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| August 3, 2006 |
QSGI Achieves Record Revenue & Profitability;
70% increase in revenue including double digit growth across all divisions |
| HIGHTSTOWN, NJ—August 3, 2006—QSGI, Inc. (NYSE Arca: QGI) today reported financial results for the second quarter ended June 30, 2006. |
| FSecond Quarter 2006 Financial Highlights (year-over-year): |
- Total revenue increased 70% to a record $15.2 million
- Data Security & Compliance revenue increased 76% to $5.5 million
- Data Center Maintenance revenue rose 44% to $1.2 million
- Data Center Hardware revenue increased 61% to $8.5 million
- Gross profit increased 45.9% to $3.1 million, versus $2.1 million in the second quarter of 2005
- Data Security & Compliance gross margin was 11.2%
- Data Center Maintenance gross margin was 69.1%
- Data Center Hardware gross margin was 19.2%
- SG&A was $2.3 million, versus $2.2 million for the same period last year
- Income before taxes was $537,000 versus a net loss of $278,000 in the prior year
- Net Income available to common shareholders was $235,000, or $0.01 per share, versus a net loss of $224,000, in the prior year
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“As anticipated, we achieved profitability this quarter, reflecting the fixed cost nature of our business and continued revenue growth across all three of our divisions,” said Marc Sherman, chairman and chief executive officer of QSGI. “Our Data Security & Compliance division increased 76%, due to steady growth in our higher margin auditing and erasure services, coupled with an even greater increase in our traditional OEM and third party remarketing business. Our Data Center Maintenance division again achieved sequential quarterly revenue growth, increasing 18% from the first quarter while, just as importantly, generating a gross profit margin of 69%. This division continues to gain market share and wide-spread recognition as an effective alternative for mainframe and related data center maintenance services. Our Data Center Maintenance revenue and gross margins will continue to expand as our recently announced service contracts ramp up and as we add new customers within close geographic proximity. Finally, our Data Center Hardware division showed impressive results as it benefited from several large hardware contracts booked during the quarter.”
New client and channel partners signed during the quarter: |
- 6 new Data Security & Compliance clients
- 15 additional contracts from new or existing Data Center Maintenance clients, amounting to incremental annual revenue of more than $1.8 million
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Mr. Sherman continued, “We maintained tight control over expenses during the quarter, while adding staff at our recently established Delhi, India business development facility. This cost-effective operation is already opening doors to new business opportunities, and we’re very excited about its potential to help grow our business in the future. As we move forward in scaling QSGI – adding new customers while deepening relationships with existing ones – we are confident that we will continue to realize greater operational leverage and margin expansion from our infrastructure.
“QSGI is setting the standard for best practices in data security and regulatory compliance services. We are the only company with a comprehensive five-point offering, including the ability to service customers in over 90 countries and, in the U.S., utilize our newly launched mobile data erasure facility for rapid deployment. We will continue to strengthen our leadership position through additional service enhancements and expanded sales initiatives, which should result in revenue growth and increased profitability during the second half of the year.”
Total revenue for the second quarter of 2006 rose to $15.2 million, as compared with $8.9 million for the same period in 2005, reflecting a 76% increase in revenue from the company’s Data Security & Compliance division, a 44% rise in the Data Center Maintenance division, and a 61% improvement in the Data Center Hardware division. Net income available to common stockholders for the second quarter of 2006 was $235,000, or $0.01 per share, compared to net loss of $224,000 or $(0.01) per share, for the same period in 2005.
Conference Call
QSGI will host a conference call at 10:00 a.m. Eastern. 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 888-527-1593. 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 800-642-1687, conference ID #3203585. The encore recording will be available two hours after the conference call has concluded. |
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) |
| |
| |
June 30, |
December 31, |
| |
2006 |
2005 |
| Assets |
|
(restated) |
| Current Assets |
|
|
| Cash and cash equivalents |
$ -- |
$ 153,794 |
| Accounts receivable, net of reserve of $559,656 in 2006 and $80,000 in 2005 |
5,825,093 |
7,014,129 |
| Inventories |
4,517,328 |
4,136,304 |
| Prepaid expenses, income taxes and other assets |
304,794 |
227,352 |
| Deferred income taxes |
72,095 |
155,668 |
| Total Current Assets |
10,719,310 |
1,687,247 |
| Property and Equipment, Net |
511,229 |
605,887 |
| Goodwill |
6,644,403 |
3,212,314 |
| Intangibles, Net |
2,713,912 |
2,872,240 |
| Other Assets |
126,994 |
116,225 |
| |
$ 20,715,848 |
$ 18,493,913 |
| Liabilities And Stockholders’ Equity |
| Current Liabilities |
|
|
| Revolving lines of credit |
$ 738,322 |
$ 3,631,500 |
| Accounts payable |
949,733 |
2,254,136 |
| Accrued expenses |
377,557 |
279,090 |
| Deferred revenue |
1,311,275 |
404,540 |
| Accrued payroll and other liabilities |
258,273 |
293,500 |
| Total Current Liabilities |
3,635,160 |
