##### 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 March 31, 2008
 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: 0-19394
 GTSI CORP.
  Delaware
    
    54-1248422(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3901 Stonecroft Boulevard, Chantilly, VA
    
    20151-1010(Address of principal executive offices)
    
    (Zip Code)
 703-502-2000
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



GTSI Corp.
Form 10-Q for the Quarter Ended March 31, 2008
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the Three months Ended March 31, 2008 and 2007
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    829Accounts receivable, net
    
    
    136,093
    
    
    
    165,317Inventory
    
    
    14,740
    
    
    
    21,577Deferred costs
    
    
    6,782
    
    
    
    5,615Other current assets
    
    
    6,561
    
    
    
    5,169Total current assets
    
    
    164,176
    
    
    
    198,507Depreciable assets, net
    
    
    11,952
    
    
    
    12,158Long-term receivables and other assets
    
    
    9,772
    
    
    
    16,002Total assets
    
    $
    185,900
    
    
    $
    226,667LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Borrowings under credit facility
    
    $
    
    
    
    $
    18,031Accounts payable
    
    
    84,162
    
    
    
    84,715Financed lease debt, current portion
    
    
    8,513
    
    
    
    8,509Accrued liabilities
    
    
    11,617
    
    
    
    14,725Deferred revenue
    
    
    2,114
    
    
    
    2,542Total current liabilities
    
    
    106,406
    
    
    
    128,522Long-term debt
    
    
    
    
    
    
    10,000Long-term financed lease debt
    
    
    5,803
    
    
    
    9,068Other liabilities
    
    
    340
    
    
    
    1,364Total liabilities
    
    
    112,549
    
    
    
    148,954Commitments and contingencies (See Note 10)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;
10,179,946 issued and 9,770,640
outstanding at March 31, 2008; and
10,183,251 issued and 9,700,850
outstanding at December 31, 2007
    
    
    50
    
    
    
    49Capital in excess of par value
    
    
    47,750
    
    
    
    47,097Retained earnings
    
    
    26,569
    
    
    
    31,634Treasury stock, 130,047 shares at March
31, 2008 and 139,994 shares at December
31, 2007, at cost
    
    
    (1,018
    )
    
    
    (1,067
    )Total stockholders equity
    
    
    73,351
    
    
    
    77,713Total liabilities and stockholders equity
    
    $
    185,900
    
    
    $
    226,667
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GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months EndedMarch 31,2008
    
    
    2007SALESProduct
    
    $
    127,567
    
    
    $
    133,883Service
    
    
    11,912
    
    
    
    10,200Financing
    
    
    3,311
    
    
    
    2,533142,790
    
    
    
    146,616COST OF SALESProduct
    
    
    114,820
    
    
    
    119,590Service
    
    
    5,717
    
    
    
    6,039Financing
    
    
    847
    
    
    
    814121,384
    
    
    
    126,443GROSS MARGIN
    
    
    21,406
    
    
    
    20,173SELLING, GENERAL & ADMINISTRATIVE EXPENSES
    
    
    25,871
    
    
    
    26,198LOSS FROM OPERATIONS
    
    
    (4,465
    )
    
    
    (6,025
    )INTEREST AND OTHER EXPENSE, NETInterest and other income
    
    
    130
    
    
    
    330Equity income from affiliates
    
    
    405
    
    
    
    128Interest and other expense
    
    
    (1,182
    )
    
    
    (1,381
    )Interest and other expense, net
    
    
    (647
    )
    
    
    (923
    )LOSS BEFORE INCOME TAXES
    
    
    (5,112
    )
    
    
    (6,948
    )INCOME TAX BENEFIT
    
    
    48
    
    
    
    NET LOSS
    
    $
    (5,064
    )
    
    $
    (6,948
    )LOSS PER SHAREBasic
    
    $
    (0.52
    )
    
    $
    (0.73
    )Diluted
    
    $
    (0.52
    )
    
    $
    (0.73
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,692
    
    
    
    9,475Diluted
    
    
    9,692
    
    
    
    9,475
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GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months EndedMarch 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (5,064
    )
    
