Marc Sherman, chairman and chief executive officer of QSGI, commented, “During the third quarter our Data Security and Compliance division continued to gain significant traction, as evidenced by a 46.7% sequential increase in revenue, following a 36.1% sequential increase in the second quarter.  The acceleration of new contracts within this division is further evidence that Fortune 1000 companies are taking steps to avoid the enormous business liabilities and financial penalties they face if they do not comply with new government standards to properly dispose of end-of-life equipment.  Just as companies need outside auditors to ensure the integrity of their books and controls, they understand the need to use third-party providers to ensure that their IT equipment has been properly erased, audited, and reported—which is now becoming standard business practice.”

Mr. Sherman continued, “With the upcoming launch of our new mobile audit facility, QSGI will have the most advanced and flexible on-site and off-site services in the industry through our 4-point offering, which includes: pick up on location and servicing clients from our company’s 40,000 square foot NJ facility; providing service at the client site including the new mobile audit unit for high security needs; our patent-pending, Web-based, disk drive erasure tool for customers with multiple sites or remote sites; and our global partner network which provides us the ability to service clients in more than 90 countries worldwide.  As a result, we are the only provider with truly global capabilities that will indemnify clients from the liability related to improperly disposed IT equipment.”

Mr. Sherman continued, “Our Data Center Maintenance division continued its steady growth, as evidenced by an 18.1% sequential increase in revenue, following a 10.2% sequential increase in the second quarter.  Additionally, this recurring revenue business continues to demonstrate solid operating margins as it compliments the Hardware division.  Our Data Center Hardware division, which can be subject to quarterly fluctuations due to the nature of its sizeable contracts, experienced a temporary decline in revenue.  However, as we have indicated in the past, we expect this division to be a steady growth business and as such, we are enhancing the sales process to better ensure consistent performance.  As we enter the fourth quarter, we have already signed a number of significant new contracts within the division.  Sales within our Data Center Hardware division are back on track and we expect to resume past profitability levels for the division during the fourth quarter.”

Mr. Sherman concluded, “Looking ahead, the growing Data Security and Compliance division should continue to become a greater percentage of our revenue, as we aim to continue our double digit sequential quarterly revenue growth for the division heading into 2006.  At the same time, we expect the Data Center Hardware and Data Center Maintenance divisions will maintain steady growth and contribute to QSGI’s profitability.”

Total revenue for the third quarter of 2005 increased to $8.7 million, compared to $8.2 million for the same period in 2004, reflecting an 93.2% increase in revenue from the company’s Data Security and Compliance division and a 92.2% increase in revenue from the company’s Data Center Maintenance division, offset by a temporary decline in the company’s Data Center Hardware division.  Total revenue for the nine months ended September 30, 2005, increased to $25.0 million, compared to $15.7 million for the same period in 2004, aided by the company’s 2004 acquisition of QualTech International and QualTech Services Group.

Net loss for the third quarter of 2005 was $393,500 or $0.01 per share, compared to net income of $280,000 or $0.01 per share, for the same period in 2004, reflecting the company’s investments in infrastructure to meet the growing demand for its data security and compliance services.  Net loss for the first nine months of 2005 was $1.2 million or $0.04 per share, versus net income of $243,000 or $0.01 per share for the same period in 2004.

During the third quarter of 2005, management and its auditors reviewed the initial accounting for deferred income taxes related to the acquisition of QualTech International and QualTech Services and determined that the deferred income taxes needed correction.  As a result of the recalculation, the company restated its financial results for the year ended December 31, 2004.  The effect of this restatement was to record a long-term deferred tax liability at the acquisition date of $1,326,000, with an offsetting increase to goodwill.  The restatement also caused a net decrease in income for the year ended December 31, 2004 of $98,318.  Because goodwill is not amortizable, amortization expense will not be affected going forward.  As a result of the recalculation, the company also restated its financial results for the three months and six months ended June 30, 2005 and 2004.  The company will file an amended 10-KSB for the fiscal year ended December 31, 2004 and an amended 10-QSB for the quarterly period ended June 30, 2005 on November 14, 2005.

Conference Call
The company will host a conference call on Thursday, November 10th, at 8:30 a.m. Eastern time, to discuss its results for the 2005 fiscal third quarter. To participate in the call, please dial (706) 679-7685.  A live Webcast of the call will also be available on the company's Web site, 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 a telephone replay of the call will be available for seven days beginning at 11:30 a.m. Eastern time, November 10th, at 706-645-9291, using conference ID #2270541.

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.