6,862,766 |
| Deferred Income Taxes |
159,454 |
280,318 |
| Total Liabilities |
3,794,614 |
7,143,084 |
| Redeemable Convertible Preferred Stock |
4,211,922 |
1,967,220 |
| Stockholders’ Equity |
|
|
| Preferred shares: authorized 5,000,000 shares in 2006 and 2005, $0.01 par value, none issued |
-- |
-- |
| Common shares: authorized 55,000,000 shares in 2006 and2005, |
285,850 |
255,500 |
| $0.01 par value; 31,172,716 shares issued and outstanding in 2006 and 28,670,631 shares issued and outstanding in 2005 |
311,727 |
286,706 |
| Additional paid-in capital |
14,520,731 |
11,093,881 |
| Retained earnings (deficit) |
(2,123,146) |
(1,996,978) |
| Total Stockholders’ Equity |
12,709,312 |
9,383,609 |
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$ 20,715,848 |
$ 18,493,913 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three and Six Months Ended June 30, 2006 and 2005
(Unaudited) |
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Three Months Ended
June 30, |
Nine Months Ended
june 30, |
| |
2006 |
2005 |
2006 |
2005
(restated) |
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$ |
$ |
$ |
$ |
| Product Revenue |
13,915,641 |
8,066,592 |
22,037,867 |
14,623,515 |
| Service Revenue |
1,275,699 |
880,833 |
2,437,597 |
1,640,600 |
| Total Revenue |
15,191,340 |
8,947,425 |
24,475,464 |
16,264,115 |
| Cost Of Products Sold |
11,721,788 |
6,575,189 |
18,457,060 |
12,176,855 |
| Cost Of Services Sold |
407,099 |
273,804 |
789,745 |
580,803 |
| Total Cost Of Sales |
12,128,887 |
6,848,993 |
19,246,805 |
12,757,658 |
| Gross Profit |
3,062,453 |
2,098,432 |
5,228,659 |
3,506,457 |
| Selling, General And Administrative Expenses |
2,306,251 |
2,216,354 |
4,890,911 |
4,384,071 |
| Depreciation And Amortization |
171,607 |
156,073 |
341,680 |
300,943 |
| Interest Expense, net |
47,465 |
3,744 |
99,783 |
27,300 |
| Income (Loss) Before Provision (Benefit) For Income Taxes |
537,130 |
(277,739) |
(103,715) |
(1,205,857) |
| Provision (Benefit) For Income Taxes |
232,545 |
53,550) |
22,453 |
(375,390) |
| Net Income (Loss) |
304,585 |
(224,189) |
(126,168) |
(830,467) |
| Preferred Stock Dividends |
65,162 |
-- |
127,036 |
-- |
| Accretion To Redemption Value of Preferred Stock |
4,391 |
-- |
8,400 |
-- |
| Net Income (Loss) Available to Common Stockholders |
$ 235,032 |
$ (224,189) |
$ (261,604) |
$ (830,467) |
| Net Income (Loss) Per Common Share - Basic |
$ 0.01 |
$ (0.01) |
$ (0.01) |
$ (0.03) |
| Net Income (Loss) Per Common Share - Diluted |
$ 0.01 |
$ (0.01) |
$ (0.01) |
$ (0.03) |
| Weighted Average Number Of Common Shares Outstanding -Basic |
29,335,934 |
28,578,340 |
29,064,467 |
27,672,696 |
| Weighted Average Number Of Common Shares Outstanding -Diluted |
30,440,652 |
28,578,340 |
29,064,467 |
27,672,696 |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30, 2006 and 2005
(Unaudited) |
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2006 |
2005
(restated) |
| Cash Flows From Operating Activities |
|
|
| Net (Loss) |
$ (126,168) |
$ (830,467) |
| Adjustments to reconcile net loss to net cash provided by (used in ) operating activities: |
|
|
| Depreciation and amortization |
341,680 |
300,943 |
| Stock option compensation expense |
9,930 |
12,666 |
| Deferred income taxes |
(37,292) |
(431,290) |
| Common Shares issued for services |
161,687 |
-- |
| Allowance for doubtful accounts |
479,656 |
(38,670) |
| Changes in assets and liabilities: |
|
|
| Accounts receivable |
709,380 |
(2,365,399) |
| Inventories |
(381,024) |
(649,320) |
| Prepaid expenses and other current assets |
(101,942) |
(17,079) |
| Accounts payable and accrued expenses |
(334,427) |
1,612,108 |
| Net Cash Provided by (Used In) Operating Activities |
721,480 |
(2,406,508) |
| Cash Used In Investing Activities |
|
|
| Payments for Qualtech acquisition, net of cash acquired |
-- |
(86,520) |
| Purchases of property and equipment |
(74,962) |
(241,263) |
| Net Cash Used In Investing Activities |
(74,962) |
(327,783) |
| Cash Flows From Financing Activities |
|
|
| Proceeds from the issuance of redeemable preferred stock |
2,236,301 |
-- |
| Proceeds from the exercise of options and warrants |
9,100 |
2,597,809 |
| Other financing fees |
-- |
(48,125) |
| Stock issuance costs |
(25,499) |
-- |
| Preferred stock dividends |
(127,036) |
-- |
| Net amounts paid on notes payable |
-- |
(856,666) |
| Net amounts (paid) borrowed under revolving lines of credit |
(2,893,178) |
916,000 |
| Net Cash Provided By (Used In) Financing Activities |
(800,312) |
2,609,018 |
| Net Decrease In Cash And Cash Equivalents |
(153,794) |
(125,273) |
| Cash And Cash Equivalents - Beginning Of Period |
153,794 |
844,939 |
| Cash And Cash Equivalents - End of Period |
$- |
$ 719,666 |
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| About QSGI |
QSGI is the only data security and regulatory compliance provider offering a full suite of end-of-life and other life-cycle services for a Fortune 1000 corporation’s and government client’s entire information technology (IT) platform. QSGI offsets its clients’ expenses through its value-added remarketing program. Prior to resale, the company utilizes its proprietary Department of Defense (DOD) level certified data sweep to eliminate otherwise recoverable data. QSGI reduces its clients' potential liability by ensuring regulatory and environmental compliance for IT products. QSGI also maintains and provides services on enterprise-class hardware, including mainframes, midrange servers, tape storage products and disk storage products. Given the sensitive nature of the company’s client relationships, it does not provide the names of its clients.
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 |
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