##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission File Number: 001-34871
 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
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting Company þ(Do not check if a smaller reporting company)
 o þ




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##### 



GTSI Corp.
Form 10-Q for the Quarter Ended September 30, 2010
INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Reserved
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,286
    
    
    $
    7,894Accounts receivable, net
    
    
    195,843
    
    
    
    209,595Inventory
    
    
    19,202
    
    
    
    13,477Deferred costs
    
    
    3,270
    
    
    
    1,807Other current assets
    
    
    2,433
    
    
    
    4,140Total current assets
    
    
    238,034
    
    
    
    236,913Depreciable assets, net
    
    
    8,381
    
    
    
    10,960Long-term receivables and other assets
    
    
    38,734
    
    
    
    40,758Total assets
    
    $
    285,149
    
    
    $
    288,631LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    88,053
    
    
    $
    109,723Accounts payable  floor plan
    
    
    54,694
    
    
    
    34,889Financed lease debt, current portion
    
    
    85
    
    
    
    831Accrued liabilities
    
    
    23,547
    
    
    
    26,127Deferred revenue
    
    
    3,252
    
    
    
    3,176Total current liablilites
    
    
    169,631
    
    
    
    174,746Other liabilities
    
    
    18,543
    
    
    
    17,598Total liabilities
    
    
    188,174
    
    
    
    192,344Commitments and contingencies (See Note 12)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; 10,077,724 issued and 9,611,022 outstanding at September 30, 2010; and
10,119,038
issued and 9,637,676 outstanding at December 31, 2009
    
    
    50
    
    
    
    50Capital in excess of par value
    
    
    53,723
    
    
    
    52,698Retained earnings
    
    
    45,035
    
    
    
    44,925Treasury stock, 364,078 shares at September 30, 2010 and 277,850 shares at December 31,
2009, at cost
    
    
    (1,833
    )
    
    
    (1,386
    )Total stockholders equity
    
    
    96,975
    
    
    
    96,287Total liabilities and stockholders equity
    
    $
    285,149
    
    
    $
    288,631
   1




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GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009SALESProduct
    
    $
    208,797
    
    
    $
    189,234
    
    
    $
    418,456
    
    
    $
    466,822Service
    
    
    15,907
    
    
    
    13,985
    
    
    
    38,581
    
    
    
    40,835Financing
    
    
    12,663
    
    
    
    6,465
    
    
    
    17,191
    
    
    
    10,700237,367
    
    
    
    209,684
    
    
    
    474,228
    
    
    
    518,357COST OF SALESProduct
    
    
    189,092
    
    
    
    169,550
    
    
    
    378,833
    
    
    
    421,566Service
    
    
    10,968
    
    
    
    8,745
    
    
    
    25,571
    
    
    
    25,669Financing
    
    
    7,519
    
    
    
    2,475
    
    
    
    9,068
    
    
    
    3,525207,579
    
    
    
    180,770
    
    
    
    413,472
    
    
    
    450,760GROSS MARGIN
    
    
    29,788
    
    
    
    28,914
    
    
    
    60,756
    
    
    
    67,597SELLING, GENERAL & ADMINISTRATIVE
EXPENSES
    
    
    20,592
    
    
    
    23,836
    
    
    
    64,452
    
    
    
    71,128INCOME (LOSS) FROM OPERATIONS
    
    
    9,196
    
    
    
    5,078
    
    
    
    (3,696
    )
    
    
    (3,531
    )INTEREST AND OTHER INCOME, NETInterest and other income
    
    
    57
    
    
    
    140
    
    
    
    131
    
    
    
    985Equity income from affiliates
    
    
    2,170
    
    
    
    2,020
    
    
    
    6,029
    
    
    
    4,960Interest expense
    
    
    (160
    )
    
    
    (181
    )
    
    
    (516
    )
    
    
    (2,694
    )Interest and other income, net
    
    
    2,067
    
    
    
    1,979
    
    
    
    5,644
    
    
    
    3,251INCOME (LOSS) BEFORE INCOME TAXES
    
    
    11,263
    
    
    
    7,057
    
    
    
    1,948
    
    
    
    (280
    )INCOME TAX EXPENSE
    
    
    (5,329
    )
    
    
    (3,236
    )
    
    
    (1,838
    )
    