    $
    (6,948
    )Adjustments to reconcile net loss to net cash provided by operating activities:
    
    
    32,912
    
    
    
    38,194Net cash provided by operating activities
    
    
    27,848
    
    
    
    31,246CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of depreciable assets
    
    
    (581
    )
    
    
    (654
    )Net cash used in investing activities
    
    
    (581
    )
    
    
    (654
    )CASH FLOWS FROM FINANCING ACTIVITES:Payments on Credit Facility
    
    
    (18,031
    )
    
    
    (30,161
    )Payment of Term Loan
    
    
    (10,000
    )
    
    
    Payment of deferred financing costs
    
    
    
    
    
    
    (570
    )Common Stock Purchases
    
    
    (212
    )
    
    
    Proceeds from equity transactions
    
    
    147
    
    
    
    231Net cash used in financing activities
    
    
    (28,096
    )
    
    
    (30,500
    )NET (DECREASE) INCREASE IN CASH
    
    
    (829
    )
    
    
    92CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    829
    
    
    
    705CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    
    
    
    $
    797
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GTSI CORP.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
    2. New Accounting Pronouncements
 Fair Value Measurement Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification
or Measurement under Statement 13 Effective Date of FASB Statement No. 157
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
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Noncontrolling Interests in Consolidated Financial
Statements  An Amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of FASB Statement No. 133 161).
 3. Stock-Based Compensation
 Stock Incentive Plans
  Stock Options
  WeightedAverageRemaining
    
    
    AggregateShares
    
    
    Weighted Average
    
    
    Contractual
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    Term
    
    
    (in thousands)Outstanding at
January 1, 2008
    
    
    1,782
    
    
    $
    8.08Granted
    
    
    
    
    
    
    Exercised
    
    
    (30
    )
    
    
    4.88Forfeited
    
    
    (8
    )
    
    
    9.04Expired
    
    
    (33
    )
    
    
    11.19Outstanding at
March 31, 2008
    
    
    1,711
    
    
    $
    8.07
    
    
    
    4.03
    
    
    $
    780Exercisable at
March 31, 2008
    
    
    943
    
    
    $
    8.75
    
    
    
    3.20
    
    
    $
    511
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Restricted Shares
   Weighted AverageShares
    
    
    Grant-Date Fair(in thousands)
    
    
    ValueNonvested at January 1, 2008
    
    
    378
    
    
    $
    11.71Granted
    
    
    3
    
    
    
    8.47Vested
    
    
    (64
    )
    
    
    12.06Forfeited
    
    
    (3
    )
    
    
    12.09Nonvested at March 31, 2008
    
    
    314
    
    
    $
    11.60
 Stock Appreciation Rights (SARs)
  Unrecognized Compensation
  4. Lease and Other Receivables
   March 31, 2008
    
    
    December 31, 2007Future minimum lease payments receivable
    
    $
    11,719
    
    
    $
    13,558Unguaranteed residual values
    
    
    4,786
    
    
    
    4,785Unearned income
    
    
    (2,007
    )
    
    
    (2,450
    )$
    14,498
    
    
    $
    15,893
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March 31, 2008
    
    
    December 31, 2007Future minimum payments receivable
    
    $
    4,198
    
    
    $
    10,240Unearned income
    
    
    (943
    )
    
    
    (1,433
    )$
    3,255
    
    
    $
    8,807
 5. Transferred Receivables and Financed Lease Debt
 Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities
  6. Credit Facility and Term Loan
      7. Contract Termination Costs
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Contract Termination Liability as of 12/31/07
    
    $
    30Less: Cash Payments
    
    
    (8
    )Contract Termination Liability as of 03/31/08
    
    $
    22
 8. Loss Per Share
    Three months endedMarch 31,2008
    
    
    2007Basic loss per shareNet loss
    
    $
    (5,064
    )
    
    $
    (6,948
    )Weighted average shares outstanding
    
    
    9,692
    
    
    
    9,475Basic loss per share
    
    $
    (0.52
    )
    
    $
    (0.73
    )Diluted loss per share:Net loss
    
    $
    (5,064
    )
    
