
    
    70
    %
    
    
    63
    %
    
    
    72
    %Prime Contractors
    
    
    23
    %
    
    
    27
    %
    
    
    20
    %State and Local Governments
    
    
    7
    %
    
    
    10
    %
    
    
    8
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    Hardware integration
    
    Customer image propagation
    
    Automated system diagnostics and data capture
    
    Customer asset tagging
    
    Complex configurations of various IT solutions, such as Voice over Internet Protocol
(VoIP)
  2




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Business Strategy
   Continue Focusing on the Government IT Market
  Leverage Technology Lifecycle Management (TLM)
  Retain and Obtain Government Contracts and Utilize Flexible Contract Vehicles
   3




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Continue to expand our Solution and Services
  Provide a High-Quality Centralized Source for Procuring IT Products and Services
  Customers
 Federal Government & Prime Contractors
  2008
    
    
    2007
    
    
    2006Department of Defense
    
    
    43
    %
    
    
    34
    %
    
    
    39
    %Civilian Agencies and Departments
    
    
    32
    %
    
    
    36
    %
    
    
    39
    %Prime Contractors
    
    
    25
    %
    
    
    30
    %
    
    
    22
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 State and Local
  Contracts
   4




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General Services Administration
    Indefinite Delivery/Indefinite Quantity
  Task Order Contracts
   5




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Blanket Purchase Agreements
   State and Local
    Open Market
  Solutions, Services and Products
   6




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Technology Lifecycle Management
  Solutions
  
    
    Client, including Desktop Virtualization, Thin Client, and Content Management
 
    
    Networking, including Unified Communications and Visual Information Systems
 
    
    Data Center, including Server Virtualization, Power & Cooling, and Disaster Recovery
 
    
    Security  Cyber and Physical
 
    
    IT Service Management, including Asset Management, Network and Data Center Management
 Services
   Delivery Services
   7




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Integration Services
   Support Services
   Financial Services
  Products
   8




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Sales Type
    
    2008
    
    
    2007
    
    
    2006Hardware
    
    $
    585.7
    
    
    
    71.3
    %
    
    $
    530.0
    
    
    
    73.3
    %
    
    $
    649.7
    
    
    
    75.3
    %Software
    
    
    159.7
    
    
    
    19.4
    %
    
    
    111.6
    
    
    
    15.4
    %
    
    
    130.2
    
    
    
    15.1
    %Services
    
    
    56.5
    
    
    
    6.9
    %
    
    
    59.7
    
    
    
    8.3
    %
    
    
    70.3
    
    
    
    8.1
    %Financing
    
    
    19.3
    
    
    
    2.4
    %
    
    
    22.2
    
    
    
    3.0
    %
    
    
    12.8
    
    
    
    1.5
    %Total
    
    $
    821.2
    
    
    
    100.0
    %
    
    $
    723.5
    
    
    
    100.0
    %
    
    $
    863.0
    
    
    
    100.0
    %
 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
     9




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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)
    
    Existing customer and vendor relationships (for which there is traditionally a high
barrier to entry)
    
    Technical expertise
    
    Logistical capability
    
    Customer service and support
  10




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Backlog
  Employees
  Available Information
  
 ITEM 1A. RISK FACTORS
  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.
   11




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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 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
    
    Our compliance with complex procurement laws and regulations related to the formation,
administration and performance of Federal Government contracts
  12




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Adverse changes in Federal Government fiscal spending could have a negative effect on our
sales, gross margin, and cash flow.
  
    
    A significant decline in spending by the Federal Government in general or by specific
departments or agencies in particular
    
    Changes in the structure, composition and/or buying patterns of the 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
 
    
    Maintain Fixed Charge Coverage Ratio not less than 1.10 to 1.00, as set forth in the
Credit Facility
    13




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Our business may be negatively affected by current global economic and credit conditions.
  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 may result in future years.
     14




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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 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.
     15




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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
    
 ITEM 3. LEGAL PROCEEDINGS
  
 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
  2008
    
    
    2007Quarter
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst
    
    $
    9.90
    
    
    $
    7.22
    
    
    $
    12.08
    
    
    $
    8.61Second
    
    $
    8.40
    
    
    $
    6.82
    
    
    $
    13.60
    
    
    $
    11.23Third
    
    $
    8.00
    
    
    $
    6.20
    
    
    $
    13.77
    
    
    $
    10.47Fourth
    
    $
    6.43
    
    
    $
    4.51
    
    
    $
    12.34
    
    
    $
    8.97
  Dividends
  Issuer Purchases of Equity Securities
  Equity Compensation Plans
  Number of SharesNumber of Shares to
    
    
    
    
    
    
    Remaining Available forbe Issued upon Exercise /
    
    
    Weighted Average
    
    
    Future Issuance UnderLapse of Outstanding
    
    
    Exercise Price of
    
    
    Equity Compensation PlansOption / Restricted
    
    
    Outstanding
    
    
    (excluding shares reflectedStock Awards
    
    
    Options
    
    
    in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans
approved by stockholders
by stockholders
    
    
    2,347,267
    
    
    $
    8.50
    
    
    
    311,049Equity compensation plans
not
approved by stockholders*
    
    
    58,700
    
    
    $
    10.08
    
    
    
    N/ATotal
    
    
    2,405,967
    
    
    $
    9.36
    
    
    
    311,049
 
 *
    
    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.  17




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PERFORMANCE GRAPH
 1
 Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008GTSI Corp.
    