    
    (89
    )NET INCOME (LOSS)
    
    $
    5,934
    
    
    $
    3,821
    
    
    $
    110
    
    
    $
    (369
    )EARNINGS (LOSS) PER SHAREBasic
    
    $
    0.62
    
    
    $
    0.40
    
    
    $
    0.01
    
    
    $
    (0.04
    )Diluted
    
    $
    0.62
    
    
    $
    0.39
    
    
    $
    0.01
    
    
    $
    (0.04
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,603
    
    
    
    9,651
    
    
    
    9,604
    
    
    
    9,737Diluted
    
    
    9,629
    
    
    
    9,787
    
    
    
    9,653
    
    
    
    9,737
   2




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GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine Months EndedSeptember 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    110
    
    
    $
    (369
    )Adjustments
to reconcile net income (loss)
to net cash used in operating activitiesDepreciation and amortization
    
    
    2,897
    
    
    
    2,875Loss on sale of depreciable assets
    
    
    36
    
    
    
    135Stock-based compensation
    
    
    1,556
    
    
    
    1,662Tax impact from stock-based compensation
    
    
    
    
    
    
    (1,321
    )Equity income, net of distributions in 2010 and 2009 of $3,630 and
$3,054, respectively
    
    
    (2,399
    )
    
    
    (1,905
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    13,007
    
    
    
    (32,408
    )Inventory
    
    
    (5,725
    )
    
    
    (7,877
    )Other assets
    
    
    4,610
    
    
    
    (21,934
    )Accounts payable
    
    
    (21,669
    )
    
    
    9,643Accrued liabilities
    
    
    (2,580
    )
    
    
    3,707Other liabilities
    
    
    1,017
    
    
    
    27,680Net cash used in operating activities
    
    
    (9,140
    )
    
    
    (20,112
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of depreciable assets
    
    
    (295
    )
    
    
    (1,016
    )Net cash used in investing activities
    
    
    (295
    )
    
    
    (1,016
    )CASH FLOWS FROM FINANCING ACTIVITES:Payments under credit facility, net
    
    
    
    
    
    
    (22,387
    )Borrowings on floor plan, net
    
    
    19,804
    
    
    
    60,250Payment of deferred financing costs
    
    
    
    
    
    
    (50
    )Common stock purchases
    
    
    (945
    )
    
    
    (1,847
    )Proceeds from common stock issued
    
    
    221
    
    
    
    521Tax impact from stock-based compensation
    
    
    (253
    )
    
    
    Net cash provided by financing activities
    
    
    18,827
    
    
    
    36,487NET INCREASE IN CASH
    
    
    9,392
    
    
    
    15,359CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    7,894
    
    
    
    CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    17,286
    
    
    $
    15,359
   3




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GTSI CORP.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
    2. New Accounting Pronouncements
   4




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3. Accounts Receivable
  September 30, 2010
    
    
    December 31, 2009Trade accounts receivable
    
    $
    144,147
    
    
    $
    143,541Unbilled trade accounts receivable
    
    
    22,538
    
    
    
    32,784Lease receivables, net
    
    
    4,560
    
    
    
    6,149Finance receivables, net
    
    
    18,982
    
    
    
    21,626Vendor and other receivables
    
    
    6,550
    
    
    
    6,392Total accounts receivable
    
    $
    196,777
    
    
    $
    210,492Less: Allowance for doubtful
accounts
    
    
    (205
    )
    
    
    (223
    )Sales return allowance
    
    
    (729
    )
    
    
    (674
    )Accounts receivable, net
    
    $
    195,843
    
    
    $
    209,595
 4. Long-term receivables and other assets
  September 30, 2010
    
    
    December 31, 2009Lease receivables, net
    
    $
    2,864
    
    
    $
    3,531Finance receivables, net
    
    
    24,630
    
    
    
    28,041Equity Investment in EyakTek
    
    
    10,355
    
    
    
    7,956Other Assets
    
    
    885
    
    
    
    1,230Long-term receivables and other
assets
    
    $
    38,734
    
    
    $
    40,758
 5. Lease and Other Receivables
 Leases
   September 30, 2010
    
    
    December 31, 2009Future
minimum lease payments receivable
    
    $
    8,142
    
    
    $
    10,719Unearned income
    
    
    (718
    )
    
