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QSGI Reports First Quarter 2008 Financial Results
HIGHTSTOWN, N.J. and PALM BEACH, Fla., May 15, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- QSGI Inc. (OTC Bulletin Board: QSGI), the only provider of a full suite of
information technology solutions to help corporations better manage IT assets,
data center maintenance expenses, and ensure best practices for data security
and regulatory compliance, today reported financial results for the three
months ended March 31, 2008.
Recent Developments:
-- 24.7% increase in revenue within Data Center Maintenance division;
added 5 new maintenance accounts while also expanding service
contracts within existing accounts
-- 32.3% increase in revenue within Data Security & Compliance division,
including a 177% increase in Data Security & Compliance services
revenue
-- Signed agreement to acquire Contemporary Computer Services, Inc., an
enterprise class IT services provider with approximately $13.7 million
of revenue and $2.1 million of EBITDA in 2007
-- Signed Memorandum of Understanding with IBM Global Financing to
provide on-site data security and compliance services at customer
locations
Marc Sherman, chairman and chief executive officer of QSGI, commented,
"Events in the first half of 2008 have enabled us to advance our mission of
repositioning the company into a full service, nationwide data center
maintenance and IT services organization. Our Data Center Maintenance
division added 5 new accounts in the first quarter alone, including a number
of Fortune 500 clients, as we achieved another quarter of solid double-digit
revenue growth. Within our Data Security & Compliance Services division, we
announced the signing of a Memorandum of Understanding (MOU) with IBM Global
Financing (IGF), whereby IGF will offer its customers QSGI's data audit and
erasure services. This was an important milestone and validation of our
process, and we look forward to working closely with IBM. Overall, we added a
number of new clients for our Data Security & Compliance services in the first
quarter of 2008, as reflected by a 177% increase in our services revenue. We
have been building a solid foundation for the company, and will add another
key component of our strategy with the planned acquisition of Contemporary
Computer Services, Inc. (CCSI), an enterprise class IT services provider.
These developments, combined with the cost-saving measures put into place at
year-end 2007, which we continue to implement, along with the continuing
growth of our Fortune 1000 customer base, are paving the way for sustained
growth and are establishing a path to profitability as we increase the mix of
recurring, higher margin IT services."
Mr. Sherman continued, "CCSI is a network management and systems
integration company that brings value and growth opportunities to QSGI through
its extensive list of customers, high recurring revenue and its track record
for generating positive EBITDA and net income. CCSI had revenue of $13.7
million in 2007, up from $11 million in 2006 and generated $2.1 million in
EBITDA last year. Through this acquisition, we feel QSGI will have a broader
range of IT services to offer our customers along with the addition of highly
skilled technicians to provide data maintenance services. We are working to
complete this transaction as soon as possible.
"We recognize that our losses in the first quarter were significant, which
we attribute to the negative impact from the change in an OEM's third party
remarketing policies and lower margins within the Data Security & Compliance
division due to weakness in our legacy wholesale remarketing business.
Nevertheless, our end-user technology services within both the Data Center
Maintenance and Data Security & Compliance segments continue to be strong
performers in 2008. With further expense reductions planned, continued
organic growth and our pending acquisition of CCSI, we believe we are on the
right track as we continue expanding our offering in order to become a more
complete, full-service, and nationwide IT services company."
Total revenue for the first quarter of 2008 was $8.2 million, as compared
with $9.4 million for the same period in 2007. We attribute the decline in
revenue to a $2.9 million decrease in revenue from our Data Center Hardware
division reflecting the impact of in this division's performance as a result
of the changes in an OEM's third party remarketing policies and the company's
recent restructuring of its Data Center Hardware division to support its
higher margin Data Center Maintenance services. Gross profit was $1.6
million, compared to gross profit of $2.7 million in the first quarter of
2007. Gross margin for the first quarter of 2008 was 19.2% compared to 28.5%
for the same period in 2007. The decline in gross profit and gross margin
largely reflect the decline in Data Center Hardware revenue.