    
    100.00
    
    
    
    75.88
    
    
    
    50.54
    
    
    
    66.65
    
    
    
    71.19
    
    
    
    43.32Peer Index1
    
    
    100.00
    
    
    
    119.08
    
    
    
    110.23
    
    
    
    123.27
    
    
    
    110.70
    
    
    
    68.90NASDAQ Index
    
    
    100.00
    
    
    
    108.41
    
    
    
    110.79
    
    
    
    122.16
    
    
    
    134.29
    
    
    
    79.25
 COMPARES 5-YEAR CUMULATIVE TOTAL RETURN
AMONG GTSI CORP., NASDAQ MARKET INDEX AND
SIC CODE INDEX
 
 1
    
    The 10 companies listed in SIC Code 5045 are: AVISTAR COMMUNICATIONS; EN POINTE
TECHNOLOGIES.; GTSI CORP.; INGRAM MICRO, INC.; INX, INC.; NAVARRE CORP.; POMEROY IT SOLUTIONS,
INC.; SCANSOURCE, INC.; TECH DATA CORP.; AND WAYSIDE TECHNOLOGY GROUP.   18




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ITEM 6. SELECTED FINANCIAL DATA
    19




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Statement of Operations Data:
 For the years ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(in thousands, except per share data)SALES
    
    $
    821,165
    
    
    $
    723,465
    
    
    $
    862,977
    
    
    $
    887,155
    
    
    $
    1,081,008COST OF SALES
    
    
    713,812
    
    
    
    618,745
    
    
    
    749,198
    
    
    
    789,316
    
    
    
    959,524GROSS MARGIN
    
    
    107,353
    
    
    
    104,720
    
    
    
    113,779
    
    
    
    97,839
    
    
    
    121,484SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES
    
    
    103,848
    
    
    
    106,335
    
    
    
    115,240
    
    
    
    114,514
    
    
    
    106,187IMPAIRMENT CHARGE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    981
    
    
    
    TOTAL OPERATING
EXPENSES
    
    
    103,848
    
    
    
    106,335
    
    
    
    115,240
    
    
    
    115,495
    
    
    
    106,187INCOME (LOSS) FROM
OPERATIONS
    
    
    3,505
    
    
    
    (1,615
    )
    
    
    (1,461
    )
    
    
    (17,656
    )
    
    
    15,297INTEREST AND OTHER
INCOME (EXPENSE),
NET
    
    
    2,524
    
    
    
    416
    
    
    
    (1,663
    )
    
    
    757
    
    
    
    1,696INCOME (LOSS)
BEFORE TAXES
    
    
    6,029
    
    
    
    (1,199
    )
    
    
    (3,124
    )
    
    
    (16,899
    )
    
    
    16,993INCOME TAX BENEFIT
(PROVISION)
    
    
    1,806
    
    
    
    (568
    )
    
    
    110
    
    
    
    3,226
    
    
    
    (6,858
    )NET INCOME (LOSS)
    
    $
    7,835
    
    
    $
    (1,767
    )
    
    $
    (3,014
    )
    
    $
    (13,673
    )
    
    $
    10,135EARNINGS (LOSS) PER
SHAREBasic
    
    $
    0.80
    
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )
    
    $
    1.17Diluted
    
    $
    0.79
    
    
    $
    (0.18
    )
    
    $
    (0.32
    )
    
    $
    (1.49
    )
    
    $
    1.05WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDINGBasic
    
    
    9,760
    
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166
    
    
    
    8,664Diluted
    
    
    9,865
    
    
    
    9,571
    
    
    
    9,371
    
    
    
    9,166
    
    
    
    9,618Balance Sheet Data:As of December 31,(in thousands)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Working capital
    
    $
    67,473
    
    
    $
    69,985
    
    
    $
    70,197
    
    
    $
    60,208
    
    
    $
    79,014Total assets
    
    
    247,629
    
    
    
    226,667
    
    
    
    330,681
    
    
    
    345,907
    
    
    
    313,908Borrowings under credit facility
    
    
    22,387
    
    
    
    18,031
    
    
    
    30,912
    
    
    
    48,014
    
    
    
    1,168Long-term liabilities,
including debt
    
    
    5,101
    
    
    
    20,432
    
    
    
    33,888
    
    
    
    19,072
    
    
    
    13,099Total liabilities
    
    
    157,515
    
    
    
    148,954
    
    
    
    253,998
    
    
    
    267,740
    
    
    
    221,493Stockholders equity
    
    
    90,114
    
    
    
    77,713
    
    
    
    76,683
    
    
    
    78,167
    
    
    
    92,415
  20




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Overview
      
    
    Our sales increased approximately $97.7 million, or 13.5%, from 2007 to 2008;
    
    Gross margin increased $2.6 million however gross margin as a percentage of sales
decreased 1.4 percentage points from 2007 to 2008;
    
    In 2008, Selling, General and Administrative Expenses (SG&A) decreased approximately
$2.5 million and SG&A expenses as a percentage of sales decreased 2.1 percentage points
from 2007 to 2008;
    
    Our net income for the year ended December 31, 2008 was $7.8 million;
    
    Cash provided by operations totaled $8.9 million for the year ended December 31, 2008;
   21




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Critical Accounting Estimates and Policies
   Revenue Recognition
  Software Revenue Recognition
  22




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Revenue Arrangements with Multiple Deliverables
    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 (APB 25).
  23




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Inventory
  Capitalized Internal Use Software
  Accounts Payable
  Bids and Proposals
  Income Taxes
   24




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Historical Results of Operations
  2008
    
    
    2007
    
    
    2006Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    86.9
    %
    
    
    85.5
    %
    
    
    86.8
    %Gross margin
    
    
    13.1
    %
    
    
    14.5
    %
    
    
    13.2
    %Operating expenses:Selling, general, and administrative
    
    
    12.6
    %
    
    
    14.7
    %
    
    
    13.4
    %Total operating expenses
    
    
    12.6
    %
    
    
    14.7
    %
    
    
    13.4
    %Income (loss) from operations
    
    
    0.5
    %
    
    
    (0.2
    )%
    
    
    (0.2
    )%Interest and other income, net
    
    
    0.3
    %
    
    
    0.1
    %
    
    
    (0.2
    )%Income (loss) before taxes
    
    
    0.8
    %
    
    
    (0.1
    )%
    
    
    (0.4
    )%Income tax benefit (provision)
    
    
    0.2
    %
    
    
    (0.1
    )%
    
    
    Net income (loss)
    
    
    1.0
    %
    
    
    (0.2
    )%
    
    
    (0.4
    )%
  Sales
by Vendor (based on 2008 sales)
    
    2008
    
    
    2007
    
    
    2006Cisco
    
    $
    168.0
    
    
    
    20.5
    %
    
    $
    136.8
    
    
    
    18.9
    %
    
    $
    163.5
    
    
    
    18.9
    %Sun Microsystems
    
    
    88.1
    
    
    
    10.7
    %
    
    
    90.2
    
    
    
    12.5
    %
    
    
    73.8
    
    
    
    8.6
    %HP
    
    
    81.3
    
    
    
    9.9
    %
    
    
    105.4
    
    
    
    14.6
    %
    
    
    78.2
    
    
    
    9.1
    %Microsoft
    
    
    73.1
    
    
    