    
    (1,039
    )$
    7,424
    
    
    $
    9,680
  5




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September 30, 2010
    
    
    December 31, 2009Future
minimum payments receivable
    
    $
    46,474
    
    
    $
    52,625Unearned income
    
    
    (2,862
    )
    
    
    (2,958
    )$
    43,612
    
    
    $
    49,667
 6. Transferred Receivables and Financed Lease Debt
 Transfers and Servicing
 7. Credit Facility and Credit Agreement
    Total Credit Agreement
    
    $
    135,000Borrowing base limitation
    
    
    (9,670
    )Total borrowing capacity
    
    
    125,330Less: interest-bearing borrowings
    
    
    Less: non-interest bearing advances (floor plan loans)
    
    
    (54,694
    )Less: letters of credit
    
    
    (2,432
    )Total unused availability
    
    $
    68,204
    6




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
    
    Maintain Tangible Net Worth not less than or equal to $45 million as of the end of each
fiscal month
 
    
    Maintain Ratio of Total Liabilities to Tangible Net Worth not greater than 5.25 to 1.00
as of the end of each fiscal month
 
    
    Maintain Current Ratio not less than (a) 1.20 to 1.00 as of the last business day of the
fiscal months of January, February, March, April, May, June, October, November and December
and (b) 1.15 to 1.00 as of the last business day of the fiscal months of July, August and
September
 
    
    Maintain minimum Total Debt Service Coverage Ratio of 1.25 to 1.00 as of the end of each
fiscal month.
    8. Stockholders Equity
 Purchase of Capital Stock
   Stock-Based Compensation
 Stock Incentive Plans
   7




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Stock Options
  Weighted AverageRemaining
    
    
    AggregateShares
    
    
    Weighted Average
    
    
    Contractual
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    Term
    
    
    (in thousands)Outstanding at January 1, 2010
    
    
    1,505
    
    
    $
    7.83Granted
    
    
    175
    
    
    
    5.52Exercised
    
    
    (30
    )
    
    
    2.81Forfeited
    
    
    (70
    )
    
    
    6.40Expired
    
    
    (535
    )
    
    
    7.54Outstanding at September 30,
2010
    
    
    1,045
    
    
    $
    7.83
    
    
    
    3.27
    
    
    $
    477Exercisable at September 30,
2010
    
    
    753
    
    
    $
    8.53
    
    
    
    2.16
    
    
    $
    139
  Restricted Shares
   Shares
    
    
    Weighted Average(in thousands)
    
    
    Grant-Date Fair ValueNonvested at January 1, 2010
    
    
    215
    
    
    $
    9.91Granted
    
    
    27
    
    
    
    5.61Vested
    
    
    (77
    )
    
    
    9.07Forfeited
    
    
    (50
    )
    
    
    11.11Nonvested at September 30, 2010
    
    
    115
    
    
    $
    8.93
  8




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Stock
Appreciation Rights (SARs)
  Weighted Average
    
    
    AggregateShares
    
    
    Weighted Average
    
    
    Remaining Contractual
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    Term
    
    
    (in thousands)Outstanding at January 1, 2010
    
    
    717
    
    
    $
    9.60Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (116
    )
    
    
    9.60Expired
    
    
    (163
    )
    
    
    9.60Outstanding at September 30,
2010
    
    
    438
    
    
    $
    9.60
    
    
    
    3.88
    
    
    $
    Exercisable at September 30,
2010
    
    
    213
    
    
    $
    9.60
    
    
    
    3.41
    
    
    $
    
  Unrecognized Compensation
  Stockholder Rights Plan
 th th
 
  9




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9. Accrued Liabilities
  September 30, 2010
    
    
    December 31, 2009Accrued commissions and bonuses
    
    $
    2,855
    
    
    $
    6,113Accrued income taxes
    
    
    700
    
    
    
    2,864Future contractual lease
obligations
    
    
    13,098
    
    
    
    10,079Other
    
    
    6,894
    
    
    
    7,071Total accrued liabilities
    
    $
    23,547
    
    
    $
    26,127
 10. Earnings (Loss) Per Share
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic income (loss) per shareNet income (loss)
    