Revenue within the Data Security & Compliance division for the first
quarter of 2008 increased 32.3% to $5.6 million compared to $4.3 million in
the first quarter of 2007. Gross margin within the Data Security & Compliance
division decreased to 8.1% from 18.9%, reflecting an increase in lower-margin
wholesale remarketing revenue, partially offset by a 177% increase in higher
margin end-user, data auditing, erasure and re-marketing work. Revenue within
the Data Center Maintenance division increased 24.7% to $1.7 million for the
first quarter of 2008, compared to $1.3 million in the first quarter of 2007.
Gross margin within the Data Center Maintenance division increased to 66.5%
from 64.5% for the same period last year, reflecting increased utilization of
the company's field technicians to support multiple contracts. Revenues
within the Data Center Hardware division decreased to $883,934 for the first
quarter of 2008, compared to $3.8 million for the first quarter of 2007,
reflecting the sudden change in business practice by a major OEM as previously
disclosed.
Selling, general and administrative expenses were $2.3 million, versus
$2.6 million for the same period last year, reflecting the company's ongoing
efforts to reduce expenses across all three of its divisions and, in
particular, its Data Center Hardware division. Net loss available to common
stockholders for the first quarter of 2008 was $959,709 or $0.03 per share,
compared to a net loss of $206,884, or $0.01 per share, for the same period in
2007.
Conference Call
QSGI will host a conference call at 10 a.m. Eastern Time on Friday, May
16, 2008. During the call, Marc Sherman, chairman and chief executive officer,
Seth Grossman, president and chief operating officer, and Ed Cummings, chief
financial officer, will discuss the Company's quarterly performance and
financial results. The telephone number for the conference call is
866-334-4934. A live webcast of the call will also be available on the
company's website, www.QSGI.com. To listen to the live call online, please
visit the site at least 10 minutes early to register, download and install any
necessary audio software.
The webcast will be archived on the site, and investors will be able to
access an encore recording of the conference call for one week by calling
866-245-6755, conference ID # 320082. The encore recording will be available
two hours after the conference call has concluded.
About QSGI
QSGI provides a full suite of information technology solutions to help
corporations and governmental agencies better manage hardware assets, reduce
maintenance expenses, build best practices for data security and assure
regulatory compliance. With a focus on the entire range of IT platforms --
from the PC to the mainframe, the services offered by QSGI are specifically
designed to reduce total cost of ownership for IT assets and maximize the
clients' return on their IT investment.
For enterprise class hardware in the data center, QSGI offers hardware
maintenance services, hardware environment planning and consultation,
refurbished whole systems, parts, features, upgrades and add-ons.
Additionally, for desktop IT assets, servers and SAN products, QSGI offers a
range of end-of-life services that include: automated asset auditing,
Department of Defense (DOD) level data destruction, documentation for
regulatory compliance, hardware refurbishment with worldwide remarketing or
proper IT asset recycling. Given the sensitive nature of the company's client
relationships, it does not provide the names of its clients. Additional
information about the company is available at www.qsgi.com.
Statements about QSGI's future expectations, including future revenues and
earnings, and all other statements in this press release other than historical
facts are 'forward-looking statements' within the meaning of Section 27A of
the Securities Act of 1933, Section 21E of the Securities Exchange Act of
1934, and as that term is defined in the Private Litigation Reform Act of
1995. QSGI intends that such forward-looking statements involve risks and
uncertainties and are subject to change at any time, and QSGI's actual results
could differ materially from expected results. QSGI undertakes no obligation
to update forward-looking statements to reflect subsequently occurring events
or circumstances.