    8.9
    %
    
    
    59.0
    
    
    
    8.2
    %
    
    
    28.3
    
    
    
    3.3
    %Dell
    
    
    68.9
    
    
    
    8.4
    %
    
    
    27.5
    
    
    
    3.8
    %
    
    
    13.2
    
    
    
    1.5
    %Others, net of
reserves and
adjustments
    
    
    341.8
    
    
    
    41.6
    %
    
    
    304.6
    
    
    
    42.0
    %
    
    
    506.0
    
    
    
    58.6
    %Total
    
    $
    821.2
    
    
    
    100.0
    %
    
    $
    723.5
    
    
    
    100.0
    %
    
    $
    863.0
    
    
    
    100.0
    %
 Sales Type
    
    2008
    
    
    2007
    
    
    2006Hardware
    
    $
    585.7
    
    
    
    71.3
    %
    
    $
    530.0
    
    
    
    73.3
    %
    
    $
    649.7
    
    
    
    75.3
    %Software
    
    
    159.7
    
    
    
    19.4
    %
    
    
    111.6
    
    
    
    15.4
    %
    
    
    130.2
    
    
    
    15.1
    %Services
    
    
    56.5
    
    
    
    6.9
    %
    
    
    59.7
    
    
    
    8.3
    %
    
    
    70.3
    
    
    
    8.1
    %Financing
    
    
    19.3
    
    
    
    2.4
    %
    
    
    22.2
    
    
    
    3.0
    %
    
    
    12.8
    
    
    
    1.5
    %Total
    
    $
    821.2
    
    
    
    100.0
    %
    
    $
    723.5
    
    
    
    100.0
    %
    
    $
    863.0
    
    
    
    100.0
    %
 Year Ended December 31, 2008 Compared with Year Ended December 31, 2007
 Sales
    25




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##### Table of Contents



Gross Margin
     Selling, General & Administrative Expenses (SG&A)
   26




---



##### Table of Contents



Interest Income and Other Income, Net
   Income Taxes
 Accounting for Uncertainty in Income Taxes
 Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
 Sales
        27




---



##### Table of Contents



Gross Margin
     Selling, General & Administrative Expenses (SG&A)
  Interest Income (Expense) and Other Income, Net
  Income Taxes
 Accounting for Uncertainty in
Income Taxes
  28




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##### Table of Contents



Seasonal Fluctuations
   2008 (unaudited)(in millions except per share data)Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales
    
    $
    142.8
    
    
    $
    159.2
    
    
    $
    257.1
    
    
    $
    262.1
    
    
    $
    821.2Cost of sales
    
    
    121.4
    
    
    
    139.8
    
    
    
    222.3
    
    
    
    230.3
    
    
    
    713.8Gross margin
    
    $
    21.4
    
    
    $
    19.4
    
    
    $
    34.8
    
    
    $
    31.8
    
    
    $
    107.4Selling, general &
administrative expenses
    
    
    25.9
    
    
    
    22.8
    
    
    
    27.5
    
    
    
    27.6
    
    
    
    103.8Income (loss) from operations
    
    $
    (4.5
    )
    
    $
    (3.4
    )
    
    $
    7.3
    
    
    $
    4.1
    
    
    $
    3.5Interest and
other income (expense), net
    
    
    (0.6
    )
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.7
    
    
    
    2.5Income (loss) before taxes
    
    $
    (5.1
    )
    
    $
    (2.9
    )
    
    $
    8.2
    
    
    $
    5.8
    
    
    $
    6.0Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    1.8Net income (loss)
    
    $
    (5.1
    )
    
    $
    (2.9
    )
    
    $
    8.2
    
    
    $
    7.6
    
    
    $
    7.8Basic earnings (loss) per share
    
    $
    (0.52
    )
    
    $
    (0.30
    )
    
    $
    0.84
    
    
    $
    0.77
    
    
    $
    0.80Diluted earnings (loss) per share
    
    $
    (0.52
    )
    
    $
    (0.30
    )
    
    $
    0.83
    
    
    $
    0.77
    
    
    $
    0.79
  29




---



##### Table of Contents



2007 (unaudited)(in millions except per share data)Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales
    
    $
    146.6
    
    
    $
    156.7
    
    
    $
    195.0
    
    
    $
    225.2
    
    
    $
    723.5Cost of sales
    
    
    126.4
    
    
    
    134.5
    
    
    
    163.1
    
    
    
    194.7
    
    
    
    618.7Gross margin
    
    $
    20.2
    
    
    $
    22.2
    
    
    $
    31.9
    
    
    $
    30.4
    
    
    $
    104.7Selling, general &
administrative expenses
    
    
    26.2
    
    
    
    25.3
    
    
    
    27.6
    
    
    
    27.2
    
    
    
    106.3(Loss) income from operations
    
    $
    (6.0
    )
    
    $
    (3.1
    )
    
    $
    4.3
    
    
    $
    3.2
    
    
    $
    (1.6
    )Interest and other income
(expense), net
    
    
    (0.9
    )
    
    
    (0.2
    )
    
    
    1.3
    
    
    
    0.2
    
    
    
    0.4(Loss) income before taxes
    
    $
    (6.9
    )
    
    $
    (3.3
    )
    
    $
    5.6
    
    
    $
    3.4
    
    
    $
    (1.2
    )Income tax provision
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (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
    )
 Interim
Financial Reporting.
 Liquidity and Capital Resources
 Cash flows for the year ended December 31,
    
    2008
    
    
    2007
    
    
    Change(in millions)Cash provided by operating activities
    
    $
    8.9
    
    
    $
    14.0
    
    
    $
    (5.1
    )Cash used in investing activities
    
    $
    (5.1
    )
    
    $
    (1.7
    )
    
    $
    (3.4
    )Cash (used in) provided by financing
activities
    
    $
    (4.7
    )
    
    $
    (12.2
    )
    
    $
    7.5
     30




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##### Table of Contents



Credit Facility and Term Loan
    Capital Resources and Requirements
        31




---



##### Table of Contents



Contractual Obligations
 Less Than 1
    
    
    
    
    
    
    
    
    
    
    More thanIn millions of dollars
    
    Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    OtherOperating lease obligations
    
    $
    43.2
    
    
    $
    2.9
    
    
    $
    9.0
    
    
    $
    7.9
    
    
    $
    23.4
    
    
    