    $
    5,934
    
    
    $
    3,821
    
    
    $
    110
    
    
    $
    (369
    )Weighted average shares outstanding
    
    
    9,603
    
    
    
    9,651
    
    
    
    9,604
    
    
    
    9,737Basic income (loss) per share
    
    $
    0.62
    
    
    $
    0.40
    
    
    $
    0.01
    
    
    $
    (0.04
    )Diluted income (loss) per share:Net income (loss)
    
    $
    5,934
    
    
    $
    3,821
    
    
    $
    110
    
    
    $
    (369
    )Weighted average shares outstanding
    
    
    9,603
    
    
    
    9,651
    
    
    
    9,604
    
    
    
    9,737Incremental shares attributable to the
assumed
exercise of outstanding stock options
    
    
    26
    
    
    
    136
    
    
    
    49
    
    
    
    N/AWeighted average shares and equivalents
    
    
    9,629
    
    
    
    9,787
    
    
    
    9,653
    
    
    
    9,737Diluted income (loss) per share
    
    $
    0.62
    
    
    $
    0.39
    
    
    $
    0.01
    
    
    $
    (0.04
    )
  10




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11. Income Taxes
    12. Commitments and Contingencies
 Product Warranties
  Nine Months EndedSeptember 30,2010
    
    
    2009Accrued warranties at beginning of period
    
    $
    215
    
    
    $
    155Charges made against warranty liabilities
    
    
    (15
    )
    
    
    (3
    )Adjustments to warranty reserves
    
    
    (1
    )
    
    
    (4
    )Accruals for additional warranties sold
    
    
    16
    
    
    
    44Accrued warranties at end of period
    
    $
    215
    
    
    $
    192
 Maintenance Warranties
  Nine Months EndedSeptember 30,2010
    
    
    2009Deferred warranty revenue at beginning of period
    
    $
    798
    
    
    $
    221Deferred warranty revenue recognized
    
    
    (1,212
    )
    
    
    (335
    )Revenue deferred for additional warranties sold
    
    
    3,118
    
    
    
    323Deferred warranty revenue at end of period
    
    $
    2,704
    
    
    $
    209
  11




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Letters of Credit
   Employment Agreements
  Contingencies
  13. Related Party Transactions
    Three Months ended
    
    
    Nine Months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    117,323
    
    
    $
    94,162
    
    
    $
    318,577
    
    
    $
    255,981Gross margin
    
    $
    12,878
    
    
    $
    10,584
    
    
    $
    35,220
    
    
    $
    29,128Net income
    
    $
    5,866
    
    
    $
    5,459
    
    
    $
    16,294
    
    
    $
    13,341
  12




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13




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14. Subsequent Events
 Administrative Agreement with the U.S. Small Business Administration
  th
      14




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Appointment of Acting Co-Chief Executive Officers
  Amended and Restated Credit Agreement
   15




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Disclosure Regarding Forward-Looking Statements
  
    
    Our reliance on a small number of large transactions for significant portions of our
sales and gross margins
 
    
    Our ability to shift our business model from a reseller of products to a high-end
solutions provider
 
    
    Any issue that compromises our relationship with agencies of the Federal government
would cause serious harm to our business  see Note 14 Subsequent Events
 
    
    Changes in Federal government fiscal spending
 
    
    Our ability to meet the covenants under our Amended and Restated Credit Agreement in
future periods  see Note 14 Subsequent Events
 
    
    Negativity to our business due to the current global economic and credit conditions
 
    
    Possible infrastructure failures
 
    
    Any material weaknesses in our internal control over financial reporting
 
    
    Continued net losses, if we fail to align costs with our sales levels
 
    
    Our quarterly sales and cash flows are volatile, which makes our future financial
results difficult to forecast
 
    
    Unsatisfactory performance by third parties with which we work could hurt our
reputation, operating results and competitiveness
 
    
    Our ability to adapt to consolidation within the OEM market place
 
    
    Our dependence on certain strategic partners
 
    
    Our ability to integrate any potential future acquisitions, strategic investments or
mergers
 
    
    Our ability to enter new lines of business
 
    
    Our ability to attract a new Chief Executive Officer and our ability to retain or attract other key management personnel
 
    
    Adversely affected by increased governmental and regulatory scrutiny or negative
publicity
 
    
    Our ability to comply with GTSIs obligations under the October 19, 2010 SBA Agreement
with the SBA and the outcome of the continuing investigation of GTSI by the SBAs Office of
Inspector General.
 