(tables follow)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2008 2007
Assets
Current Assets
Cash and cash equivalents $416,841 $127,723
Accounts receivable, net of reserve of
$1,026,824 and $955,599 in 2008 and 2007,
respectively 3,518,100 3,853,362
Inventories 6,031,588 6,578,031
Prepaid expenses and other assets 132,190 163,553
Total Current Assets 10,098,719 10,722,669
Property and Equipment, Net 262,200 286,766
Goodwill 1,489,621 1,489,621
Intangibles, Net 430,085 470,348
Other Assets 567,595 448,066
$12,848,220 $13,417,470
Liabilities And Stockholders' Equity
Current Liabilities
Revolving line of credit $3,575,297 $3,754,061
Accounts payable 2,099,110 1,109,940
Accrued expenses 399,136 654,461
Accrued payroll 180,261 88,818
Deferred revenue 389,754 439,865
Other liabilities 200,534 311,610
Total Current Liabilities 6,844,092 6,358,755
Long-Term Deferred Revenue 40,476 142,772
Deferred Income Taxes 27,300 27,300
Total Liabilities 6,911,868 6,528,827
Redeemable Convertible Preferred Stock 4,243,384 4,238,685
Stockholders' Equity
Preferred shares: Authorized 5,000,000
shares in 2008 and 2007, $0.01 par value,
none issued - -
Common shares: authorized 95,000,000 shares
in 2008 and 2007, $0.01 par value;
31,172,716 shares issued and outstanding
in 2008 and 2007 311,727 311,727
Additional paid-in capital 14,067,994 14,134,298
Retained earnings (deficit) (12,686,753) (11,796,067)
Total Stockholders' Equity 1,692,968 2,649,958
$12,848,220 $13,417,470
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended March 31, 2008 and 2007
(Unaudited)
Three Months Ended
March 31,
2008 2007
Product Revenue $6,272,283 $7,955,169
Service Revenue 1,933,293 1,438,998
Total Revenue 8,205,576 9,394,167
Cost Of Products Sold 5,963,828 6,174,156
Cost Of Services Sold 670,074 542,929
Total Cost Of Sales 6,633,902 6,717,085
Gross Profit 1,571,674 2,677,082
Selling, General And Administrative Expenses 2,272,068 2,614,896
Depreciation And Amortization 107,387 172,008
Interest Expense, net 56,649 87,839
Loss Before Benefit For Income Taxes (864,430) (197,661)
Benefit For Income Taxes 26,256 (58,819)
Net Loss (890,686) (138,842)
Preferred Stock Dividends (64,324) (63,616)
Accretion To Redemption Value of Preferred
Stock (4,699) (4,426)
Net Loss Available to Common Stockholders $(959,709) $(206,884)
Net Loss Per Common Share - Basic $(0.03) $(0.01)
Net Loss Per Common Share - Diluted $(0.03) $(0.01)
Weighted Average Number Of Common Shares
Outstanding - Basic 31,172,716 31,172,716
Weighted Average Number Of Common Shares
Outstanding - Diluted 31,172,716 31,172,716
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31, 2008 and 2007
(Unaudited)
2008 2007
Cash Flows From Operating Activities
Net Loss $(890,686) $(138,842)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 107,387 172,008
Stock option compensation expense 2,719 3,650
Deferred income taxes - (70,986)
Provision for doubtful accounts 90,512 30,000
Changes in assets and liabilities:
Accounts receivable 244,750 2,228,351
Inventories 546,443 (3,247,864)
Prepaid expenses and other assets (104,444) (67,263)
Accounts payable and accrued expenses 561,804 1,205,548
Net Cash Provided by Operating Activities 558,485 114,602
Cash Used In Investing Activities
Purchases of property and equipment (26,279) (29,575)
Net Cash Used In Investing Activities (26,279) (29,575)
Cash Flows From Financing Activities
Payment for financing costs - (101,828)
Net amounts borrowed (paid) under revolving
lines of credit (178,764) 380,040
Preferred stock dividends (64,324) (63,616)
Net Cash Provided By (Used In) Financing
Activities (243,088) 214,596
Net Increase In Cash And Cash Equivalents 289,118 299,623
Cash And Cash Equivalents - Beginning Of Period 127,723 632,948
Cash And Cash Equivalents - End of Period $416,841 $932,571
SOURCE QSGI Inc.
http://www.qsgi.com
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