    Borrowings under Credit Facility
    
    
    10.9
    
    
    
    10.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Financed lease debt
    
    
    9.1
    
    
    
    6.6
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    Tax liability for unrecognized
tax benefits (a)
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Total contractual obligations
    
    $
    63.4
    
    
    $
    20.4
    
    
    $
    11.5
    
    
    $
    7.9
    
    
    $
    23.4
    
    
    $
    0.2
 (a)
    
    This amount includes current liabilities on the consolidated balance sheet for FIN No. 48
obligations. The Company is not able to reasonably estimate the timing of the future payments.      Off-Balance Sheet Arrangements
   32




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##### Table of Contents



New Accounting Pronouncements
 Fair Value Measurement
 The Fair Value Option
for Financial Assets and Financial Liabilities
 Business
Combinations
 Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
  33




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     34




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
   Internal Control  Integrated Framework
   /s/ PricewaterhouseCoopers LLP
  35




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
  Eyak Technology, LLC
 Eyak Technology, LLC and Subsidiary
  Eyak Technology, LLC and Subsidiary
 
  36




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
       McLean, Virginia
March 30, 2007
  37




---



##### Table of Contents



GTSI CORP.
CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    829Accounts receivable, net
    
    
    190,740
    
    
    
    165,317Inventory
    
    
    13,491
    
    
    
    21,577Deferred costs
    
    
    7,849
    
    
    
    5,615Other current assets
    
    
    7,807
    
    
    
    5,169Total current assets
    
    
    219,887
    
    
    
    198,507Depreciable assets, net
    
    
    13,664
    
    
    
    12,158Long-term receivables and other assets
    
    
    14,078
    
    
    
    16,002Total assets
    
    $
    247,629
    
    
    $
    226,667LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Borrowings under credit facility
    
    $
    22,387
    
    
    $
    18,031Accounts payable
    
    
    103,553
    
    
    
    84,715Financed lease debt, current portion
    
    
    6,538
    
    
    
    8,509Accrued liabilities
    
    
    17,857
    
    
    
    14,725Deferred revenue
    
    
    2,079
    
    
    
    2,542Total current liablilites
    
    
    152,414
    
    
    
    128,522Long-term debt
    
    
    
    
    
    
    10,000Long-term financed lease debt
    
    
    2,530
    
    
    
    9,068Other liabilities
    
    
    2,571
    
    
    
    1,364Total liabilities
    
    
    157,515
    
    
    
    148,954Commitments 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; 10,140,757 issued and
9,866,662 outstanding at December 31, 2008; and
10,183,251 issued and 9,700,850 outstanding at
December 31, 2007
    
    
    50
    
    
    
    49Capital in excess of par value
    
    
    50,722
    
    
    
    47,097Retained earnings
    
    
    39,469
    
    
    
    31,634Treasury stock, 16,176 shares at December 31,
2008 and 139,994 shares at December 31, 2007, at
cost
    
    
    (127
    )
    
    
    (1,067
    )Total stockholders equity
    
    
    90,114
    
    
    
    77,713Total liabilities and stockholders equity
    
    $
    247,629
    
    
    $
    226,667
   38




---



##### Table of Contents



GTSI CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006SALESProduct
    
    $
    745,366
    
    
    $
    641,560
    
    
    $
    779,896Service
    
    
    56,529
    
    
    
    59,658
    
    
    
    70,293Financing
    
    
    19,270
    
    
    
    22,247
    
    
    
    12,788821,165
    
    
    
    723,465
    
    
    
    862,977COST OF SALESProduct
    
    
    673,858
    
    
    
    568,247
    
    
    
    705,498Service
    
    
    31,551
    
    
    
    40,609
    
    
    
    38,261Financing
    
    
    8,403
    
    
    
    9,889
    
    
    
    5,439713,812
    
    
    
    618,745
    
    
    
    749,198GROSS MARGIN
    
    
    107,353
    
    
    
    104,720
    
    
    
    113,779SELLING, GENERAL & ADMINISTRATIVE EXPENSES
    
    
    103,848
    
    
    
    106,335
    
    
    
    115,240INCOME (LOSS) FROM OPERATIONS
    
    
    3,505
    
    
    
    (1,615
    )
    
    
    (1,461
    )INTEREST AND OTHER INCOME (EXPENSE), NETInterest and other income
    
    
    760
    
    
    
    1,191
    
    
    
    2,437Equity income from affiliates
    
    
    4,892
    
    
    
    3,802
    
    
    
    930Interest expense
    
    
    (3,128
    )
    
    
    (4,577
    )
    
    
    (5,030
    )Interest and other income (expense), net
    
    
    2,524
    
    
    
    416
    
    
    
    (1,663
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    6,029
    
    
    
    (1,199
    )
    
    
    (3,124
    )INCOME TAX BENEFIT (PROVISION)
    
    
    1,806
    
    
    
    (568
    )
    
    
    110NET INCOME (LOSS)
    
    $
    7,835
    
    
    $
    (1,767
    )
    
    $
    (3,014
    )EARNINGS (LOSS) PER SHAREBasic
    
    $
    0.80
    
    
    $
    (0.18
    )
    
    $
    (0.32
    )Diluted
    
    $
    0.79
    
    
    $
    (0.18
    )
    
    $
    (0.32
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,760
    
    
    
    9,571
    
    
    
    9,371Diluted
    
    
    9,865
    
    
    
    9,571
    
    
    
    9,371
   39




---



##### Table of Contents



GTSI CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the Years Ended December 31, 2008, 2007 and 2006
 Common Stock
    
    
    Capital in
    
    
    
    
    
    
    
    
    
    
    TotalShares
    
    
    
    
    
    
    Excess of
    
    
    Retained
    
    
    Treasury
    
    
    StockholdersOutstanding
    
    
    Amount
    
    
    Par Value
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance, 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 income (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
    
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    1,126
    
    
    
    1,287Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,832
    
    
    
    
    
    
    
    
    
    
    
    1,832Tax (provision) from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,767
    )
    
    
    
    
    
    
    (1,767
    )Balance, December 31,
2007
    
    
    9,701
    
    
    
    49
    
    
    
    47,097
    
    
    
    31,634
    
    
    
    (1,067
    )
    
    
    77,713Common stock issued
    
    
    104
    
    
    
    
    
    
    
    (260
    )
    
    
    
    
    
    
    816
    
    
    