    
    We believe that EyakTeks future financial performance may be adversely affected because
of its graduation from the SBAs Section 8(a) BD Program.
  16




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Overview
      
    
    On October 1, 2010, GTSI received a notice from the Small Business Administration
(SBA) that the SBA was temporarily suspending GTSI from any future contract awards from
the federal government. On October 19, 2010, as referenced in Note 14 Subsequent Events,
GTSI entered into an administrative agreement with the SBA lifting the temporary suspension
(the SBA Agreement). In addition, GTSI entered into an Amended and Restated Credit
Agreement, dated October 19, 2010, with Castle Pines Capital LLC and Wells Fargo Capital
Finance LLC. These events had no impact on our historical results for the nine months
ended September 30, 2010. See our Note 14 Subsequent Events and Legal Proceedings
included in Part II, for a discussion of these matters. While we continue evaluating the
potential impact of the SBA Agreement on our future business, results of operations and
financial condition, we have identified potentially impacted opportunities that may reduce
our gross margin by approximately $7 million to $9 million for the three months ended
December 31, 2010. Management is currently investigating various alternative opportunities
that may reduce the adverse effect of these impacted opportunities. In addition, during
the three months ended December 31, 2010, the Company expects to incur additional Selling,
General and Administrative expenses of approximately $2 million related to severance, legal
and monitoring expenses in connection with the SBA Agreement and the EyakTek legal matters.
If the Company is unable to generate additional sales, mitigate impacted opportunities and
reduce operating costs to offset for lost sales activity and added administrative costs
related to the restrictions under the SBA Agreement it could have a material adverse effect
on the Companys business, results of operations and financial condition for the three
months ending December 31, 2010. While we continue to evaluate ongoing costs associated
with the SBA Agreement, based on the information available today we expect to incur
additional Selling, General and Administrative expenses of approximately $1 million to $2
million related to legal, professional, monitoring and other expenses during the first six
months of 2011.
  17




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##### Table of Contents




    
    In the near term, we face some uncertainties due to the current business environment. We
have continued to experience a longer contracting process with Federal Governments
Department of Defense agencies, which is one of our traditionally stronger markets. This
delay, along with an overall decrease in Federal Government IT spending could have a
negative impact on our financial condition, operating performance, revenue, income or
liquidity.
 
    
    A shift of expenditures away from programs that we support could cause federal
government agencies to reduce their purchases under contracts, to exercise their right to
terminate contracts at any time without penalty or to decide not to exercise options to
renew contracts.
 
    
    With the Sun/Oracle merger and the continued consolidation within the OEM market place,
we are likely to see continued pricing pressure from our partners in the market place.
    
    
    Total sales increased $27.7 million.
 
    
    Gross margin increased $0.9 million.
 
    
    Selling, General & Administrative expenses decreased $3.2 million.
 
    
    Interest and other income increased $0.1 million.
 
    
    Income before income taxes increased $4.2 million.
 
    
    Cash used in operations improved $19.4 million.
 For the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009:
 
    
    Total sales decreased $44.1 million.
 
    
    Gross margin decreased $6.8 million.
 
    
    Selling, General & Administrative expenses decreased $6.7 million.
 
    
    Interest and other income increased $2.4 million.
 
    
    Income before income taxes increased $2.2 million.
 
    
    Cash used in operations improved $11.0 million.
  18




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##### Table of Contents



Critical Accounting Estimates and Policies
 Form 10-K
 Historical Results of Operations
  Three months ended
    
    
    Nine months endedSeptember
    
    
    September2010
    
    
    2009
    
    
    2010
    
    
    2009Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    87.5
    %
    
    
    86.2
    %
    
    
    87.2
    %
    
    
    87.0
    %Gross margin
    
    
    12.5
    %
    
    
    13.8
    %
    
    
    12.8
    %
    
    
    13.0
    %Selling, general, and
administrative expenses
    
    
    8.7
    %
    
    
    11.4
    %
    
    
    13.6
    %
    
    
    13.7
    %Income(Loss) from operations
    
    
    3.8
    %
    
    
    2.4
    %
    
    
    (0.8
    )%
    
    
    (0.7
    )%Interest and other income, net
    
    
    0.9
    %
    
    
    0.9
    %
    
    
    1.2
    %
    
    
    0.6
    %Income(Loss) before taxes
    
    
    4.7
    %
    
    
    3.3
    %
    
    
    0.4
    %
    
    
    (0.1
    )%Income tax expense
    
    
    (2.2
    )%
    
    
    (1.5
    )%
    
    
    (0.4
    )%
    
    
    0.0
    %Net income(loss)
    