    $
    (6,948
    )Weighted average shares outstanding
    
    
    9,692
    
    
    
    9,475Incremental shares attributable to the assumed
exercise of outstanding stock options
    
    
    N/A
    
    
    
    N/AWeighted average shares and equivalents
    
    
    9,692
    
    
    
    9,475Diluted loss per share
    
    $
    (0.52
    )
    
    $
    (0.73
    )
 9. Income Taxes
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
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10. Commitments and Contingencies
 Product Warranties
  Three months endedMarch 31,2008
    
    
    2007Accrued warranties at beginning of period
    
    $
    283
    
    
    $
    855Charges made against warranty liabilities
    
    
    (15
    )
    
    
    (87
    )Adjustments to warranty reserves
    
    
    (128
    )
    
    
    (216
    )Accruals for additional warranties sold
    
    
    48
    
    
    
    0Accrued warranties at end of period
    
    $
    188
    
    
    $
    552
  Three months endedMarch 31,2008
    
    
    2007Deferred warranty revenue at beginning of period
    
    $
    130
    
    
    $
    506Deferred warranty revenue recognized
    
    
    (26
    )
    
    
    (140
    )Revenue deferred for additional warranties sold
    
    
    27
    
    
    
    33Deferred warranty revenue at end of period
    
    $
    131
    
    
    $
    399
 Letters of Credit
   Employment Agreements
   - 9 -




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Contingencies
  11. Related Party Transactions
    For the Quarter endedMarch 31,2008
    
    
    2007Revenues
    
    $
    47,717
    
    
    $
    38,802Gross margin
    
    $
    4,746
    
    
    $
    3,675Net income
    
    $
    1,096
    
    
    $
    346
 12. Subsequent Events
    - 10 -




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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
    
    Changes in Federal government fiscal spending
    
    Our ability to meet the covenants under our Credit Facility in future periods
    
    Possible infrastructure failures
    
    Any material weaknesses in our internal control over financial reporting
    
    Continuing net losses, if we fail to align costs with our sales levels
    
    Potential additional expenses to comply with the changing regulations of corporate
governance and public disclosure
    
    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 qualifications as a small business for certain new contract awards
    
    Our ability to integrate any potential future acquisitions, strategic investments or
mergers
  Overview
     - 11 -




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
    
    Total sales decreased $3.8 million
    
    Gross margin as a percentage of sales increased 1.2%
    
    Loss before income taxes decreased $1.8 million
    
    Selling, General & Administrative expenses decreased $0.3 million
    
    Cash provided by operations decreased $3.4 million
 Critical Accounting Estimates and Policies
  Historical Results of Operations
  Three months endedMarch 31,2008
    
    
    2007Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    85.0
    %
    
    
    86.2
    %Gross margin
    
    
    15.0
    %
    
    
    13.8
    %Selling, general, and administrative expenses
    
    
    18.1
    %
    
    
    17.9
    %Loss from operations
    
    
    (3.1
    )%
    
    
    (3.8
    )%Interest and other expense, net
    
    
    (0.5
    )%
    
    
    (0.9
    )%Loss before taxes
    
    
    (3.6
    )%
    
    
    (4.7
    )%Income tax benefit
    
    
    0.0
    %
    
    
    Net Loss
    
    
    (3.6
    )%
    
    
    (4.7
    )%
  - 12 -




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Three months endedMarch 31,Sales by Type
    
    2008
    
    
    2007Hardware
    
    $
    96.6
    
    
    
    67.7
    %
    
    $
    115.7
    
    
    
    78.9
    %Software
    
    
    31.0
    
    
    
    21.7
    %
    
    
    18.2
    
    
    
    12.4
    %Service
    
    
    11.9
    
    
    
    8.3
    %
    
    
    10.2
    
    
    
    7.0
    %Financing
    
    
    3.3
    
    
    
    2.3
    %
    
    
    2.5
    
    
    
    1.7
    %Total
    
    $
    142.8
    
    
    
    100.0
    %
    
    $
    146.6
    
    
    