    556Common stock purchased
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )
    
    
    (217
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,946
    
    
    
    
    
    
    
    
    
    
    
    2,946Restricted stock issued
    
    
    86
    
    
    
    1
    
    
    
    (343
    )
    
    
    
    
    
    
    341
    
    
    
    (1
    )Tax benefit from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    1,282
    
    
    
    
    
    
    
    
    
    
    
    1,282Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,835
    
    
    
    
    
    
    
    7,835Balance, December 31,
2008
    
    
    9,867
    
    
    $
    50
    
    
    $
    50,722
    
    
    $
    39,469
    
    
    $
    (127
    )
    
    $
    90,114
   40




---



##### Table of Contents



GTSI CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    7,835
    
    
    $
    (1,767
    )
    
    $
    (3,014
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    3,448
    
    
    
    3,807
    
    
    
    3,737Loss on sale of depreciable assets
    
    
    276
    
    
    
    
    
    
    
    Stock based compensation
    
    
    2,946
    
    
    
    1,832
    
    
    
    1,373Excess tax benefits from stock-based compensation
    
    
    640
    
    
    
    (6
    )
    
    
    Reversal of vendor payables
    
    
    
    
    
    
    
    
    
    
    5,822FIN 48 adoption
    
    
    
    
    
    
    (138
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (34,051
    )
    
    
    39,028
    
    
    
    (30,137
    )Inventory
    
    
    8,086
    
    
    
    14,114
    
    
    
    21,128Other assets
    
    
    (2,949
    )
    
    
    31,709
    
    
    
    (8,853
    )Accounts payable
    
    
    18,838
    
    
    
    (57,502
    )
    
    
    (15,600
    )Accrued liabilities
    
    
    3,131
    
    
    
    (8,468
    )
    
    
    5,742Other liabilities
    
    
    744
    
    
    
    (8,642
    )
    
    
    3,275Net cash provided by (used in) operating activities
    
    
    8,944
    
    
    
    13,967
    
    
    
    (16,527
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of depreciable assets
    
    
    (5,230
    )
    
    
    (2,338
    )
    
    
    (3,638
    )Sale of depreciable assets
    
    
    120
    
    
    
    
    
    
    
    Sale of equity investment
    
    
    
    
    
    
    660
    
    
    
    Net cash used in investing activities
    
    
    (5,110
    )
    
    
    (1,678
    )
    
    
    (3,638
    )CASH FLOWS FROM FINANCING ACTIVITES:Borrowings under (payments on) credit facility
    
    
    4,356
    
    
    
    (12,882
    )
    
    
    (17,102
    )Payment of deferred financing costs
    
    
    
    
    
    
    (570
    )
    
    
    (668
    )Proceeds from financed lease debt
    
    
    
    
    
    
    
    
    
    
    28,456(Payment of) Proceeds from long-term debt
    
    
    (10,000
    )
    
    
    
    
    
    
    10,000Excess tax benefits from stock-based compensation
    
    
    642
    
    
    
    
    
    
    
    Common stock Purchases
    
    
    (217
    )
    
    
    
    
    
    
    Proceeds from common stock issued
    
    
    556
    
    
    
    1,287
    
    
    
    157Net cash (used in) provided by financing activities
    
    
    (4,663
    )
    
    
    (12,165
    )
    
    
    20,843NET
(DECREASE) INCREASE IN CASH
    
    
    (829
    )
    
    
    124
    
    
    
    678CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    829
    
    
    
    705
    
    
    
    27CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    
    
    
    $
    829
    
    
    $
    705CASH PAID DURING THE YEAR FOR:Interest
    
    $
    773
    
    
    $
    2,579
    
    
    $
    3,520Income taxes
    
    $
    191
    
    
    $
    92
    
    
    $
    43
   41




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##### Table of Contents



GTSI CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006
 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
   42




---



##### Table of Contents



E. Revenue Recognition
 Revenue Recognition in Financial Statements
 Software Revenue Recognition Modification of
SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions. SOP 97-2,
 Revenue Arrangements with Multiple Deliverables
      43




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##### Table of Contents



Accounting for Leases
 Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities-a Replacement of FASB Statement
125
 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)
  44




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##### Table of Contents



F. Cash
  G. Concentration of Credit Risk
  H. Allowance for Doubtful Accounts
  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,
  45




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##### Table of Contents



K. Accounts Payable
   L. Stock-based Compensation
 Share-Based Payment FAS 123,
  M. Income Taxes
 , Accounting for Income Taxes FAS 109
 N. Advertising
  O. Fair Value of Financial Instruments
   46




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##### Table of Contents



P. Equity Investments
 The Equity Method of Accounting for Investments in Common Stock
 Q. New Accounting Pronouncements
 Fair Value Measurement
 The Fair Value Option
for Financial Assets and Financial Liabilities
 Business
Combinations
 Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
 R. Reclassifications and Adjustments
   47




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##### Table of Contents



2. Accounts Receivable
  2008
    
    
    2007Trade accounts receivable
    
    $
    153,742
    
    
    $
    136,040Unbilled trade accounts receivable
    
    
    9,795
    
    
    
    9,386Lease receivables, net
    
    
    14,740
    
    
    
    10,437Vendor and other financing receivables
    
    
    14,212
    
    
    
    14,481Total accounts receivable
    
    $
    192,489
    
    
    $
    170,344Less: Allowance for doubtful accounts
    
    
    (393
    )
    
    
    (1,001
    )Sales return allowance
    
    
    (1,356
    )
    
    
    (4,026
    )Accounts receivable, net
    
    $
    190,740
    
    
    $
    165,317
 3. Lease and Other Receivables
    48




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##### Table of Contents



2009
    
    $
    22,7072010
    
    
    5,5442011
    
    
    8442012
    
    
    627Thereafter
    
    
    1Future minimum payments
    
    $
    29,723
 Lease Receivables
  2008
    
    
    2007Future minimum lease payments receivable
    
    $
    14,921
    
    
    $
    13,558Unguaranteed residual values
    
    
    3,458
    
    
    
    4,785Unearned income
    
    
    (1,164
    )
    
    
    (2,450
    )$
    17,215
    
    
    $
    15,893
 Other Related Receivables
  2008
    
    
    2007Future minimum payments receivable
    
    $
    14,802
    
    
    $
    10,240Unearned income
    
    
    (1,479
    )
    