    
    2.5
    %
    
    
    1.8
    %
    
    
    0.0
    %
    
    
    (0.1
    )%
  Three months ended
    
    
    Nine months endedSeptember
    
    
    SeptemberSales by Type
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Hardware
    
    $
    144.3
    
    
    
    60.8
    %
    
    $
    143.9
    
    
    
    68.6
    %
    
    $
    312.1
    
    
    
    65.8
    %
    
    $
    336.6
    
    
    
    64.9
    %Software
    
    
    64.5
    
    
    
    27.2
    %
    
    
    45.3
    
    
    
    21.6
    %
    
    
    106.3
    
    
    
    22.4
    %
    
    
    130.3
    
    
    
    25.1
    %Service
    
    
    15.9
    
    
    
    6.7
    %
    
    
    14.0
    
    
    
    6.7
    %
    
    
    38.6
    
    
    
    8.1
    %
    
    
    40.8
    
    
    
    7.9
    %Financing
    
    
    12.7
    
    
    
    5.3
    %
    
    
    6.5
    
    
    
    3.1
    %
    
    
    17.2
    
    
    
    3.7
    %
    
    
    10.7
    
    
    
    2.1
    %Total
    
    $
    237.4
    
    
    
    100.0
    %
    
    $
    209.7
    
    
    
    100.0
    %
    
    $
    474.2
    
    
    
    100.0
    %
    
    $
    518.4
    
    
    
    100.0
    %
 Three months ended
    
    
    Nine months endedSales by Vendor (based on
    
    September 30,
    
    
    September 30,YTD 2010 sales)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Cisco
    
    $
    50.7
    
    
    
    21.4
    %
    
    $
    36.6
    
    
    
    17.5
    %
    
    $
    107.1
    
    
    
    22.6
    %
    
    $
    72.7
    
    
    
    14.0
    %Dell
    
    
    22.1
    
    
    
    9.3
    %
    
    
    29.6
    
    
    
    14.1
    %
    
    
    48.8
    
    
    
    10.3
    %
    
    
    51.6
    
    
    
    10.0
    %Oracle
    
    
    11.9
    
    
    
    5.0
    %
    
    
    26.1
    
    
    
    12.4
    %
    
    
    44.0
    
    
    
    9.3
    %
    
    
    56.4
    
    
    
    10.9
    %Hewlett Packard
    
    
    12.8
    
    
    
    5.4
    %
    
    
    14.2
    
    
    
    6.8
    %
    
    
    36.1
    
    
    
    7.6
    %
    
    
    37.0
    
    
    
    7.1
    %Microsoft
    
    
    11.6
    
    
    
    4.9
    %
    
    
    20.9
    
    
    
    10.0
    %
    
    
    21.2
    
    
    
    4.5
    %
    
    
    63.2
    
    
    
    12.2
    %Others, net of reserves
and adjustments
    
    
    128.3
    
    
    
    54.0
    %
    
    
    82.3
    
    
    
    39.3
    %
    
    
    217.0
    
    
    
    45.7
    %
    
    
    237.5
    
    
    
    45.8
    %Total
    
    $
    237.4
    
    
    
    100.0
    %
    
    $
    209.7
    
    
    
    100.0
    %
    
    $
    474.2
    
    
    
    100.0
    %
    
    $
    518.4
    
    
    
    100.0
    %
  19




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Three Months Ended September 30, 2010 Compared With the Three Months Ended September 30, 2009
 Sales
    Transfers and Servicing
  Gross Margin
   20




---



##### Table of Contents



Selling, General & Administrative Expenses (SG&A)
  Interest and Other Income, Net
  Income Taxes
      21




---



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Nine Months Ended September 30, 2010 Compared With the Nine Months Ended September 30, 2009
 Sales
    Transfers and Servicing
  Gross Margin
   22