    100.0
    %
 Three months endedSales by Vendor
    
    March 31,(based on 2008 sales)
    
    2008
    
    
    2007Cisco
    
    $
    21.0
    
    
    
    14.7
    %
    
    $
    17.2
    
    
    
    11.7
    %Microsoft
    
    
    18.4
    
    
    
    12.9
    %
    
    
    11.6
    
    
    
    7.9
    %Sun Microsystems
    
    
    17.3
    
    
    
    12.1
    %
    
    
    14.0
    
    
    
    9.5
    %Symbol Technologies
    
    
    16.9
    
    
    
    11.8
    %
    
    
    6.9
    
    
    
    4.7
    %Panasonic
    
    
    11.8
    
    
    
    8.3
    %
    
    
    23.6
    
    
    
    16.1
    %Others, net of reserves and adjustments
    
    
    57.4
    
    
    
    40.2
    %
    
    
    73.3
    
    
    
    50.1
    %Total
    
    $
    142.8
    
    
    
    100.0
    %
    
    $
    146.6
    
    
    
    100.0
    %
 Three Months Ended March 31, 2008 Compared With the Three Months Ended March 31, 2007
 Sales
      - 13 -




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Gross Margin
     Selling, General & Administrative Expenses (SG&A)
  Interest and Other Expense, Net
   - 14 -




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Income Taxes
    Seasonal Fluctuations
   Liquidity and Capital Resources
 Cash flows for the three months ended March 31,
 Increase(in millions)
    
    2008
    
    
    2007
    
    
    (Decrease)Cash provided by operating activities
    
    $
    27.8
    
    
    $
    31.2
    
    
    $
    (3.4
    )Cash used in investing activities
    
    $
    (0.6
    )
    
    $
    (0.7
    )
    
    $
    (0.1
    )Cash used in financing activities
    
    $
    (28.1
    )
    
    $
    (30.5
    )
    
    $
    (2.4
    )
     - 15 -




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Credit Facility and Term Loan
     Liquidity
    Capital Requirements
   - 16 -




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New Accounting Pronouncements
 Fair Value Measurement Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification
or Measurement under Statement 13 Effective Date of FASB Statement No. 157
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements  An Amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of FASB Statement No. 133 161).
  - 17 -




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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
   - 18 -




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Items to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
   - 19 -




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##### Table of Contents



SIGNATURES
  GTSI Corp.Date May 7, 2008
    
    /s/ JAMES J. LETO

James J. LetoChief Executive OfficerDate May 7, 2008
    
    /s/ JOE RAGANJoe RaganSenior Vice President and Chief Financial Officer
  - 20 -




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EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Credit Agreement dated as of June 2, 2006 between GTSI Corp., SunTrust Bank and Bank of America (1)10.2
    
    Credit Agreement dated as of June 2, 2006 between GTSI Corp., and Crystal Capital Fund, L.P. (1)10.3
    
    First Amendment to Credit Agreement dated as of July 13, 2006 between GTSI Corp., SunTrust Bank and Bank of America (2)10.4
    
    First Amendment to Credit Agreement dated as of July 13, 2006 between GTSI Corp., and Crystal Capital Fund, L.P. (2)10.5
    
    Second Amendment to Credit
Agreement dated as of November 30, 2006 between GTSI Corp., the Lenders, the other Borrower Parties, and SunTrust Bank (3)10.6
    
    Second Amendment to Credit Agreement dated as of November 30, 2006 between GTSI Corp., the Lenders, the other Borrower Parties, and Crystal Capital Fund, L.P. (3)10.7
    
    Third Amendment to Credit Agreement
dated as of March 30, 2007 between GTSI Corp., the Lenders, the other Borrower Parties, and SunTrust Bank. (4)10.8
    
    Third Amendment to Credit Agreement dated as of March 30, 2007 between GTSI Corp., the Lenders, the other Borrower Parties, and Crystal Capital Fund, L.P. (4)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)
 
 (1)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated June 2,
2006.(2)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated July 13,
2006.(3)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated December 5,
2006.(4)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
December 3, 2006.  - 21 -