    
    (1,433
    )$
    13,323
    
    
    $
    8,807
 4. Transferred Receivables and Financed Lease Debt
    49




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##### Table of Contents



Year2009
    
    $
    6,5382010
    
    
    2,5302011
    
    
    2012
    
    
    2013
    
    
    Total
    
    $
    9,068
  5. Inventory
  6. Depreciable Assets
  2008
    
    
    2007Office furniture and equipment
    
    $
    16,689
    
    
    $
    15,358Purchased software for internal use
    
    
    7,605
    
    
    
    12,369Internally developed software
    
    
    16,022
    
    
    
    15,096Leasehold improvements
    
    
    1,269
    
    
    
    5,29041,585
    
    
    
    48,113Less: accumulated depreciation and amortization
    
    
    (27,921
    )
    
    
    (35,955
    )Depreciable assets, net
    
    $
    13,664
    
    
    $
    12,158
   50




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##### Table of Contents



7. Credit Facility and Term Loan
  2008
    
    
    2007Borrowings
    
    $
    10.3
    
    
    $
    22.7Outstanding
Checks, net of unswept cash
    
    
    12.3
    
    
    
    0.0Gross Borrowings
    
    $
    22.6
    
    
    $
    22.7Less: Lockbox
    
    
    (0.2
    )
    
    
    (4.7
    )Net Borrowings
    
    $
    22.4
    
    
    $
    18.0
        51




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##### Table of Contents



8. Stockholders Equity
 Purchase of Capital Stock
    Stock Incentive Plans
    52




---



##### Table of Contents



Valuation Assumptions
  2008
    
    
    2007
    
    
    2006Expected volatility
    
    
    48.3
    %
    
    
    51.6
    %
    
    
    49.6
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    Expected term (in years)
    
    
    5.0
    
    
    
    5.2
    
    
    
    4.8Risk free interest rate
    
    
    2.6
    %
    
    
    4.6
    %
    
    
    5.0
    %
 Stock Options
  WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsticShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2008
    
    
    1,782
    
    
    $
    8.08Granted
    
    
    35
    
    
    $
    5.65Exercised
    
    
    (45
    )
    
    $
    4.88Forfeited
    
    
    (33
    )
    
    $
    8.31Expired
    
    
    (91
    )
    
    $
    9.54Outstanding at December 31, 2008
    
    
    1,648
    
    
    $
    8.05
    
    
    
    3.40
    
    
    $
    261Exercisable at December 31, 2008
    
    
    1,122
    
    
    $
    8.47
    
    
    
    2.90
    
    
    $
    249
    Restricted Shares
   53




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##### Table of Contents



WeightedAverageGrant-DateShares
    
    
    Fair ValueNonvested at January 1, 2008
    
    
    378
    
    
    $
    11.71Granted
    
    
    44
    
    
    $
    7.27Vested
    
    
    (89
    )
    
    $
    12.20Forfeited
    
    
    (43
    )
    
    $
    12.00Nonvested at December 31, 2008
    
    
    290
    
    
    $
    10.83
 Stock Appreciation Rights
  WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsticShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2008
    
    
    842
    
    
    $
    9.60Granted
    
    
    42
    
    
    $
    9.60Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (112
    )
    
    $
    9.60Expired
    
    
    (14
    )
    
    $
    9.60Outstanding at December 31, 2008
    
    
    758
    
    
    $
    9.60
    
    
    
    5.09
    
    
    $
    Exercisable at December 31, 2008
    
    
    153
    
    
    $
    9.60
    
    
    
    4.69
    
    
    $
    
 Unrecognized Compensation
   54




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##### Table of Contents



Employee Stock Purchase Plan
   Number ofshares
    
    
    PurchaseOffering period ended
    
    purchased
    
    
    priceDecember 31, 2008
    
    
    42,556
    
    
    $
    5.10June 30, 2008
    
    
    16,652
    
    
    $
    7.19December 31, 2007
    
    
    16,011
    
    
    $
    9.37June 30, 2007
    
    
    9,392
    
    
    $
    12.26December 31, 2006
    
    
    13,547
    
    
    $
    8.77June 30, 2006
    
    
    15,546
    
    
    $
    6.13
  9. Contract Termination Costs
   Contract Termination Liability as of 12/31/07
    
    $
    30Less: Cash Payments
    
    
    (30
    )Contract Termination Liability as of 12/31/08
    
    $
    
  55




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##### Table of Contents



10. Related Party Transactions
    Years Ended December 31,2008
    
    
    2007
    
    
    2006Revenues
    
    $
    273,475
    
    
    $
    228,585
    
    
    $
    91,985Gross margin
    
    $
    31,292
    
    
    $
    20,368
    
    
    $
    12,102Net income
    
    $
    13,044
    
    
    $
    7,005
    
    
    $
    2,513
 December 31,2008
    
    
    2007Current assets
    
    $
    104,069
    
    
    $
    89,351Noncurrent assets
    
    $
    1,003
    
    
    $
    2,632Current liabilities
    
    $
    93,092
    
    
    $
    81,846Noncurrent liabilities
    
    $
    77
    
    
    $
    1,584Members equity
    
    $
    11,901
    
    
    $
    8,553
 11. Earnings (Loss) Per Share
    56




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Basic earnings (loss) per share:Net income (loss)
    
    $
    7,835
    
    
    $
    (1,767
    )
    
    $
    (3,014
    )Weighted average shares outstanding
    
    
    9,760
    
    
    
    9,571
    
    
    
    9,371Basic earnings (loss) per share
    
    $
    0.80
    
    
    $
    (0.18
    )
    
    $
    (0.32
    )Diluted earnings (loss) per share:Net income (loss)
    
    $
    7,835
    
    
    $
    (1,767
    )
    
    $
    (3,014
    )Weighted average shares outstanding
    
    
    9,760
    
    
    
    9,571
    
    
    
    9,371Incremental shares attributable to the
assumed
exercise of outstanding stock options
    
    
    105
    
    
    
    N/A
    
    
    
    N/AWeighted average shares and equivalents
    
    
    9,865
    
    
    
    9,571
    
    
    
    9,371Diluted earnings (loss) per share
    
    $
    0.79
    
    
    $
    (0.18
    )
    
    $
    (0.32
    )
 12. Income Taxes
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    (1,483
    )
    
    $
    (445
    )
    
    $
    98State
    
    
    (562
    )
    