---



##### Table of Contents



Selling, General & Administrative Expenses (SG&A)
  Interest and Other Income, Net
  Income Taxes
    23




---



##### Table of Contents



Seasonal Fluctuations
   Liquidity and Capital Resources
 Cash flows for the nine months ended September 30,
(in millions)
    
    2010
    
    
    2009
    
    
    ChangeCash used in operating activities
    
    $
    (9.1
    )
    
    $
    (20.1
    )
    
    $
    11.0Cash used in investing activities
    
    $
    (0.3
    )
    
    $
    (1.0
    )
    
    $
    0.7Cash provided by financing activities
    
    $
    18.8
    
    
    $
    36.5
    
    
    $
    (17.7
    )
    24




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##### Table of Contents



Credit Agreement
   Total Credit Agreement
    
    $
    135,000Borrowing base limitation
    
    
    (9,670
    )Total borrowing capacity
    
    
    125,330Less: interest-bearing borrowings
    
    
    Less: non-interest bearing advances (floor plan loans)
    
    
    (54,694
    )Less: letters of credit
    
    
    (2,432
    )Total unused availability
    
    $
    68,204
   Liquidity
   25




---



##### Table of Contents



Capital Requirements
   New Accounting Pronouncements
   26




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   27




---



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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  th
      28




---



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29




---



##### Table of Contents



Item 1A. Risk Factors
  Compliance with the SBA Agreement and the outcome of the Government investigations thereunder may
have a material adverse effect on the Company.
  If
the Company is unable to attract a new Chief Executive Officer, or
unable to attract or retain other key management personnel, it might not be able to
find suitable replacements on a timely basis, and the Companys business could be
disrupted.
  We may be adversely affected by increased governmental and regulatory scrutiny or negative
publicity.
  We believe that EyakTeks future financial performance may be adversely affected because of their
graduation from the SBAs Section 8(a) BD Program.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      30




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(a)
    
    
    
    
    
    
    Total Number of
    
    
    Maximum DollarTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    Value of SharesNumber
    
    
    Average
    
    
    as Part of
    
    
    that May Yet Beof Share
    
    
    Price Paid
    
    
    Publicly Announced
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    Plans or Programs
    
    
    Plans or ProgramsJuly 1 to July 31
    
    
    14,146
    
    
    $
    5.49
    
    
    
    13,316
    
    
    $
    1,766,736August 1 to August 31
    
    
    4,175
    
    
    $
    5.44
    
    
    
    4,175
    
    
    $
    1,744,041September 1 to
September 30
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,744,04118,321
    
    
    $
    5.48
    
    
    
    17,491
 (a)
    
    The July purchases include 830 shares surrendered to cover the tax withholding obligation
with respect to the vesting of 2,310 restricted stock awards. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. RESERVED
 
 Item 5. Other Information
  
 Item 6. Exhibits
   31




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##### Table of Contents



SIGNATURES
  GTSI Corp.Date: November 15, 2010

/s/
SANDRA B.GILLESPIESandra B. GillespieActing Co-Chief Executive Officer, Senior Vice PresidentDate: November 15, 2010
    /s/ PETER WHITFIELDPeter WhitfieldActing Co-Chief Executive Officer, Senior Vice
President and Chief Financial Officer 
  32




---



##### Table of Contents



Exhibit 
Number
    
    Description4.01
    
    
    Rights Agreement, dated as of September 14, 2010, between GTSI Corp.
and American Stock Transfer & Trust Company, LLC, which includes the Form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (1)10.1
    
    
    Employment Agreement dated August 4, 2010 between the Registrant and
Scott Friedlander * (2)10.2
    
    
    Third Amendment to Credit Agreement dated as of September 15, 2010
among GTSI Corp., Castle Pines Capital LLC and Wells Fargo Foothill LLC (3)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)
 
 *
    
    Management contracts and compensatory plans and arrangements
required to be filed pursuant to Item 15 (c).(1)
    
    Incorporated by reference to the Registrants current report on Form
8-K dated September 13, 2010.(2)
    
    Incorporated by reference to the Registrants current report on Form
8-K/A dated August 4, 2010.(3)
    
    Incorporated by reference to the Registrants current report on Form
 8-K dated September 15, 2010.  33