QSGI Reports 54% Increase in Gross Profit on 27% Year-over-Year Increase in First Quarter Revenue; 107% Increase in Data Security & Compliance Division Revenue

Business Wire, May 4, 2006

CONDENSED CONSOLIDATED BALANCE SHEETS
                              (Unaudited)

                                               March 31,  December 31,
                                                 2006         2005
                                              ----------- ------------
              Assets

Current Assets
 Cash and cash equivalents                    $   125,262 $   153,794
 Accounts receivable, net of reserve of
  $552,534 in 2006 and $80,000 in 2005          5,069,665   7,014,129
 Accounts receivable - related party               17,580           -
 Inventories                                    3,730,454   4,136,304
 Prepaid expenses, income taxes and other
  assets                                          373,192     227,352
 Deferred income taxes                           147,868     155,668
----------------------------------------------------------------------
   Total Current Assets                         9,464,021  11,687,247
Property and Equipment, Net                       560,640     605,887
Goodwill                                        3,212,314   3,212,314
Intangibles, Net                                2,793,076   2,872,240
Other Assets                                      170,540     116,225
----------------------------------------------------------------------

                                              $16,200,591 $18,493,913
======================================================================

                 Liabilities And Stockholders' Equity
Current Liabilities
 Revolving line of credit                     $   900,500 $ 3,631,500
 Accounts payable                               1,187,844   2,254,136
 Accrued expenses                                 200,817     279,090
 Deferred revenue                                 441,163     404,540
 Accrued payroll and other liabilities            145,854     293,500
----------------------------------------------------------------------
   Total Current Liabilities                    2,876,178   6,862,766

Deferred Income Taxes                              52,142     280,318
----------------------------------------------------------------------
      Total Liabilities                         2,928,320   7,143,084
----------------------------------------------------------------------

Redeemable Convertible Preferred Stock          4,207,531   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 and 2005, 0.01 par value; 29,109,171
  shares issued and outstanding in 2006 and
  28,670,631 shares issued and outstanding in
  2005                                            291,091     286,706
 Additional paid-in capital                    11,201,380  11,093,881
 Retained earnings (deficit)                   (2,427,731) (1,996,978)
----------------------------------------------------------------------
   Total Stockholders' Equity                   9,064,740   9,383,609

--------------------------------------------------------------------
                                              $16,200,591 $18,493,913
======================================================================

            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
          For The Three Months Ended March 31, 2006 and 2005
                              (Unaudited)

                                                 Three Months Ended
                                                     March 31,
                                              ------------------------
                                                  2006        2005
                                              ------------------------

Product Revenue                               $ 8,122,226 $ 6,556,923
Service Revenue                                 1,161,898     759,767
----------------------------------------------------------------------
Total Revenue                                   9,284,124   7,316,690
----------------------------------------------------------------------

Cost Of Products Sold                           6,735,272   5,601,666
Cost Of Services Sold                             382,646     306,999
----------------------------------------------------------------------
Total Cost Of Sales                             7,117,918   5,908,665
----------------------------------------------------------------------

Gross Profit                                    2,166,206   1,408,025

Selling, General And Administrative Expenses    2,584,661   2,167,718

Depreciation And Amortization                     170,073     144,870

Interest Expense, net                              52,317      23,556
----------------------------------------------------------------------

Loss Before Benefit For Income Taxes             (640,845)   (928,119)

Benefit For Income Taxes                         (210,092)   (321,840)
----------------------------------------------------------------------

Net Loss                                         (430,753)   (606,279)

Preferred Stock Dividends                         (61,874)          -

Accretion To Redemption Value of Preferred
 Stock                                             (4,009)          -
----------------------------------------------------------------------
Net Loss Available to Common Stockholders     $  (496,636)$  (606,279)
======================================================================

Net Loss Per Common Share - Basic             $     (0.02)$     (0.02)
Net Loss Per Common Share - Diluted           $     (0.02)$     (0.02)
======================================================================

Weighted Average Number Of Common Shares
 Outstanding -Basic                            28,789,983  26,907,729
Weighted Average Number Of Common Shares
 Outstanding -Diluted                          28,789,983  26,907,729
======================================================================

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
          For The Three Months Ended March 31, 2006 and 2005
                              (Unaudited)

                                                 2006        2005
                                              ----------- ------------
Cash Flows From Operating Activities
 Net Loss                                     $  (430,753)$  (606,279)
  Adjustments to reconcile net loss to net
   cash provided by (used in ) operating
   activities:
   Depreciation and amortization                  170,073     144,870
   Stock option compensation expense                6,980       6,333
   Deferred income taxes                         (220,376)          -
   Common shares issued for services              161,687           -
   Allowance for doubtful accounts                472,534           -
   Changes in assets and liabilities:
    Accounts receivable                         1,454,350      76,946
    Inventories                                   405,850     (94,748)
    Prepaid expenses and other current assets    (207,020)   (371,205)
    Accounts payable and accrued expenses      (1,255,588)    492,595
----------------------------------------------------------------------
Net Cash Provided by (Used In) Operating
 Activities                                       557,737    (351,488)
----------------------------------------------------------------------

Cash Used In Investing Activities
 Purchases of property and equipment              (38,797)   (100,628)
----------------------------------------------------------------------
Net Cash Used In Investing Activities             (38,797)   (100,628)
----------------------------------------------------------------------

Cash Flows From Financing Activities
 Proceeds from the issuance of redeemable
  preferred stock                               2,236,302           -
 Proceeds from the exercise of options and
  warrants                                          9,100   1,547,810
 Net amounts paid on notes payable                      -    (356,245)
 Net amounts paid under revolving lines of
  credit                                       (2,731,000) (1,155,500)
 Preferred stock dividends                        (61,874)          -
----------------------------------------------------------------------
Net Cash Provided By (Used In) Financing
 Activities                                      (547,472)     36,065
----------------------------------------------------------------------

Net Decrease In Cash And Cash Equivalents         (28,532)   (416,051)

Cash And Cash Equivalents - Beginning Of
 Period                                           153,794     844,939
----------------------------------------------------------------------
Cash And Cash Equivalents - End of Period     $   125,262 $   428,888