    
    (129
    )
    
    
    12$
    (2,045
    )
    
    $
    (574
    )
    
    $
    110Deferred:Federal
    
    $
    3,179
    
    
    $
    5
    
    
    $
    State
    
    
    672
    
    
    
    1
    
    
    
    $
    3,851
    
    
    $
    6
    
    
    $
    Total income tax benefit (provision)
    
    $
    1,806
    
    
    $
    (568
    )
    
    $
    110
  57




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##### Table of Contents



2008
    
    
    2007Deferred tax assets:Allowance
    
    $
    149
    
    
    $
    440Inventory reduction of cost basis
    
    
    297
    
    
    
    320Reserves
    
    
    1,445
    
    
    
    930Bid and proposal costs
    
    
    3,882
    
    
    
    3,109Deferred revenue
    
    
    238
    
    
    
    807Deferred rent
    
    
    471
    
    
    
    Stock compensation
    
    
    1,659
    
    
    
    968Sale of receivables
    
    
    140
    
    
    
    577Net operating losses and tax credits
    
    
    185
    
    
    
    1,370Other
    
    
    92
    
    
    
    132Total deferred tax assets
    
    
    8,558
    
    
    
    8,653Deferred tax liabilities:Prepaid expenses and other
    
    
    (482
    )
    
    
    (253
    )Prepaid Bonuses
    
    
    (492
    )
    
    
    (528
    )Depreciation and amortization
    
    
    (3,842
    )
    
    
    (3,244
    )Total deferred tax liabilities
    
    
    (4,816
    )
    
    
    (4,025
    )Valuation allowance
    
    
    
    
    
    
    (4,628
    )Net deferred tax assets
    
    $
    3,742
    
    
    $
    
   58




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##### Table of Contents



Years Ended December 31,2008
    
    
    2007
    
    
    2006Statutory rate
    
    
    34.0
    %
    
    
    (34.0
    )%
    
    
    (34.0
    )%State income taxes, net of federal benefit
    
    
    3.4
    
    
    
    4.1
    
    
    
    (6.2
    )Non-deductible executive compensation
    
    
    7.3
    
    
    
    
    
    
    
    Non-deductible meals & entertainment costs
    
    
    2.4
    
    
    
    12.8
    
    
    
    4.5Non-deductible club dues
    
    
    0.0
    
    
    
    1.8
    
    
    
    Non-deductible accrued incentive costs
    
    
    1.2
    
    
    
    8.7
    
    
    
    3.7Other
    
    
    0.5
    
    
    
    (2.3
    )
    
    
    0.2Change in the tax contingency reserve
    
    
    (1.2
    )
    
    
    (1.1
    )
    
    
    (3.5
    )Effectively
settled interest expense 
IRS Audit
    
    
    0.0
    
    
    
    14.4
    
    
    
    Change in valuation allowance
    
    
    (78.1
    )
    
    
    42.9
    
    
    
    31.8Effective tax rate
    
    
    (30.5
    )%
    
    
    47.3
    %
    
    
    (3.5
    )%
   Tax Uncertainties
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
   59




---



##### Table of Contents



2008
    
    
    2007Balance at beginning of the year
    
    $
    236
    
    
    $
    166Additions for prior year tax positions
    
    
    (21
    )
    
    
    431Reductions for settlements
    
    
    (2
    )
    
    
    (361
    )Lapses in statute of limitations
    
    
    (16
    )
    
    
    Balance at end of the year
    
    $
    197
    
    
    $
    236
    60




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##### Table of Contents



13. 401(k) Plan
  14. Commitments and Contingencies
 Product Warranties
  2008
    
    
    2007Accrued warranties at beginning of year
    
    $
    284
    
    
    $
    855Charges made against warranty liabilities
    
    
    (22
    )
    
    
    (214
    )Adjustments to warranty reserves
    
    
    (167
    )
    
    
    (577
    )Accruals for additional warranties sold
    
    
    60
    
    
    
    220Accrued warranties at end of year
    
    $
    155
    
    
    $
    284
  2008
    
    
    2007Deferred warranty revenue at beginning of year
    
    $
    130
    
    
    $
    506Deferred warranty revenue recognized
    
    
    (317
    )
    
    
    (467
    )Revenue deferred for additional warranties sold
    
    
    576
    
    
    
    91Deferred warranty revenue at end of year
    
    $
    389
    
    
    $
    130
 Lease Commitments
   61




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##### Table of Contents



2009
    
    $
    2,9132010
    
    
    4,5082011
    
    
    4,5562012
    
    
    3,8892013
    
    
    3,986Thereafter
    
    
    23,376Total minimum lease payments
    
    $
    43,228
 Letters of Credit
    Employment Agreements
   Legal Proceedings
   62




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##### Table of Contents



15. Segment Reporting
   2008
    
    
    2007
    
    
    2006Hardware
    
    $
    585,655
    
    
    $
    529,961
    
    
    $
    649,687Software
    
    
    159,711
    
    
    
    111,599
    
    
    
    130,209Services
    
    
    56,529
    
    
    
    59,658
    
    
    
    70,293Financing
    
    
    19,270
    
    
    
    22,247
    
    
    
    12,788Total
    
    $
    821,165
    
    
    $
    723,465
    
    
    $
    862,977
 Major Customers
  16. Selected Quarterly Financial Data (unaudited)
  2008Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales
    
    $
    142,790
    
    
    $
    159,200
    
    
    $
    257,059
    
    
    $
    262,116
    
    
    $
    821,165Gross margin
    
    
    21,406
    
    
    
    19,405
    
    
    
    34,775
    
    
    
    31,767
    
    
    
    107,353Net income (loss) (a)
    
    $
    (5,064
    )
    
    $
    (2,909
    )
    
    $
    8,227
    
    
    $
    7,581
    
    
    $
    7,835Basic earnings (loss) per share
    
    $
    (0.52
    )
    
    $
    (0.30
    )
    
    $
    0.84
    
    
    $
    0.77
    
    
    $
    0.80Diluted earnings (loss) per share
    
    $
    (0.52
    )
    
    $
    (0.30
    )
    
    $
    0.83
    
    
    $
    0.77
    
    
    $
    0.79
 2007Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales
    
    $
    146,616
    
    
    $
    156,720
    
    
    $
    195,042
    
    
    $
    225,087
    
    
    $
    723,465Gross margin
    
    
    20,173
    
    
    
    22,195
    
    
    
    31,893
    
    
    
    30,459
    
    
    
    104,720Net income (loss)
    
    $
    (6,948
    )
    
    $
    (3,621
    )
    
    $
    5,517
    
    
    $
    3,285
    
    
    $
    (1,767
    )Basic earnings (loss) per share
    
    $
    (0.73
    )
    
    $
    (0.38
    )
    
    $
    0.57
    
    
    $
    0.34
    
    
    $
    (0.18
    )Diluted earnings (loss) per share
    
    $
    (0.73
    )
    
    $
    (0.38
    )
    
    $
    0.55
    
    
    $
    0.33
    
    
    $
    (0.18
    )
 
 (a)
    
    Net income for the quarter ended December 31, 2008 was positively impacted by the reversal of
the tax valuation allowance of $4.6 million, partially offset by income tax expense of $1.5
million and $1.3 million of additional tax expense related to FAS 123R shortfall.  63




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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
established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
   64




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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
   65




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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
   66




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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

James J. Leto
    
    Chief Executive Officer
(Principal Executive Officer)
    
    March 5, 2009/s/ PETER WHITFIELD

Peter Whitfield
    
    Senior Vice President and 
Chief Financial Officer
(Principal Financial and 
Accounting Officer)
    
    March 5, 2009/s/ JOHN M. TOUPS

John M. Toups
    
    Chairman of the Board
    
    March 5, 2009/s/ LLOYD GRIFFITHS

Lloyd Griffiths
    
    Director
    
    March 5, 2009/s/ THOMAS HEWITT

Thomas Hewitt
    
    Director
    
    March 5, 2009/s/ LEE JOHNSON

Lee Johnson
    
    Director
    
    March 5, 2009/s/ JOSEPH KEITH KELLOGG, JR.

Joseph Keith Kellogg, Jr.
    
    Director
    
    March 5, 2009/s/ STEVEN KELMAN

Steven Kelman
    
    Director
    
    March 5, 2009/s/ BARRY REISIG

Barry Reisig
    
    Director
    
    March 5, 2009/s/ DANIEL R. YOUNG

Daniel R. Young
    
    Director
    
    March 5, 2009
  67




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##### Table of Contents



GTSI CORP.
VALUATION AND QUALIFYING ACCOUNTS
 
 SCHEDULE II
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Allowance for Doubtful AccountsBalance at beginning of year
    
    $
    1,001
    
    
    $
    1,612
    
    
    $
    1,968Additionscharged to expense or
other accounts
    
    
    605
    
    
    
    1,228
    
    
    
    1,485Deductions
    
    
    (1,213
    )
    
    
    (1,839
    )
    
    
    (1,841
    )Balance at end of year
    
    $
    393
    
    
    $
    1,001
    
    
    $
    1,612Sales Return Allowance (1)Balance at beginning of year
    
    $
    4,026
    
    
    $
    6,282
    
    
    $
    8,116Additionscharged to expense or
other accounts
    
    
    5,008
    
    
    
    4,306
    
    
    
    6,480Deductions
    
    
    (7,678
    )
    
    
    (6,562
    )
    
    
    (8,314
    )Balance at end of year
    
    $
    1,356
    
    
    $
    4,026
    
    
    $
    6,282Deferred Tax Asset Valuation AllowanceBalance at beginning of year
    
    $
    4,628
    
    
    $
    3,974
    
    
    $
    3,930Additionscharged to expense or
other accounts
    
    
    
    
    
    
    654
    
    
    
    44Deductions
    
    
    (4,628
    )
    
    
    
    
    
    
    Balance at end of year
    
    $
    
    
    
    $
    4,628
    
    
    $
    3,974
 (1)
    
    The sales returns allowance is reported as a reduction of accounts receivable on the
consolidated balance sheets.   68




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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
    
    
    Credit Agreement dated as of June 2, 2006 between GTSI Corp., SunTrust Bank and
Bank of America (9)10.8
    
    
    First Amendment to Credit Agreement dated as of July 13, 2006 between GTSI
Corp., SunTrust Bank and Bank of America (10)10.9
    
    
    Second Amendment to Credit Agreement dated as of November 30, 2006 between GTSI
Corp. the Lenders, the other Borrower Parties, and SunTrust Bank (11)10.10
    
    
    Third Amendment to Credit Agreement dated as of March 30, 2007 between GTSI
Corp. the Lenders, the other Borrower Parties, and SunTrust Bank (13)10.11
    
    
    Amended and Restated 2007 Stock Incentive Plan (18)10.12
    
    
    Lease dated December 5, 2007 between the Company and SP Herndon Development LP
for new headquarters facility (19)10.13
    
    
    Amended 1991 Employee Stock Purchase Plan (22)10.14
    
    
    Fifth Amendment to Credit Agreement dated as of December 19, 2008 between GTSI
Corp., the Lenders, the other Borrower Parties and SunTrust Bank (25)10.15
    
    
    GTSI Corp. Long Term Incentive Plan * (14)10.16
    
    
    GTSI 2005 Executive Incentive Compensation Plan * (3)10.17
    
    
    Form of GTSI Change in Control Agreement *(3)10.18
    
    
    Employment Agreement dated February 16, 2006 between the Registrant and James J.
Leto* (15)10.19
    
    
    Form of GTSI Severance Agreement *(16)10.20
    
    
    Amendment to Employment Agreements date June 8, 2007* (20)10.21
    
    
    Employment Agreement dated December 1, 2007 between the Registrant and Scott
Friedlander* (21)10.22
    
    
    2008 Short Term Incentive Plan Description* (23)10.23
    
    
    Employment Agreement dated October 29, 2008 between the Registrant and Peter
Whitfield* (24)
  69




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##### Table of Contents



ExhibitNumber
    
    Description14.1
    
    
    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 years ended
December 31, 2008, 2007 and 2006 (audited) (filed herewith)
 
 *
    
    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 16, 2006.(16)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated April 28, 2006.(17)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2007.(18)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated December 5, 2007.(19)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated February 25, 2008.(20)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated June 8, 2007.(21)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated December 1, 2007.(22)
    
    Incorporated by reference to the Registrants current report on Schedule 14A dated March 31, 2008.(23)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated April 23, 2008.(24)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated October 29, 2008.(25)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated December 19, 2008.  70